References in this report (this "Quarterly Report") to "we," "us" or the
"Company" refer to GX Acquisition Corp. II References to our "management" or our
"management team" refer to our officers and directors, and references to the
"Sponsor" refer to GX Sponsor II LLC. 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 capitalized terms used but not
defined in the below discussion and elsewhere in this Quarterly Report have the
meanings ascribed to them in the footnotes to the accompanying financial
statements included as part of this Quarterly Report.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 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
completion of the Proposed Business Combination (as defined below), 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.
Forward-looking statements in this Quarterly Report may include, but are not
limited to, statements about:
? our ability to select an appropriate target business or businesses;
? our ability to complete our initial business combination, including the
Transaction contemplated by the Business Combination Agreement and the
Ancillary Agreements;
? our expectations around the performance of the prospective target business or
businesses, including NioCorp;
? our success in retaining or recruiting, or changes required in, our officers,
key employees or directors following our initial Business Combination;
? our officers and directors allocating their time to other businesses and
potentially having conflicts of interest with our business or in approving our
initial business combination, as a result of which they would then receive
expense reimbursements;
? our potential ability to obtain additional financing to complete our initial
Business Combination, including the Transaction;
? our pool of prospective target businesses;
? our ability to consummate an initial Business Combination due to the continued
uncertainty resulting from the COVID-19 pandemic;
? the ability of our officers and directors to generate a number of potential
acquisition opportunities;
? our public securities' liquidity and trading;
? the Trust Account not being subject to claims of third parties; or
? our financial performance following our Initial Public Offering.
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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, including that the closing conditions of the
Transaction are not satisfied. 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 Annual Report on Form 10-K for the year ended December 31, 2021 and
final prospectus for the Initial Public Offering filed with the U.S. Securities
and Exchange Commission (the "SEC") as well as the Risk Factors section of the
joint proxy statement/prospectus included in the registration statement for the
Transaction when it becomes available. 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
September 24, 2020 for the purpose of effectuating a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or other 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 Placement Warrants, 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 complete a Business
Combination will be successful.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial Business
Combination may be adversely affected by various factors that could cause
economic uncertainty and volatility in the financial markets, many of which are
beyond our control. Our business could be impacted by, among other things,
downturns in the financial markets or in economic conditions, increases in oil
prices, inflation, increases in interest rates, supply chain disruptions,
declines in consumer confidence and spending, the ongoing effects of the
COVID-19 pandemic, including resurgences and the emergence of new variants, and
geopolitical instability, such as the military conflict in the Ukraine. We
cannot at this time fully predict the likelihood of one or more of the above
events, their duration or magnitude or the extent to which they may negatively
impact our business and our ability to complete an initial Business Combination,
including the Transaction.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from September 24, 2020 (inception) through September 30,
2022 were organizational activities, the Initial Public Offering and identifying
a target company for a Business Combination, including NioCorp. We do not expect
to generate any operating revenues until after the completion of our Business
Combination. 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 due diligence expenses in connection with our
search for targets for our initial Business Combination.
For the three months ended September 30, 2022, we had net loss of $2,315,532,
which consists of operating costs of $4,037,396, an unrealized loss on
marketable securities held in the Trust Account of $1,741 and a provision for
income taxes of $291,106, offset by a gain on the change in fair value of the
warrant liabilities of $626,666 and interest earned on marketable securities
held in the Trust Account of $1,388,045. A portion of the operating costs
consist of $3,590,357 of legal fees to support the Business Combination and
ongoing operating efforts.
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For the nine months ended September 30, 2022, we had a net income of $3,005,675,
which consists of a gain on the change in fair value of the warrant liabilities
of $6,793,333 and interest earned on marketable securities held in the Trust
Account of $1,740,979, offset by operating costs of $5,233,040 and a provision
for income taxes of $295,597. A portion of operating costs consist of $4,192,958
of legal fees to support the Business Combination and ongoing operating
efforts.
For the three months ended September 30, 2021, we had net income of $6,025,740,
which consists of a gain on the change in fair value of warrant liabilities of
$6,436,666, and interest earned on marketable securities held in Trust Account
of $3,860, offset by operating costs of $414,786.
For the nine months ended September 30, 2021, we had net income of $10,705,593,
which consists of a gain on the change in fair value of warrant liabilities of
$12,233,333 and interest earned on marketable securities held in Trust Account
of $10,329, offset by operating costs of $793,736 and warrant transaction costs
of $744,333.
The Transaction
On September 25, 2022, the Company, NioCorp and Merger Sub entered into the
Business Combination Agreement. As a result of the Transaction, we will become a
subsidiary of NioCorp.
The terms of the Business Combination Agreement, which contains customary
representations and warranties, covenants, closing conditions and other terms
relating to the Transaction, as well as the terms of the Ancillary Agreements,
are summarized in Note 6 to the accompanying financial statements and are
incorporated herein.
Liquidity and Capital Resources
On March 22, 2021, we consummated the Initial Public Offering of 30,000,000
Units at $10.00 per Unit, generating gross proceeds of $300,000,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 5,666,667 Private Placement Warrants at a price of $1.50 per Private
Placement Warrant in a private placement to the Sponsor, generating gross
proceeds of $8,500,000. We incurred transaction costs of $17,025,820, consisting
of $6,000,000 of underwriting fees, $10,500,000 of deferred underwriting fees
($5,000,000 upon the consummation of the Business Combination due to a fee
reduction) and $525,820 of other offering costs.
For the nine months ended September 30, 2022, cash used in operating activities
was $1,558,195. Net income of $3,005,675 was affected by the change in fair
value of warrant liabilities of $6,793,333 and interest earned on marketable
securities held in the Trust Account of $1,740,979. Changes in operating assets
and liabilities provided $3,970,442 of cash for operating activities.
For the nine months ended September 30, 2021, cash used in operating activities
was $1,165,277. Net income of $10,705,593 was affected by the change in fair
value of warrant liabilities of $12,233,333, interest earned on marketable
securities held in Trust Account of $10,329, and warrant transaction costs of
$744,333. Changes in operating assets and liabilities used $371,541 of cash for
operating activities.
As of September 30, 2022, the Company had $13,256 in its operating bank accounts
and a working capital deficit of $4,276,056, which excludes $912,070 of income
earned on the Trust Account, which may be used to pay franchise and income taxes
payable. The deficit was primarily due to legal accruals of $4.4 million which
are to be paid upon the consummation of the Business Combination.
As of September 30, 2022, we had marketable securities held in the Trust Account
of $300,912,070 (including $912,070 of interest income) consisting of a money
market fund invested in U.S. Treasury securities. Interest income on the balance
in the Trust Account may be used by us to pay taxes. Through September 30, 2022,
we withdrew $845,576 of interest earned from the Trust Account to pay tax
obligations.
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We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (less
taxes payable), 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.
As of September 30, 2022, we had cash of $13,256. We intend to use the funds
held outside the Trust Account primarily to identify and evaluate target
businesses, perform 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 Sponsor, or certain of our officers
and directors or their affiliates may, but are not obligated to, provide us
Working Capital Loans 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 the Working Capital Loans but no proceeds from our Trust
Account would be used for such repayment. 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. Up to $1,500,000 of such Working
Capital Loans may be convertible into warrants of the post-Business Combination
entity at a price of $1.50 per warrant. The warrants would be identical to the
Private Placement Warrants.
If our estimate 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, we may have insufficient funds available to
operate our business prior to our Business Combination. Moreover, we may need to
obtain additional financing either to complete our Business Combination or
because we become obligated to redeem a significant number of our Public Shares
upon consummation of our Business Combination, in which case we may issue
additional securities or incur debt in connection with such Business
Combination.
Liquidity and Going Concern
We will need to raise additional capital through loans or additional investments
from the Sponsor, stockholders, officers, directors, or third parties. Our
officers and directors and the Sponsor may, but are not obligated to, loan us
funds, from time to time or at any time, in whatever amount they deem reasonable
in their sole discretion, to meet our working capital needs. Accordingly, we may
not be able to obtain additional financing. If we are unable to raise additional
capital, we 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. We cannot provide any assurance that new financing will be available
to us on commercially acceptable terms, if at all. These conditions raise
substantial doubt about our ability to continue as a going concern one year from
the date that these financial statements are issued.
In connection with the Company's assessment of going concern considerations in
accordance with the Financial Accounting Standards Board's ("FASB's") Accounting
Standards Update ("ASU") 2014-15, "Disclosures of Uncertainties about an
Entity's Ability to Continue as a Going Concern," the Company has until March
22, 2023, to consummate a Business Combination, including the Transaction. It is
uncertain that we will be able to consummate a Business Combination by this
time. If a Business Combination is not consummated by this date and an extension
of the period of time the Company has to complete a Business Combination has not
been approved by the Company's stockholders, there will be a mandatory
liquidation and subsequent dissolution of the Company. We have determined that
mandatory liquidation, should a Business Combination not occur, and an extension
not approved by the stockholders of the Company, and potential subsequent
dissolution raise substantial doubt about the Company's ability to continue as a
going concern one year from the date these financial statements are issued. No
adjustments have been made to the carrying amounts of assets or liabilities
should the Company be required to liquidate after March 22, 2023. We intend to
continue to complete a Business Combination, including the Transaction before
the mandatory liquidation date. The Company is within 12 months of its mandatory
liquidation date as of the time of filing of this Quarterly Report.
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Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022. We do not participate
in transactions that create relationships with unconsolidated entities or
financial partnerships, often referred to as variable interest entities, which
would have been established for the purpose of facilitating off-balance sheet
arrangements. We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities, guaranteed any debt or
commitments of other entities, or purchased any non-financial assets.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay an
affiliate of the Sponsor a total of $20,000 per month for office space,
administrative and support services. We began incurring these fees on March 17,
2021 and will continue to incur these fees monthly until the earlier of the
completion of the Business Combination and our liquidation.
The underwriters of the Initial Public Offering of the Company were initially
entitled to a deferred fee of $0.35 per Unit, or $10,500,000 in the aggregate.
On September 6, 2022, we entered a fee reduction agreement with the underwriters
pursuant to which the underwriters have agreed to forfeit $5,500,000 of the
aggregate $10,500,000 deferred fee contingent upon the Closing. Upon the
Closing, the deferred fee will be paid to the underwriters as follows: (1)
$2,000,000 in cash from the amounts held in the Trust Account and (2) $3,000,000
in NioCorp Common Shares, subject to the terms of the underwriting agreement.
We have entered into an advisory agreement with BTIG, LLC ("BTIG"), pursuant to
which we will pay BTIG a total of $2,000,000 for advisory services relating to
our search for and consummation of an initial Business Combination. On September
14, 2022, we entered a fee reduction agreement with BTIG pursuant to which BTIG
agreed to forfeit its right to receive $1,047,618 of the advisory fee contingent
upon the Closing. Upon the Closing the remainder of the advisory fee will become
payable in $382,382 in cash and $570,000 in NioCorp Common Shares. If a Business
Combination is not consummated, BTIG will not be entitled to the advisory fee.
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 identified the following critical accounting policies:
Warrant Liabilities
We account for the warrants issued in connection with our Initial Public
Offering in accordance with the guidance contained in ASC 815-40-15-7D under
which the warrants do not meet the criteria for equity treatment and must be
recorded as liabilities. Accordingly, we classify the warrants as liabilities at
their fair value and adjust the warrants to fair value at each reporting period.
This liability is subject to re-measurement at each balance sheet date until
exercised, and any change in fair value is recognized in our statements of
operations. The fair value of the Private Placement Warrants was estimated using
a Monte Carlo simulation approach. The fair value of the Public Warrants was
estimated using the close price of the Public Warrants as of September 30, 2022
and December 31, 2021.
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion in accordance
with the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Common stock subject to mandatory
redemption is classified as a liability instrument and measured at fair value.
Conditionally redeemable common stock (including common stock that features
redemption rights that are either within the control of the holder or subject to
redemption upon the occurrence of uncertain events not solely within our
control) is classified as temporary equity. At all other times, common stock is
classified as stockholders' equity. Our common stock features certain redemption
rights that are considered to be outside of our control and subject to
occurrence of uncertain future events. Accordingly, common stock subject to
possible redemption is presented at redemption value as temporary equity,
outside of the stockholders' deficit section of our condensed balance sheets.
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Net (Loss) Income Per Common Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share". We have two classes of common stock, which are referred to
as Class A common stock and Class B common stock. Net (loss) income per common
stock is computed by dividing net (loss) income by the weighted average number
of common shares outstanding for the period. Accretion associated with the
redeemable shares of Class A common stock is excluded from earnings per common
share as the redemption value approximates fair value.
The calculation of diluted (loss) income per share does not consider the effect
of the warrants issued in connection with the (i) Initial Public Offering and
(ii) the private placement to purchase an aggregate of 15,666,667 shares of
Class A common stock in the calculation of diluted (loss) income per share,
since the exercise of the warrants is contingent upon the occurrence of future
events.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2020-06, "Debt-Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in
Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity" ("ASU 2020-06"), which simplifies
accounting for convertible instruments by removing major separation models
required under current GAAP. ASU 2020-06 removes certain settlement conditions
that are required for equity contracts to qualify for the derivative scope
exception and it also simplifies the diluted earnings per share calculation in
certain areas. ASU 2020-06 is effective for fiscal years beginning after
December 15, 2023, including interim periods within those fiscal years, with
early adoption permitted. The impact of the adoption of ASU 2020-06 is being
assessed by us; however no significant impact on the financial statements is
anticipated.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our condensed financial statements.
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