References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Mudrick Capital Acquisition Corporation II. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to Mudrick Capital Acquisition Holdings 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 information contained in the discussion and analysis set forth below
includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Exchange Act that are not historical facts, and involve
risks and uncertainties that could cause actual results to differ materially
from those expected and projected. All statements, other than statements of
historical fact included in this Form10-Qincluding, 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. 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
July 30, 2020 for the purpose of effecting 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.
Recent Developments
As previously disclosed on June 13, 2022, the Company entered into an Agreement
and Plan of Merger, dated June 10, 2022 (the "BN Merger Agreement") with Titan
Merger Sub I, Inc., a Delaware corporation and direct, wholly-owned subsidiary
of the Company, Titan Merger Sub II, LLC, a Delaware limited liability company
and direct, wholly-owned subsidiary of the Company, and BC Cyan Investment
Holdings Inc., a Delaware corporation ("Blue Nile"). In connection with the
signing of the BN Merger Agreement and as previously disclosed, the Company also
entered into (i) a Subscription and Backstop Agreement, dated June 10, 2022 (the
"Subscription and Backstop Agreement") with Blue Nile, Blue Nile, Inc., a
Delaware corporation, and Mudrick Capital Management, L.P., a Delaware limited
partnership ("Mudrick Capital"), (ii) a Sponsor Support Agreement, dated June
10, 2022 (the "Sponsor Support Agreement") with Mudrick Capital Acquisition
Holdings II LLC, a Delaware limited liability company, and (iii) a Subscription
Agreement, dated June 10, 2022 (the "Holdings Subscription Agreement") with BC
Cyan Holdings LP, a Delaware limited partnership.
On August 5, 2022, the Company terminated the BN Merger Agreement in accordance
with the terms thereof. As a result of the termination of the BN Merger
Agreement, the BN Merger Agreement will be of no further force and effect,
subject to certain exceptions set forth therein, and each of the Sponsor Support
Agreement, the Subscription and Backstop Agreement and the Holdings Subscription
Agreement shall each automatically terminate in accordance with its terms. Blue
Nile shall pay the Termination Fee (as defined in the BN Merger Agreement) to
the Company, and shall pay the Subscriber Termination Adjustment (as defined in
the Subscription and Backstop Agreement) to Mudrick Capital, in accordance with
the terms of the BN Merger Agreement and Subscription and Backstop Agreement,
respectively.
The Company also recently filed a preliminary proxy statement in connection with
a special meeting to be held for the purpose of voting on: (i) a proposal to
amend the Company's amended and restated certificate of incorporation to extend
the date by which the Company has to consummate a business combination for an
additional three months, from September 10, 2022 to December 10, 2022 (the
"Charter Amendment Proposal") and (ii) a proposal to approve the adjournment of
the special meeting to a later date or dates, if necessary, to permit further
solicitation and vote of proxies in the event that there are insufficient votes
for, or otherwise in connection with, the approval of the Charter Amendment
Proposal.
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Results of Operations
We have neither engaged in any operations (other than searching for a Business
Combination after our Initial Public Offering) nor generated any revenues to
date. Our only activities from inception through June 30, 2022 were
organizational activities, those necessary to prepare for the Initial Public
Offering, described below, identifying a target company for a Business
Combination, activities in connection with the announced and subsequently
terminated acquisition of Topps, and the announced and subsequently terminated
acquisition of Blue Nile. 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. We incur
expenses as a result of being a public company (for legal, financial reporting,
accounting and auditing compliance), as well as for due diligence expenses.
For the three months ended June 30, 2022, we had net income of $3,149,520, which
consisted of the change in fair value of warrant liabilities of $3,467,375 and
interest earned on investment held in Trust Account of $239,233, offset by
general and administrative expenses of $551,052 and provision for income taxes
of $6,036.
For the six months ended June 30, 2022, we had net income of $11,579,685, which
consisted of the change in fair value of warrant liabilities of $13,539,588 and
interest earned on investment held in Trust Account of $243,718, offset by
general and administrative expenses of $2,197,585 and provision for income taxes
of $6,036.
For the three months ended June 30, 2021, we had net loss of $115,896,259, which
consisted of the change in fair value of warrant liabilities of $112,825,786 and
general and administrative expenses of $3,074,794, offset by interest earned on
investment held in Trust Account of $4,321.
For the six months ended June 30, 2021, we had net loss of $111,623,745, which
consisted of the change in fair value of warrant liabilities of $107,861,903 and
general and administrative expenses of $3,796,421, offset by interest earned on
investment held in Trust Account of $34,579.
Liquidity and Going Concern
On December 10, 2020, we consummated the Initial Public Offering of 27,500,000
Units, at a price of $10.00 per Unit, generating gross proceeds of $275,000,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 11,375,000 Private Placement Warrants at a price of $1.00 per
Private Placement Warrant in a private placement to our Sponsor and Jefferies,
generating gross proceeds of $11,375,000.
On December 14, 2020, the Company sold an additional 4,125,000 Units for total
gross proceeds of $41,250,000 in connection with the underwriters' full exercise
of their over-allotment option. Simultaneously with the closing of the
over-allotment option, we also consummated the sale of an additional 1,443,750
Private Placement Warrants at $1.00 per Private Placement Warrant, generating
total proceeds of $1,443,750.
Following the Initial Public Offering, the full exercise of the over-allotment
option and the sale of the Private Placement Warrants, a total of $320,993,750
was placed in the Trust Account. We incurred $17,874,801 in transaction costs,
including $6,325,000 of underwriting fees, $11,068,750 of deferred underwriting
fees and $481,051 of other offering costs.
For the six months ended June 30, 2022, cash used in operating activities was
$519,722. Net income of $11,579,685 was affected by change in fair value of
warrant liabilities of $13,539,588 and interest earned on investment held in
Trust Account of $243,718, and changes in operating assets and liabilities,
which provided $1,683,899 of cash from operating activities.
For the six months ended June 30, 2021, cash used in operating activities was
$879,767. Net loss of $111,623,745 was affected by the change in fair value of
warrant liabilities of $107,861,903 and interest earned on investment held in
Trust Account of $34,579, and changes in operating assets and liabilities, which
provided $2,916,654 of cash from operating activities.
As of June 30, 2022, we had cash and investments held in the Trust Account of
$321,283,642. We intend to use substantially all of the funds held in the Trust
Account, including any amounts representing interest earned on the Trust Account
to complete our Business Combination. We may withdraw interest to pay taxes. 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 June 30, 2022, we had $118,964 of cash held outside of the Trust Account.
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.
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In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, our Sponsor or an affiliate of our
Sponsor or certain of our officers and directors may, but are not obligated to,
loan us funds as may be required. If we complete a Business Combination, we may
repay such loaned amounts out of the proceeds of the Trust Account released to
us. 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, at a
price of $1.00 per warrant, at the option of the lender. The warrants would be
identical to the Private Placement Warrants.
We may need to raise additional capital through loans or additional investments
from the Sponsor or our 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, in whatever amount they deem reasonable in their sole
discretion, to meet our working capital needs. 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, suspending
the pursuit of a Business Combination. We cannot provide any assurance that new
financing will be available to us on commercially acceptable terms, if at all.
In connection with the Company's assessment of going concern considerations in
accordance with FASB's Accounting Standards Update ("ASU")
2014-15,
"Disclosures of Uncertainties about an Entity's Ability to Continue as a Going
Concern," management has determined that if our company is unable to complete a
business combination by September 10, 2022, then the Company will cease all
operations except for the purpose of liquidating. The date for mandatory
liquidation and subsequent dissolution raise substantial doubt about the
Company's ability to continue as a going concern. No adjustments have been made
to the carrying amounts of assets or liabilities should the Company be required
to liquidate after September 10, 2022.
Off-Balance
Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance
sheet arrangements as of June 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 the Sponsor
a monthly fee of $10,000 for office space, utilities and secretarial and
administrative support services. We began incurring these fees on December 7,
2020 and will continue to incur these fees monthly until the earlier of the
completion of the Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or
$11,068,750 in the aggregate. The deferred fee will become payable to the
underwriters from the amounts held in the Trust Account solely in the event that
we complete a Business Combination, subject to the terms of the underwriting
agreement.
Critical Accounting Policies
The preparation of condensed consolidated 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 do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluate all of our financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to ASC 480
and ASC 815. We account for the warrants issued in connection with our Initial
Public Offering in accordance with the guidance contained in ASC 815 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 tore-measurement at each balance sheet date until
exercised, and any change in fair value is recognized in our statements of
operations.
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Shares of Class A common stock
subject to mandatory redemption are classified as a liability instrument and is
measured at fair value. Conditionally redeemable Class A common stock (including
Class A common stock that feature redemption rights that is 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, Class A common stock is classified as stockholders' equity. Our
Class A common stock features certain redemption rights that are considered to
be outside of our control and subject to occurrence of uncertain future events.
Accordingly, shares of Class A common stock subject to possible redemption are
presented as temporary equity, outside of the stockholders' deficit section of
our balance sheets.
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Net income per common share is computed by dividing net income by the weighted
average number of shares of common stock outstanding for the period. The Company
has two classes of common stock, which are referred to as Class A common stock
and Class B common stock. Income and losses are shared pro rata between the two
classes of common stock. Accretion associated with the redeemable shares of
Class A common stock is excluded from income per common share as the redemption
value approximates fair value.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
condensed consolidated financial statements.
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