Table of Contents
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
 
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
    
    
    
    
to
    
    
    
    
Commission
File No. 001-39853
 
 
Epiphany Technology Acquisition Corp.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
  
85-3227900
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
630 Ramona Street
Palo Alto, CA 94301
(Address of Principal Executive Offices, including zip code)
(619)736-6855
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
  
Trading
Symbol(s)
  
Name of each exchange
on which registered
Units, each consisting of one share of Class A Common Stock and
one-third
of one Redeemable Warrant
  
EPHYU
  
The NASDAQ Stock Market LLC
Class A Common Stock, par value $0.0001 per share
  
EPHY
  
The NASDAQ Stock Market LLC
Warrants, each exercisable for one share
Class A Common Stock for $11.50 per share
  
EPHYW
  
The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.    Yes  ☒    No  ☐
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).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the 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   ☐
       
Non-accelerated filer   ☒    Smaller reporting company   ☒
       
         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 (a
s defined in Rule
 
12b-2
 
of th
e Exchange Act):    Yes  ☒    No  ☐
As of N
ovember 14, 20
22, there were 41,050,000 shares of Class A common stock, $0.0001 par value, and 10,062,500 shares of Class B common stock, $0.0001 par value per share, issued and outstanding.
 
 
 

Table of Contents

Epiphany Technology Acquisition Corp.

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

 

         Page  

PART 1 – FINANCIAL INFORMATION

  

Item 1.

   Condensed Financial Statements      1  
  Condensed Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021      1  
  Unaudited Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021      2  
  Unaudited Condensed Statements of Changes in Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2022 and 2021      3  
  Unaudited Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021      4  
  Notes to Condensed Financial Statements      5  

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      17  

Item 3.

   Quantitative and Qualitative Disclosures about Market Risk      21  

Item 4.

   Controls and Procedures      21  

PART II – OTHER INFORMATION

  

Item 1.

   Legal Proceedings      22  

Item 1A.

   Risk Factors      22  

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      24  

Item 3.

   Defaults Upon Senior Securities      24  

Item 4.

   Mine Safety Disclosures      24  

Item 5.

   Other Information      24  

Item 6.

   Exhibits      24  

PART III – SIGNATURE

     25  

 

1

Table of Contents
PART 1—FINANCIAL INFORMATION
 
 
ITEM 1.
CONDENSED FINANCIAL STATEMENTS
EPIPHANY TECHNOLOGY ACQUISITION CORP.
CONDENSED BALANCE SHEETS
 
    
September 30,

2022
    
December 31,

2021
  
    
(Unaudited)
        
ASSETS
                 
Current Assets
                 
Cash
    $ 72,114     $ 353,094  
Prepaid expenses
      128,334       325,604  
    
 
 
    
 
 
  
Total Current Assets
      200,448       678,698  
Investments held in Trust Account (includes U.S Treasury Securities fair valued at $202,499,867 and $201,343,000 as of September 30, 2022 and December 31, 2021, respectively)
      404,882,467       402,613,586  
    
 
 
    
 
 
  
TOTAL ASSETS
   
$
405,082,915
 
  
$
403,292,284
 
    
 
 
    
 
 
  
LIABILITIES, CLASS A COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ DEFICIT
                 
Current Liabilities:
                 
Accounts payable and accrued expenses
    $ 64,704     $ 307,293  
Income taxes payable
      646,203       —    
Advance from related parties
      270,459       1,000  
    
 
 
    
 
 
  
Total Current Liabilities
      981,366       308,293  
Warrant liabilities
      821,000       10,262,500  
Deferred underwriting commissions
      15,137,500       15,137,500  
    
 
 
    
 
 
  
TOTAL LIABILITIES
   
 
16,939,866
 
  
 
25,708,293
 
    
 
 
    
 
 
  
Commitments and contingencies
                 
Class A, common stock subject to possible redemption, 40,250,000
 
s
hares at approximately $10.04 and $10.00 as of September 30, 202
2
 and December 31, 2021, respectively
      404,166,231       402,500,000  
Stockholders’ Deficit
                 
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding
      —         —    
Class A common stock, $0.0001 par value; 200,000,000 shares authorized, 800,000 shares issued and outstanding (excluding 40,250,000 shares subject to possible redemption) at September 30, 2022 and December 31, 2021
      80       80  
Class B common stock, $0.0001 par value; 20,000,000 shares authorized; 10,062,500 shares issued and outstanding at September 30, 2022 and December 31, 2021
      1,006       1,006  
Additional
paid-in
capital
      —         —    
Accumulated deficit
      (16,024,268 )      (24,917,095 ) 
    
 
 
    
 
 
  
Total Stockholders’ Deficit
   
 
(16,023,182
) 
  
 
(24,916,009
) 
    
 
 
    
 
 
  
TOTAL LIABILITIES, CLASS A COMMON STOCK SUBJECT TO REDEMPTION AND
STOCKHOLDERS’ DEFICIT
   
$
405,082,915
 
  
$
403,292,284
 
    
 
 
    
 
 
  
The accompanying notes are an integral part of the
unaudited 
condensed financial statements
 
1
EPIPHANY TECHNOLOGY ACQUISITION CORP.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 
  
For The

Three Months Ended

September 30,
 
 
For The

Nine Months Ended

September 30,
 
 
  
2022
 
 
2021
 
 
2022
 
 
2021
 
General administrative expenses and operational costs
    $ 209,723     $ 268,927     $ 785,256     $ 784,893  
    
 
 
    
 
 
    
 
 
    
 
 
  
Loss from operations
   
 
(209,723
) 
  
 
(268,927
) 
  
 
(785,256
) 
  
 
(784,893
) 
Other income (expenses):
                                 
Interest earned on investments held in Trust Account
      1,907,275       26,161       2,549,017       82,054  
Transaction cost related to warrant liability
      —         —         —         (1,029,081 ) 
Change in fair value of warrant liabilities
      273,666       3,149,833       9,441,500       7,533,833  
    
 
 
    
 
 
    
 
 
    
 
 
  
Total other income, net
      2,180,941       3,175,994       11,990,517       6,586,806  
Loss before provision for income taxes
      1,971,218       2,907,067       11,205,261       5,801,913  
Provision for income taxes
      (557,525 )      —       (646,203 )      —    
    
 
 
    
 
 
    
 
 
    
 
 
  
Net income
   
$
1,413,693
 
  
$
2,907,067
 
  
$
10,559,058
 
  
$
5,801,913
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Weighted average shares outstanding, Class A common stock
      41,050,000       41,050,000       41,050,000       39,245,604  
    
 
 
    
 
 
    
 
 
    
 
 
  
Basic and diluted net income per share, Class A common stock
   
$
0.03
 
  
$
0.06
 
  
$
0.21
 
  
$
0.12
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Weighted average shares outstanding, Class B common stock
      10,062,500       10,062,500       10,062,500       10,004,808  
    
 
 
    
 
 
    
 
 
    
 
 
  
Basic and diluted net income per share, Class B common stock
   
$
0.03
 
  
$
0.06
 
  
$
0.21
 
  
$
0.12
 
    
 
 
    
 
 
    
 
 
    
 
 
  
The accompanying notes are an integral part of the
unaudited 
condensed financial statements
 
2
EPIPHANY TECHNOLOGY ACQUISITION CORP.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
 
    
Class A

Common Stock
     
Class B

Common Stock
     
Additional

Paid-in

Capital
     
Accumulated

Deficit
    
Total

Stockholders’

Deficit
  
    
Shares
     
Amount
     
Shares
     
Amount
     
 
     
 
    
 
  
Balance – January 1, 2022
   
 
800,000
 
   
$
80
 
   
 
10,062,500
 
   
$
1,006
 
   
$
—  
     
$
(24,917,095
) 
  
$
(24,916,009
) 
Net income
      —          —          —          —          —          5,418,600       5,418,600  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
Balance – March 31, 2022 (unaudited)
   
 
800,000
 
   
 
80
 
   
 
10,062,500
 
   
 
1,006
 
   
 
—  
 
   
 
(19,498,495
) 
  
 
(19,497,409
) 
Accretion for Class A common stock to redemption amount
      —          —          —          —          —          (336,064 )      (336,064 ) 
Net income
      —          —          —          —          —          3,726,765       3,726,765  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
Balance – June 30, 2022 (unaudited)
   
 
800,000
 
   
 
80
 
   
 
10,062,500
 
   
 
1,006
 
   
 
—  
 
   
 
(16,107,794
) 
  
 
(16,106,708
) 
Accretion for Class A common stock to redemption amount
      —          —          —          —          —          (1,330,167 )      (1,330,167 ) 
Net income
      —          —          —          —          —          1,413,693       1,413,693  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
Balance – September 30, 2022 (unaudited)
   
 
800,000
 
   
$
80
 
   
 
10,062,500
 
   
$
1,006
 
   
$
—  
     
$
(16,024,268
) 
  
$
(16,023,182
) 
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
FOR THE 
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
 
    
Class A

Common Stock
     
Class B

Common Stock
     
Additional

Paid-in

Capital
    
Accumulated

Deficit
    
Total

Stockholders’

Equity (Deficit)
  
    
Shares
     
Amount
     
Shares
     
Amount
     
 
    
 
    
 
  
Balance – January 1, 2021
   
 
—  
 
   
$
—  
     
 
10,062,500
 
   
$
1,006
 
   
$
23,994
 
  
$
(1,465
) 
  
$
23,535
 
Sale of 800,000 Private Placement Units, net of warrant liability
      800,000        80        —          —          7,607,920       —         7,608,000  
Accretion for Class A common stock to redemption amount
   
 
—  
 
   
 
—  
 
      —          —          (7,631,914 )      (32,122,921 )      (39,754,835 ) 
Net income
      —          —          —          —          —         6,989,174       6,989,174  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balance – March 31, 2021 (unaudited)
   
 
800,000
 
   
 
80
 
   
 
10,062,500
 
   
 
1,006
 
   
 
—  
 
  
 
(25,135,212
) 
  
 
(25,134,126
) 
Net loss
      —          —          —          —          —         (4,094,328 )      (4,094,328 ) 
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balance – June 30, 2021 (unaudited)
   
 
800,000
 
   
 
80
 
   
 
10,062,500
 
   
 
1,006
 
   
 
—  
 
  
 
(29,229,540
) 
  
 
(29,228,454
) 
Net income
      —          —          —          —          —         2,907,067       2,907,067  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balance – September 30, 2021 (unaudited)
   
 
800,000
 
   
$
80
 
   
 
10,062,500
 
   
$
1,006
 
   
$
 —  
 
  
$
(26,322,473
) 
  
$
(26,321,387
) 
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
The accompanying notes are an integral part of the unaudited condensed financial statements.
 
3
EPIPHANY TECHNOLOGY ACQUISITION CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
  
For The

Nine months Ended
September 30,
 
 
  
2022
 
 
2021
 
Cash Flows from Operating Activities:
  
 
Net income
    $ 10,559,058     $ 5,801,913  
Adjustments to reconcile net income to net cash used in operating activities:
                 
Change in fair value of warrant liabilities
      (9,441,500 )      (7,533,833 ) 
Interest earned on investments held in Trust Account
      (2,549,017 )      (82,054 ) 
Transaction costs allocated to warrants
 liabilities
      —         1,029,081  
Changes in operating assets and liabilities:
                 
Prepaid expenses
      197,270       (428,189 ) 
Accounts payable and accrued expenses
      (242,589 )      192,744  
Income taxes payable
      646,203       —    
    
 
 
    
 
 
  
Net cash used in operating activities
   
 
(830,575
) 
  
 
(1,020,338
) 
    
 
 
    
 
 
  
Cash Flows from Investing Activities:
                 
Cash withdrawn from Trust Account to pay franchise and income taxes
      280,136       —    
Investment of cash into Trust Account
      —         (402,500,000 ) 
    
 
 
    
 
 
  
Net cash provided by (used in) investing activities
   
 
280,136
 
  
 
(402,500,000
) 
    
 
 
    
 
 
  
Cash Flows from Financing Activities:
                 
Proceeds from sale of Units, net of underwriting discounts paid
      —         396,500,000  
Proceeds from sale of Private Placement Units
      —         8,000,000  
Advance from related party
      287,419       1,000  
Repayment of advances from related party
      (17,960 )      —    
Repayment of promissory note – related party
      —         (140,000 ) 
Payment of offering costs
      —         (305,609 ) 
    
 
 
    
 
 
  
Net cash provided by financing activities
   
 
269,459
 
  
 
404,055,391
 
    
 
 
    
 
 
  
Net Change in Cash
   
 
(280,980
) 
  
 
535,053
 
Cash – Beginning of period
      353,094       10,027  
    
 
 
    
 
 
  
Cash – End of period
   
$
72,114
 
  
$
545,080
 
    
 
 
    
 
 
  
Non-Cash Investing
and Financing Activities:
                 
Deferred underwriting fee payable
    $ —       $ 15,137,500  
    
 
 
    
 
 
  
The accompanying notes are an integral part of the
unaudited 
condensed financial statements
 
4
EPIPHANY TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Epiphany Technology Acquisition Corp. (the “Company”) was incorporated in Delaware on September 28, 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 one or more businesses (the “Business Combination”). The Company is not limited to a particular industry or sector for purposes of consummating a Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of September 30, 2022, the Company had not commenced any operations. All activity through September 30, 2022 relates to the Company’s formation and the initial public offering (“Initial Public Offering”), which is described below, and subsequent to the Initial Public Offering identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of its
 
Business Combination, at the earliest. The Company generates
non-operating
income in the form of interest income from the investments held in the Trust Account (as defined below).
The registration statement (the “Registration Statement”) for the Company’s Initial Public Offering was declared effective on January 7, 2021. On January 12, 2021, the Company consummated the Initial Public Offering of 40,250,000 units (the “Units” and, with respect to the Class A common stock included in the Units sold, the “Public Shares”), which includes the full exercise by the underwriter of its over-allotment option in the amount of 5,250,000 Units, at $10.00 per Unit, generating gross proceeds of $402,500,000 which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 800,000 units (the “Placement Units”) at a price of $10.00 per Placement Unit in a private placement to Epiphany Technology Sponsor LLC (the “Sponsor”) and Cantor Fitzgerald & Co. (“Cantor”), that closed simultaneously with the Initial Public Offering, generating gross proceeds of $8,000,000, which is described in Note 4.
Transaction costs amounted to $21,598,082, consisting of $6,000,000 in cash underwriting fees, net of $1,000,000 reimbursed from the underwriters (see Note 6), $15,137,500 of deferred underwriting fees and $460,582 of other offering costs.
Following the closing of the Initial Public Offering on January 12, 2021, an amount of $402,500,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Placement Units was placed in a trust account (the “Trust Account”), located in the United States and has been invested only in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions
of Rule 2a-7 of
the Investment Company Act, as determined by the Company, until the earlier of (i) the completion of a Business Combination and (ii) the distribution of the funds held in the Trust Account, as described below.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Placement Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete one or more
 
Business Combinations having an aggregate fair market value of at least 80% of the assets held in the Trust Account (excluding deferred underwriting commissions and taxes payable on interest earned on the Trust Account) at the time of the agreement to enter into the Business Combination. The Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act.
The Company will provide its holders of the outstanding Public Shares (the “Public Stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The Public Stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially $10.00 per Public Share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.
The Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 either immediately prior to or upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Certificate of Incorporation (the “Certificate of Incorporation”), conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or legal reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Company’s Sponsor has agreed to vote their Founder Shares (as defined in Note 4), Placement Shares (as defined in Note 3) and any Public Shares purchased during or after the Initial Public Offering in favor of approving a Business Combination. Additionally, each Public Stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction.
 
5
EPIPHANY TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
 
If the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Certificate of Incorporation provides 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 15% or more of the Public Shares, without the prior consent of the Company.
The Sponsor has agreed (a) to waive its redemption rights with respect to its Founder Shares, Placement Shares and Public Shares held by it in connection with the completion of a Business Combination and (b) not to propose an amendment to the Certificate of Incorporation (i) that would affect the substance or timing of the Company’s obligation to allow redemptions in connection with a Business Combination or to redeem 100% of its Public Shares if the Company does not complete a Business Combination or (ii) with respect to any other provision relating to stockholders’ rights or
pre-Business
Combination activity, unless the Company provides the Public Stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment.
The Sponsor has agreed to waive its liquidation rights with respect to the Founder Shares and Placement Shares if the Company fails to complete a Business Combination by January 12, 2023 (the “Combination Period”). However, if the Sponsor acquire Public Shares in or after the Initial Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination Period.
If the Company is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at aper-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in the case of clauses (ii) and (iii) above to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.
In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below (i) $10.00 per Public Share or (ii) such lesser amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account due to reductions in the value of the trust assets, in each case net of the amount of interest which may be withdrawn to pay taxes, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (except for the Company’s independent registered accounting firm), prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Going Concern
In connection with the Company’s assessment of going concern considerations in accordance with FASB’s ASU
 
2014-15,“Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that if the Company is unable to raise additional funds to alleviate liquidity needs as well as complete a Business Combination by January 12, 2023, then the Company will cease all operations except for the purpose of liquidating. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern through the liquidation date of January 12, 2023. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after January 12, 2023. In addition, the Company may need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors or third parties. The Company’s officers, directors and Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, the Company may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.
 
6
EPIPHANY TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
 
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to
Form 10-Q
and Article 8 of
Regulation S-X
of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with 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 Annual Report on Form 10-K, as
filed with the SEC on March 30, 2022. The interim results for the activity for the three and nine months ended September 30, 2022 are not necessarily indicative of the results for the year ending December 31, 2022.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a non binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to
non-emerging
growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of unaudited condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the condensed financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future events. One of the more significant accounting estimates included in these financial statements is the determination of the fair value of the warrant liabilities. 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 six months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of September 30, 2022 and December 31, 2021.
 
 
7
EPIPHANY TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
 
Investments Held in Trust Account
At September 30, 2022 and December 31, 2021, substantially all of the assets held in the Trust Account were held in U.S. Treasury bills, accounted for as
held-to-maturity
securities, and money market funds, which are invested primarily in U.S. Treasury securities and accounted for as treasury securities.
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480, “Distinguishing Liabilities from Equity.” Class A common stock subject to mandatory redemption, if any, is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s Class A common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, shares of Class A common stock subject to possible redemption are presented as temporary equity, outside of the stockholders’ deficit section of the Company’s condensed balance sheets. The company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of the Class A common stock subject to possible redemption to equal the redemption value at the end of each reporting period. This method would view the end of the reporting period as if it were also the redemption date for the security.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount value. The change in the carrying value of redeemable Class A common stock resulted in charges against additional
paid-in
capital and accumulated deficit.
At December 31, 2021 and September 30, 2022, the Class A common stock reflected in the condensed balance sheets is reconciled in the following table:
 
Gross proceeds
    $ 402,500,000  
Less:
         
Proceeds allocated to Public Warrants
      (19,185,834 ) 
Class A common stock issuance costs
      (20,569,001 ) 
Plus:
         
Accretion of carrying value to redemption value
      39,754,835  
    
 
 
  
Class A common stock subject to possible redemption, December 31, 2021
      402,500,000  
Plus:
         
Accretion of carrying value to redemption value
      1,666,231  
    
 
 
  
Class A common stock subject to possible redemption, September 30, 2022
    $ 404,166,231  
    
 
 
  
Offering Costs
Offering costs consisted of legal, accounting and other expenses incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs were 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 allocated to warrant liabilities were expensed as incurred in the statements of operations. Offering costs associated with the Class A common stock issued were initially charged to temporary equity and then accreted to common stock subject to redemption upon the completion of the Initial Public Offering. Offering costs amounted to $21,598,082, of which $20,569,001 were charged to temporary equity upon the completion of the Initial Public Offering and $1,029,081 were expensed to the condensed statements of operations.
Warrant Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company accounts for its Public Warrants and Placement Warrants (collectively, the “Warrants”) in accordance with the guidance contained in ASC 815-40 under which the Warrants do not meet
the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjusts the Warrants to fair value at each reporting period. This liability is subject to
 
re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statements of operations. The fair value of the Placement Warrants (as defined in Note 4) was determined using a binomial lattice model incorporating the
Cox-Ross-Rubenstein
methodology. The Public Warrants (as defined in Note
3
) for periods where no observable traded price was available are valued using a binomial lattice model incorporating the
Cox-Ross-Rubenstein
methodology. For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date.
 
8
EPIPHANY TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
 
Income Taxes
The Company accounts 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. As of September 30, 2022 and December 31, 2021, the Company’s deferred tax asset had a full valuation allowance recorded against it.
ASC
 
740-270-25-2
 
requires
that an annual effective tax rate be determined and such annual effective rate applied to year to date income in interim periods under
ASC
 
740-270-30-5.
 
The
Company’s effective tax rate was 28.28% and 0.00% for the three months ended September 30, 2022 and 2021, respectively, and 5.77% and 0.00% for the nine months ended September 30, 2022 and 2021, respectively. The effective tax rate differs from the statutory tax rate of 21% for the three and nine months ended September 30, 2022 and 2021, primarily due to changes in the fair value of the warrant liabilities and the valuation allowance on the deferred tax assets.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position 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. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2022 and December 31, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company is 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. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Net Income Per share of Common Stock
The Company complies with accounting and disclosure requirements of Financial Accounting Standards Board (“FASB”) ASC Topic 260, “Earnings Per Share”. The Company has two classes of common stock, which are referred to as Class A common stock and Class B common stock. Income and losses are shared pro rata between the two classes of common stock. Net income per share of common stock is computed by dividing net income by the weighted average number of common shares outstanding for the period. Accretion associated with the redeemable shares of Class A common stock is excluded from earnings per share of common stock as the redemption value approximates fair value.
The calculation of diluted income per share of common stock does not consider 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. The warrants are exercisable to purchase 13,683,334 shares Class A common stock in the aggregate. As of September 30, 2022 and 2021, the Company had 1,312,500 shares of Class B common stock which were no longer subject to forfeitures that were included in the calculation of diluted income per share of common stock. As a result, diluted net income per share of common stock is the same as basic net income per share of common stock for the periods presented.
 
9
EPIPHANY TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
 
The following table reflects the calculation of basic and diluted net income per share of common stock (in dollars, except per share amounts):
 
 
  
For The Three Months Ended September 30,
 
 
  
2022
 
  
2021
 
 
  
Class A
 
  
Class B
 
  
Class A
 
  
Class B
 
Basic and diluted net income per share of common stock
  
  
  
  
Numerator:
  
  
  
  
Allocation of net income, as adjusted
    $ 1,135,380      $ 278,313      $ 2,334,754      $ 572,313  
Denominator:
                                    
Basic and diluted weighted average shares outstanding
      41,050,000        10,062,500        41,050,000        10,062,500  
Basic and diluted net income per share of common stock
    $ 0.03      $ 0.03      $ 0.06      $ 0.06  
 
 
  
For The Nine Months Ended September 30,
 
 
  
2022
 
  
2021
 
 
  
Class A
 
  
Class B
 
  
Class A
 
  
Class B
 
Basic and diluted net income per share of common stock
  
  
  
  
Numerator:
  
  
  
  
Allocation of net income, as adjusted
    $ 8,480,300      $ 2,078,758      $ 4,660,082      $ 1,141,831  
Denominator:
                                    
Basic and diluted weighted average shares outstanding
      41,050,000        10,062,500        39,245,604        10,004,808  
Basic and diluted net income per share of common stock
    $ 0.21      $ 0.21      $ 0.12      $ 0.12  
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Deposit Insurance Corporation coverage limit of $250,000. The Company has not experienced losses on this account, and management believes the Company is not exposed to significant risks on such account.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature, except for the Warrants (see Note 9).
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. As a smaller reporting company, ASU
2020-06
is effective January 1, 2024 for fiscal years beginning after December 15, 2023 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU
2020-06
would have on its financial position, results of operations or cash flows. The Company has not adopted this guidance as of September 30, 2022.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold 40,250,000 Units, which includes a full exercise by the underwriters of their over-allotment option in the amount of 5,250,000 Units, at a purchase price of $10.00 per Unit. Each Unit consists of one share of Class A common stock and
one-third
of one redeemable warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share, subject to adjustment (see Note 8).
 
10
EPIPHANY TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
 
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the Sponsor and Cantor purchased an aggregate of 800,000 Placement Units at a price of $10.00 per Placement Unit, for an aggregate purchase price of $8,000,000 in a private placement. The Sponsor purchased 450,000 Placement Units and Cantor purchased 350,000 Placement Units. Each Placement Unit consists of one share of Class A common stock (“Placement Share” or, collectively, “Placement Shares”) and
one-third
of one redeemable warrant (each, a “Placement Warrant”). Each whole Placement Warrant is exercisable to purchase one share of Class A common stock at a price of $11.50 per share. A portion of the proceeds from the Placement Units were added to the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Placement Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law), and the Placement Units and all underlying securities will expire worthless.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
On October 6, 2020, the Sponsor paid an aggregate of $25,000 in consideration for 10,062,500 shares of the Company’s Class B common stock (the “Founder Shares”). The Founder Shares included an aggregate of up to 1,312,500 shares that were subject to forfeiture. As a result of the underwriters’ election to fully exercise their over-allotment option, no Founder Shares are currently subject to forfeiture.
The Sponsor has agreed, subject to limited exceptions, not to transfer, assign or sell any of its Founder Shares until the earlier to occur of (A) one year after the completion of a Business Combination or (B) subsequent to a Business Combination, (x) if the last sale price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after a Business Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.
Administrative Services Agreement
The Company entered into an agreement, commencing on January 7, 2021, through the earlier of the Company’s consummation of a Business Combination or its liquidation, to pay an affiliate of the Sponsor a total of $15,000 per month for office space, utilities and secretarial and administrative support services. For the three months ended September 30, 2022 and 2021, the Company incurred $45,000 in fees for such services. For the nine months ended September 30, 2022 and 2021, the Company incurred $135,000 in fees for such services. As of September 30, 2022 and December 31, 2021, the Company accrued $15,000 in fees for such services, which is included in accrued expenses the accompanying condensed balance sheets.
Promissory Note — Related Party
On September 28, 2020, the Sponsor agreed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”). The Note
was-
non-interest
bearing and was payable on the earlier of (i) March 31, 2021 or (ii) the consummation of the Initial Public Offering. The outstanding balance under the Note of $140,000 was repaid at the closing of the Initial Public Offering on January 12, 2021. As of September 30, 2022, borrowings are no longer available under the Note.
Advance from Related Party
As of September 30, 2022 and September 30, 2021, a related party paid operating expenses and formation costs on behalf of the Company. These amounts are reflected on the condensed balance sheets as advances from related party. The advances are
non-interest
bearing and are payable on demand. At September 30, 2022 and December 31, 2021, the Company had advances owed to the Sponsor in the amount of $270,459 and $1,000, respectively.
Related Party Loans
In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the 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, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into units upon consummation of the Business Combination at a price of $10.00 per unit. The units would be identical to the Placement Units. There are no borrowings outstanding as of September 30, 2022 and December 31, 2021.
 
11
EPIPHANY TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
 
NOTE 6. COMMITMENTS AND CONTINGENCIES
Risks and Uncertainties
Management continues to evaluate the impact of global events, including the
COVID-19
global pandemic, anticipated or current military conflict between Russia and Ukraine, terrorism, sanctions, and other geopolitical events, and has concluded that while it is reasonably possible that the events could have a negative effect on the Company’s financial position, its results of operations and/or search for a target company, the specific impact is not readily determinable as of the date of these condensed financial statements. The condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy is not determinable as of the date of these unaudited condensed financial statements and the specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these unaudited condensed financial statements.
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the 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 the excise tax.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.
Registration and Stockholder Rights
Pursuant to a registration rights agreement entered into on January 7, 2021, the holders of the Founder Shares, Placement Units, Placement Shares, Placement Warrants and units that may be issued upon conversion of Working Capital Loans and the shares and warrants included therein (and any shares of common stock issuable upon the exercise of the Placement Warrants or warrants included in the units issued upon conversion of Working Capital Loans) will be entitled to registration rights pursuant to a registration rights agreement requiring the Company register such securities for resale (in the case of the Founder Shares, only after conversion to the Company’s Class A common stock). The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The registration rights agreement does not contain liquidated damages or other cash settlement provisions resulting from delays in registering the securities. Notwithstanding the foregoing, Cantor may not exercise its demand and “piggyback” registration rights after five (5) and seven (7) years after January 7, 2021 and may not exercise its demand rights on more than one occasion. The registration rights agreement does not contain liquidating damages or other cash settlement provisions resulting from delays in registering the Company’s securities. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriters are entitled to a deferred fee of (i) 3.5% of the gross proceeds of the initial 35,000,000 Units sold in the Initial Public Offering, or $12,250,000, and (ii) 5.5% of the gross proceeds from the Units sold pursuant to the over-allotment option, or $2,887,500. The deferred fee will be paid in cash upon the closing of a Business Combination from the amounts held in the Trust Account, subject to the terms of the underwriting agreement.
The underwriters reimbursed the Company $1,000,000 at the closing of the Initial Public Offering for offering costs incurred.
NOTE 7. STOCKHOLDERS’ DEFICIT
Preferred Stock
— The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At September 30, 2022 and December 31, 2021, there were no shares of preferred stock issued or outstanding.
Class
 A Common Stock
— The Company is authorized to issue 200,000,000 shares of Class A common stock with a par value of $0.0001 per share. Holders of Class A common stock are entitled to one vote for each share. At September 30, 2022 and December 31, 2021, there were 800,000 shares of Class A common stock issued and outstanding, excluding 40,250,000 shares of Class A common stock subject to possible redemption which are presented as temporary equity.
Class
 B Common Stock
— The Company is authorized to issue 20,000,000 shares of Class B common stock with a par value of $0.0001 per share. Holders of Class B common stock are entitled to one vote for each share. At September 30, 2022 and December 31, 2021, there were 10,062,500 shares of Class B common stock issued and outstanding.
Holders of Class A common stock and Class B common stock will vote together as a single class on all other matters submitted to a vote of stockholders except as required by law.
 
12
EPIPHANY TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
 
The shares of Class B common stock will automatically convert into shares of Class A common stock at the time of a Business Combination on
a one-for-one
basis, subject to adjustment. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed issued in excess of the amounts offered in the Initial Public Offering and related to the closing of a Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an
as-converted
basis, 20% of the sum of the total number of all shares of common stock outstanding upon completion of the Initial Public Offering (excluding the Placement Units and underlying securities) plus all shares of Class A common stock and equity-linked securities issued or deemed issued in connection with a Business Combination (excluding any shares or equity-linked securities issued, or to be issued, to any seller in a Business Combination, any private placement-equivalent units and their underlying securities issued to the Sponsor or its affiliates upon conversion of loans made to the Company). The Company cannot determine at this time whether a majority of the holders of the Class B common stock at the time of any future issuance would agree to waive such adjustment to the conversion ratio.
NOTE 8. WARRANT LIABILITIES
At September 30, 2022 and December 31, 2021, there were 13,416,667 Public Warrants outstanding. Public Warrants may only be exercised for a whole number of shares. No fractional warrants will be issued upon separation of the Units and only whole warrants will trade. The Public Warrants will become exercisable on the later of (a) 30 days after the completion of a Business Combination or (b) 12 months from the closing of the Initial Public Offering. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common stock issuable upon the exercise of the warrants is then effective and a current prospectus relating to those shares of Class A common stock is available, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable, and the Company will not be obligated to issue shares of Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants.
The Company has agreed that as soon as practicable, but in no event later than 20 business days after the closing of a Business Combination, the Company will use its best efforts to file with the SEC a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants, to cause such registration statement to become effective and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective by the 60th business day after the closing of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the foregoing, if a registration statement covering the Class A common stock issuable upon exercise of the warrants is not effective within a specified period following the consummation of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act of 1933, as amended, or the Securities Act, provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.
Once the warrants become exercisable, the Company may redeem the Public Warrants:
 
  •  
in whole and not in part;
 
  •  
at a price of $0.01 per warrant;
 
  •  
upon not less than 30 days’ prior written notice of redemption, or
the 30-day redemption
period, to each warrant holder; and
 
  •  
if, and only if, the reported last sale price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within
a
 
30-trading
 
day
period commencing once the warrants become exercisable and ending three business days before the Company sends the notice of redemption to the warrant holders.
If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
 
13
EPIPHANY TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
 
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of Class A common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
In addition, if (x) 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 Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the Company’s Business Combination on the date of the consummation of such Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the greater of the Market Value and the Newly Issued Price and the $18.00 per share redemption trigger price described above will be adjusted (to the nearest cent) to be equal to 180% of the greater of the Market Value and the Newly Issued Price.
As of September 30, 2022 and December 31, 2021, there were 266,667 Placement Warrants outstanding. The Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Placement Warrants and the Class A common stock issuable upon the exercise of the Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Placement Warrants will be exercisable on a cashless basis and be
non-redeemable
so long as they are held by the initial purchasers or their permitted transferees. If the Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
NOTE 9. FAIR VALUE MEASUREMENTS
The Company follows the guidance in ASC 820 for its financial assets and liabilities that arere-measured and reported at fair value at each reporting period, and
non-financial
assets and liabilities that
are re-measured
and reported at fair value at least annually.
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 based on assessment of the assumptions that market participants would use in pricing the asset or liability.
 
14
EPIPHANY TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
 
The Company classifies its U.S. Treasury and equivalent securities as
held-to-maturity
in accordance with ASC Topic 320, “Investments—Debt and Equity
Securities.” Held-to-maturity
securities are those securities which the Company has the ability and intent to hold until maturity.
Held-to-maturity
treasury securities are recorded at amortized cost on the accompanying condensed balance sheets and adjusted for the amortization or accretion of premiums or discounts.
As of September 30, 2022, assets held in the Trust Account were comprised of $202,377,294 in money market funds, which are invested in U.S. Treasury Securities. The Company also had $5,306 in cash and $202,499,867 invested in U.S. Treasury Bills. Total investments in marketable securities as of September 30, 2022 is $404,882,467. During the nine months ended September 30, 2022, the Company withdrew $280,136 of interest income from the Trust Account to pay its taxes.
As of December 31, 2021, assets held in the Trust Account were comprised of $201,269,466 in money market funds, which are invested in U.S. Treasury Securities. The Company also had $1,120 in cash and $201,343,000 invested in U.S. Treasury Bills. Total investment in marketable securities as of December 31, 2021 is $402,613,586. During the nine months ended September 30, 2021, the Company did not withdraw any interest income from the Trust Account to pay its taxes.
The following table presents information about the Company’s gross holding losses and fair value of
held-to-maturity
securities at September 30, 2022:
 
    
Held-To-Maturity
   
Level
     
Amortized Cost
     
Gross

Holding

Gain

(Loss)
     
Fair Value
  
September 30, 2022
   
U.S. Treasury Securities (Matures on 10/13/22)
      1      $ 202,499,867      $ 16,244      $ 202,516,111  
                  
 
 
     
 
 
     
 
 
  
December 31, 2021
   
U.S. Treasury Securities (Matures on 01/13/2022)
      1      $ 201,343,000      $ —        $ 201,343,000  
                  
 
 
     
 
 
     
 
 
  
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
 
Description
  
Level
 
  
September 30,

2022
 
  
December 31,

2021
 
Assets:
  
  
  
Investments – Money market funds
      1     
$

 202,377,294     
$

 201,269,466  
Liabilities:
                           
Warrant Liability – Public Warrants
      1     
$

 805,000     
$

 10,062,500  
Warrant Liability – Private Placement Warrants
      3     
$

 16,000     
$

 200,000  
The Warrants were accounted for as liabilities in accordance with ASC
 
815-40,
 
and are presented within warrant liabilities in the Company’s condensed balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the condensed statements of operations.
The Private Placement Warrants were valued using a binomial lattice model incorporating the
Cox-Ross-Rubenstein
methodology, which is considered to be a Level 3 fair value measurement, as of initial measurement and subsequent measurements. The primary unobservable input utilized in determining the fair value of the Warrants is the expected volatility of the common stock. The expected volatility was initially derived from observable public warrant pricing on comparable ‘blank-check’ companies without an identified target. The subsequent measurements of the Public Warrants after the detachment of the Public Warrants from the Units was classified as Level 1 due to the use of an observable market quote in an active market. For periods subsequent to the detachment of the Public Warrants from the Units, the close price of the Public Warrant price was used as the fair value as of each relevant date.
 
15
EPIPHANY TECHNOLOGY ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
 
The following table presents the quantitative information regarding Level 3 fair value measurements:
 
    
September 30,

2022
    
September 30,

2021
  
Input:
                 
Risk-free interest rate
      4.20 %      0.90 % 
Expected term (years)
      5.5       5.5  
Expected volatility
      2.8 %      16.1 % 
Exercise price
    $ 11.50     $ 11.50  
Stock price
    $ 9.88     $ 9.77  
The following table presents the changes in the fair value of Level 3 warrant liabilities as of September 30, 2022:
 
    
Private

Placement
  
Fair value as of January 1, 2021
    $  200,000  
Change in fair value
      (109,333 ) 
    
 
 
  
Fair value as of March 31, 2022
      90,667  
Change in fair value
      (69,334 ) 
    
 
 
  
Fair value as of June 30, 2022
      21,333  
Change in fair value
      (5,333 ) 
    
 
 
  
Fair value as of September 30, 2022
    $ 16,000  
    
 
 
  
The following table presents the changes in the fair value of Level 3 warrant liabilities as of September 30, 2021:
 
 
  
Private

Placement
 
  
Public
 
  
Warrant

Liabilities

(Level 3)
 
Fair value as of January 1, 2021
  
 
—  
 
  
 
—  
 
  
 
—  
 
Initial classification on January 12, 2021 (Initial Public Offering)
    $ 392,000      $ 19,185,834      $ 19,577,834  
Transfers to Level 1
      —          (19,185,834 )       (19,185,834 ) 
Change in fair value
      (168,000 )       —          (168,000 ) 
    
 
 
     
 
 
     
 
 
  
Fair value as of March 31, 2021
      224,000        —          224,000  
Change in fair value
      77,334        —          77,334  
    
 
 
     
 
 
     
 
 
  
Fair value as of June 30, 2021
      301,334        —          301,334  
Change in fair value
      (64,000 )       —          (64,000 ) 
    
 
 
     
 
 
     
 
 
  
Fair value as of September 30, 2021
    $ 237,334      $ —        $ 237,334  
    
 
 
     
 
 
     
 
 
  
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurement during the nine months ended September 30, 2021 was $19,185,834. There were no transfers to/from Levels 1, 2, and 3 during the three and nine months ended September 30, 2022.
NOTE 10. SUBSEQUENT EVENTS
The Company evaluates subsequent events and transactions that occur after the unaudited condensed balance sheets date up to the date that the unaudited condensed financial statements were issued. Based upon this review, the Company did not identify subsequent events that would have required adjustment or disclosure in the unaudited condensed financial statements.
 
16

Table of Contents

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 Epiphany Technology Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, references to the “Sponsor” refer to Epiphany Technology Sponsor LLC. The following discussion and analysis of our 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 the final prospectus for its initial public offering (the “Initial Public Offering”) filed with the U.S. Securities and Exchange Commission (the “SEC”). 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. In connection with the change in presentation for the Class A common stock subject to redemption, the Company also revised its earnings per share calculation to allocate net income (loss) evenly to Class A and Class B common stock. This presentation contemplates a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”) as the most likely outcome, in which case, both classes of common stock share pro rata in the income (loss) of the Company.

Overview

We are a blank check company formed under the laws of the State of Delaware on September 28, 2020 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar Business Combination with one or more target businesses. We intend to effectuate our Business Combination using cash from the proceeds of our Initial Public Offering and the concurrent private placement, the proceeds of the sale of our shares in connection with our Business Combination, shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing.

We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.

Results of Operations

We have neither engaged in any operations nor generated any revenues to date. Our only activities from inception through September 30, 2022 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and, subsequent to the Initial Public Offering, searching and identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on investments held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

For the three months ended September 30, 2022, we had net income of $1,413,693, which consists of a change in the fair value warrant liabilities of $273,666 and interest income on investments held in the Trust Account where the proceeds from our Initial Public Offering were placed (the “Trust Account”) of $1,907,275, offset by operational costs of $209,723 and a provision for income taxes of $557,525.

For the nine months ended September 30, 2022, we had net income of $10,559,058, which consists of a change in the fair value warrant liabilities of $9,441,500 and interest income on investments held in the Trust Account of $2,549,017, offset by operational costs of $785,256 and a provision for income taxes of $646,203.

For the three months ended September 30, 2021, we had a net income of $2,907,067, which consists of a change in the fair value warrant liabilities of $3,149,833 and interest income on marketable securities held in the Trust Account of $26,161, offset by formation and operational costs of $268,927.

For the nine months ended September 30, 2021, we had a net income of $5,801,913, which consists of a change in the fair value warrant liabilities of $7,533,833 and interest income on marketable securities held in the Trust Account of $82,054, offset by transaction cost allocable to warrants of $1,029,081 and formation and operational costs of $784,893.

 

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Liquidity and Capital Resources

On January 12, 2021, we consummated the Initial Public Offering of 40,250,000 units (the “Units” and, with respect to the Class A common stock included in the Units sold, the “Public Shares”), which included the full exercise by the underwriters of their over-allotment option to purchase an additional 5,250,000 Units, at $10.00 per Unit, generating gross proceeds of $402,500,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 800,000 units (the “Placement Units”) to the Sponsor and Cantor Fitzgerald & Co. (“Cantor”) at a price of $10.00 per Unit, generating gross proceeds of $8,000,000.

Following the Initial Public Offering, the full exercise of the over-allotment option and the sale of the Placement Units, a total of $402,500,000 was placed in the Trust Account. We incurred $21,598,082 in transaction costs, including $6,000,000 of underwriting fees, net of $1,000,000 reimbursed from the underwriters, $15,137,500 of deferred underwriting fees and $460,582 of other offering costs.

For the nine months ended September 30, 2022, cash used in operating activities was $830,575. Net income of $10,559,058 was affected by changes in the fair value warrant liabilities of $9,441,500 and interest income on investments held in the Trust Account of $2,549,017. Changes in operating assets and liabilities provided $439,680 of cash from operating activities.

For the nine months ended September 30, 2021, cash used in operating activities was $1,020,338. Net income of $5,801,913 was affected by changes in the fair value of warrant liabilities of $7,533,833, interest earned on investments and marketable securities held in the Trust Account of $82,054 and transaction costs allocable to warrants of $1,029,081. Changes in operating assets and liabilities used $235,445 of cash from operating activities.

As of September 30, 2022, we had cash and investments held in the Trust Account of $404,882,467. Interest income on the balance in the Trust Account may be used by us to pay taxes. During the nine months ended September 30, 2022, we withdraw $280,136 of interest earned on the Trust Account to pay for our franchise tax obligations. 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) to complete our Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.

As of September 30, 2022, we had $72,114 of cash held outside of the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.

In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts out of the proceeds of the Trust Account released to us. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into units identical to the Placement Units, at a price of $10.00 per unit at the option of the lender. The units would be identical to the Placement Units.

 

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We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our public shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination. If we are unable to complete our 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 Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.

Going Concern

We have until January 12, 2023 to consummate a Business Combination. It is uncertain that we will be able to consummate an initial Business Combination by this time. If a Business Combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution. Management has determined that the mandatory liquidation, should a Business Combination not occur, and potential subsequent dissolution raises substantial doubt about our ability to continue as a going concern through the liquidation date of January 12, 2023. No adjustments have been made to the carrying amounts of assets or liabilities should we be required to liquidate after January 12, 2023. In addition, we may need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors or third parties. Our officers, directors and Sponsor may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet our working capital needs. Accordingly, we may not be able to obtain additional financing. If we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. We cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about our ability to continue as a going concern through the liquidation date of January 12, 2023.

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, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of our Sponsor a monthly fee of $15,000 for office space, utilities and secretarial and administrative support. We began incurring these fees on January 12, 2021 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.

The underwriters are entitled to a deferred fee of (i) 3.5% of the gross proceeds of the initial 35,000,000 units sold in our Initial Public Offering, or $12,250,000, and (ii) 5.5% of the gross proceeds from the units sold pursuant to the over-allotment option, or $2,887,500. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms of the underwriting agreement.

Critical Accounting Policies

The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies.

Warrant Liabilities

We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). We account for our warrants in accordance with the guidance contained in Accounting Standards Codification(“ASC”)815-40 under which the warrants that do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classify our warrants as liabilities at their fair value and adjust the warrants to fair value at each reporting period. This liability is subject tore-measurement at each balance sheets date until exercised, and any change in fair value is recognized in our statements of operations. The fair value of our private placement warrants was determined using a binomial lattice model incorporating the Cox-Ross-Rubenstein methodology. The public warrants for periods where no observable traded price was available are valued using a binomial lattice model incorporating the Cox-Ross-Rubenstein methodology. For periods subsequent to the detachment of the public warrants from the Units, the public warrant quoted market price was used as the fair value as of each relevant date.

 

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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 the Financial Accounting Standards Board’s (“FASB”) ASC Topic 480, “Distinguishing Liabilities from Equity.” Shares of Class A common stock subject to mandatory redemption, if any, are classified as a liability instrument and are measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our Class A common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, shares of Class A common stock subject to possible redemption are presented as temporary equity, outside of the stockholders’ deficit section of our balance sheets. We recognize changes in redemption value immediately as they occur and adjust the carrying value of the Class A common stock subject to possible redemption to equal the redemption value at the end of each reporting period. This method would view the end of the reporting period as if it were also the redemption date for the security.

 

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Net Income Per share of Common Stock

We have two classes of shares, which are referred to as Class A common stock and Class B common stock. Income and losses are shared pro rata between the two classes of shares. Net income Per share of Common Stock is computed by dividing net income by the weighted average number of common shares outstanding for the period. Accretion associated with the redeemable shares of Class A common stock is excluded from income Per share of Common Stock as the redemption value approximates fair value.

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. As a smaller reporting company, ASU 2020-06 is effective January 1, 2024 for fiscal years beginning after December 15, 2023 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. We are currently assessing the impact, if any, that ASU 2020-06 would have on our financial position, results of operations or cash flows. We have not adopted this guidance as of September 30, 2022.

Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.

Factors That May Adversely Affect Our Results of Operations

Our results of operations and our ability to complete a Business Combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in the Ukraine. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an initial Business Combination.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended September 30, 2022, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures were effective. Accordingly, management believes that the financial statements included in this Quarterly Report present fairly in all material respects our financial position, results of operations and cash flows for the period presented.

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 fiscal quarter of 2022 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.

 

 

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

To the knowledge of our management team, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property.

ITEM 1A. RISK FACTORS.

As of the date of this Report, other than as set forth below, there have been no material changes with respect to those risk factors previously disclosed in our (i) final prospectus dated January 7, 2021, as filed with the SEC on January 11, 2021, (ii) Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 30, 2022, (iii) Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, as filed with the SEC on May 13, 2022, and (iv) Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, as filed with the SEC on August 12, 2022. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risks could arise that may also affect our business or ability to consummate a Business Combination. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.

A new 1% U.S. federal excise tax could be imposed on us in connection with redemptions by us of our shares in connection with a Business Combination or other stockholder vote pursuant to which stockholders would have a right to submit their shares for redemption (a “Redemption Event”).

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases (including redemptions) of stock by publicly traded domestic (i.e., U.S.) corporations and certain domestic subsidiaries of publicly traded foreign corporations. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury Department”) has been given authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of the excise tax. The IR Act applies only to repurchases that occur after December 31, 2022.

Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Redemption Event may be subject to the excise tax. Whether and to what extent we would be subject to the excise tax in connection with a Redemption Event would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Redemption Event, (ii) the structure of the Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with the Business Combination (or otherwise issued not in connection with the Redemption Event but issued within the same taxable year of the Business Combination) and (iv) the content of regulations and other guidance from the Treasury Department. In addition, because the excise tax would be payable by us, and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in our ability to complete a Business Combination.

To mitigate the risk that we might be deemed to be an investment company for purposes of the Investment Company Act, we may, at any time, instruct the trustee to liquidate the securities held in the Trust Account and instead to hold the funds in the Trust Account in cash items until the earlier of the consummation of our Business Combination or our liquidation. As a result, following the liquidation of securities in the Trust Account, we would likely receive minimal interest, if any, on the funds held in the Trust Account, which would reduce the dollar amount our public shareholders would receive upon any redemption or liquidation of the Company.

The funds in the Trust Account have, since our IPO, been held only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds investing solely in U.S. government treasury obligations and meeting certain conditions under Rule 2a-7 under the Investment Company Act. However, to mitigate the risk of us being deemed to be an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act) and thus subject to regulation under the Investment Company Act, we may, at any time, instruct Continental Stock Transfer & Trust Company, the trustee with respect to the Trust Account, to liquidate the U.S. government treasury obligations or money market funds held in the Trust Account and thereafter to hold all funds in the Trust Account as cash items until the earlier of the consummation of our Business Combination or the liquidation of the Company. Following such liquidation, we would likely receive minimal interest, if any, on the funds held in the Trust Account. However, interest previously earned on the funds held in the Trust Account still may be released to us to pay our taxes, if any, and certain other expenses as permitted. As a result, any decision to liquidate the investments held in the Trust Account and thereafter to hold all funds in the Trust Account in cash items would reduce the dollar amount our public shareholders would receive upon any redemption or liquidation of the Company.

In the event that we may be deemed to be an investment company, we may be required to liquidate the Company.

 

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We may not be able to complete a Business Combination with certain potential target companies if a proposed transaction with the target company may be subject to review or approval by regulatory authorities pursuant to certain U.S. or foreign laws or regulations.

Certain acquisitions or Business Combinations may be subject to review or approval by regulatory authorities pursuant to certain U.S. or foreign laws or regulations. In the event that such regulatory approval or clearance is not obtained, or the review process is extended beyond the period of time that would permit a Business Combination to be consummated with us, we may not be able to consummate a Business Combination with such target.

Among other things, the U.S. Federal Communications Act prohibits foreign individuals, governments, and corporations from owning more a specified percentage of the capital stock of a broadcast, common carrier, or aeronautical radio station licensee. In addition, U.S. law currently restricts foreign ownership of U.S. airlines. In the United States, certain mergers that may affect competition may require certain filings and review by the Department of Justice and the Federal Trade Commission, and investments or acquisitions that may affect national security are subject to review by the Committee on Foreign Investment in the United States (“CFIUS”). CFIUS is an interagency committee authorized to review certain transactions involving foreign investment in the United States by foreign persons in order to determine the effect of such transactions on the national security of the United States.

Outside the United States, laws or regulations may affect our ability to consummate a Business Combination with potential target companies incorporated or having business operations in jurisdiction where national security considerations, involvement in regulated industries (including telecommunications), or in businesses relating to a country’s culture or heritage may be implicated. While our Sponsor is a Delaware limited liability company, it has ties to non-U.S. persons that may implicate CFIUS review or the laws of foreign jurisdictions. Specifically, Alex Vieux, one of the three managing members of our Sponsor, is a French citizen. In addition, as previously disclosed in the Company’s filings with the SEC, Mr. Vieux is one of the two managing members of Founder Holdings LLC, the managing member of Explorer Parent LLC, which is a member of the Sponsor. Except as disclosed above, the Sponsor has no other substantial ties with a non-U.S. person.

U.S. and foreign regulators generally have the power to deny the ability of the parties to consummate a transaction or to condition approval of a transaction on specified terms and conditions, which may not be acceptable to us or a target. In such event, we may not be able to consummate a transaction with that potential target.

As a result of these various restrictions, the pool of potential targets with which we could complete a Business Combination may be limited and we may be adversely affected in terms of competing with other SPACs that do not have similar ownership issues. Moreover, the process of government review, could be lengthy. Because we have only a limited time to complete our Business Combination, our failure to obtain any required approvals within the requisite time period may require us to liquidate. If we liquidate, our public shareholders may only receive $10.00 per share, and our warrants will expire worthless. This will also cause you to lose any potential investment opportunity in a target company and the chance of realizing future gains on your investment through any price appreciation in the combined company.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None. For a description of the use of proceeds generated in our Initial Public Offering and private placement, see Part II, Item 2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, as filed with the SEC on July 20, 2021. There has been no material change in the planned use of proceeds from the Company’s Initial Public Offering and private placement as described in the Registration Statement.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form10-Q.

 

No.

  

Description of Exhibit

10.1***   Joinder Insider Letter Agreement, dated September 16, 2022, by and between the Company and Ross Haghighat, Stephen Sherwin, Louis Lange and Ronald Eastman.
31.1*   Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*   Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**   Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1****   Press Release, dated September 23, 2022
101.INS*   Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document
101.CAL*   Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.SCH*   Inline XBRL Taxonomy Extension Schema Document
101.DEF*   Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*   Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*   Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

*    Filed herewith.
**    Furnished.
***    Incorporated by reference to the Company’s 8-K filed on September 22, 2022
****    Incorporated by reference to the Company’s 8-K filed on September 23, 2022

 

 

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PART III – SIGNATURES

Pursuant to the requirements of Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    Epiphany Technology Acquisition Corp.
Date: November 14, 2022    

/s/ Peter Bell

    Name:   Peter Bell
    Title:  

Chief Executive Officer

and Chief Financial Officer

(Principal Executive Officer and

Principal Financial and Accounting Officer)

 

 

 

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