References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Capstar Special Purpose Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors,
references to the "Sponsor" refer to Capstar Sponsor Group, LLC. The following
discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the financial statements and the
notes thereto contained elsewhere in this Quarterly Report. Certain information
contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") that are not historical facts, and involve risks and
uncertainties that could cause actual results to differ materially from those
expected and projected. All statements, other than statements of historical fact
included in this Form 10-Q including, without limitation, statements in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financial position, business strategy and
the plans and objectives of management for future operations, are
forward-looking statements. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. A number
of factors could cause actual events, performance or results to differ
materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to the Risk Factors section of the
Company's Annual Report on Form 10-KA filed with the U.S. Securities and
Exchange Commission (the "SEC"). The Company's securities filings can be
accessed on the EDGAR section of the SEC's website at www.sec.gov. Except as
expressly required by applicable securities law, the Company disclaims any
intention or obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise.
Overview
We are a blank check company formed under the laws of the State of Delaware on
February 14, 2020 for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or other similar Business
Combination with one or more businesses. We intend to effectuate our Business
Combination using cash from the proceeds of the Initial Public Offering and the
sale of the Private Placement Warrants, our capital stock, debt or a combination
of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a Business
Combination will be successful.
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Results of Operations
We have neither engaged in any operations (other than searching for a Business
Combination after our Initial Public Offering) nor generated any revenues to
date. Our only activities from February 14, 2020 (inception) through March 31,
2021 were organizational activities, those necessary to prepare for the Initial
Public Offering, described below, and finding a target company for a Business
Combination. We do not expect to generate any operating revenues until after the
completion of our Business Combination. We generate non-operating income in the
form of interest income on marketable securities held after the Initial Public
Offering. We incur expenses as a result of being a public company (for legal,
financial reporting, accounting and auditing compliance), as well as for due
diligence expenses.
For the three months ended March 31, 2021, we had a net income of $14,686,984,
which consists of changes in fair value of warrant liabilities of $14,933,024,
an unrealized gain on marketable securities held in Trust Account of $104,823
and interest income on investments and marketable securities held in the Trust
Account of $42 offset by operating costs of $350,905.
For the period from February 26, 2020 (inception) through March 31, 2020, we had
net loss $1,000, which consisted of formation and operating costs.
Liquidity and Capital Resources
On July 7, 2020, we consummated the Initial Public Offering of 27,600,000 Units
at a price of $10.00 per Unit, which includes the full exercise by the
underwriters of the over-allotment option to purchase an additional 3,600,000,
generating gross proceeds of $276,000,000. Simultaneously with the closing of
the Initial Public Offering, we consummated the sale of 7,520,000 Private
Placement Warrants at a price of $1.00 per Private Placement Warrant in a
private placement to our stockholders, generating gross proceeds of $7,520,000.
Following the Initial Public Offering, the full exercise of the over-allotment
option by the underwriters' and the sale of the Private Placement Warrants, a
total of $276,000,000 was placed in the Trust Account and we had $1,389,212 of
cash held outside of the Trust Account, after payment of costs related to the
Initial Public Offering, and available for working capital purposes. We incurred
$15,851,828 in transaction costs, including $5,520,000 of underwriting fees,
$9,660,000 of deferred underwriting fees and $671,828 of other offering costs.
For the three months ended March 31, 2021, cash provided by operating activities
was $280,076. Net income of $14,686,984 was affected by changes in fair value of
warrant liabilities of $14,933,024, an unrealized gain on marketable securities
held in Trust Account of $104,823 and interest earned on marketable securities
held in the Trust Account of $42 and changes in operating assets and
liabilities, which provided $630,981 of cash from operating activities.
As of March 31, 2021, we had cash and marketable securities held in the Trust
Account of $276,138,312. We intend to use substantially all of the funds held in
the Trust Account, including any amounts representing interest earned on the
Trust Account to complete our Business Combination. We may withdraw interest to
pay franchise and income taxes. During the period ended March 31, 2021, we have
withdrawn $176,006 of interest earned on the Trust Account for the payment of
franchise and income taxes. To the extent that our capital stock or debt is
used, in whole or in part, as consideration to complete our Business
Combination, the remaining proceeds held in the Trust Account will be used as
working capital to finance the operations of the target business or businesses,
make other acquisitions and pursue our growth strategies.
As of March 31, 2021, we had cash of $947,909, respectively outside of the Trust
Account. We intend to use the funds held outside the Trust Account primarily to
identify and evaluate target businesses, perform business due diligence on
prospective target businesses, travel to and from the offices, plants or similar
locations of prospective target businesses or their representatives or owners,
review corporate documents and material agreements of prospective target
businesses, and structure, negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor, an affiliate of the
Sponsor, or our officers and directors may, but are not obligated to, loan us
funds as may be required. If we complete a Business Combination, we would repay
such loaned amounts. In the event that a 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 $1.50 per warrant at the option of the lender. The warrants would
be identical to the Private Placement Warrants, including as to exercise price,
exercisability and exercise period. The terms of such loans by our officers and
directors, if any, have not been determined and no written agreements exist with
respect to such loans. The loans would be repaid upon consummation of a Business
Combination, without interest.
On March 3, 2021, the Sponsor committed to provide us an aggregate of $1,500,000
in loans for working capital purposes.
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Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of March 31, 2021. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements,
established any special purpose entities, guaranteed any debt or commitments of
other entities, or purchased any non-financial assets.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay an
affiliate of the Sponsor a monthly fee of $10,000 for office space, utilities
and secretarial and administrative support to the Company. We began incurring
these fees on July 1, 2020 and will continue to incur these fees monthly until
the earlier of the completion of the Business Combination and the Company's
liquidation.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or $9,660,000
in the aggregate. The deferred fee will be waived by the underwriters in the
event that the Company does not complete a Business Combination, subject to the
terms of the underwriting agreement.
Critical Accounting Policies
The preparation of 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 income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Warrant Liability
We account for the Warrants in accordance with the guidance contained in ASC
815-40-15-7D and 7F under which the Warrants do not meet the criteria for equity
treatment and must be recorded as liabilities. Accordingly, we classify the
Warrants as liabilities at their fair value and adjust the Warrants to fair
value at each reporting period. This liability is subject to re-measurement at
each balance sheet date until exercised, and any change in fair value is
recognized in our statement of operations. The Private Placement Warrants and
the Public Warrants for periods where no observable traded price was available
are valued using a Monte Carlo simulation. For periods subsequent to the
detachment of the Public Warrants from the Units, the Public Warrant quoted
market price was used as the fair value as of each relevant date.
Class A Common Stock Subject to Possible Redemption
We account for our shares of Class A common stock subject to possible redemption
in accordance with the guidance in Accounting Standards Codification ("ASC")
Topic 480 "Distinguishing Liabilities from Equity." Shares of Class A 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 common stock
features certain redemption rights that are considered to be outside of our
control and subject to occurrence of uncertain future events. Accordingly, the
Class A common stock subject to possible redemption is presented as temporary
equity, outside of the stockholders' equity section of our unaudited condensed
balance sheet.
Net Loss per Common Share
We apply the two-class method in calculating earnings per share. Net income per
common share, basic and diluted for Class A redeemable common stock is
calculated by dividing the interest income earned on the Trust Account, net of
applicable taxes, by the weighted average number of shares of Class A redeemable
common stock outstanding for the periods. Net income per share of common stock,
basic and diluted for and Class B non-redeemable common stock is calculated by
dividing net income less income attributable to Class A redeemable common stock,
by the weighted average number of shares of Class B non-redeemable common stock
outstanding for the periods presented.
Recent accounting standards
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
unaudited condensed financial statements.
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