UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from ______ to ______
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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(Address of principal executive offices including zip code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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(1) On May 2, 2024, the Nasdaq Hearings Panel notified the Company of the Panel’s determination that the Company’s securities would be delisted from Nasdaq. Trading of the Company’s securities on Nasdaq was suspended at the open of trading on May 6, 2024. The Company has applied for its securities to be quoted on an over-the-counter market operated by the OTC Markets Group, Inc.
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
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| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 15, 2024,
EXPLANATORY NOTE
On May 1, 2024, CONX Corp. (the “Company” or “CONX”), completed its previously announced purchase from EchoStar Real Estate Holding L.L.C. (“Seller”), a subsidiary of EchoStar Corporation, of that certain commercial real estate property in Littleton, Colorado, comprising the corporate headquarters of DISH Wireless, for a purchase price of $26.75 million (the “Transaction”), pursuant to the terms of the purchase and sale agreement, dated as of March 10, 2024 (as amended by that certain Amendment No. 1 thereto, dated May 1, 2024), by and between the Company and Seller (the “Closing”). The Transaction constitutes the Company’s “Business Combination”, as that term is defined in the Company’s Amended and Restated Articles of Incorporation. Unless stated otherwise, this report contains information about the Company before the Closing.
CONX CORP.
FORM 10-Q
For the period ended March 31, 2024
INDEX
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| PART I. FINANCIAL INFORMATION |
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Item 1. | Financial Statements: | |
Condensed Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023 | 2 | |
Unaudited Condensed Statements of Operations for the three months ended March 31, 2024 and 2023 | 3 | |
4 | ||
Unaudited Condensed Statements of Cash Flows for the three months ended March 31, 2024 and 2023 | 5 | |
6 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 | |
25 | ||
25 | ||
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27 | ||
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27 | ||
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28 | ||
29 | ||
-1-
CONX CORP.
CONDENSED BALANCE SHEETS
March 31, | December 31, | |||||
| 2024 (unaudited) |
| 2023 | |||
Assets: |
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Current assets: | ||||||
Cash | $ | | $ | | ||
Prepaid expenses |
| | | |||
Total current assets | | | ||||
Cash held in trust account | | | ||||
Total assets | $ | | $ | | ||
Liabilities, Class A Common Stock Subject to Redemption, and Stockholders’ Deficit: | ||||||
Current liabilities: |
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Accounts payable | $ | | $ | | ||
Working capital loan – related party | | | ||||
Extension notes – related party | | | ||||
Accrued expenses | | | ||||
Accrued excise tax payable | | | ||||
Income taxes payable |
| | | |||
Total current liabilities |
| | | |||
Deferred legal fees | | | ||||
Deferred underwriting fee payable | | | ||||
Equity forward liability | | | ||||
Derivative warrant liabilities | | | ||||
Total liabilities | | | ||||
Commitments and Contingencies |
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Class A common stock subject to possible redemption, | | | ||||
Stockholders’ Deficit: |
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Preferred stock, $ |
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Class A common stock, $ |
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Class B common stock, $ |
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Accumulated deficit |
| ( | ( | |||
Total Stockholders’ Deficit |
| ( | ( | |||
Total Liabilities, Class A Common Stock Subject to Redemption, and Stockholders’ Deficit | $ | | $ | | ||
The accompanying notes are an integral part of the unaudited condensed financial statements.
-2-
CONX Corp.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the Three Months | For the Three Months | |||||
Ended March 31, | Ended March 31, | |||||
| 2024 |
| 2023 | |||
General and administrative expenses |
| $ | |
| $ | |
Loss from operations | ( | ( | ||||
Other income (expense) | ||||||
Change in fair value of extension note | | |||||
Change in fair value of equity forward | ( | — | ||||
Change in fair value of derivative warrant liabilities | | ( | ||||
Interest income on investments held in Trust Account | | — | ||||
Total other income (expense) | | ( | ||||
Income (loss) before income tax provision | | ( | ||||
Income tax provision | | — | ||||
Net income (loss) | $ | | $ | ( | ||
Weighted average common shares outstanding, basic and diluted |
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Class A – Common stock | | | ||||
Class B – Common stock | | | ||||
Basic and diluted net income (loss) per common share | ||||||
Class A – Common stock | $ | | $ | ( | ||
Class B – Common stock | $ | | $ | ( | ||
The accompanying notes are an integral part of the unaudited condensed financial statements.
-3-
CONX Corp.
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2024 | |||||||||||||||||||
| Common Stock |
| Additional |
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| Class A |
| Class B |
| Paid-In |
| Accumulated | Stockholders’ | |||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||||
Balance—January 1, 2024 | | $ | | | $ | | $ | — | $ | ( | $ | ( | |||||||
Accretion Adjustment |
| — | — | — | — | — | ( | ( | |||||||||||
Net income | — |
| — |
| — |
| — |
| — |
| |
| | ||||||
Balance—March 31, 2024 (unaudited) | | $ | | | $ | | $ | — | $ | ( | $ | ( | |||||||
FOR THE THREE MONTHS ENDED MARCH 31, 2023 | |||||||||||||||||||
| Common Stock |
| Additional |
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Class A |
| Class B | Paid-In | Accumulated | Stockholders’ | ||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||||
Balance—January 1, 2023 | | $ | | | $ | | $ | — | $ | ( | $ | ( | |||||||
Accretion Adjustment | — | — | — | — | — | ( | ( | ||||||||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Balance—March 31, 2023 (unaudited) | | $ | | | $ | | $ | — | $ | ( | $ | ( | |||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
-4-
CONX Corp.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
Three Months | Three Months | |||||
Ended | Ended | |||||
March 31, | March 31, | |||||
| 2024 |
| 2023 | |||
Cash flows from Operating Activities: |
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Net income (loss) | $ | | $ | ( | ||
Adjustments to reconcile net income(loss) to net cash used in operating activities: | ||||||
Interest earned on cash or investments held in Trust Account | ( | — | ||||
Change in fair value of note convertible | — | ( | ||||
Change in fair value of derivative warrant liabilities | ( | | ||||
Change in fair value of equity forward liability |
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Changes in operating assets and liabilities: | ||||||
Prepaid expenses | ( | ( | ||||
Accounts payable | ( | ( | ||||
Accrued expenses |
| | | |||
Income taxes payable | ( | — | ||||
Net cash used in operating activities | ( | ( | ||||
Investing Activities | ||||||
Cash deposits into Trust Account | — | ( | ||||
Net cash used in investing activities | — | ( | ||||
Financing Activities | ||||||
Cash from Working capital loan | | — | ||||
Proceeds from Extension note | — | | ||||
Net cash provided by financing activities | | | ||||
Net change in cash |
| | ( | |||
Cash—beginning of the period | $ | | $ | | ||
Cash—end of the period | $ | | $ | | ||
The accompanying notes are an integral part of the unaudited condensed financial statements
-5-
CONX Corp.
UNAUDITED NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1—Description of Organization, Business Operations and Basis of Presentation
CONX Corp. (the “Company” or “we,” “our” or “us”) was incorporated in Nevada on August 26, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with
As of March 31, 2024, the Company had not commenced operations. All activity for the period from August 26, 2020 (inception) through March 31, 2024 related to the Company’s initial public offering and subsequent search for a potential Business Combination target. The Company did not generate any operating revenues until after the completion of its initial Business Combination.
The Company’s Sponsor is nXgen Opportunities, LLC, a Colorado limited liability company (the “Sponsor”). The registration statement for the Initial Public Offering was declared effective on October 29, 2020. On November 3, 2020, the Company consummated the Initial Public Offering of
Simultaneously with the closing of the Initial Public Offering, the Company consummated the private placement (“Private Placement”) of
Upon the closing of the Initial Public Offering and the Private Placement, a total of $
Extensions of Completion Period
The Company filed a Form 8-K on November 1, 2022 notifying stockholders of the approval at the meeting of stockholders held on October 31, 2022 (the “First Special Meeting”) to extend the date by which the Company was required to consummate a business combination from November 3, 2022 to June 3, 2023 (the “First Extension”). Stockholders holding
In connection with the First Extension, our Sponsor agreed to advance to the Company (i) $
-6-
Extension Loans”). In connection with the First Extension,
On October 31, 2022, the Company issued a promissory note in the principal amount of up to $
The Company filed a Form 8-K on June 2, 2023 notifying stockholders of the approval at the meeting of stockholders held on June 1, 2023 (the “Second Special Meeting”) to extend the date by which the Company was required to consummate a business combination from June 3, 2023 to November 3, 2023 (the “Second Extension”). Stockholders holding
In connection with the Second Extension, our Sponsor agreed to advance to us (i) $
On June 2, 2023, the Company issued a promissory note in the principal amount of up to $
The Company filed a Form 8-K on November 8, 2023 notifying stockholders of the approval at the meeting of stockholders held on November 3, 2023 (the “Third Special Meeting”) to extend the date by which the Company must consummate a business combination from November 3, 2023 to May 3, 2024 (the “Third Extension”). In connection with the Third Extension, stockholders holding
Working Capital Loans
On March 1, 2023, our Sponsor agreed to loan the Company an aggregate of up to $
-7-
only to the extent that the Company has funds available to it outside of its Trust Account established in connection with its Initial Public Offering. As of March 31, 2024, the Company had borrowed $
Completion of Business Combination
On March 10, 2024, the Company entered into a definitive purchase and sale agreement with EchoStar Real Estate Holding L.L.C. (the “Seller”), a subsidiary of EchoStar Corporation (“EchoStar”), which provides for our purchase from the Seller of the commercial real estate property (the “Property”) in Littleton, Colorado, comprising the corporate headquarters of DISH Wireless, for a purchase price of $
On March 22, 2024, the Company received a letter from Deutsche Bank Securities Inc. (“DBSI”) whereby DBSI agreed to waive, in connection with the Business Combination, its entitlement to any portion of the deferred underwriting fee due to it pursuant to that certain underwriting agreement, dated October 29, 2020, entered into in connection with the Initial Public Offering by and between the Company and DBSI. Furthermore, DBSI disclaimed any responsibility for any portion of any registration statement or proxy statement, as applicable, that may be filed by the Company or any of its affiliates in connection with the Transaction.
In connection with the consummation of the Transaction, the Company provided all holders of shares of its Class A common stock, par value of $
On March 25, 2024, the Company waived the lock-up restrictions set forth in Section 7(a) of that certain letter agreement among the Company, the Sponsor, and the other initial stockholders with respect to 9,375,000 Founder Shares held by the Sponsor, which will allow the Sponsor to transfer any or all of such shares without regard to such restrictions after the completion of our initial business combination, subject to restrictions under applicable securities laws.
Basis of Presentation
The accompanying unaudited condensed financial statements are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q. Certain information or footnote disclosures normally included in the unaudited condensed financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s annual report on Form 10-K, as filed with the SEC on March 28, 2024, and as amended on Form 10-K/A, filed with the SEC on April 15, 2024. The interim results for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the period ended December 31, 2024 or for any future periods.
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Going Concern
Subsequent to the consummation of the Initial Public Offering and Private Placement, the Company’s liquidity needs have been satisfied with the proceeds from the consummation of the Private Placement not held in the Trust Account and Working Capital Loans provided by our Sponsor.
Management has taken several actions to further the Company’s ability to continue as a going concern. As further described in Note 9, on May 1, 2024, the Company completed its Business Combination. In addition, on May 1, 2024, the Company completed its previously announced Equity Forward Transaction, resulting in cash proceeds to the Company aggregating approximately $
Management believes that these actions will enable the Company to continue as a going concern through May 15, 2025, which is twelve months subsequent to the date on which these financial statements were issued.
Consideration of Inflation Reduction Act Excise Tax
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into law. The IR Act provides for, among other things, a new 1% U.S. federal excise tax on certain repurchases (including redemptions) of stock by publicly traded U.S. corporations after December 31, 2022. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from whom the shares are repurchased (although it may reduce the amount of cash distributable in a current or subsequent redemption). The amount of the excise tax is generally 1% of any positive difference between the fair market value of any shares repurchased by the repurchasing corporation during a taxable year and the fair market value of certain new stock issuances by the repurchasing corporation during the same taxable year. In addition, a number of exceptions apply to this excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of, this excise tax.
On December 27, 2022, the Treasury published Notice 2023-2, which provided clarification on some aspects of the application of the excise tax. The notice generally provides that if a publicly traded U.S. corporation completely liquidates in a liquidation to which Section 331 of the Internal Revenue Code (“Code”) applies (so long as Section 332(a) of the Code also does not apply), distributions in such complete liquidation and other distributions by such corporation in the same taxable year in which the final distribution in complete liquidation is made are not subject to the excise tax. Consequently, we would not expect the 1% excise tax to apply if there is a complete liquidation of the Company under Section 331 of the Code.
Any excise tax that may be imposed on any redemption or other repurchase effected by us, in connection with a business combination, extension vote or otherwise, would be payable by us and not by the redeeming holder, it could cause a reduction in the value of our Class A Common Stock or cash available for distribution in a subsequent liquidation. Whether and to what extent we would be subject to the excise tax in connection with a business combination will depend on a number of factors, including (i) the structure of the business combination, (ii) the fair market value of the redemptions and repurchases in connection with the business combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with the business combination (or any other equity issuances within the same taxable year of the business combination) and (iv) the content of any subsequent regulations, clarifications, and other guidance issued by the Treasury. The Company does not intend to use the proceeds placed in the Trust Account to pay excise taxes or other fees or taxes similar in nature (if any) that may be imposed on the Company pursuant to any current, pending or future rules or laws, including any excise tax due imposed under the IR Act on any redemptions in connection with a business combination by the Company.
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Note 2—Summary of Significant Accounting Policies
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal Deposit Insurance Corporation coverage limit of $250,000. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows.
Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the Balance Sheets, except for the public and private placement warrants.
See Note 8 for additional information on assets and liabilities measured at fair value on a recurring basis.
Derivative Financial Instruments
The Company evaluated the Public and Private Warrants and the Equity Forward as either equity-classified or liability-classified instruments based on an assessment of the warrants’ specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”), and ASC 815, “Derivatives and Hedging” (“ASC 815”).
The Company’s Public and Private Warrants derivative instruments are recorded at fair value as of the Initial Public Offering (November 3, 2020) and re-valued at each reporting date, with changes in the fair value reported in the Unaudited Condensed Statements of Operations. Derivative assets and liabilities are classified on the Balance Sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the Balance Sheet date. The Company has determined the Warrants are a derivative instrument. As the Warrants meet the definition of a derivative the Warrants are measured at fair value at issuance and at each reporting date in accordance with ASC 820, “Fair Value Measurements and Disclosures,” with changes in fair value recognized in the Unaudited Condensed Statements of Operations in the period of change.
The Equity Forward is a liability classified instrument in accordance with ASC 480 because the underlying instrument contains a contingent redemption feature. The Equity Forward was recorded at fair value on the date of issuance and re-valued at each reporting period, with changes in the fair value reported in the Unaudited Condensed Statements of Operations. The Equity Forward is classified on the Balance Sheets as current or non-current based on whether or not the contingent redemption feature could be required within 12 months of the Balance Sheet date.
Investments and Cash Held in Trust Account
Upon the closing of the Initial Public Offering and the Private Placement, the Company was required to place net proceeds of the Initial Public Offering and certain of the proceeds of the Private Placement in a Trust Account, which had been invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of
Effective October 12, 2022, the Company converted all of its investments in the Trust Account into cash, which remained in the Trust Account. On September 29, 2023, the Company instructed Continental Stock Transfer & Trust Company, the trustee with respect to the Trust Account, to hold all funds in the Trust Account in an interest-bearing deposit account with a financial institution in the United States. Accordingly, following the transfer to an interest-bearing deposit account, the amount of interest income (which we are permitted to use to pay our taxes and up to $
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Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. The determination of the fair value of the warrant liabilities is a significant accounting estimate included in these unaudited condensed financial statements. Such estimates may be subject to change as more current information becomes available and accordingly the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had
Offering Costs Associated with the Initial Public Offering
Offering costs consist of legal, accounting, underwriting commissions and other costs incurred that were directly related to the Initial Public Offering. Offering costs are allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with derivative warrant liabilities are expensed as incurred, presented as non-operating expenses or income in the Unaudited Condensed Statements of Operations. Offering costs associated with the Class A common stock were charged against the carrying value of the shares of Class A common stock upon the completion of the Initial Public Offering. The Company classifies deferred underwriting commissions as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
Common Stock Subject to Possible Redemption
In connection with the consummation of the Transaction, the Company provided all holders of shares of its Class A common stock, par value of $
Effective October 31, 2022, the redemption amount was increased (i) $
Effective June 2, 2023, the redemption amount was increased (i) $
The Articles provided that a Public Stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), is restricted from redeeming its shares with respect to more than an aggregate of
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Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount. If it is probable that the equity instrument will become redeemable, the Company has the option to either accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Company has elected to recognize the changes immediately. The accretion or remeasurement is treated as a deemed dividend (i.e., a reduction to retained earnings, or in absence of retained earnings, additional paid-in capital).
Net income (loss) Per Share of Common Stock
Net income (loss) per share of common stock is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the period. Income and losses are shared pro rata between the two classes of shares. Accretion associated with the Class A common stock subject to possible redemption is excluded from earnings per share as the redemption value approximates fair value. When calculating its diluted net income (loss) per share, the Company has not considered the effect of the Warrants issued in connection with the (i) Initial Public Offering, and (ii) the Private Placement since the exercise of the Warrants is contingent upon the occurrence of future events. When calculating its diluted net income (loss) per share, the Company also has not considered the effect of the Preferred Shares to be issued in connection with the Equity Forward Transaction since the issuance of the Preferred Shares is contingent upon the occurrence of future events. The calculation excludes
Three Months Ended | Three Months Ended | |||||||||||
March 31, 2024 | March 31, 2023 | |||||||||||
| Class A |
| Class B |
| Class A |
| Class B | |||||
Basic and diluted net income (loss) per share |
|
| ||||||||||
Numerator: | ||||||||||||
Allocation of net income (loss) | $ | | $ | | $ | ( | $ | ( | ||||
Denominator: |
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Basic and diluted weighted average shares outstanding | | | | | ||||||||
Basic and diluted net income (loss) per share | $ | | $ | | $ | ( | $ | ( | ||||
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the unaudited condensed financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Deferred tax assets were deemed de minimis as of March 31, 2024 and December 31, 2023.
FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the unaudited condensed financial statements recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. There were
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our unaudited condensed financial statements.
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Note 3—Initial Public Offering
On November 3, 2020, the Company consummated the Initial Public Offering of
Each Unit consists of
Note 4—Related Party Transactions
Founder Shares
On August 28, 2020, Charles W. Ergen (the “Founder”) purchased an aggregate of
On October 23, 2020, the Company granted
The initial stockholders have agreed, subject to limited exceptions, not to transfer, assign or sell any of the Founder Shares or Independent Director Shares until the earlier to occur of (i)
Equity Forward Transaction
On November 1, 2023, the Company entered into a subscription agreement (the “Subscription Agreement”) with the Founder or an affiliate (the “Subscriber”, and such subscription agreement, as amended by that certain amendment no. 1 to subscription agreement, dated March 25, 2024, the “Subscription Agreement”). On the Closing Date (as defined in Note 9), the Company completed its previously announced transaction (the “Equity Forward Transaction” or “Equity Forward”) pursuant to the terms of the Subscription Agreement. The closing of the Equity Forward Transaction was contingent upon the consummation of the Transaction. Prior to the Closing Date, Mr. Ergen assigned the Subscription Agreement in accordance with its terms to a trust established for the benefit of his family (the “Trust”). On the Closing Date, the Company issued and sold to the Trust
On the Closing Date, the Company filed a Certificate of Designation (the “Certificate of Designation”) with the Secretary of State of the State of Nevada setting forth the terms, rights, obligations and preferences of the Preferred Stock. Pursuant to the Certificate of Designation, on the tenth trading day following the date on which the volume-weighted average price for the Company’s common stock over any trading days within any preceding consecutive trading day period is greater than or equal to $
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If the Preferred Stock has not earlier been converted, the Company will redeem each Preferred Share after the date that is the fifth anniversary of the closing of the Company’s initial business combination, on not less than
The Preferred Stock will entitle Subscriber to receive dividends equal to and in the same form as dividends actually paid on shares of the Company’s common stock, in each case, on an as-converted basis. The Preferred Stock will not have voting rights.
On March 25, 2024, the Company and the Subscriber entered into an amendment to the Subscription Agreement amending the terms of the Preferred Stock issuable thereunder contingent upon, and substantially concurrently with, the consummation of the Transaction, to provide that (i) the issuance of shares of the Company’s common stock on conversion of the Preferred Stock will be subject to prior approval of the Company’s shareholders to the extent (and only to the extent) that such conversion would require stockholder approval under Nasdaq Rule 5635, and (ii) at any time and from time to time following the issuance of the Preferred Stock, the Company may redeem the Preferred Stock in whole or in part, at the option of the Company, at a price equal to $
Private Placement Warrants
Simultaneously with the closing of the Initial Public Offering, the Company consummated the Private Placement of
Each whole Private Placement Warrant is exercisable for
Our Sponsor and the Company’s officers and directors agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants until
Related Party Loans
IPO Expense Loan
On August 28, 2020, the Founder agreed to loan the Company an aggregate of up to $
Working Capital Loans
In addition, in order to finance transaction costs in connection with a Business Combination, our Sponsor or an affiliate of our Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination or, at the lender’s discretion, up to $
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On March 1, 2023, our Sponsor agreed to loan the Company an aggregate of up to $
First Extension Note
On October 31, 2022, our Sponsor agreed to loan the Company an aggregate of up to $
Second Extension Note
On June 2, 2023, our Sponsor agreed to loan the Company an aggregate of up to $
Note 5—Commitments and Contingencies
Registration Rights
The holders of Founder Shares, Private Placement Warrants, Independent Director Shares and warrants that may be issued upon conversion of Working Capital Loans, if any (and any shares of Class A common stock issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares) are entitled to registration rights pursuant to a registration and stockholder rights agreement signed at the effective date of the Initial Public Offering. These holders are entitled to certain demand and “piggyback” registration rights. The Company will bear the expenses incurred in connection with the filing of any such registration statements. The registration and stockholder rights agreement neither provides for any maximum cash penalties nor any penalties connected with delays in registering the Company’s common stock.
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Underwriting Agreement
The underwriters received an underwriting discount of $
Deferred Legal Fees
The Company obtained legal advisory services in connection with the Initial Public Offering and agreed to pay approximately $
Excise Tax
During the year ended December 31, 2023, holders of
Note 6—Stockholders’ Equity Deficit
Class A Common Stock—The Company is authorized to issue
On October 23, 2020, the Company granted
Class B Common Stock— The Company is authorized to issue
Holders of record of Class A common stock and holders of record of Class B common stock will vote together as a single class on all matters submitted to a vote of our stockholders, with each share of stock entitling the holder to
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The Class B common stock automatically converted into Class A common stock at the time of the Business Combination on a
Preferred Stock—The Company is authorized to issue
Note 7—Warrants
As of March 31, 2024 and December 31, 2023, the Company had
If the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial Business Combination at an issue price or effective issue price of less than $
The Private Placement Warrants are identical to the Public Warrants, except that the Private Placement Warrants and the shares of Class A common stock issuable upon exercise of the Private Placement Warrants will not be transferable, assignable or saleable until
The Company may call the Public Warrants for redemption:
| ● | in whole and not in part; |
| ● | at a price of $ |
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| ● | upon a minimum of |
| ● | if, and only if, the last sales price (the “closing price”) of the Class A common stock equals or exceeds $ |
In addition, the Company may call the Public Warrants for redemption:
| ● | in whole and not in part; |
| ● | at $ |
| ● | if, and only if, the closing price of Class A common stock equals or exceeds $ |
| ● | if the closing price of Class A common stock for any |
In no event will the Company be required to net cash settle any warrant.
Note 8—Fair Value Measurements
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3: Unobservable inputs which are supported by little or no market activity and which are significant to the fair value of the assets or liabilities.
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The following tables present information about the Company’s assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 and indicate the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value. Significant deviations from these estimates and inputs could result in a material change in fair value.
March 31, | |||||
Description |
| Level |
| 2024 | |
Liabilities: |
|
|
|
| |
Private Placement Warrants |
| 2 | $ | | |
Public Warrants | 1 | $ | | ||
Equity Forward | 3 | $ | | ||
December 31, | |||||
Description |
| Level |
| 2023 | |
Liabilities: |
|
|
|
| |
Private Placement Warrants |
| 2 | $ | | |
Public Warrants |
| 1 | $ | | |
Equity Forward | 3 | $ | | ||
Warrant Liabilities
As of March 31, 2024 and December 31, 2023, the Company’s derivative warrant liabilities were valued at $
Equity Forward
As of March 31, 2024, the Company’s equity forward was valued at $
Measurement - Warrants
The Warrants are measured at fair value on a recurring basis. The subsequent measurement of the Public Warrants as of March 31, 2024 and December 31, 2023 is classified as Level 1 due to the use of an observable market quote in an active market under the ticker CONXW. As the transfer of Private Placement Warrants to anyone outside of a small group of individuals who are permitted transferees would result in the Private Placement Warrants having substantially the same terms as the Public Warrants, the Company determined that the fair value of each Private Placement Warrant is equivalent to that of each Public Warrant, with an insignificant adjustment for short-term marketability restrictions. As such, the Private Placement Warrants are classified as Level 2.
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The following table presents the changes in the fair value of derivative warrant liabilities during the years ended March 31, 2024 and March 31, 2023:
Aggregate | |||||||||
Private | Public | Warrant | |||||||
| Warrants |
| Warrants |
| Liability | ||||
Fair value as of December 31, 2023 | $ | | $ | | $ | | |||
Change in fair value |
| ( | ( | ( | |||||
Fair value as of March 31, 2024 | $ | | $ | | $ | | |||
| (1) | Changes in valuation inputs or other assumptions are recognized in change in fair value of derivative warrant liabilities in the Unaudited Condensed Statements of Operations. |
| (2) | During the three months ended March 31, 2024 and December 31, 2023, there were |
Aggregate | |||||||||
Private | Public | Warrant | |||||||
| Warrants |
| Warrants |
| Liability | ||||
Fair value as of December 31, 2022 | $ | | $ | | $ | | |||
Change in fair value |
| | | | |||||
Fair value as of March, 2023 | $ | | $ | | $ | | |||
| (1) | Changes in valuation inputs or other assumptions are recognized in change in fair value of derivative warrant liabilities in the Unaudited Condensed Statements of Operations. |
| (2) | During the three months ended March 31, 2023 and December 31, 2022, there were |
Measurement - Equity Forward
The Equity Forward is measured at fair value on a recurring basis. The subsequent measurement of the Equity Forward as of March 31, 2024 is classified as Level 3 due to unobservable inputs that are supported by little or no market activity that are significant to the fair value of the liability.
| Equity | ||
| Forward | ||
Fair value as of December 31, 2023 | $ | | |
Change in fair value |
| | |
Fair value as of March 31, 2024 | $ | | |
The Equity Forward was valued as follows:
Valuation Technique |
| Unobservable Input |
| Amount |
|
Monte Carlo simulation |
| Volatility |
| % | |
| Credit adjusted discount rate |
| % | ||
| Transaction probability |
| % |
Extension Notes – Related party
The Extension Notes – related party contain an embedded conversion feature that is not clearly and closely related to the debt agreement, which requires bifurcation and reporting at fair value. Due to the conversion feature being out of the money at inception and as of each reporting period, the value of the embedded conversion option is immaterial.
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Note 9—Subsequent Events
The Company evaluated events that have occurred after the Balance Sheet date through May 15, 2024, the date on which the unaudited condensed financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the unaudited condensed financial statements, except as described below.
On May 1, 2024 (the “Closing Date”), the Company completed its previously announced purchase from EchoStar Real Estate Holding L.L.C. (“Seller”), a subsidiary of EchoStar Corporation (“EchoStar”), of that certain commercial real estate property (the “Property”) in Littleton, Colorado, comprising the corporate headquarters of DISH Wireless, for a purchase price of $
In connection with the Transaction, each share of the then-issued and outstanding Class B common stock, par value $
On the Closing Date, the Company and Seller entered into a lease agreement (the “Seller Lease Agreement”), pursuant to which Seller leased the Property from the Company. The Seller Lease Agreement is a “triple-net” lease. The Seller Lease Agreement provides for (i) an initial term of approximately , (ii) a base rent payable during the first year of the initial term of $
Pursuant to the Tender Offer Statement on Schedule TO originally filed with the SEC by the Company on April 1, 2024 (together with any subsequent amendments and supplements thereto, the “Schedule TO”) in connection with the Company’s offer to purchase for cash up to
On the Closing Date, the Company completed the Equity Forward Transaction. Prior to the Closing Date, Mr. Ergen assigned the Subscription Agreement in accordance with its terms to the Trust. On the Closing Date, the Company issued and sold to the Trust
As of the Closing Date, the Company satisfied and discharged its obligations under the Second Restated Note by repaying in full the principal amount of $
As of the Closing Date, the Company satisfied and discharged its obligations under the First Extension Note by repaying in full the principal amount of $
As of the Closing Date, the Company satisfied and discharged its obligations under the Second Extension Note by repaying in full the principal amount of $
On May 2, 2024, the Nasdaq Hearings Panel (the “Panel”) notified the Company of the Panel’s determination that, although the Company completed a business combination, Nasdaq Listing Qualifications Staff informed the Panel that as a result of the Company’s Market Value of Publicly Held Securities as of May 1, 2024, the Transaction did not demonstrate compliance with Nasdaq’s initial listing requirements and therefore the Company did not comply with Nasdaq IM-5101-2, and the Company’s securities would be delisted from Nasdaq. Trading of the Company’s securities on the Nasdaq was suspended at the open of trading on May 6, 2024. The Company has applied for its securities to be quoted on an over-the-counter market operated by the OTC Markets Group, Inc.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to CONX Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to nXgen Opportunities, LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the “Risk Factors” section of Part II, Item 1A of this Quarterly Report and in our Schedule TO (as defined herein after), as amended. 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 were incorporated in the State of Nevada on August 26, 2020. Our business purpose was to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or assets. Subsequent to the closing of our Business Combination on May 1, 2024 (the “Closing Date”), we derive revenues primarily from rent received from our operation of real estate property. In addition, we anticipate to grow through acquisition opportunities, including, but not limited to, disruptive technologies and additional infrastructure assets.
Recent Developments
On the Closing Date, the Company completed its previously announced purchase from EchoStar Real Estate Holding L.L.C. (“Seller”), a subsidiary of EchoStar Corporation (“EchoStar”), of that certain commercial real estate property (the “Property”) in Littleton, Colorado, comprising the corporate headquarters of DISH Wireless, for a purchase price of $26.75 million (the “Transaction”), pursuant to the terms of the purchase and sale agreement, dated as of March 10, 2024 (as amended by that certain Amendment No. 1 thereto, dated May 1, 2024, the “Purchase Agreement”), by and between the Company and Seller. The Transaction constitutes the Company’s “Business Combination”, as that term is defined in the Company’s Amended and Restated Articles of Incorporation.
In connection with the Transaction, each share of the then-issued and outstanding Class B common stock, par value $0.0001 per share of the Company (“Class B Common Stock”), automatically converted into one share of Class A common stock, par value $0.0001 per share of the Company (“Class A Common Stock”, and such conversion the “Class B Conversion”), on the Closing Date.
On the Closing Date, the Company and Seller entered into a lease agreement (the “Seller Lease Agreement”), pursuant to which Seller leased the Property from the Company. The Seller Lease Agreement is a “triple-net” lease. The Seller Lease Agreement provides for (i) an initial term of approximately 10 years, (ii) a base rent payable during the first year of the initial term of $228,500 per month, which will escalate annually at a rate of two percent per annum, (iii) a monthly additional rent payment, which is estimated for each calendar year and paid in equal monthly installments, which represents Seller’s proportionate share of the operating expenses of the Property, and (iv) two five-year renewal options for Seller, with the base rent upon a renewal to be revised to fair market value
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and subject to the same annual escalation terms. All of Seller’s obligations under the Seller Lease Agreement are guaranteed by DISH Network Corporation, an affiliate of Seller.
Pursuant to the Tender Offer Statement on Schedule TO originally filed with the SEC by the Company on April 1, 2024 (together with any subsequent amendments and supplements thereto, the “Schedule TO”) in connection with the Company’s offer to purchase for cash up to 2,120,269 of its issued and outstanding shares of Class A Common Stock at a price of $10.598120 per share (the “Purchase Price”), a total of 1,941,684 shares of Class A Common Stock (the “Tendered Shares”) were validly tendered and not properly withdrawn as of the expiration date of the tender offer and were accepted for purchase by the Company. As of the Closing Date, the Company purchased all such Tendered Shares of Class A Common Stock at the Purchase Price.
On the Closing Date, the Company completed the Equity Forward Transaction. Prior to the Closing Date, Mr. Ergen assigned the Subscription Agreement in accordance with its terms to the Trust. On the Closing Date, the Company issued and sold to the Trust 17,391,300 shares of Preferred Stock, at an aggregate purchase price of approximately $200 million, or $11.50 per share. The Company used a portion of the proceeds from the Equity Forward Transaction to fund the purchase price for the Property in the Business Combination.
As of the Closing Date, the Company satisfied and discharged its obligations under the Second Restated Note by repaying in full the principal amount of $900,000 to the Sponsor.
As of the Closing Date, the Company satisfied and discharged its obligations under the First Extension Note by repaying in full the principal amount of $1,168,773.76 to the Sponsor.
As of the Closing Date, the Company satisfied and discharged its obligations under the Second Extension Note by repaying in full the principal amount of $539,652.40 to the Sponsor.
On May 2, 2024, the Nasdaq Hearings Panel (the “Panel”) notified the Company of the Panel’s determination that, although the Company completed a business combination, Nasdaq Listing Qualifications Staff informed the Panel that as a result of the Company’s Market Value of Publicly Held Securities as of May 1, 2024, the Transaction did not demonstrate compliance with Nasdaq’s initial listing requirements and therefore the Company did not comply with Nasdaq IM-5101-2, and the Company’s securities would be delisted from Nasdaq. Trading of the Company’s securities on the Nasdaq was suspended at the open of trading on May 6, 2024. The Company has applied for its securities to be quoted on an over-the-counter market operated by the OTC Markets Group, Inc.
Results of Operations
Prior to the completion of the Business Combination, we neither engaged in any operations nor generated any operating revenues. Our only activities for the three months ended March 31, 2024 were associated with the search for a target company and the completion of the Business Combination. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. Additionally, we recognize non-cash gains and losses within other income (expense) related to changes in recurring fair value measurement of our derivative warrant liabilities at each reporting period.
Prior to October 12, 2022, we generated non-operating income in the form of interest income on proceeds derived from the Initial Public Offering. Effective October 12, 2022, the Company converted all of the investments in the Trust Account into cash, which remained in the Trust Account. On September 29, 2023, the Company instructed Continental Stock Transfer & Trust Company, the trustee with respect to the Trust Account, to hold all funds in the Trust Account in an interest-bearing deposit account with a financial institution in the United States. Accordingly, following the transfer to an interest-bearing deposit account, the amount of interest income again increased. As of March 31, 2024, interest on such deposit account was approximately 4.5% per annum.
For the three months ended March 31, 2024, we had net income of $2,373,957 which was primarily related to a change in fair value of derivative warrant liabilities of $3,191,842 and included interest income of $250,812 and income tax expense adjustment of $10,336, primarily offset by general and administrative expenses of $1,072,033.
For the three months ended March 31, 2023, we had net loss of $784,053 which was primarily related to a change in fair value of derivative warrant liabilities of $923,558 and general and administrative expenses of $277,914, primarily offset by a change in fair value of the Extension Note convertible of $417,419.
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Liquidity and Capital Resources
Prior to the completion of the Initial Public Offering, our liquidity needs had been satisfied through the receipt of $25,000 from the Founder in exchange for the issuance of the Founder Shares, and a promissory note (the “Note”) issued by the Founder. We repaid the Note on November 3, 2020.
On November 3, 2020, we consummated the Initial Public Offering of 75,000,000 Units at a price of $10.00 per Unit generating gross proceeds of $750.0 million. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 11,333,333 Private Placement Warrants to our Sponsor at a price of $1.50 per warrant, generating gross proceeds of $17 million.
Following the Initial Public Offering and the sale of the Private Placement Warrants, a total of $750.0 million was placed in the Trust Account and we had approximately $103,135 of cash held outside of the Trust Account as of March 31, 2024, and available for working capital purposes and to pay our taxes. We incurred $42.3 million in transaction costs, including $15 million of underwriting fees, $26.3 million of deferred underwriting fees (which deferred underwriting commission was waived by the underwriters) and $1 million of other costs in connection with our Initial Public Offering and the sale of the Private Placement Warrants.
On March 1, 2023, our Sponsor agreed to loan the Company an aggregate of up to $250,000 for working capital purposes. The Company issued a promissory note to our Sponsor to evidence the loan. On November 2, 2023, the Company issued an amended and restated promissory note (the “Restated Note”) in the principal amount of up to $550,000 to the Sponsor. The Restated Note amended, restated, replaced and superseded that certain promissory note dated March 1, 2023, in the principal amount of $250,000. On March 25, 2024, the Company issued an amended and restated promissory note (the “Second Restated Note”) to the Sponsor. The Second Restated Note amends, restates, replaces and supersedes the Restated Note to increase the principal amount available for borrowings thereunder from up to $550,000 to up to $900,000. The Second Restated Note does not bear interest, matures on the date of consummation of the Business Combination and is subject to customary events of default. The Second Restated Note was to be repaid only to the extent that the Company has funds available to it outside of its Trust Account established in connection with its Initial Public Offering. As of March 31, 2024, the Company had borrowed $900,000 under the Second Restated Note. As of the Closing Date, the Company satisfied and discharged its obligations under the Second Restated Note by repaying in full the principal amount to the Sponsor.
For the three months ended March 31, 2024, net cash used in operating activities was $405,027. For the three months ended March 31, 2023, net cash used in operating activities was $264,578 principally due to the payment of general and administrative expenses during the period.
For the three months ended March 31, 2024, net cash provided by investing activities was $0 and cash provided by financing activities of $500,000. For the three months ended March 31, 2023, net cash used by investing activities was $500,903 and net cash provided by financing activities of $500,903.
As of March 31, 2024 we had operating cash of $103,135 and investments held in the Trust Account of $22,216,917. As of December 31, 2023 we had operating cash of $8,162 and investments held in the Trust Account of $21,966,104. We intend to utilize substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less deferred underwriting commissions and income taxes payable), to complete our Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
On May 1, 2024, we closed our Business Combination. Approximately $20.58 million of funds held in the Trust Account were used to pay the redemption of 1,941,684 shares of Class A common stock.
Management has taken several actions to further the Company’s ability to continue as a going concern. As further described in Note 9, on May 1, 2024, the Company completed its Business Combination. In addition, on May 1, 2024, the Company completed the Equity Forward Transaction, resulting in cash proceeds to the Company aggregating approximately $200 million. Management believes that these actions will enable the Company to continue as a going concern through May 15, 2025, which is twelve months subsequent to the date on which these financial statements were issued.
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Critical Accounting Policies and Estimates
The preparation of unaudited condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have not identified any critical accounting policies, except as described below.
Warrant Liabilities
We account for our warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for liability classification under ASC 815. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
Our Public and Private Placement Warrants meet the criteria as liability classified derivative instruments and are recorded at fair value on the grant date and re-valued at each reporting date, with changes in the fair value reported in the Unaudited Condensed Statements of Operations. We will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the Private Placement Warrants. At that time, the portion of the liability related to the Private Placement Warrants will be reclassified to additional paid-in capital.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our unaudited condensed financial statements.
Off-Balance Sheet Arrangements
As of March 31, 2024, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined in Rule 12b-2 under the Exchange Act. As a result, pursuant to Item 305(e) of Regulation S-K, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this report, are recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer (our “Certifying Officer”), the effectiveness of our disclosure controls and procedures as of March 31, 2024, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, due to the material weakness we previously identified in our internal control over financial reporting described below, our disclosure controls and procedures were not effective.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim unaudited condensed financial statements will not be prevented, or detected and corrected on a timely basis.
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As previously reported, we changed the classification of our warrants from equity to liability treatment, measured at fair value with changes in fair value each period reported in earnings. Additionally, in connection with the preparation of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, management re-evaluated our application of ASC 480-10-S99 with respect to the accounting classification of our redeemable shares of Class A common stock (the “Public Shares”). Upon such re-evaluation, management determined that the Public Shares include redemption provisions that require classification of the Public Shares as temporary equity, regardless of the minimum net tangible asset requirement, and as a result, concluded that certain of our previously issued financial statements should be restated to reflect the reclassification, as discussed in Note 2 to our financial statements in our Annual Report on Form 10-K (Amendment No. 2), filed with the SEC on February 4, 2022. Also, in connection with the change in presentation for the Public Shares, we restated our earnings per share calculation to allocate income and losses shared pro rata between the two classes of shares of our common stock.
As a result of the foregoing, our management concluded that there was a material weakness related to our accounting for complex financial instruments in internal control over financial reporting as of March 31, 2024. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to continue to enhance our system of evaluating and implementing the accounting standards that apply to our accounting for complex financial instruments, including through enhanced analyses by our personnel and third-party professionals with whom we consult regarding complex accounting applications. We can offer no assurance that our remediation plan will ultimately have the intended effects.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting other than management’s remediation efforts described above.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in legal proceedings or be subject to claims in the ordinary course of business. We are not currently a party to any material legal proceedings. Regardless of the outcome, such proceedings or claims can have an adverse impact on us because of defense and settlement costs, diversion of resources and other factors and there can be no assurances that favorable outcomes will be obtained.
Item 1A. Risk Factors.
As a result of the closing of the Business Combination on May 1, 2024, the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2023, as amended, no longer apply. For risk factors relating to our business following the Business Combination, please refer to the section entitled “Risk Factors” in our Schedule TO, as amended.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
Exhibit |
| Description |
2.1 | ||
10.1 | ||
10.2 | ||
10.3 | ||
31.1 |
| |
32.1* |
| |
101.INS |
| XBRL Instance Document |
101.SCH |
| XBRL Taxonomy Extension Schema Document |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| CONX CORP. |
|
| (Registrant) |
Date: May 15, 2024 | By: | /s/ Kyle Jason Kiser |
|
| Kyle Jason Kiser |
|
| Chief Executive Officer |
|
| Principal Executive, Financial and Accounting Officer |
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