References to "we", "us", "our" or the "Company" are to PTK Acquisition Corp,
except where the context requires otherwise. The following discussion should be
read in conjunction with our financial statements and related notes thereto
included elsewhere in this Annual Report on Form 10-K.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act, and Section 21E of the Exchange
Act. We have based these forward-looking statements on our current expectations
and projections about future events. These forward-looking statements are
subject to known and unknown risks, uncertainties and assumptions about us that
may cause our actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity, performance
or achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described in our other U.S. Securities
and Exchange Commission ("SEC") filings.
Restatement
In this Amendment No.1, we are restating (i) our audited financial statements as
of and for the year ended December 31, 2020, (ii) our unaudited interim
financial statements as of, and for the periods ended September 30, 2020.
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The restatement results from our prior accounting for our private warrants
issued in connection with the private placement in July 2020 and conversion of
note payable which had been classified as a component of equity on the premise
that the instruments were indexed to our own stock and were eligible to be
accounted for as equity instruments instead of classifying them as derivative
liabilities.
On April 12, 2021, the SEC Staff issued the SEC Staff Statement, in which the
SEC Staff expressed its view that certain terms and conditions common to SPAC
warrants may require the warrants to be classified as liabilities on the SPAC's
balance sheet as opposed to equity. Since issuance on July 15, 2020, our
warrants were accounted for as equity within our balance sheets, and after
discussion and evaluation, including with our independent auditors, we have
concluded that our private warrants issued in connection with the private
placement and conversion of note payable should be presented as liabilities with
subsequent fair value remeasurement.
Therefore, we, in consultation with our Audit Committee, concluded that our
previously issued financial statements for the Affected Periods should be
restated because of a misapplication in the guidance around accounting for our
warrants and should no longer be relied upon.
Historically, the private warrants were reflected as a component of equity as
opposed to liabilities on the balance sheets and the statements of operations
did not include the subsequent non-cash changes in estimated fair value of the
warrants, based on our application of ASC 815-40. The views expressed in the SEC
Staff Statement were not consistent with our historical interpretation of the
specific provisions within its private warrant agreement and our application of
ASC 815-40 to the private warrant agreement. We reassessed our accounting for
private warrants issued in August 2020, in light of the SEC Staff's published
views. Based on this reassessment, we determined that the private warrants
should be classified as liabilities measured at fair value upon issuance, with
subsequent changes in fair value reported in our statement of operations each
reporting period.
Our accounting for the private warrants as components of equity instead of as
derivative liabilities did not have any effect on our previously reported
revenue, operating expenses, operating income, total cash flows or cash.
In connection with the restatement, our management reassessed the effectiveness
of its disclosure controls and procedures for the periods affected by the
restatement. As a result of that reassessment, management determined that our
disclosure controls and procedures for such periods were not effective with
respect to the classification of our private warrants as components of equity
instead of as derivative liabilities. For more information, see Item 9A included
in this Amendment No.1.
We have not amended our previously filed Quarterly Reports on Form 10-Q for the
Affected Periods. The financial information that has been previously filed or
otherwise reported for these periods is superseded by the information in this
Amendment No.1, and the financial statements and related financial information
contained in such previously filed reports should no longer be relied upon.
The restatement is more fully described in Note 2 of the notes to the financial
statements included herein.
Overview
We are a blank check company incorporated in Delaware on August 19, 2019. We
were formed for the purpose of effecting a merger, share exchange, asset
acquisition, share purchase, reorganization or similar business combination with
one or more businesses (the "Business Combination").
Our sponsor is PTK Holdings LLC, a Delaware limited liability company (the
"Sponsor"). The registration statement for the initial public offering (the
"Initial Public Offering") was declared effective on July 13, 2020. On July 15,
2020, we consummated the Initial Public Offering of 11,500,000 units (the
"Units" and, with respect to the common stock included in the Units, the "Public
Shares"), including the issuance of 1,500,000 Units as a result of the
underwriters' exercise of their over-allotment option in full, at $10.00 per
Unit, generating gross proceeds of $115.0 million, and incurring offering costs
of approximately $7.3 million, inclusive of approximately $4.0 million in
deferred underwriting commissions.
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Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 6,800,000 warrants (each, a
"Private Placement Warrant" and collectively, the "Private Placement Warrants"),
at a price of $0.50 per Private Placement Warrant to our Sponsor, generating
gross proceeds to the Company of $3.4 million. In addition, upon the
consummation of our Initial Public Offering, 600,000 additional private
placement warrants were issued to our sponsor as a result of the conversion of a
promissory note.
Upon the closing of the Initial Public Offering and the Private Placement,
$115.0 million ($10.00 per Unit) of the net proceeds of the Initial Public
Offering and certain of the proceeds of the Private Placement was placed in a
trust account ("Trust Account"), located in the United States with Continental
Stock Transfer & Trust Company acting as trustee, and invested only in U.S.
"government securities" within the meaning of Section 2(a)(16) of the Investment
Company Act having a maturity of 180 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,
until the distribution of the Trust Account as described below.
Our management has broad discretion with respect to the specific application of
the net proceeds of the Initial Public Offering and the sale of the Private
Placement Warrants, although substantially all of the net proceeds are intended
to be applied generally toward consummating a Business Combination.
If we are unable to complete a Business Combination within 18 months from the
closing of the Initial Public Offering, or January 15, 2022 (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 100% of the outstanding Public Shares for a pro rata portion
of the funds held in the Trust Account (net of interest that may be used by us
to pay income taxes or other taxes) which redemption will completely extinguish
the public stockholders' rights as stockholders (including the right to receive
further liquidation distributions, if any), subject to applicable law, and
(iii) as promptly as reasonably possible following such redemption, subject to
the approval of our remaining holders of common stock and our board of
directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above)
to our obligations under Delaware law to provide for claims of creditors and the
requirements of other applicable law. We will pay the costs of any liquidation
following the redemptions from our remaining assets outside of the Trust
Account. If such funds are insufficient, our Sponsor has agreed to pay the funds
necessary to complete such liquidation (currently anticipated to be no more than
approximately $50,000) and has agreed not to seek repayment for such expenses.
Results of Operations
Our entire activity since inception through December 31, 2020 related to our
formation, the preparation for the Initial Public Offering, and since the
closing of the Initial Public Offering, the search for a prospective initial
Business Combination. We have neither engaged in any operations nor generated
any revenues to date. We will not generate any operating revenues until after
completion of our initial Business Combination. We generate non-operating income
in the form of income from our investments held in the Trust Account. We expect
to incur increased expenses as a result of being a public company (for legal,
financial reporting, accounting and auditing compliance), as well as for due
diligence expenses.
For the year ended December 31, 2020 we had net loss of approximately $2.5
million, which consisted of approximately $0.6 million in general and
administrative expenses, $55,000 of administrative fees - related party,
approximately $107,000 of franchise tax expenses, change in fair value of
private warrant liabilities of approximately $1.7 million, offering costs
associated with issuance of private warrants of approximately $25,000, offset by
approximately $6,000 in net gain from investments held in the Trust Account.
For the period from August 19, 2019 (inception) through December 31, 2019, we
had a net loss of approximately $3,000.
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As a result of the restatement described in Note 2 of the notes to the financial
statements included herein, we classify the private warrants issued in
connection with our Private Placement and conversion of note payable as
liabilities at their fair value and adjust the warrant instruments to fair value
at each reporting period. These liabilities are subject to re-measurement at
each balance sheet date until exercised, and any change in fair value is
recognized in our statement of operations.
Liquidity, Capital Resources and Going Concern
As of December 31, 2020, we had approximately $333,000 in cash and working
capital deficit of approximately $172,000 (not taken into account tax
obligations of approximately $109,000 that may be paid using investment income
earned from Trust Account). In order to meet our working capital needs following
the consummation of the Initial Public Offering, our sponsor may, but is not
obligated to, loan us funds, from time to time or at any time, in whatever
amount it deems reasonable in its sole discretion. Each loan would be evidenced
by a promissory note. The notes would either be paid upon consummation of our
initial business combination, without interest, or, at our sponsor's discretion,
up to $1.0 million of the notes may be converted upon consummation of our
business combination into private warrants at a price of $0.50 per warrant
(which, for example, would result in our sponsor being issued 1,000,000 private
warrants at a purchase price of $0.50 per warrant if $500,000 of notes were so
converted). If we do not complete a business combination, any outstanding loans
from our sponsor, will be repaid only from amounts remaining outside our trust
account, if any.
Prior to the completion of the Initial Public Offering on July 15, 2020, our
liquidity needs were satisfied through the receipt of $25,000 from our Sponsor
in exchange for the issuance of the founder shares, and a $300,000 promissory
note issued to our Sponsor, which was converted into 600,000 private warrants
upon closing of the Initial Public Offering. Subsequent to the consummation of
the Initial Public Offering and Private Placement, our 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, our Sponsor may, but is not obligated
to, provide us working capital loans. To date, there were no amounts outstanding
under any working capital loans.
Based on the foregoing, management has determined that the working capital
deficit raises substantial doubt about our ability to continue as a going
concern until the earlier of the consummation of the Business Combination or the
date we are required to liquidate, January 15, 2022. The financial statements do
not include any adjustment that might be necessary if we are unable to continue
as a going concern.
On January 30, 2020, the World Health Organization ("WHO") announced a global
health emergency because of a new strain of coronavirus
(the "COVID-19 outbreak"). In March 2020, the WHO classified the COVID-19
outbreak as a pandemic, based on the rapid increase in exposure globally.
Management continues to evaluate the impact of the COVID-19 pandemic and has
concluded that the specific impact is not readily determinable as of the date of
the balance sheet. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Related Party Transactions
Insider Shares
In October 2019, our Sponsor purchased 2,875,000 shares of common stock, par
value $0.0001, (the "Insider Shares"), for an aggregate price of $25,000. Our
Sponsor has agreed to forfeit up to 375,000 Insider Shares to the extent that
the over-allotment option is not exercised in full by the underwriters. On
July 15, 2020, the over-allotment option was exercised in full. Accordingly, no
Insider Shares were forfeited.
Our Sponsor and our officers and directors agreed to place their Insider Shares
into an escrow account maintained by Continental Stock Transfer & Trust Company,
acting as escrow agent. Subject to certain limited
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exceptions, 50% of these shares will not be transferred, assigned, sold or
released from escrow until the earlier of nine months after the date of the
consummation of the initial Business Combination and the date on which the
closing price of the Company's common stock equals or exceeds $12.50 per share
(as adjusted for stock splits, stock dividends, reorganizations and
recapitalizations) for any 20 trading days within any 30-trading day period
commencing after the consummation of the initial Business Combination and the
remaining 50% of the Insider Shares will not be transferred, assigned, sold or
released from escrow until nine months after the date of the consummation of the
initial Business Combination, or earlier, in either case, if, subsequent to the
initial Business Combination, we complete a liquidation, merger, stock exchange
or other similar transaction which results in all of the Company's stockholders
having the right to exchange their shares of common stock for cash, securities
or other property. The limited exceptions referred to above include
(1) transfers among the insiders, to the our officers, directors, advisors and
employees, (2) transfers to an insider's affiliates or its members upon its
liquidation, (3) transfers to relatives and trusts for estate planning purposes,
(4) transfers by virtue of the laws of descent and distribution upon death,
(5) transfers pursuant to a qualified domestic relations order, (6) private
sales made at prices no greater than the price at which the securities were
originally purchased or (7) transfers to us for cancellation in connection with
the consummation of an initial Business Combination, in each case (except for
clause 7) where the transferee agrees to the terms of the escrow agreement and
forfeiture, as the case may be, as well as the other applicable restrictions and
agreements of the holders of the Insider Shares.
Private Placement Warrants
Simultaneously with the closing of the Initial Public Offering, our Sponsor
purchased an aggregate of 6,800,000 Private Placement Warrants, at a price of
$0.50 per Private Placement Warrant to the Sponsor, generating gross proceeds to
the Company of $3.4 million, and incurring offering costs of approximately
$25,000. A portion of the proceeds from the Private Placement Warrants were
added to the proceeds from the Initial Public Offering held in the Trust
Account. If we do not complete a Business Combination within the Combination
Period, the Private Placement Warrants will expire worthless.
Related Party Loans
On October 10, 2019, our Sponsor agreed to loan us an aggregate of up to
$300,000 to cover expenses related to the Initial Public Offering pursuant to a
promissory note (the "Note"). This loan was non-interest bearing, and on July 9,
2020 the Company amended such loan to provide that such loan: (A) was
convertible into 600,000 private warrants issuable to the Sponsor at a purchase
price of $0.50 per warrant upon the consummation of the Initial Public Offering;
or (B) due in cash to the Sponsor on the date we determine not to proceed with
the Initial Public Offering. The amendment was recognized as an extinguishment,
but did not result in a gain or loss. We fully borrowed the Note amount of
$300,000 and, on July 15, 2020, the Note was converted into 600,000 private
warrants upon the consummation of the Initial Public Offering. Upon conversion,
the carrying value of the note was reclassified to additional paid-in-capital
within stockholders' equity.
Contractual Obligations
Registration Rights
The holders of Insider Shares, Private Placement Warrants, and warrants that may
be issued upon conversion of Working Capital Loans, if any, will be entitled to
registration rights pursuant to a registration rights agreement. These holders
will be entitled to certain demand and "piggyback" registration rights.
Underwriting Agreement
We granted the underwriters a 45-day option from the final prospectus relating
to the Initial Public Offering to purchase up to 1,500,000 additional Units to
cover over-allotments, if any, at the Initial Public Offering price less the
underwriting discounts and commissions. The underwriters fully exercised their
over-allotment option on July 15, 2020.
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The underwriters were entitled to an underwriting discount of $0.20 per unit, or
$2.3 million in the aggregate, paid upon the closing of the Initial Public
Offering. In addition, $0.35 per unit, or $4.0 million in the aggregate will be
payable to the underwriters for deferred underwriting commissions. The deferred
fee is 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.
Right of First Refusal
Subject to certain conditions, we granted Chardan, for a period of 15 months
after the date of the consummation of the Business Combination, a right of first
refusal to act as either (at our sole discretion) (a) a lead underwriter or
(b) minimally as a co-manager, with at least 30% of the economics; or, in the
case of a three-handed deal 20% of the economics, for any and all future public
and private equity and debt offerings. In accordance with FINRA Rule
5110(f)(2)(E)(i), such right of first refusal shall not have a duration of more
than three years from the effective date of the registration statement related
to the Initial Public Offering.
Administrative Support Agreement
We entered into an agreement to pay our Sponsor a total of up to $10,000 per
month for overhead and administration support. Upon completion of the Initial
Business Combination or our liquidation, we will cease paying these monthly
fees. We incurred $55,000 of such fees in the year ended December 31, 2020 which
is payable as of December 31, 2020.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States 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 the reported amounts of income and
expenses during the periods reported. Actual results could materially differ
from those estimates. We have identified the following as our critical
accounting policies:
Common Stock Subject to Possible Redemption
We account for common stock subject to possible redemption in accordance with
the guidance in ASC Topic 480 "Distinguishing Liabilities from Equity." Common
stock subject to mandatory redemption (if any) 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 outstanding common stock features certain redemption rights that are
considered to be outside of our control and subject to the occurrence of
uncertain future events. Accordingly, at December 31, 2020, 10,570,015 shares of
common stock subject to possible redemption is presented as temporary equity,
outside of the stockholders' equity section of the balance sheets.
Net Income (Loss) Per Share of Common Stock
Net income (loss) per share is computed by dividing net loss by the
weighted-average number of common stock outstanding during the periods. We have
not considered the effect of the warrants sold in the Initial Public Offering
and Private Placement, as well as the warrants issued on the Note conversion to
purchase an aggregate of 18,900,000 shares of common stock in the calculation of
diluted loss per common stock, since the exercise of the warrants are contingent
upon the occurrence of future events. As a result, diluted net loss per common
stock is the same as basic net loss per common stock for the periods presented.
Our statements of operations include a presentation of income (loss) per share
for common stock subject to possible redemption in a manner similar to the
two-class method of income (loss) per share. Net income (loss)
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per common stock, basic and diluted, for common stock subject to possible
redemption is calculated by dividing the proportionate share of income or loss
on marketable securities held by the Trust Account, net of applicable franchise
and income taxes, by the weighted average number of Common stock subject to
possible redemption outstanding since original issuance.
Net income (loss) per share, basic and diluted, for non-redeemable common stock
is calculated by dividing the net income (loss), adjusted for income or loss on
marketable securities attributable to common stock subject to possible
redemption, by the weighted average number of non-redeemable common stock
outstanding for the period.
Non-redeemable common stock includes Insider Shares and non-redeemable shares of
Public Shares. Non-redeemable common stock participates in the income or loss on
marketable securities based on non-redeemable shares' proportionate interest.
Derivative 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 815-15. The classification of derivative instruments, including whether
such instruments should be recorded as liabilities or as equity, is re-assessed
at the end of each reporting period.
We issued 7,400,000 ordinary shares private warrants in connection with our
Private Placement (6,800,000) and conversion of note payable (600,000) which are
recognized as derivative liabilities in accordance with ASC 815-40.Accordingly,
we recognize the private warrant instruments as liabilities at fair value and
adjust the instruments to fair value at each reporting period. The liabilities
are subject to re-measurement at each balance sheet date until exercised, and
any change in fair value is recognized in our statement of operations. The fair
value of private warrants has been estimated using a Modified Black-Scholes
model at each measurement date.
Recent Adopted Accounting Standards
In August 2020, the FASB issued 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. The ASU also removes certain settlement conditions
that are required for equity-linked contracts to qualify for the derivative
scope exception, and it simplifies the diluted earnings per share calculation in
certain areas. We adopted ASU 2020-06 on January 1, 2021. Adoption of the ASU
did not impact the our financial position, results of operations or cash flows.
Recent Issued Accounting Standards
Our management does not believe that any recently issued, but not yet effective,
accounting standards updates, if currently adopted, would have a material effect
on the accompanying financial statement.
Off-Balance Sheet Arrangements and Contractual Obligations
As of December 31, 2020, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments
or contractual obligations.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth
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company" and under the JOBS Act are allowed to comply with new or revised
accounting pronouncements based on the effective date for private (not publicly
traded) companies. We are electing to delay the adoption of new or revised
accounting standards, and as a result, we may not comply with new or revised
accounting standards on the relevant dates on which adoption of such standards
is required for non-emerging growth companies. As a result, our financial
statements may not be comparable to companies that comply with new or revised
accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company," we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404 of the
Sarbanes-Oxley Act, (ii) provide all of the compensation disclosure that may be
required of non-emerging growth public companies under the Dodd-Frank Wall
Street Reform and Consumer Protection Act, (iii) comply with any requirement
that may be adopted by the PCAOB regarding mandatory audit firm rotation or a
supplement to the auditor's report providing additional information about the
audit and the financial statements (auditor discussion and analysis) and
(iv) disclose certain executive compensation related items such as the
correlation between executive compensation and performance and comparisons of
the CEO's compensation to median employee compensation. These exemptions will
apply for a period of five years following the completion of our Initial Public
Offering or until we are no longer an "emerging growth company," whichever is
earlier.
Recent Accounting Pronouncements
Our management does not believe there are any other recently issued, but not yet
effective, accounting pronouncements, if currently adopted, that would have a
material effect on our financial statements.
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