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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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You should read the following discussion and analysis of our financial condition and results of operations together with our historical condensed financial statements and the related notes thereto
appearing elsewhere in this Quarterly Report. The objective of the following discussion and analysis is to provide material information relevant to your assessment of the financial condition and results of operations of our company, including an
evaluation of the amounts and certainty of cash flows from operations and from outside sources, and to better allow you to view our company from management’s perspective. Some of the information contained in this discussion and analysis or set
forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, includes forward‑looking statements that involve risks and uncertainties. As a result of many factors,
including those factors set forth in the “Risk Factors” section of this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2022, our actual results could differ materially from the results described in or implied
by the forward‑looking statements contained in the following discussion and analysis.
Overview
References in this report to “we,” “us,” “our,” “company” or “our company” are to Jackson Acquisition Company, to “management” or our “management team” are to our directors and officers; and to the
“sponsor” are to RJ Healthcare SPAC, LLC, a Delaware limited liability company. References to “founder shares” are to shares of our Class B Common Stock, par value $0.0001 per share, initially purchased by our sponsor in a private placement prior
to our initial public offering, and the shares of our Class A Common Stock issued upon the conversion thereof as provided herein, and references to “initial stockholders” are to holders of our founder shares prior to our initial public offering.
References to “extension option” are to the option of the sponsor, upon deposit of the extension fee into the trust account, to cause us to extend the period of time to consummate our initial business combination by three months, until September
13, 2023.
We are a blank check company, incorporated as a Delaware corporation for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses. While we have engaged in discussions with multiple potential targets, as of the date hereof we have not entered into a definitive agreement with respect to an initial business combination. We intend to
effectuate our initial business combination using cash from the proceeds of the Initial Public Offering and the Private Placements, our capital stock, debt or a combination of cash, stock and debt.
On December 13, 2021, we completed our Initial Public Offering of 20,000,000 Units and the simultaneous Private Placement of an aggregate of 9,560,000 Private Placement Warrants to our sponsor. On
January 6, 2022, the underwriter partially exercised its option to purchase additional Units to cover over-allotments, if any, and purchased an additional 2,250,000 Units, generating gross proceeds of $22,500,000. Also on January 6, 2022, in
connection with the underwriter’s partial exercise of its over-allotment option, we completed the additional private placement of an additional 787,500 Private Placement Warrants to our sponsor, at a price of $1.00 per Private Placement Warrant,
generating gross proceeds of $787,500. An aggregate of $225,837,500 in proceeds from the Initial Public Offering, partial exercise of the underwriter’s over-allotment option and the Private Placements has been placed in the Trust Account.
As of March 31, 2023, we had cash of $134,226 and a working capital deficit of $1,159,915.
Results of Operations and Known Trends or Future Events
We have neither engaged in any operations nor generated any revenues to date. Our only activities from March 5, 2021 (inception) through March 31, 2023, were organizational activities, those
necessary to prepare for the Initial Public Offering, and the search for a target company for an initial business combination. We will not generate any operating revenues until after completion of our initial business combination. We will
generate non-operating income in the form of interest income on cash and cash equivalents. There has been no significant change in our financial or trading position and no material adverse change has occurred since the date of our audited
financial statements, except for the subsequent event disclosed in the notes to our condensed financial statements. We have incurred and may continue to incur increased expenses as a result of being a public company (for legal, financial
reporting, accounting and auditing compliance). On May 10, 2023, the Company issued a press release announcing that it intends to redeem all of its outstanding shares of Class A common stock that were issued in the Units in the Initial Public
Offering, effective as of the close of business on June 13, 2023, as the Company does not expect to complete an initial business combination by June 13, 2023 and the Company’s sponsor has determined that it will not make an additional
contribution to the Company’s trust account required in order to extend the June 13, 2023 deadline under the Company’s Amended and Restated Certificate of Incorporation for the Company to complete an initial business combination.
For the three months ended March 31, 2023, we had a net income of $1,464,887, which consists of interest income on marketable securities held in the trust account of $2,427,082 offset by operating
costs of $463,008, which included $60,762 in increased expenses due to the subsequent event noted above. In addition, the Company recorded an income tax provision of $499,187.
For the three months ended March 31, 2022 we had a net income of $5,671,572, which consists of a gain in fair value of the derivative warrant liabilities of $6,227,025 and interest income on
marketable securities held in the trust account of $21,452 offset by operating costs of $551,793 and transaction costs related to derivative warrant liabilities of $25,112.
Liquidity and Capital Resources and Going Concern
Until the consummation of our IPO, our only source of liquidity was an initial purchase of Class B Common Stock by our sponsor and loans from our sponsor, as described in Note 1 to our financial
statements. In connection with the IPO, including the underwriter’s exercise of its overallotment option on January 6, 2022, and Private Placements, an aggregate of $225,837,500 in proceeds was placed in the Trust Account. As of March 31, 2023,
the Trust Account had a balance of $231,021,253. The funds in the Trust Account have been or will be invested only in U.S. government treasury bills with a maturity of 185 days or less or in money market funds that meet certain conditions under
Rule 2a-7 under the Investment Company Act and that invest only in direct U.S. government 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 taxes payable and deferred underwriting commissions) to complete our initial business combination. Delaware franchise tax is based on our authorized shares or on our assumed par and non-par capital, whichever yields a lower result.
Under the authorized shares method, each share is taxed at a graduated rate based on the number of authorized shares with a maximum aggregate tax of $200,000 per year. Under the assumed par value capital method, Delaware taxes each $1,000,000 of
assumed par value capital at the rate of $400; where assumed par value would be (1) our total gross assets, divided by (2) our total issued shares of common stock, multiplied by (3) the number of our authorized shares. Our annual franchise tax
obligation is expected to be capped at the maximum amount of annual franchise taxes payable by us as a Delaware corporation of $200,000. Our annual income tax obligations will depend on the amount of interest and other income earned on the
amounts held in the Trust Account. We expect the only taxes payable by us out of the funds in the Trust Account will be income and franchise taxes. We expect the interest earned on the amount in the Trust Account will be sufficient to pay our
taxes. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the Trust Account (net of redemptions, deferred underwriting
commissions and amounts used to pay expenses) may be available to be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
For the three months ended March 31, 2023, net cash used in operating activities was $538,553. Net income was $1,464,877 primarily as a result of investment income on the Trust account investments.
These amounts were partially offset by operating expenses and income taxes. Net cash provided by changes in operating assets and liabilities was $423,642. For the three months ended March 31, 2022, net cash used in operating activities was
$1,034,541. Net income was $5,671,572 primarily as a result of the gain in fair value of the derivative warrant liabilities of $6,227,025 and interest income of $21,452. These amounts were offset by transaction costs related to derivative warrant
liabilities of $25,112. Net cash used for changes in operating assets and liabilities was $482,748.
For the three months ended March 31, 2023, net cash provided from investing activities of $367,664 was the result of withdrawals from the trust account for taxes. For the three months ended March
31, 2022, net cash used in investing activities of $22,837,500 was the result of the amount of net proceeds from the exercise of the underwriter’s overallotment option and Private Placements being deposited into the Trust Account.
For the three months ended March 31, 2022, net cash provided from financing activities of $22,825,732 was the result of the amount of net proceeds from our overallotment transaction of $22,050,000
and Private Placements of $787,500, partially offset by the $11,768 in payment of offering costs.
As of March 31, 2023, we held $134,226 outside the Trust Account and had a working capital deficit of $1,159,915. Further, we have incurred and expect to continue to incur significant costs in
pursuit of our financing and acquisition plans. In connection with our assessment of going concern considerations in accordance with Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties
about an Entity’s Ability to Continue as a Going Concern,” management has determined that these liquidity risks, as well as if we are unsuccessful in consummating an initial business combination within 18 months (or up to 21 months if we
extend the period of time to consummate a business combination) from the closing of our Initial Public Offering, the requirement that we cease all operations, redeem the public shares and thereafter liquidate and dissolve raises substantial doubt
about the ability to continue as a going concern. Due to the subsequent event discussed above, our condensed balance sheet as of March 31, 2023 was adjusted to reflect the $100,000 for the anticipated withdrawal of trust funds, as allowed, for
liquidation and dissolution expenses recorded in the remeasurement of the carrying value to redemption value of the Class A common stock subject to possible redemption at March 31, 2023.
In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial business combination, our sponsor, any affiliate of our sponsor, or our officers or
directors may, but none of them is obligated to, loan us funds as may be required. If we complete our initial business combination, we would repay such loaned amounts out of the proceeds of the Trust Account released to us. In the event that our
initial 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 warrants at a price of $1.00 per warrant at the option of the lender. These warrants would be identical to the Private Placement Warrants. The terms of such loans, if any, have not been determined and no written
agreements exist with respect to such loans. We do not expect to seek loans from parties other than our sponsor, or another affiliate of our sponsor, or our officers and directors, as we do not believe third parties will be willing to loan such
funds and provide a waiver against any and all rights to seek access to funds in our Trust Account.
Commitments and Contractual Obligations
For the three months ended March 31, 2023, we did not have any long-term debt obligations, capital lease obligations or operating lease obligations.
The below summarizes certain other commitments and contractual obligations to which we are subject:
Administrative Services Agreement
Commencing on the date that our Units were first listed on the New York Stock Exchange, we have agreed to pay an affiliate of our sponsor a total of $10,000 per month for office space, utilities and
secretarial and administrative support. Upon completion of our initial business combination or our liquidation, we will cease paying these monthly fees.
Registration Rights Agreement
The holders of our founder shares, Private Placement Warrants and any warrants that may be issued on conversion of working capital loans (and any shares of our Class A Common Stock issuable upon the
exercise of the Private Placement Warrants or warrants issued upon conversion of the working capital loans and upon conversion of the founder shares) are entitled to registration rights pursuant to a registration rights agreement we have entered
into requiring us to register such securities for resale (in the case of the founder shares, only after conversion to shares of our Class A Common Stock). The holders of these securities are entitled to make up to three demands, excluding short
form registration demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of our initial business combination and
rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act.
Underwriting Agreement
The underwriters of the Initial Public Offering are entitled to a deferred underwriting commission of 3.5% of the gross proceeds of the Initial Public Offering and over-allotment, or $7,787,500 in
the aggregate. 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.
Vendor Agreements
As of March 31, 2023 and December 31, 2022, we had incurred unpaid legal fees related to the Initial Public Offering of approximately $473,200 which are included in accounts payable and accrued
expenses and accrued offering costs on the condensed balance sheets. These fees will only become due and payable upon the consummation of a Business Combination.
Critical Accounting Policies
The preparation of our 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 expenses during the periods reported. Actual results could
materially differ from those estimates. We have identified the following critical accounting policies:
Class A Common Stock Subject to Possible Redemption
We account for the Class A Common Stock subject to possible redemption in accordance with the guidance enumerated in Accounting Standards Codification (“ASC”) 480 “Distinguishing Liabilities from
Equity”. Common stock subject to mandatory redemption 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 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 we consider to be outside of our control and subject to the occurrence of uncertain future events. Accordingly, at March 31, 2023, the 22,250,000 shares of Class A Common Stock subject to possible
redemption in the amount of $229,532,636 is presented as temporary equity, outside of the stockholders’ deficit section of our condensed balance sheets.
We recognize changes in redemption value immediately as they occur and adjust the carrying value of redeemable Class A Common Stock to equal the redemption value at the end of each reporting period.
Immediately upon the closing of the Initial Public Offering, we recognized a measurement adjustment 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.
Net income per share
Net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. We apply the two-class method in calculating earnings
per share. Earnings and losses are shared pro rata between the two classes of shares. The calculation of diluted income per share of common stock does not consider the effect of the warrants issued in connection with the (i) Public Offering and
(ii) Private Placement, because the warrants are contingently exercisable, and the contingencies have not yet been met. As a result, diluted earnings per common share is the same as basic earnings per common share for the periods presented. As of
March 31, 2023, the Public Warrants and Private Warrants are exercisable to purchase an aggregate of 11,125,000 and 10,347,500 shares of Class A common stock, respectively.
Derivative Financial Instruments
We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging.” Our derivative instruments are recorded at fair value as of the closing date of the Initial Public Offering (December 13, 2021) and re-valued at each reporting date, with changes in
the fair value reported in the statements of operations. Derivative assets and liabilities are classified on the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required
within 12 months of the balance sheet date. We have determined the Public Warrants and the Private Placement Warrants are a derivative instrument. As the Warrants and the Private Placement Warrants meet the definition of a derivative, such
warrants are measured at fair value at issuance and at each reporting date in accordance with ASC 820, “Fair Value Measurement”, with changes in fair value recognized in the statement of operations in the
period of change.
Warrant Instruments
We account for the Public Warrants and the Private Placement Warrants issued in connection with the Initial Public Offering and the Private Placement in accordance with the guidance contained in
FASB ASC 815, “Derivatives and Hedging” whereby under that provision, the Public Warrants and the Private Placement Warrants do not meet the criteria for equity treatment and must be recorded as a
liability. Accordingly, we classify the warrant instrument as a liability at fair value and adjust the instrument to fair value at each reporting period. This liability will be re-measured at each balance sheet date until the Public Warrants and
the Private Placement Warrants are exercised or expire, and any change in fair value will be recognized in our statement of operations. The fair value at issuance was calculated using a Monte Carlo simulation model to value the Public Warrants
and the Private Placement Warrants. On March 31, 2023, the Public Warrants were valued using market price. The valuation models utilize inputs and other assumptions and may not be reflective of the price at which they can be settled. Such warrant
classification is also subject to re-evaluation at each reporting period. Upon issuance of the Private Placement Warrants at the closing of the Initial Public Offering, we recorded a charge to the statement of operations at December 31, 2021 of
$3,059,200 for the excess fair value of private warrant liabilities over the proceeds received. Upon issuance of the Private Placement Warrants at the closing of the partial exercise of the over-allotment option, we recorded $401,625 to
additional paid in capital for the excess proceeds received over fair value of private warrant liabilities.