26 CAPITAL ACQUISITION CORP. References to the "Company," "
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). We have based these forward-looking statements on our current
expectations and projections about future events. These forward-looking
statements are subject to known and unknown risks, uncertainties and assumptions
about us that may cause our actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "should," "could," "would," "expect,"
"plan," "anticipate," "believe," "estimate," "continue," or the negative of such
terms or other similar expressions. Factors that might cause or contribute to
such a discrepancy include, but are not limited to, those described in our other
Overview
We are a blank check company incorporated as a
Proposed Business Combination
On
The Merger and Share Acquisition Agreement provides that, among other things and upon the terms and subject to the conditions thereof, the following transactions will occur (together with the other agreements and transactions contemplated by the Merger and Share Acquisition Agreement, the "Transactions"), following the Reorganization and the Subscription (each as defined below):
(a) at the closing of the transactions contemplated by the Merger and Share
Acquisition Agreement (the "Closing"), Merger Sub will merge with and into
us, the separate corporate existence of Merger Sub will cease and we will be
the surviving corporation and a wholly-owned subsidiary of UERI (the
"Merger"); and
(b) as a result of the Merger, among other things, all of our outstanding shares
of common stock immediately prior to Closing (except with respect to certain
specified shares) will be converted into and shall for all purposes represent
only the right to subscribe for and purchase, pursuant to the Subscription
Agreement (as defined herein) and a letter of transmittal and subscription
confirmation, one validly issued, fully paid and non-assessable common share
of UERI upon the exercise of such subscription right.
Prior to the Closing, TRA will effect a reorganization of parts of its business (the "Reorganization") in accordance with the Merger and Share Acquisition Agreement. Pursuant to the Reorganization, among other matters, UERI will become a direct subsidiary of TRA, TRLEI will become a wholly-owned direct subsidiary of UERI, and intercompany receivables (other than ordinary course trade receivables) due from TRLEI to TRA and certain of its affiliates will be contributed to UERI.
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Prior to Closing, but after the redemption of our certain shares, we will, as
agent acting on behalf of our stockholders, subscribe for common shares of UERI,
at a price equal to their par value of
The Transactions are subject to the satisfaction or waiver of certain customary
closing conditions, including, among others, (a) the absence of any order by a
governmental authority of competent jurisdiction preventing the consummation of
the Transactions, (b) the approval of the Merger, the Subscription and related
matters by our stockholders, (c) the effectiveness of the registration statement
filed by UERI with the
The Merger and Share Acquisition Agreement may be terminated at any time prior
to the Closing (a) by mutual written consent of the parties, (b) by either us or
the UEC Parties in certain other circumstances set forth in the Merger and Share
Subscription Agreement, including, a breach by the other party or parties of
their representations and warranties or covenants that would prevent the
satisfaction of certain closing conditions, and (c) by either the us or the UEC
Parties (i) if any governmental authority shall have issued an order preventing
consummation of the Transactions, (ii) in the event the Closing does not occur
by
The Merger and Share Subscription Agreement and other support agreements have
been filed as exhibits to and described in our Current Report on Form 8-K filed
with the
The issuance of additional shares in connection with the Merger by UERI to TRLEI or other investors:
? may significantly dilute the equity interest of existing investors, which
dilution would increase if the anti-dilution provisions in the Class B common
stock resulted in the issuance of Class A shares on a greater than one-to-one
basis upon conversion of the Class B common stock;
? may subordinate the rights of holders of our common stock if preferred stock
is issued with rights senior to those afforded our common stock;
? could cause a change in control if a substantial number of shares of our
common stock is issued, which may affect, among other things, our ability to
use our net operating loss carry forwards, if any, and could result in the
resignation or removal of our present officers and directors;
? may have the effect of delaying or preventing a change of control of us by
diluting the stock ownership or voting rights of a person seeking to obtain
control of us; and
? may adversely affect prevailing market prices for our Class A common stock
and/or warrants.
Similarly, if we issue debt securities or otherwise incur significant debt to bank or other lenders, it could result in:
? default and foreclosure on our assets if our operating revenues after an
initial business combination are insufficient to repay our debt obligations;
? acceleration of our obligations to repay the indebtedness even if we make all
principal and interest payments when due if we breach certain covenants that
require the maintenance of certain financial ratios or reserves without a
waiver or renegotiation of that covenant;
? our immediate payment of all principal and accrued interest, if any, if the
debt security is payable on demand;
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? our inability to obtain necessary additional financing if the debt security
contains covenants restricting our ability to obtain such financing while the
debt security is outstanding;
? our inability to pay dividends on our common stock;
? using a substantial portion of our cash flow to pay principal and interest on
our debt, which will reduce the funds available for dividends on our common
stock if declared, our ability to pay expenses, make capital expenditures and
acquisitions, and fund other general corporate purposes;
? limitations on our flexibility in planning for and reacting to changes in our
business and in the industry in which we operate;
? increased vulnerability to adverse changes in general economic, industry and
competitive conditions and adverse changes in government regulation;
? limitations on our ability to borrow additional amounts for expenses, capital
expenditures, acquisitions, debt service requirements, and execution of our
strategy; and
? other purposes and other disadvantages compared to our competitors who have
less debt.
We expect to continue to incur significant costs in the pursuit of the Merger. We cannot assure you that our plans to raise capital or to complete the Merger will be successful.
Results of Operations
Our entire activity since inception up to
For the three months ended
For the nine months ended
For the three months ended
For the nine months ended
Liquidity, Capital Resources and Going Concern
As of
Prior to the completion of the IPO, our liquidity needs had been satisfied
through a payment from the Sponsor of
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In addition, in order to finance transaction costs in connection with a Business
Combination, our Sponsor or an affiliate of the Sponsor or certain of our
officers and directors may, but are not obligated to, provide us Working Capital
Loans. On
In connection with our assessment of going concern considerations in accordance
with Financial Accounting Standard Board's Accounting Standards Update ("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
Critical Accounting Policies and Estimates
The preparation of the unaudited condensed financial statements in conformity
with
Making estimates requires management to exercise significant judgement. 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 financial statements, which management considered in formulating its estimate, could change in the near term one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. One of the more significant accounting estimates included in these unaudited condensed financial statements is the determination of the fair value of warrant liabilities.
We have identified the following as our critical accounting policies:
Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in
accordance with the guidance in ASC Topic 480-10-S99, "Classification and
Measurement of Redeemable Securities." 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, at
Under ASC 480-10-S99, we have elected to recognize changes in the redemption value immediately as they occur and adjust the carrying value of the security 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. Immediately upon the closing of the IPO, we 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.
Convertible Working Capital Loan
The Company has elected the fair value option to account for its working capital loan-related party with its Sponsor as defined and more fully described in Note 5. As a result of applying the fair value option, the Company records each draw at fair value with a gain or loss recognized at issuance, and subsequent changes in fair value are recorded as change in the fair value of working capital loan-related party on the statements of operations. The fair value is based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management's and, if applicable, an independent third-party valuation firm's own assumption about the assumptions a market participant would use in pricing the asset or liability.
Net Income (loss) Per Share of Common Stock
We have two classes of stock, which are referred to as Class A common stock and
Class B common stock. Earnings and losses are shared pro rata between the two
classes of stock. The 21,250,000 potential common stock for outstanding warrants
to purchase our stock was excluded from diluted earnings per share for the three
and nine months ended
Off-Balance Sheet Arrangements
As of
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JOBS Act
On
Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an "emerging growth company", we choose to rely on such exemptions we may not be required to, among other things, (i) provide an independent registered public accounting firm's attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the report of independent registered public accounting firm providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO's compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of this offering or until we are no longer an "emerging growth company," whichever is earlier.
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