References in this Quarterly Report on Form 10-Q (this "Quarterly Report") to
"we," "us," "our" or the "Company" refer to Schultze Special Purpose Acquisition
Corp. II. References to our "management" or our "management team" refer to our
officers and directors, and references to the "Sponsor" refer to Schultze
Special Purpose Acquisition 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 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 Securities Exchange Act of 1934, as amended (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 this
Quarterly Report and our Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission (the "SEC") on March 17, 2022. 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
December 15, 2020 for the purpose of entering into a merger, capital stock
exchange, asset acquisition, stock purchase, recapitalization, reorganization or
other similar business combination with one or more businesses or entities
("Business Combination"). We intend to effectuate our initial Business
Combination using cash derived from the proceeds of our initial public offering
("Initial Public Offering"), including the partial exercise of the underwriters'
over-allotment option, and the private placements of the private placement
warrants ("Private Placement Warrants") that occurred simultaneously with the
Initial Public Offering and the closing of the partial exercise of such
over-allotment option (collectively, the "Private Placement"), 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 our initial
Business Combination will be successful.
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Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities through September 30, 2022 were organizational activities,
those necessary to prepare for our Initial Public Offering, described below,
and, subsequent to our Initial Public Offering, identifying a target company for
our initial Business Combination. We do not expect to generate any operating
revenues until after the completion of our initial Business Combination, at the
earliest. We generate non-operating income in the form of interest income on
marketable securities held in the trust account established for the benefit of
our public stockholders (the "Trust Account"), with Continental Stock Transfer &
Trust Company acting as trustee. 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 in connection with searching for, and
completing, an initial Business Combination.
For the three months ended September 30, 2022, we had a net income of $313,019,
which consists of interest on marketable securities held in the Trust Account of
$835,240, an unrealized gain on marketable securities held in the Trust Account
of $26,201, and interest income in the operating bank account of $82, offset by
formation and operating costs of $376,924 and a provision for income taxes of
$171,580. Our formation and operational costs incurred during the period were
largely attributed to insurance expense, fees incurred in connection with our
administrative services agreement and professional fees.
For the nine months ended September 30, 2022, we had a net loss of $1,804,346,
which consists of formation and operating costs of $2,785,747 and a provision
for income taxes of $171,580, offset by interest on marketable securities held
in the Trust Account of $1,142,058, an unrealized gain on marketable securities
held in the Trust Account of $10,798 and interest income on the operating bank
account of $125. Our formation and operational costs incurred during the quarter
were largely attributed to expenses related to our search for a Business
Combination target.
For the three months ended September 30, 2021, we had a net loss of $0.
For the nine months ended September 30, 2021, we had a net loss of $1,124, which
consists of formation and operating costs.
Liquidity and Capital Resources
Until the consummation of our Initial Public Offering, our only source of
liquidity was an initial purchase of shares of Class B common stock, par value
$0.0001 per share ("Founder Shares"), by the Sponsor and loans from the Sponsor.
On October 13, 2021, we consummated our Initial Public Offering of 15,000,000
units ("Units"), at $10.00 per Unit, generating total gross proceeds of
$150,000,000. Simultaneously with the consummation of our Initial Public
Offering, we consummated the private placement of an aggregate of 6,200,000
Private Placement Warrants to the Sponsor and Stifel Venture Corp. ("Stifel
Venture"), an affiliate of Stifel, Nicolaus & Company, Incorporated ("Stifel"),
one of the representatives of the underwriters of our Initial Public Offering,
at a price of $1.00 per Private Placement Warrant, generating total gross
proceeds of $6,200,000.
On October 19, 2021, the underwriters of our Initial Public Offering notified us
of their exercise of the over-allotment option in part and concurrent forfeiture
of the remaining portion of such option. As such, on October 22, 2021, the
underwriters purchased 1,500,000 additional Units at $10.00 per additional Unit
upon the closing of the partial exercise of the over-allotment option,
generating total gross proceeds of $15,000,000. Simultaneously with the closing
of the partial exercise of the over-allotment option, we consummated the private
placement of an aggregate of 375,000 additional Private Placement Warrants to
the Sponsor and Stifel Venture at $1.00 per additional Private Placement
Warrant, generating total gross proceeds of $375,000.
Of the aggregate 16,500,000 Units sold in our Initial Public Offering,
14,857,500 Units were purchased by certain qualified institutional buyers or
institutional accredited investors that are not affiliated with us, the Sponsor,
our directors or any member of our management team (the "anchor investors"). In
connection with the closing of our Initial Public Offering, each anchor investor
acquired from the Sponsor an indirect economic interest in certain Founder
Shares (937,500 Founder Shares in the aggregate) at a purchase price of $0.10
per share. The Sponsor has agreed to distribute such Founder Shares to the
anchor investors pro rata based on their indirect ownership interest in such
Founder Shares after the completion of our initial Business Combination.
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Following our Initial Public Offering, including the partial exercise of the
over-allotment option, and the Private Placement, a total of $166,650,000 was
placed in the Trust Account. We incurred $15,892,398 in Initial Public Offering
related costs, consisting of $2,475,000 of underwriting fees, $6,600,000 of
deferred underwriting fees, $541,773 of other offering costs, and $6,275,625 for
the fair value of the Founder Shares attributable to the anchor investors.
For the nine months ended September 30, 2022, cash used in operating activities
was $853,664. Net loss of $1,804,346 was affected by interest on marketable
securities held in the Trust Account of $1,142,058 and an unrealized gain on
marketable securities held in the Trust Account of $10,798. Changes in operating
assets and liabilities reflected a source of cash of $2,103,538 from operating
activities during such period.
For the nine months ended September 30, 2021, cash used in operating activities
was $1,001. Net loss of $1,124 was affected by changes in operating assets and
liabilities provided $123 of cash for operating activities.
As of September 30, 2022, we had cash and marketable securities held in the
Trust Account of $167,500,105 (including approximately $850,105 of interest
income and unrealized gains) consisting of U.S. Treasury Bills with a maturity
of 185 days or less. Interest income on the balance in the Trust Account may be
used by us to pay taxes. From inception through September 30, 2022, we withdrew
an aggregate of $320,000 in interest earned from the Trust Account to pay for
taxes.
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
deferred underwriting commissions and taxes payable), to complete our initial
Business Combination. To the extent that our capital stock or debt is used, in
whole or in part, as consideration to complete our initial 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 $572,965 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 our initial Business
Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with our initial Business Combination, the Sponsor or our officers,
directors or their affiliates may, but are not obligated to, loan us funds as
may be required. If we complete our initial Business Combination, we would repay
such loaned amounts. In the event that our initial Business Combination does not
close, such loaned amounts would be forgiven. Up to $1,500,000 of such working
capital loans may be convertible into warrants of the post-combination entity at
a price of $1.00 per warrant. The warrants would be identical to the Private
Placement Warrants.
Going Concern
As of September 30, 2022, we had $572,965 in our operating bank accounts,
$167,500,105 in marketable securities held in the Trust Account to be used for a
Business Combination or to repurchase or redeem stock in connection therewith
and working capital deficit of $1,055,179, which excludes franchise taxes
payable of $30,000 and income taxes payable of $171,580 of which such amount
will be paid from interest earned on the Trust Account as well as $3,203 of
franchise taxes paid out of operating funds not yet reimbursed by the Trust
Account. As of September 30, 2022, $850,105 of the amount on deposit in the
Trust Account represented interest income that is available to pay the Company's
tax obligations.
We may raise additional capital through loans or additional investments from the
Sponsor or our stockholders, officers, directors, or third parties. Our officers
and directors, the Sponsor or their affiliates 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. Based on the foregoing, we
believe we will have sufficient cash to meet our needs through the earlier of
consummation of a Business Combination or April 13, 2023, the deadline to
complete a Business Combination pursuant to our Amended and Restated Certificate
of Incorporation (unless otherwise amended by stockholders).
However, if our estimate of the costs of identifying a target business,
undertaking in-depth due diligence and negotiating an initial Business
Combination are less than the actual amount necessary to do so, or if our
stockholders approve an extension to the mandatory liquidation date beyond April
13, 2023, 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
completion 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 do not 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. 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.
18
If we do not consummate an initial Business Combination, or seek and extension,
by April 13, 2023, there will be a mandatory liquidation and subsequent
dissolution of the Company. In connection with the Company's assessment of going
concern considerations in accordance with Financial Accounting Standards Board's
("FASB") Accounting Standards Codification ("ASC") Topic 205-40, "Presentation
of Financial Statements - Going Concern," we have determined that the liquidity
condition due to insufficient working capital and mandatory liquidation, should
an initial Business Combination not occur, and potential subsequent dissolution
raises substantial doubt about our ability to continue as a going concern for at
least one year from the date that these financial statements are issued. No
adjustments have been made to the carrying amounts of assets or liabilities
should we be required to liquidate after April 13, 2023. The financial
statements do not include any adjustment that might be necessary if we are
unable to continue as a going concern.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2022.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or other long-term
liabilities, other than an agreement to pay the Sponsor a monthly fee of $25,000
for general and administrative services, including office space, utilities and
administrative support. We began incurring these fees on October 7, 2021 and
will continue to incur these fees monthly until the earlier of the completion of
our initial Business Combination and our liquidation.
The underwriters of our Initial Public Offering are entitled to a deferred fee
of $0.40 per Unit sold in our Initial Public Offering, or $6,600,000 in the
aggregate. Subject to the terms of the underwriting agreement, the deferred fee
(i) 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
and (ii) will be waived by the underwriters in the event that we do not complete
our initial Business Combination.
Critical Accounting Policies and Estimates
The preparation of 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 period reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
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 ASC Topic 480 "Distinguishing Liabilities from
Equity." Shares of Class A common stock subject to mandatory redemption are
classified as a liability instrument and are measured at fair value.
Conditionally redeemable shares of Class A common stock (including Class A
common stock that features 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) are classified as temporary equity. At all other
times, shares of Class A common stock are 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, Class A common stock subject to possible redemption is
presented at redemption value as temporary equity, outside of the stockholders'
deficit section of our balance sheets.
Share-Based Payment Arrangements
We measure and recognize compensation expense for all share-based payments on
their estimated fair values measured as of the grant date. These costs are
recognized as an expense in the statements of operations upon vesting, once the
applicable performance conditions are met, with an offsetting increase to
additional paid-in capital. Forfeitures are recognized as they occur.
Net Income (Loss) per Common Share
Net income (loss) per common share of common stock is computed by dividing net
income (loss) by the weighted average number of common shares issued and
outstanding during the period. Subsequent measurement of the redeemable shares
of Class A common stock is excluded from income (loss) per ordinary share as the
redemption value approximates fair value. We calculate our earnings per share to
allocate net income (loss) pro rata to shares of Class A and Class B common
stock. This presentation contemplates a Business Combination as the most likely
outcome, in which case, both classes of common stock share pro rata in the
income (losses) of our Company.
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Income Taxes
We account for income taxes under ASC 740, "Income Taxes." ASC 740, Income
Taxes, requires the recognition of deferred tax assets and liabilities for both
the expected impact of differences between the unaudited condensed financial
statements and tax basis of assets and liabilities and for the expected future
tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740
additionally requires a valuation allowance to be established when it is more
likely than not that all or a portion of deferred tax assets will not be
realized. We also recognized accrued interest and penalties related to
unrecognized tax benefits as income tax expense. We have identified the United
States as its only "major" tax jurisdiction. We are subject to income taxation
by major taxing authorities since inception. These examinations may include
questioning the timing and amount of deductions, the nexus of income among
various tax jurisdictions and compliance with federal and state tax laws. We do
not expect that the total amount of unrecognized tax benefits will materially
change over the next twelve months.
Recent Accounting Standards
In August 2020, the FASB issued Accounting Standards Update ("ASU") 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) ("ASU 2020-06")
to simplify accounting for certain financial instruments. ASU 2020-06 eliminates
the current models that require separation of beneficial conversion and cash
conversion features from convertible instruments and simplifies the derivative
scope exception guidance pertaining to equity classification of contracts in an
entity's own equity. The new standard also introduces additional disclosures for
convertible debt and freestanding instruments that are indexed to and settled in
an entity's own equity. ASU 2020-06 amends the diluted earnings per share
guidance, including the requirement to use the if-converted method for all
convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be
applied on a full or modified retrospective basis, with early adoption permitted
beginning on January 1, 2021. We adopted ASU 2020-06 effective January 1, 2021.
The adoption of ASU 2020-06 did not have an impact on our financial statements.
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 financial statements.
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