01—Abstract
Summary
Summary of the 10-K/A filed May 3, 2021. Cited figures are marked; the original filing is the authoritative source.
This is Amendment No. 1 (Form 10-K/A) filed May 3, 2021 by Vector Acquisition Corporation, a Cayman Islands blank check company (SPAC), not Rocket Lab Corp. The ticker RKLB and the Rocket Lab operating business came with the pending merger, which was expected to close in Q2 2021.
The amendment restates the 2020 financials to reclassify the company's public and private placement warrants from equity to derivative liabilities, following the SEC Staff Statement on SPAC warrants issued April 12, 2021. The restatement is non-cash. Operating expenses, cash flows, and cash are unchanged.
For the period from July 28, 2020 (inception) through December 31, 2020, the restated net loss was $12.34 milliona. That loss is driven almost entirely by an $11.99 million non-cash increase in warrant liability fair value, against only $357K of formation and operating costs. Trust account assets were $320.0 million and cash outside the trust was $866K at year-end.
The central investor event is the March 1, 2021 merger agreement with Rocket Lab USA, Inc., which implies an aggregate share consideration of $4.0 billionb less management redemption amounts, with an earnout of 8% of aggregate share consideration if PubCo stock trades at or above $20.00 for 20 of 30 trading days in days 90 to 180 after closing. The deal is backed by a $467 million PIPE at $10.00 per share for 46.7 million shares. Investors should weigh the deal's pending status, its dependence on closing conditions and the PIPE, and the fact that the financials are pre-merger shell financials with no operating revenue.
Control concerns are significant. Management concluded that disclosure controls were not effective as of December 31, 2020, solely because of the warrant restatement. The company is an emerging growth company and a shell company, and it is exempt from management's ICFR assessment and auditor attestation under the SEC's transition rules.
Withum, the auditor, issued an unqualified opinion that includes a restatement emphasis paragraph. Other items include a $11.2 millionc deferred underwriting fee payable only on a completed business combination, a September 29, 2022 deadline to complete a combination, and the sponsor's commitment to backstop certain trust account claims.
02—Key points
Key Highlights
- Restatement: Warrants (public and private placement) reclassified from equity to liabilities, with fair value remeasured each period. Warrant liability was $24.56M at December 31, 2020, versus zero previously reported. No impact on cash, cash flows, or operating expenses.
- Net loss of $12.34M for the 2020 period, of which $11.99M is a non-cash warrant fair value charge. Formation and operating costs were only $357K, and trust interest was $4,846.
- Trust account held $320.0M ($10.00 per public share) at December 31, 2020. Cash outside the trust was $865,903, and total assets were $321.3M.
- Pending merger with Rocket Lab USA: aggregate share consideration of $4.0B (less management redemption amounts), plus an 8% earnout if PubCo shares trade at or above $20.00 for 20 of 30 trading days in days 90 to 180 after closing. Closing is expected in Q2 2021.
- $467M PIPE at $10.00 per share for 46.7M shares, contingent on the business combination closing. Shares outstanding as of March 30, 2021 were 32M Class A and 8M Class B.
- Material weakness: Disclosure controls were deemed not effective as of December 31, 2020, solely due to the warrant misclassification. Management plans enhanced accounting resources and third-party consultation for complex instruments.
- Shell company status and EGC exemptions: No ICFR management report or auditor attestation is included. Public float of $323.5M was measured at $10.11 per share on December 31, 2020.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-K/AFY2020filed May 3, 2021Financial Statements
| Revenue | $35.16M |
| Cost of Revenue | $46.98M |
| Gross Profit | -$11.82M |
| R&D Expenses | $19.14M |
| SG&A Expenses | $23.99M |
| Operating Expenses | $43.13M |
| Operating Income | -$54.95M |
| Net Income | -$55.01M |
| EPS (Basic) | $-0.73 |
| EPS (Diluted) | $-0.73 |
| Shares Outstanding (Basic) | 75.41M |
| Shares Outstanding (Diluted) | 75.41M |
05—Questions
Frequently Asked Questions
Why did the company restate its 2020 financial statements?
After the SEC's April 12, 2021 Staff Statement on SPAC warrants, management concluded that the warrants do not meet the equity classification criteria under ASC 815-40. The warrant agreement allows settlement terms to vary by holder characteristics, and a tender offer provision could entitle all warrant holders to cash. As a result, the warrants should have been recorded as derivative liabilities and remeasured each period through earnings. The restatement changes reported net loss and balance sheet classifications but does not change cash, cash flows, or operating expenses.
How large is the restatement's impact on reported earnings?
The restatement is material to reported net loss. The original 2020 filing showed a net loss of about $352.6K. The restated net loss is $12.34M, a difference of $11.99M from the change in fair value of warrant liabilities. For the period ended September 30, 2020, the restated net loss is $787K versus $21K originally reported. Class B per-share loss for the 2020 period moved from $(0.05) to $(1.60).
What is the status and economics of the Rocket Lab transaction?
The merger agreement was signed March 1, 2021 and was unanimously approved by both boards. The structure involves domestication to Delaware, then a first merger into a Rocket Lab subsidiary and a second merger with Rocket Lab, leaving the combined company public. Aggregate share consideration is $4.0B minus management redemption amounts, divided by $10.00 plus trust interest per share. The transaction is contingent on customary closing conditions, the PIPE financing, and shareholder or tender offer procedures. Closing was expected in Q2 2021.
Does the company have any revenue, debt, or ongoing liabilities investors should note?
The company has no revenue and no operations. Its liabilities consist of $217K in accrued expenses, the $24.56M warrant liability, and an $11.2M deferred underwriting fee payable only if a business combination is completed. It has no long-term debt or off-balance sheet arrangements. It pays its sponsor $10,000 per month for office space and administrative services, beginning September 24, 2020. Up to $1.5M of sponsor working capital loans may convert into warrants at $1.00 each.
What are the key risks if the business combination does not close?
If no business combination is completed by September 29, 2022, the company must redeem 100% of public shares at a per-share price equal to trust funds, roughly $10.00 plus interest net of taxes, and dissolve. Warrants would expire worthless, with no redemption rights or distributions. Public shareholders could receive less than the $10.00 IPO price per unit in liquidation if trust assets decline. The underwriters' deferred fee would be waived in that case and returned to the trust for shareholders. The sponsor's Founder Shares would also receive no liquidating distributions.
06—Continue