Business context and reporting period
This is Anzu Special Acquisition Corp. I’s unaudited Form 10-Q for the quarter and six months ended June 30, 2023, filed August 14, 2023. Anzu was a blank-check SPAC, not yet the combined Envoy Medical operating company. It had no operating revenue or operations and was pursuing a merger with Envoy Medical, a medical-device company whose implanted device was in early clinical testing and had received FDA Breakthrough Device Designation.
The proposed merger, agreed April 17 and amended May 12, 2023, would make Envoy a wholly owned subsidiary and rename the public company Envoy Medical, Inc. The agreement contemplated approximately 15 million shares for Envoy holders, subject to adjustment. Closing was expected in Q3 2023, but remained subject to conditions and was not assured.
Financial results and liquidity
| Metric | Three months ended June 30, 2023 | Six months ended June 30, 2023 |
|---|---|---|
| Operating revenue | None | None |
| Formation and operating costs | $98,596 | $2.59 million |
| Trust-account interest income | $528,297 | $3.90 million |
| Net income (loss) | $(1.14) million | $(420,544) |
| Basic and diluted loss per share | $(0.08) | $(0.01) |
| Net cash used in operating activities | Not presented | $2.86 million |
At June 30, 2023, Anzu reported $132,773 of cash outside the trust account and $44.65 million in trust investments. Current liabilities were $9.35 million, including $5.12 million of accrued expenses and $2.69 million of related-party working-capital loans. The reported working-capital deficit was approximately $8.95 million. Total liabilities were $21.24 million; redeemable Class A shares of $44.60 million were presented as temporary equity. The filing reports no operating margins; they are not meaningful for this pre-combination SPAC.
Six-month investing cash flow included $387.61 million withdrawn from the trust account to fund redemptions and $1.69 million withdrawn for taxes. Financing cash flow included $1.19 million of working-capital loan proceeds and $387.61 million of redemptions. Cash increased by $25,000 from year-end.
Material changes versus the prior comparable period
- Six-month net results shifted from $15.55 million income in 2022 to a $420,544 loss in 2023. The 2022 period included a $17.86 million gain from a change in warrant fair value; the 2023 period included higher trust interest but operating costs, tax expense, and derivative-related items.
- Second-quarter results shifted from $3.09 million net income in 2022 to a $1.14 million net loss in 2023, including a $266,667 warrant-liability fair-value loss and losses related to forward purchase arrangements.
- In March 2023, shareholders redeemed 38,187,226 Class A shares for approximately $387.6 million, leaving 4,312,774 redeemable public shares and about $44.3 million in the trust at that time.
- The working-capital deficit increased from $7.09 million at December 31, 2022 to approximately $8.95 million at June 30, 2023. Related-party loans rose from $1.50 million to $2.69 million.
Outlook, risks, contingencies, and unusual items
- Anzu’s business-combination deadline was September 30, 2023, unless extended. If it did not complete a transaction by the deadline, it would have to redeem public shares and liquidate; warrants could expire worthless.
- Management said the low cash balance, working-capital deficit, and possible mandatory liquidation raised substantial doubt about Anzu’s ability to continue as a going concern if a business combination was not completed. Sponsor or third-party financing was not committed, and the Sponsor was not obligated to lend.
- The proposed Meteora prepaid-forward arrangement allowed the seller, but did not obligate it, to buy Anzu shares after the redemption deadline, up to a stated maximum of 4.3 million shares subject to the agreement. The seller agreed to waive redemption rights for covered shares and not vote them for the transaction. A related prepaid-forward derivative liability was $144,770 at quarter-end.
- Envoy separately entered into a $10 million bridge-note arrangement with GAT Funding, an entity associated with an Envoy director and significant shareholder; the filing described a planned exchange for New Envoy Series A preferred shares, contingent on a PIPE closing.
- Anzu disclosed that its disclosure controls were ineffective because of a material weakness in accounting for extinguishment of a contingent obligation. The weakness had previously resulted in a restatement of 2022 financial statements.
- Potential risks also included the 1% federal excise tax on certain share repurchases, uncertain access to additional funding, and the possibility that transaction conditions or financing needs could prevent or delay the merger. No material legal proceedings outside the ordinary course were reported.
Most important facts for investors to verify
- Whether the Envoy merger closed, and the final transaction terms, share consideration, financing, and closing conditions.
- Available cash and committed financing after redemptions, including the status and repayment or conversion terms of the $2.69 million related-party loans and the Envoy bridge note.
- The final treatment of the Meteora forward purchase arrangement, redemptions, and any related dilution or derivative liability.
- The status of the September 30, 2023 business-combination deadline and any extension, redemption, or liquidation actions.
- Resolution of the disclosed material weakness and confirmation of the deferred-underwriting-fee obligations; the filing reports a $10.41 million balance-sheet liability while MD&A says the remaining underwriter waived entitlement solely with respect to the proposed combination.