References in this report (the "Quarterly Report") to "we," "us," "Cascade" or
the "Company" refer to Cascade Acquisition Corp. References to our "management"
refer to our officers and directors, and references to the "Sponsor" refer to
Cascade Acquisition Holdings, 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-K for the year ended December 31, 2021 filed
with the U.S. Securities and Exchange Commission (the "SEC") on March 29, 2022.
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.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations has been amended and restated to give effect to the restatement of
our financial statements as of December 31, 2020, March 31, 2021 and June
30, 2021. Management identified errors made in its historical financial
statements where, at the closing of the Company's initial public offering
("Initial Public Offering"), the Company improperly valued its Class A common
stock subject to possible redemption. The Company previously determined the
Class A common stock subject to possible redemption to be equal to the
redemption value, while also taking into consideration a redemption cannot
result in net tangible assets being less than $5,000,001. Management determined
that the shares of Class A common stock underlying the units issued during the
Initial Public Offering (the "Unit") can be redeemed or become redeemable
subject to the occurrence of future events considered outside the Company's
control. Therefore, management concluded that the redemption value should
include all shares of Class A common stock subject to possible redemption,
resulting in the Class A common stock subject to possible redemption being equal
to their redemption value. As a result, management has noted a reclassification
error related to temporary equity and permanent equity. This resulted in an
adjustment to the initial carrying value of the Class A common stock subject to
possible redemption with the offset recorded to additional paid-in capital (to
the extent available), accumulated deficit and Class A common stock.
Overview
We are a blank check company formed under the laws of the State of Delaware on
August 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 initial
business combination using cash from the proceeds of the initial public offering
and the sale of the private placement warrants (the "Private Placement
Warrants"), our capital stock, debt or a combination of cash, stock and debt.
As of the date of the filing of these financial statements the company intends
to dissolve and liquidate in accordance with the provisions of its amended and
restated certificate of incorporation and will redeem all of the shares of
outstanding common stock that were included in the units issued in its initial
public offering (the "Public Shares"), at a per-share redemption price of
approximately $10.10.
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Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. All activity through March 31, 2022 relates to our formation and the
initial public offering, which is described below, and the search for a target
for its initial business combination. We do not expect to generate any operating
revenues until after the completion of an initial business combination, at the
earliest. We generated and will continue to generate non-operating income in the
form of interest income and unrealized gains or losses on marketable securities
held in the trust account. We incurred and will continue to 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 in connection with
searching for, and completing, an initial business combination, along with
income or loss from changes in the fair value of the warrant liabilities. As of
the date of the filing of these financial statements the company intends to
dissolve and liquidate in accordance with the provisions of its amended and
restated certificate of incorporation and will redeem all Public Shares, at a
per-share redemption price of approximately $10.10.
For the three months ended March 31, 2022, we had net income of $5,718,367,
which consists of the change in fair value of warrant liabilities of $6,309,440,
interest earned on marketable securities held in the Trust Account of $80,637
and unrealized gain on marketable securities held in Trust Account of $12,311,
offset by formation and operating costs of $684,021.
For the three months ended March 31, 2021, we had net income of $8,816,773,
which consisted of the change in fair value of warrant liabilities of
$9,069,820, interest earned on marketable securities held in the Trust Account
of $58,062, and unrealized gain on marketable securities held in Trust Account
of $19,592, offset by formation and operating costs of $330,701.
Liquidity and Capital Resources
On November 24, 2020, we consummated the Initial Public Offering of 20,000,000
Units at a price of $10.00 per Unit, generating gross proceeds of $200,000,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 7,317,000 Private Placement Warrants to the Sponsor at a price of
$1.00 per Private Placement Warrant generating gross proceeds of $7,317,000.
On December 9, 2020, in connection with the underwriters' election to fully
exercise of their over-allotment option, we consummated the sale of an
additional 3,000,000 Units and the sale of an additional 900,000 Private
Placement Warrants, generating total gross proceeds of $30,900,000.
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 $232,300,000 was placed in the trust account. We incurred $11,166,437
in transaction costs, including $3,917,000 of underwriting fees, $6,854,750 of
deferred underwriting fees and $394,687 of other offering costs.
For the three months ended March 31, 2022, cash used in operating activities was
$304,752. Net income of $5,718,367 was affected by the change in fair value of
warrant liabilities of $6,309,440, interest earned on marketable securities held
in the Trust Account of $80,637 and unrealized gain on marketable securities
held in the Trust Account of $12,311. Changes in operating assets and
liabilities provided $379,269 of cash for operating activities.
For the three months ended March 31, 2021, cash used in operating activities was
$169,630. Net loss of $8,816,773 was affected by the interest earned on
marketable securities held in the Trust Account of $58,062, the unrealized gain
on marketable securities held in the Trust Account of $19,592, and the change in
fair value of warrant liabilities of $9,069,820. Changes in operating assets and
liabilities which provided $161,071 of cash for operating activities.
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As of March 31, 2022, we had marketable securities held in the trust account of
$232,393,324. As of the date of the filing of these financial statements the
company intends to dissolve and liquidate in accordance with the provisions of
its amended and restated certificate of incorporation and will redeem all Public
Shares, at a per-share redemption price of approximately $10.10. We may withdraw
interest from the trust account to pay taxes, if any, and up to $100,000 of
interest to pay dissolution expenses. Through March 31, 2022, we have withdrawn
$87,000 of interest earned on the trust account to pay our taxes. To the extent
that our share capital or debt is used, in whole or in part, as consideration to
complete an initial 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, 2022, we had cash of $161,294, and a working capital deficit of
$1,079,140 (after adding back $50,000 in franchise tax payable as that
liability, which is included in accounts payable and accrued expenses in the
accompanying condensed balance sheet, is allowed to be settled using interest
accrued on funds in the trust account).
In order to fund working capital deficiencies or finance transaction costs in
connection with an initial business combination, our sponsor, an affiliate of
our sponsor, or our officers and directors may, but are not obligated to, loan
us funds as may be required. If we complete an initial business combination, we
would repay such loaned amounts. In the event that an 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. 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 an initial business combination, without
interest. As of the date of the filing of these financial statements the company
intends to dissolve and liquidate in accordance with the provisions of its
amended and restated certificate of incorporation and will redeem all Public
Shares, at a per-share redemption price of approximately $10.10.
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," we have until May 24, 2022 to consummate the proposed initial
business combination. A Business Combination will not be consummated by May 24,
2022 so there will be a mandatory liquidation and subsequent dissolution of the
Company. Additionally, the Company does not have sufficient liquidity to fund
the working capital needs of the Company through one year from the issuance of
these financial statements. Management has determined that the liquidity
condition and mandatory liquidation, raises substantial doubt about our ability
to continue as a going concern. No adjustments have been made to the carrying
amounts of assets or liabilities should we liquidate after May 24, 2022.
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Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of March 31, 2022. 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.
Jay Levine, our Chief Executive Officer, Gene Weil, a director, and certain
affiliates of our Sponsor and Waterfall Asset Management, LLC purchased an
aggregate of 2.75% of the Units in the Initial Public Offering, and certain
other investors identified by our Sponsor purchased an aggregate of 14.3% of the
Units in the Initial Public Offering, in each case at the Initial Public
Offering price, for an aggregate of 3,415,000 Units. The underwriters did not
receive any underwriting discounts or commissions on the Units purchased by such
parties.
The underwriters are entitled to a deferred fee of $0.35 per Unit, excluding
Units purchased by the parties described above, or $6,854,750 in the aggregate.
Subject to the terms of the underwriting agreement, (i) the deferred fee will be
placed in the trust account and released to the underwriters only upon the
completion of an initial business combination and (ii) the deferred fee will be
waived by the underwriters in the event that we do not complete an initial
business combination. Up to 50% of the deferred underwriting commissions may be
paid at the sole discretion of its management team to the underwriters in the
allocations determined by its management team and/or to third parties not
participating in the initial public offering (but who are members of the
Financial Industry Regulatory Authority) that assist us in consummating our
initial business combination.
On January 30, 2021, we entered into a consulting agreement with a service
provider, pursuant to which the service provider will provide us with consulting
services in connection with our search for a potential merger, share exchange,
asset acquisition, share purchase, reorganization or similar business
combination. We agreed to pay the service provider an initial fee of $41,668 and
$20,834 per month thereafter up to a period of 16 months. On August 13, 2021, we
terminated such agreement.
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Critical Accounting Policies
The preparation of 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:
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' deficit section of our condensed balance
sheets.
Warrant Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We account for warrants as either equity-classified or
liability-classified instruments based on an assessment of the warrant's
specific terms and applicable authoritative guidance in ASC 480, Distinguishing
Liabilities from Equity and ASC 815, Derivatives and Hedging ("ASC 815"). The
assessment considers whether the warrants are freestanding financial instruments
pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and
whether the warrants meet all of the requirements for equity classification
under ASC 815, including whether the warrants are indexed to our own common
stock and whether the warrant holders could potentially require "net cash
settlement" in a circumstance outside of our control, among other conditions for
equity classification. This assessment, which requires the use of professional
judgment, is conducted at the time of warrant issuance and as of each subsequent
quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity
classification, the warrants are required to be recorded as a component of
additional paid-in capital at the time of issuance. For issued or modified
warrants that do not meet all the criteria for equity classification, the
warrants are required to be recorded at their initial fair value on the date of
issuance, and each balance sheet date thereafter. We account for the warrants
issued in connection with our initial public offering in accordance with the
guidance contained in ASC 815-40-15-7D, 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 adjusts 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 statements of operations. The Private Placement
Warrants and the warrants included in the Units (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 on the New York
Stock Exchange was used as the fair value of each relevant date.
Net Income Per Common Share
Net income per common share is computed by dividing net income by the weighted
average number of common stock outstanding for the period. Accretion associated
with the redeemable shares of Class A common stock is excluded from income per
common share as the redemption value approximates fair value.
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Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued ASU
2020-06, Debt -- Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40) ("ASU
2020-06") to simplify accounting for certain financial instruments. ASU2020-06
eliminates the current models that require separation of beneficial conversion
and cash conversion features from convertible instruments and simplifies the
derivative scope exception guidance pertaining to equity classification of
contracts in an entity's own equity. The new standard also introduces additional
disclosures for convertible debt and freestanding instruments that are indexed
to and settled in an entity's own equity. ASU 2020-06 amends the diluted
earnings per share guidance, including the requirement to use the if-converted
method for all convertible instruments. ASU 2020-06 is effective January 1, 2022
and should be applied on a full or modified retrospective basis, with early
adoption permitted beginning on January 1, 2021. We are currently assessing the
impact, if any, that ASU 2020-06 would have on its financial position, results
of operations or cash flows.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on the accompanying condensed financial statements.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial business
combination may be adversely affected by various factors that could cause
economic uncertainty and volatility in the financial markets, many of which are
beyond our control. Our business could be impacted by, among other things,
downturns in the financial markets or in economic conditions, increases in oil
prices, inflation, increases in interest rates, supply chain disruptions,
declines in consumer confidence and spending, the ongoing effects of the
COVID-19 pandemic, including resurgences and the emergence of new variants, and
geopolitical instability, such as the military conflict in the Ukraine. We
cannot at this time fully predict the likelihood of one or more of the above
events, their duration or magnitude or the extent to which they may negatively
impact our business and our ability to complete an initial business combination.
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