The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
February 2020 and a 1:1.2 stock split of Class B common stock in March 2020 ( see Note 4).
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business Operations
Incorporation
Flying Eagle Acquisition
Corp. (the “Company”) was incorporated as a Delaware corporation on January 15, 2020.
Subsidiaries
In connection with
the proposed business combination (the “Business Combination”) with Skillz Inc. (“Skillz”), the Company
formed a wholly-owned subsidiary, FEAC Merger Sub Inc., which was incorporated in Delaware on August 14, 2020 (“Merger Sub”).
Merger Sub did not have any activity as of September 30, 2020.
Sponsor
The Company’s
sponsor is Eagle Equity Partners II, LLC, a Delaware limited liability company (the “Sponsor”). Harry E. Sloan, the
Company’s Chief Executive Officer and Chairman, and Eli Baker, the Company’s President, Chief Financial Officer and
Secretary, are members of the Sponsor.
Fiscal Year End
The Company has selected
December 31 as its fiscal year end.
Business Purpose
The Company was formed for the purpose of effecting a merger,
capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more
operating businesses that it has not yet selected. The Company has neither engaged in any operations nor generated significant
revenue to date.
The Company’s
management has broad discretion with respect to the specific application of the net proceeds of its initial public offering of
Units (the “Public Offering”), although substantially all of the net proceeds of the Public Offering are intended to
be generally applied toward completing a Business Combination. Furthermore, there is no assurance that the Company will be able
to successfully complete a Business Combination.
Business Combination
On September 1, 2020,
the Company entered into the Merger Agreement by and among the Company, Merger Sub, Skillz and Andrew Paradise, solely in his
capacity as representative of the Founder. The merger was unanimously approved by the Company’s board of directors on September
1, 2020. If the Merger Agreement is approved by the Company’s and Skillz’s stockholders, and the transactions contemplated
by the Merger Agreement are consummated, Merger Sub will merge with and into Skillz with Skillz surviving the merger as a wholly
owned subsidiary of the Company (the “Business Combination”). In addition, in connection with the consummation of
the Business Combination, the Company will be renamed “Skillz, Inc.” and is referred to herein as “New Skillz”
as of the time following such change of name.
For more detailed information regarding the Business Combination, see Note 8.
Financing
The Sponsor
intends to finance the Business Combination in part with proceeds from the $690,000,000 Public Offering and an approximately
$15,050,000 private placement (the “Private Placement”), see Notes 3 and 4. Should the Business Combination not
be successful, the Company will continue to search for another business combination. The registration statement for the
Public Offering was declared effective by the U.S. Securities and Exchange Commission (“SEC”) on March 5, 2020.
The Company consummated the Public Offering of 69,000,000 units, including the issuance of 9,000,000 units as a result of the
underwriters’ exercise of their over-allotment option in full (the “Units”), at $10.00 per Unit on March
10, 2020, generating gross proceeds of $690,000,000. Simultaneously with the closing of the Public Offering, the Company
consummated the Private Placement of an aggregate of 10,033,333 warrants (the “Private Placement Warrants”) at a
price of $1.50 per Private Placement Warrant. Upon the closing of the Public Offering and Private Placement, $690,000,000
from the net proceeds of the Public Offering and the Private Placement was placed in a U.S.-based trust account maintained by
Continental Stock Transfer & Trust Company, acting as trustee (the “Trust Account”).
Trust Account
The proceeds held
in the Trust Account were invested in permitted United States “government securities” within the meaning of Section
2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), having a maturity of 185
days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act that
invest only in direct U.S. government treasury obligations.
The Company’s
second amended and restated certificate of incorporation (the “Charter”) provides that, other than the withdrawal of
interest earned on the funds that may be released to the Company to fund working capital requirements (subject to an aggregate
limit of $1,000,000) and/or to pay taxes, none of the funds held in the Trust Account will be released until the earlier of: (i)
the completion of the Business Combination; (ii) the redemption of any of the shares of Class A common stock, par value $0.0001
per share (the “Class A Common Stock”) included in the Units sold in the Public Offering properly submitted in connection
with a stockholder vote to amend the Charter to modify the substance or timing of the Company’s obligation to redeem 100%
of the common stock included in the Units being sold in the Public Offering if the Company does not complete the Business Combination
within 24 months from the closing of the Public Offering or with respect to any other material provisions relating to stockholders’
rights or pre-initial Business Combination activity or (iii) the redemption of 100% of the shares of Class A Common Stock included
in the Units sold in the Public Offering if the Company is unable to complete a Business Combination within 24 months from the
closing of the Public Offering.
The Company,
after signing a definitive agreement for a Business Combination, will either (i) seek stockholder approval of the Business
Combination at a meeting called for such purpose in connection with which stockholders may seek to redeem their shares,
regardless of whether they vote for or against the Business Combination, for cash equal to their pro rata share of the
aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of the
Business Combination, including interest earned on the funds held in the Trust Account and not previously released to the
Company to fund its working capital requirements (subject to an aggregate limit of $1,000,000) and/or to pay taxes, or (ii)
provide stockholders with the opportunity to sell their shares to the Company by means of a tender offer for an amount in
cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account calculated as of two business
days prior to commencement of the tender offer, including interest earned on the funds held in the Trust Account and not
previously released to the Company to fund its working capital requirements and/or to pay taxes. However, in no event will
the Company redeem its public shares in an amount that would cause its net tangible assets to be less than $5,000,001 upon
consummation of the Company’s initial Business Combination and after payment of underwriters’ fees and
commissions. In such case, the Company would not proceed with the redemption of its public shares and the related Business
Combination, and instead may search for an alternate Business Combination.
If the Company holds
a stockholder vote in connection with a Business Combination, a public stockholder will have the right to redeem its shares for
an amount in cash equal to its pro rata share of the aggregate amount then on deposit in the Trust Account calculated as of two
business days prior to the consummation of the Business Combination, including interest earned on the funds held in the Trust Account
but not previously released to the Company to fund its working capital requirements (subject to an aggregate limit of $1,000,000)
and/or to pay taxes. As a result, such common stock will be recorded at redemption amount and classified as temporary equity upon
the completion of the Public Offering, in accordance with FASB ASC 480, “Distinguishing Liabilities from Equity.”
The Company has 24
months from the closing of the Public Offering to complete its Business Combination (or until March 10, 2022). If the Company
does not complete a Business Combination within this period of time, it will (i) cease all operations except for the purposes
of winding up, (ii) as promptly as reasonably possible, but not more than ten business days thereafter, redeem the public shares
for a per share pro rata portion of the Trust Account, including interest, but less income taxes payable (less up to $100,000
of such net interest to pay dissolution expenses) and (iii) as promptly as possible following such redemption, dissolve and liquidate
the balance of the Company’s net assets to its remaining stockholders, as part of its plan of dissolution and liquidation.
The Sponsor and the Company’s executive officers and independent directors (the “initial stockholders”) entered
into a letter agreement with the Company, pursuant to which they waived their rights to participate in any redemption with respect
to their Founder Shares (as defined below); however, if the initial stockholders or any of the Company’s officers, directors
or affiliates acquire shares of Class A Common Stock, they will be entitled to a pro rata share of the Trust Account upon the
Company’s redemption or liquidation in the event the Company does not complete a Business Combination within the required
time period. In the event of such distribution, it is possible that the per share value of the residual assets remaining available
for distribution (including Trust Account assets) will be less than the initial public offering price per Unit in the Public Offering.
Emerging Growth Company
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 of 1933, as amended (the “Securities Act”)
registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of
1934, as amended (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, we, 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 accountant standards used.
2. Significant Accounting Policies
Basis of Presentation
These unaudited
condensed consolidated financial statements of the Company are presented in U.S. dollars in conformity with accounting
principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations
of the SEC. The interim financial information provided is unaudited, but includes all adjustments which management considers
necessary for the fair presentation of the results for the periods ended September 30, 2020. Operating results for the periods
ended September 30, 2020 are not necessarily indicative of the results that may be expected through December 31, 2020 and
should be read in conjunction with the Company’s audited financial statements and notes thereto included in the
Company’s prospectus filed with the SEC on March 5, 2020, and the Company’s audited balance sheet and notes
thereto included in the Company’s Form 8-K filed with the SEC on March 16, 2020.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly
owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.
Liquidity and Capital Resources
As of September 30, 2020, the Company had $255,827 in its operating bank account, and working capital of approximately $14,330. The Company's liquidity needs
to date have been satisfied through a contribution of $25,000 from Sponsor to cover for certain expenses in exchange for the
issuance of the Founder Shares, the loan of up to approximately $300,000 from the Sponsor pursuant to a Note (defined below,
see Note 4), and the proceeds from the consummation of the Private Placement not held in the Trust Account. The Company fully
repaid the Note in March 2020. 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 intend, but are not obligated to,
provide the Company Working Capital Loans (defined below, see Note 4). As of September 30, 2020, there was $230,000
outstanding under the Working Capital Loans.
Based on the foregoing, management believes that the Company
will have sufficient working capital and borrowing capacity from the Sponsor or an affiliate of the Sponsor, or certain of the
Company's officers and directors to meet its needs through the earlier of the consummation of a Business Combination or one year
from this filing. Over this time period, the Company will be using these funds for paying existing accounts payable, identifying
and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses,
paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating
the Business Combination.
Management continues to evaluate the impact of the COVID-19
pandemic and has concluded that the specific impact is not readily determinable as of the date of the balance sheet. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Net Income (Loss) Per Share
Net income (loss)
per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the
periods. The Company has not considered the effect of the warrants sold in the Public Offering (including the over-allotment) and
private placement warrants to purchase approximately 17,250,000 and 10,033,333 shares of the Company’s Class A common stock,
respectively, in the calculation of diluted income per share, since their inclusion would be anti-dilutive under the treasury stock
method.
The Company’s statements of operations include a presentation
of net income (loss) per share for common shares subject to redemption in a manner similar to the two-class method of net income
per share. Net income per common share for basic and diluted Class A common stock for the three months ended September 30, 2020
is calculated by dividing the interest income earned on the Trust Account of $188,589 net of franchise taxes of $50,000, working
capital up to an aggregate limit of $1,000,000, and income taxes of $11,617 by the weighted average number of Class A redeemable
common stock since issuance. Net income per common share for basic and diluted Class A common stock for the period from January
15, 2020 (inception) through September 30, 2020, is calculated by dividing the interest income earned on the Trust Account of $691,470,
net of franchise taxes of $140,548, working capital up to an aggregate limit of $1,000,000, and income taxes of $65,470 by the
weighted average number of Class A redeemable common stock since issuance. Net loss per common share for basic and diluted for
Class B common stock is calculated by dividing the net loss, which excludes income attributable to Class A common stock, by the
weighted average number of Class B common stock outstanding for the periods. All interest income earned on the Trust Account is
attributable to Class B common stock. Class B non-redeemable common stock includes the Founder Shares as these shares do not have any redemption features and do not participate
in the income earned on the Trust Account.
Concentration of Credit Risk
Financial instruments
that potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution which,
at times, may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts
and management believes the Company is not exposed to significant risks on such accounts.
Fair Value of Financial Instruments
The fair value
of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value
Measurements and Disclosures,” approximates the carrying amounts represented in the unaudited condensed consolidated
balance sheet.
Use of Estimates
The preparation
of unaudited condensed consolidated 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 unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during
the reporting periods. 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 unaudited condensed consolidated financial statements, which management
considered in formulating its estimate, could change in the near term due to one or more future conforming events. Actual
results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. As of September
30, 2020, the Company had no cash equivalents.
Class A Common Stock Subject to
Possible Redemption
As discussed in Note
1, all of the 69,000,000 shares of Class A common stock sold as part of the Units in the Public Offering contain a redemption feature
which allows for the redemption of shares of Class A common stock under the Charter. In accordance with FASB ASC 480, redemption
provisions not solely within the control of the Company require the security to be classified outside of permanent equity. Ordinary
liquidation events, which involve the redemption and liquidation of all of the entity's equity instruments, are excluded from the
provisions of FASB ASC 480. Although the Company has not specified a maximum redemption threshold, its Charter provides that in
no event will the Company redeem its Public Shares in an amount that would cause its net tangible assets to be less than $5,000,001.
The Company recognizes
changes in redemption value immediately as they occur and will adjust the carrying value at the end of each reporting period. Increases
or decreases in the carrying amount of redeemable shares of Class A common stock shall be affected by charges against additional
paid in capital.
Accordingly, at September
30, 2020, 66,090,379 of the 69,000,000 shares of Class A common stock included in the Units were classified outside of permanent
equity at approximately $10.00 per share.
Offering Costs
The Company
complies with the requirements of the ASC 340-10-S99-1. Offering costs of $38,688,692 consisting principally of underwriters'
discounts of $37,950,000 (including $24,150,000 of which payment is deferred) and $738,692 of professional, printing, filing,
regulatory and other costs incurred through September 30, 2020 that were related to the Public Offering were charged to
additional paid-in capital upon completion of the Public Offering.
Income Taxes
The Company complies with the accounting and reporting requirements
of Financial Accounting Standards Board Accounting Standard Codification, or FASB ASC, 740, “Income Taxes,” which requires
an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities
are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future
taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected
to be realized. As of September 30, 2020, the Company had a deferred tax asset of approximately $153,000, which had a full valuation
allowance recorded against it of approximately $153,000.
There were no unrecognized
tax benefits as of September 30, 2020. FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial
statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be
recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes
accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment
of interest and penalties at September 30, 2020. 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 tax examinations by
major taxing authorities since inception. The Company's current taxable income primarily consists of interest income on the Trust
Account. The Company's general and administrative costs are generally considered start-up costs and are not currently deductible.
During the three months ended September 30, 2020, and the period from January 15, 2020 (inception) through September 30, 2020,
the Company recorded income tax expense of $11,617 and $65,470, respectively.
The Company’s effective tax rate for the three months
ended September 30, 2020 and for the period from January 15, 2020 (inception) through September 30, 2020 was approximately -15.7%
and -1.7%, respectively, which differs from the expected income tax rate due to the start-up costs (discussed above) which are
not currently deductible.
Recent Accounting Pronouncements
Management does not
believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material
effect on the Company’s unaudited condensed consolidated financial statements.
3. Public Offering
Public Units
In the Public Offering,
which closed March 10, 2020, the Company sold 69,000,000 Units at a price of $10.00 per Unit. Each Unit consists of one share of
Class A Common Stock and one-fourth of one redeemable warrant (each whole warrant, a “Warrant”). Each whole Warrant
entitles the holder to purchase one share of Class A Common Stock at a price of $11.50 per share. Each Warrant will become exercisable
on the later of 30 days after the completion of our initial business combination and 12 months from the closing of the Public Offering.
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.
The Company granted
the underwriters a 45-day option to purchase up to 9,000,000 additional Units to cover any over-allotment, at the Public Offering
price less the underwriting discounts and commissions. On March 10, 2020, the Company issued 9,000,000 Units in connection with
the underwriters’ exercise of the over-allotment option in full.
Underwriting Commissions
The Company paid an
underwriting discount of $13,800,000 ($0.20 per Unit sold) to the underwriters at the closing of the Public Offering on March 10,
2020, with an additional fee (“Deferred Discount”) of $24,150,000 ($0.35 per Unit sold) payable upon the Company’s
completion of an initial Business Combination. The Deferred Discount will become payable to the underwriters from the amounts held
in the Trust Account solely in the event the Company completes its initial Business Combination.
4. Related Party Transactions
Founder Shares
On January 15, 2020,
the Sponsor received 11,500,000 shares of Class B common stock (the “Founder Shares”) in exchange for a capital contribution
of $25,000, or approximately $0.002 per share.
The Founder Shares
are identical to the shares of Class A Common Stock included in the Units sold in the Public Offering except that the Founder Shares
are subject to certain transfer restrictions, as described in more detail below.
On February 10, 2020,
the Company effected a 1:1.25 stock split of the Founder Shares, resulting in the Sponsor holding 14,375,000 Founder Shares. On
March 2, 2020, the Sponsor transferred 20,000 Founder Shares to each of Scott M. Delman and Joshua Kazam, directors of the Company,
for an aggregate purchase price of $80 (the same per-share price initially paid by the Sponsor), resulting in the Sponsor holding
14,335,000 Founder Shares and each of Messrs. Delman and Kazam holding 20,000 Founder Shares. On March 5, 2020, the Company effected
a 1:1.2 stock split of the Founder Shares, resulting in the Sponsor holding an aggregate of 17,210,000 Founder Shares and each
of Messrs. Delman and Kazam holding 20,000 Founder Shares, for a total of 17,250,000 Founder Shares outstanding. On May 8, 2020,
the Sponsor transferred 20,000 Founder Shares to Laurence E. Paul, a director of the Company (together with Messrs. Delman and
Kazam and the Sponsor, the “initial stockholders”) for an aggregate purchase price of $80 (the same per-share price
initially paid by the Sponsor), resulting in the Sponsor holding 17,190,000 Founder Shares. The shares and the associated amounts
have been retroactively restated to reflect the 1:1.25 stock split of each outstanding share of Class B common stock in February
2020 and the 1:1.2 stock split in March 2020. All share and per share amounts have been retroactively restated to reflect the stock transactions.
The initial stockholders
have agreed not to transfer, assign or sell any of their Founder Shares until the earlier of (A) one year after the completion
of the Company’s initial Business Combination, or earlier if, subsequent to the Company’s initial Business Combination,
the closing price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock capitalizations,
reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150
days after the Company’s initial Business Combination, and (B) the date on which the Company completes a liquidation, merger,
capital stock exchange or other similar transaction after the initial Business Combination that results in all of the Company’s
stockholders having the right to exchange their common stock for cash, securities or other property.
Private Placement Warrants
In conjunction with
the Public Offering, the Sponsor purchased an aggregate of 10,033,333 Private Placement Warrants, at a price of $1.50 per warrant
(approximately $15,050,000 in the aggregate) in the Private Placement. Each Private Placement Warrant entitles the holder to purchase
one share of Class A Common Stock at $11.50 per share. A portion of the purchase price of the Private Placement Warrants was added
to the proceeds from the Public Offering to be held in the Trust Account such that at closing of the Public Offering, $690,000,000
was placed in the Trust Account.
The Private Placement
Warrants (including the shares of common stock issuable upon exercise of the Private Placement Warrants) are not transferable,
assignable or salable until 30 days after the completion of the initial Business Combination and they are non-redeemable for cash
so long as they are held by the initial purchasers of the Private Placement Warrants or their permitted transferees. If the Private
Placement Warrants are held by someone other than the initial purchasers of the Private Placement Warrants or their permitted transferees,
the Private Placement Warrants will be redeemable for cash by the Company and exercisable by such holders on the same basis as
the warrants included in the Units sold in the Public Offering. Otherwise, the Private Placement Warrants have terms and provisions
that are identical to those of the Warrants sold as part of the Units in the Public Offering and have no net cash settlement provisions.
If the Company does
not complete a Business Combination, then the proceeds will be part of the liquidating distribution to the public stockholders
and the Warrants issued to the Sponsor will expire worthless.
Registration Rights
The holders of the
Founder Shares, Private Placement Warrants and Warrants that may be issued upon conversion of working capital loans (and any Class
A common stock issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of
working capital loans and upon conversion of the Founder Shares) are entitled to registration rights pursuant to a registration
rights agreement, requiring the Company to register such securities for resale. The holders of these securities are entitled to
make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain
“piggy-back” registration rights with respect to registration statements filed subsequent to our completion of our
initial business combination. The Company will bear the expenses incurred in connection with the filing of any such registration
statements.
Sponsor Loans
The Sponsor agreed
to loan the Company up to an aggregate of $300,000 by the issuance of an unsecured promissory note (the “Note”) to
cover expenses related to the Public Offering. The Note was payable without interest on the earlier of December 31, 2020 or the
completion of the Public Offering. During the period ended September 30, 2020, borrowings on the Note totaling $230,885 were repaid
in full. As of September 30, 2020, there was no amount outstanding under the Note.
Administrative Services Agreement
The Company entered
into an administrative services agreement in which the Company reimburses an affiliate of the Sponsor for office space, utilities
and secretarial and administrative services provided to members of the Company’s management team in an amount not to exceed
$15,000 per month. The administrative services fee commenced on April 1, 2020. For the period from January 15, 2020 (inception) through September 30, 2020 and the three months ended September 30, 2020 , the Company
incurred $90,000 and $45,000 in fees for these services.
Working Capital Loans
In order to finance
transaction costs in connection with an intended initial 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. Up to
$1,500,000 of such loans may be convertible into warrants of the post-Business Combination entity at a price of $1.50 per warrant
at the option of the lender. Such warrants would be identical to the private placement warrants. The terms of such loans have
not been determined and no written agreements exist with respect to such loans. During the period ended September 30, 2020, the
Sponsor loaned an aggregate $230,000 to the Company. As of September 30, 2020, there was $230,000 outstanding.
5. Commitments and Contingencies
Underwriting Agreement
The Company is committed
to pay the Deferred Discount totaling $24,150,000, or 3.5% of the gross offering proceeds of the Public Offering, to the underwriters
upon the Company’s consummation of a Business Combination. The underwriters will not be entitled to any interest accrued
on the Deferred Discount, and no Deferred Discount is payable to the underwriters if there is no Business Combination.
Risks and Uncertainties
Management
continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably
possible that the virus could have a negative effect on the Company's, or its target’s, financial position, results of
its operations and/or completion of the Business Combination, the specific impact is not readily determinable as of the date
of these unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
6. Trust Account
As of September 30,
2020, investment securities in the Company’s Trust Account consisted of $690,030,228 in United States Treasury Bills and
another $9,242 held as cash. The Company classifies its Treasury Instruments and equivalent securities as held-to-maturity in accordance
with FASB ASC 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 balance sheets and adjusted for the amortization or accretion of premiums or discounts. The following
table presents fair value information as of September 30, 2020 and indicates the fair value hierarchy of the valuation techniques
the Company utilized to determine such fair value. In addition, the table presents the carrying value (held to maturity), excluding
accrued interest income and gross unrealized holding loss. Since all of the Company’s permitted investments consist of U.S.
government treasury bills and cash, fair values of its investments are determined by Level 1 inputs utilizing quoted prices (unadjusted)
in active markets for identical assets as follows:
|
|
|
Carrying Value
|
|
|
Gross
Unrealized
Holding (Loss)
|
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
|
U.S. Government Treasury Securities as of September 30, 2020 (1)
|
|
$
|
690,030,228
|
|
|
$
|
(2,872
|
)
|
|
$
|
690,033,100
|
|
|
|
(1)
|
Matured on October 6, 2020. Reinvested on October 7, 2020.
|
|
Transfers to/from Levels 1, 2, and 3 are
recognized at the end of the reporting period. There were no transfers between levels for the period from January 15, 2020 (inception)
through September 30, 2020. During the three month period ended September 30, 2020, the Company withdrew $652,000 from the Trust
for working capital and to pay taxes.
Level 1 instruments include investments in money market funds
and U.S. Treasury securities. The Company uses inputs such as actual trade data, benchmark yields, quoted market prices from dealers
or brokers, and other similar sources to determine the fair value of its investments.
7. Stockholders’ Equity
Class A Common
Stock - The Company is authorized to issue 380,000,000 shares of Class A common stock with a par value of $0.0001
per share. As of September 30, 2020, there were 69,000,000 shares of Class A common stock issued and outstanding of which, 66,090,379
were classified outside of permanent 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 the Company’s Class B common stock are entitled to one vote for each share. As of September 30, 2020,
there were 17,250,000 shares of Class B common stock issued and outstanding.
Preferred stock - The
Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share. As of September 30, 2020,
there were no shares of preferred stock issued or outstanding.
Warrants — Public
Warrants may only be exercised for a whole number of shares. No fractional Public Warrants will be issued upon separation of the
Units and only whole Public 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 Public Offering; provided in each
case that the Company has an effective registration statement under the Securities Act covering the shares of Class A Common Stock
issuable upon exercise of the Public Warrants and a current prospectus relating to them is available (or the Company permits holders
to exercise their Public Warrants on a cashless basis and such cashless exercise is exempt from registration under the Securities
Act). The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of a Business
Combination, the Company will use its best efforts to file with the SEC a registration statement for the registration, under the
Securities Act, of the shares of Class A Common Stock issuable upon exercise of the Public Warrants. The Company will use its best
efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus
relating thereto, until the expiration of the Public Warrants in accordance with the provisions of the warrant agreement relating
to the Warrants. If a registration statement covering the shares of Class A Common Stock issuable upon exercise of the Warrants
is not effective by the sixtieth (60th) day after the closing of the initial 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. The Public Warrants will expire five years after the completion of a Business Combination or earlier
upon redemption or liquidation.
The Private Placement
Warrants are identical to the Public Warrants underlying the Units sold in the Public Offering, except that the Private Placement
Warrants and the shares of Class A Common Stock issuable upon exercise of the Private Placement Warrants will not be transferable,
assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally,
the Private Placement Warrants will be non-redeemable so long as they are held by the initial purchasers or such purchasers’
permitted transferees. If the Private Placement Warrants are held by someone other than their initial purchasers or their permitted
transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis
as the Public Warrants.
The Company may call
the Warrants for redemption (except with respect to the Private Placement Warrants):
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in whole and not in part;
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at a price of $0.01 per warrant;
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upon a minimum of 30 days’ prior written notice of redemption; and
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if, and only if, the last reported closing price of the Class A Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.
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Additionally,
commencing ninety days after the Warrants become exercisable, the Company may redeem its outstanding Warrants in whole and
not in part, for the number of Class A ordinary shares determined by reference to the table set forth in the Company’s
prospectus relating to the Public Offering based on the redemption date and the “fair market value” of the Class
A Common Stock, upon a minimum of 30 days’ prior written notice of redemption and if, and only if, the last sale price
of the Class A ordinary shares equals or exceeds $10.00 per share (as adjusted for stock splits, stock dividends,
reorganizations, recapitalizations and the like) on the trading day prior to the date on which the Company sends the notice
of redemption to the warrant holders, if, and only if, the Private Placement Warrants are also concurrently exchanged at the
same price (equal to a number of shares of Class A Common Stock) as the outstanding Warrants, as described above and if, and
only if, there is an effective registration statement covering the shares of Class A Common Stock issuable upon exercise of
the Warrants and a current prospectus relating thereto available throughout the 30-day period after written notice of
redemption is given. The “fair market value” of the shares of Class A Common Stock is the average last reported
sale price of the Class A Common Stock for the 10 trading days ending on the third trading day prior to the date on which the
notice of redemption is sent to the holders of warrants.
If the Company calls
the Warrants for redemption, management will have the option to require all holders that wish to exercise the 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. If
the Company is unable to complete a Business Combination within the required time 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 initial 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 initial stockholders or their affiliates, without taking into account
any Founder Shares held by the initial stockholders or such affiliates, as applicable, prior to such issuance), (y) the aggregate
gross proceeds from such issuances represent more than 50% of the total equity proceeds, and interest thereon, available for the
funding of the initial Business Combination, and (z) the volume weighted average trading price of the Class A Common Stock during
the 10 trading day period starting on the trading day after the day on which the Company consummates the initial 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 Market Value, and the $18.00 per share redemption trigger price of the Warrants will
be adjusted (to the nearest cent) to be equal to 180% of the Market Value. However, if the Company does not complete its initial
Business Combination on or prior to March 10, 2022, the Warrants will expire at the end of such period.
8. Proposed Business Combination
On September 1, 2020,
the Company entered into an agreement and plan of merger by and among the Company, FEAC Merger Sub Inc., a wholly owned subsidiary
of the Company (“Merger Sub”), Skillz Inc. (“Skillz”) and Andrew Paradise, solely in his capacity as representative
of the stockholders of Skillz (the “Founder”) (as it may be amended and/or restated from time to time, the “Merger
Agreement”). The merger was unanimously approved by the Company’s board of directors on September 1, 2020. If the
Merger Agreement is approved by the Company’s and Skillz’s stockholders, and the transactions contemplated by the
Merger Agreement are consummated, Merger Sub will merge with and into Skillz with Skillz surviving the merger as a wholly owned
subsidiary of the Company (the “Business Combination”). In addition, in connection with the consummation of the Business
Combination, the Company will be renamed “Skillz, Inc.” and is referred to herein as “New Skillz” as of
the time following such change of name.
Under the Merger
Agreement, the Company has agreed to acquire all of the outstanding equity interests of Skillz for approximately $3.5 billion
in aggregate consideration to be paid at the effective time of the Business Combination. Such consideration will be paid through
cash and/or stock in New Skillz as follows: each stockholder of Skillz holding shares of common stock of Skillz immediately prior
to the effective time of the Business Combination can either elect to receive, with respect to each share of common stock of Skillz
it holds, (x) an amount of cash or (y) shares of common stock of New Skillz, in the case of each of clauses (x) and (y) above,
calculated based on the per share merger consideration value formula as set forth in the Merger Agreement and, in the case of
the shares of common stock of New Skillz, calculated based on a price of $10 per share (the “Closing Price”). If such
stockholder fails to make such election within the required time, it will be deemed to have made an election to receive stock
consideration. The shares of common stock of New Skillz to be received by each stockholder of Skillz that elects to receive stock
consideration will be as follows: (A) stockholders other than the Founder and his controlled affiliates will receive publicly
listed shares of Class A common stock, and (B) the Founder and his controlled affiliates will receive shares of Class B common
stock, in each case as set forth in the Merger Agreement. The cash consideration (the “Cash Consideration”) payable
to all Skillz stockholders will be an amount of cash equal to the lesser of (i) (a) the funds remaining in the Company’s
trust account after giving effect to redemptions of public shares, if any, and payment of Skillz’s
and the Company’s outstanding transaction expenses as contemplated by the Merger Agreement, plus (b) the
funds received by the Company in connection with the equity financing relating to the Subscription Agreements (as described below), plus (c)
the amount of cash and cash equivalents of Skillz determined in accordance with GAAP as of 11:59 p.m. Pacific Time on the day
immediately preceding consummation of the Business Combination, minus (d) $250,000,000, and (ii) solely to the
extent reasonably necessary, based on the written advice of the Company’s nationally recognized tax counsel, to qualify
the Business Combination either as a reorganization under Section 368(a) of the Internal Revenue Code of 1986 or a transfer under
Section 351(a) of the Internal Revenue Code of 1986, such amount designated
by Skillz to the Company not less than three (3) days prior to consummation of the Business Combination.
If the Skillz stockholders
elect to receive an aggregate amount of cash that is greater than the Cash Consideration, the amount of cash to be paid to each
Skillz stockholder who elected to receive cash will be downwardly adjusted on a pro rata, per share of common stock of Skillz,
basis and each such Skillz stockholder will receive additional shares of New Skillz.
If the Cash Consideration
exceeds the aggregate amount of cash which the Skillz stockholders elect to receive, the number of shares to be received by each
Skillz stockholder that has elected to receive shares will be reduced until the cash portion of such stockholder’s total
merger consideration equals the aggregate cash consideration portion of the aggregate merger consideration, and each Skillz stockholder
will receive a pro rata portion of the excess cash.
Other Agreements
In addition to the
Merger Agreement, the Company also entered into the following agreements.
Subscription Agreements
The Company entered
into subscription agreements (the “Subscription Agreements”), each dated as of September 1, 2020, with certain institutional
investors, pursuant to which, among other things, the Company agreed to issue and sell, in private placements to close immediately
prior to the closing of the Business Combination, an aggregate of 15,853,052 shares of Class A common stock for $10.00 per share.
Investors’ Rights Agreement
The Company entered
into an eighth amended and restated investors’ rights agreement (the “Investors’ Rights Agreement”), dated
as of September 1, 2020, among the Company, Skillz and certain of their respective stockholders, which will become effective upon
consummation of the Business Combination. Pursuant to the Investors’ Rights Agreement, New Skillz will be required to register
for resale securities held by the stockholders party thereto. New Skillz will have no obligation to facilitate more than one demand,
made by the Sponsor, or its affiliates, that New Skillz register such stockholders’ securities. In addition, the holders
have certain “piggyback” registration rights with respect to registrations initiated by New Skillz. New Skillz will
bear the expenses incurred in connection with the filing of any registration statements pursuant to the Investors’ Rights
Agreement. The Investors’ Rights Agreement also restricts the ability of each stockholder who is a party thereto to transfer
its shares of New Skillz common stock for a period of 2 years following the closing of the Business Combination, subject to certain
permitted transfers. In general, 1,500,000 shares of New Skillz common stock held by each stockholder who is a party to the Investors’
Rights Agreement and its affiliates will be released from the transfer restrictions each quarter beginning on the date that is
six months following the Closing.
Support Agreements
In connection with
and following the execution of the Merger Agreement, certain Skillz stockholders (the “Skillz Supporting Stockholders”)
entered into Skillz support agreements with the Company (the “Support Agreements”). Under the Support Agreements, each
Skillz Supporting Stockholder agreed, on (or effective as of) the third business day following the SEC declaring effective the
proxy statement/prospectus relating to the approval by the Company’s stockholders of the Business Combination, to execute
and deliver a written consent with respect to the outstanding shares of Skillz common stock and preferred stock held by such Skillz
Supporting Stockholder adopting the Merger Agreement and approving the Business Combination. The shares of Skillz common stock
and preferred stock that are owned by the Skillz Supporting Stockholders and subject to the Support Agreements represent over 85%
of the outstanding voting power of Skillz common stock and preferred stock (on an as converted basis). In addition, the Support
Agreements prohibit the Skillz Supporting Stockholders from engaging in activities that have the effect of soliciting a competing
acquisition proposal.
Non-Redemption Agreements
In connection with
and following the entry into the Merger Agreement, the Company entered into non-redemption agreements with certain holders of shares
of the Company’s Class A common stock, pursuant to which such holders agreed not to exercise their redemption rights in connection
with the Business Combination (the “Non-Redemption Agreements”). The aggregate number of shares of the Company’s
Class A common stock subject to the Non-Redemption Agreements is 9,577,500, which represents $95.84 million of otherwise exercisable
redemption rights. If the Business Combination is not consummated, the restriction on redemption would no longer apply.
Sponsor Agreement
In connection with
the execution of the Merger Agreement, the Sponsor entered into an Agreement (the “Sponsor Agreement”) with Skillz,
pursuant to which the Sponsor agreed to vote all shares of the Company’s common stock beneficially owned by it in favor of
each of the proposals at the Company’s Special Meeting, to use its reasonable best efforts to take all actions reasonably
necessary to consummate the Business Combination and to not take any action that would reasonably be expected to materially delay
or prevent the satisfaction of the conditions to the Business Combination set forth in the Merger Agreement.
The Sponsor also agreed
that, at the Closing, it would deposit the Earnout Shares into the earnout escrow account and it would agree to cancel 899,797
shares of the Company’s common stock and 5,016,667 private placement warrants held by the Sponsor.
Voting Agreements
In connection with
the Merger Agreement, Skillz entered into voting and support agreements (the “Voting Agreements”) with holders of 6,972,518
shares of the Company's common stock pursuant to which such stockholders have agreed to vote in favor of the Business Combination.
When such Voting Agreements are taken together with the Sponsor's agreement to vote in favor of the Business Combination, holders
of approximately 28% of the issued and outstanding common stock of the Company have agreed to vote in favor of the Business Combination
and the other proposals set forth in the proxy statement/prospectus described below. The Voting Agreements do not contain any restrictions
on transfer and the covenants to vote terminate upon the earlier of closing or termination of the Merger Agreement.
Additional information
regarding the Business Combination is available in the proxy statement/prospectus initially filed by the Company with the SEC
on September 4, 2020, as amended on October 14, 2020 and November 2, 2020.
9. Subsequent Events
Management has evaluated
subsequent events to determine if events or transactions occurring through the date the financial statements
were available for issuance, require potential adjustment to or disclosure in the financial statements and has concluded that,
except as noted above, all such events that would require recognition or disclosure have been recognized or disclosed.