References to the "Company," "us," "our" or "we" refer to Cascade Acquisition
Corp. The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our audited financial
statements and related notes included herein.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our audited financial statements
and the notes related thereto which are included in "Item 8. Financial
Statements and Supplementary Data" of this Report. Certain information contained
in the discussion and analysis set forth below includes forward-looking
statements. Our actual results may differ materially from those anticipated in
these forward-looking statements as a result of many factors, including those
set forth under "Special Note Regarding Forward-Looking Statements," "Item 1A.
Risk Factors" and elsewhere in this Report.
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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, 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 an initial
business combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. All activity through December 31, 2021 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.
For the year ended December 31, 2021, we had net income of $15,040,564, which
consisted of the change in fair value of warrant liabilities of $16,956,620 and
interest earned on marketable securities held in the trust account of $90,847,
offset by operational costs of $2,006,903.
For the period from August 14, 2020 (inception) through December 31, 2020, we
had a net loss of $7,828,675, which consisted of formation and operating costs
of $155,529, a non-cash change in fair value of warrant liabilities of
$7,098,120, transaction costs allocable to warrant liabilities of $571,555 and
an unrealized loss on marketable securities held in our trust account of
$26,011, offset by interest income on marketable securities held in the trust
account of $22,540.
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 our 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 year ended December 31, 2021, cash used in operating activities was
$898,662. Net income of $15,040,564 was affected by the change in fair value of
warrant liabilities of $16,956,620 and interest earned on marketable securities
held in the trust account of $90,847. Changes in operating assets and
liabilities provided $1,108,241 of cash for operating activities.
For the period from August 14, 2020 (inception) through December 31, 2020, cash
used in operating activities was $352,605. Net loss of $7,828,675 was affected
by a non-cash charge for the change in fair value of warrant liabilities of
$7,098,120, transaction costs allocable to warrant liabilities of $571,555,
interest earned on marketable securities held in the trust account of $22,540,
an unrealized loss on marketable securities held in our trust account of $26,011
and changes in operating assets and liabilities, which used $197,076 of cash
from operating activities.
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As of December 31, 2021, we had marketable securities held in the trust account
of $232,387,376. We intend to use substantially all of the funds held in the
trust account, including any amounts representing interest earned on the trust
account, which interest shall be net of taxes payable and excluding deferred
underwriting commissions, to complete our initial business combination. We may
withdraw interest from the trust account to pay taxes, if any (less up to
$100,000 of interest to pay dissolution expenses). Through December 31, 2021, we
did not withdraw any 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 December 31, 2021, we had cash of $379,046, and a working capital deficit
of $444,743 (after adding back $87,376 in franchise tax payable as that
liability, which is included in accounts payable and accrued expenses in the
accompanying balance sheet, is allowed to be settled using interest accrued on
funds in 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 an initial
business combination.
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.
We may extend the period of time to consummate an initial business combination
by an additional six months (until November 24, 2022 to complete an initial
business combination). In order to extend the time available for us to
consummate an initial business combination, our sponsor or its affiliates or
designees must deposit into the trust account $2,300,000 ($0.10 per public
share), on or prior to the date of the deadline. Any such payments would be made
in the form of a non-interest bearing, unsecured promissory note. Such notes
would either be paid upon consummation of an initial business combination, or,
at the relevant insider's discretion, converted upon consummation of an initial
business combination into additional private placement warrants at a price of
$1.00 per Private Warrant. The Sponsor and its affiliates or designees are not
obligated to fund the trust account to extend the time for us to complete an
initial business combination.
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 has until May 24, 2022 to consummate the proposed initial
business combination. It is uncertain that we will be able to consummate the
proposed initial business combination by this time. If a business combination is
not consummated by this date, there will be a mandatory liquidation and
subsequent dissolution of our company. Additionally, we may not have sufficient
liquidity to fund the working capital needs of our company through one year from
the issuance of these financial statements. Management has determined that the
liquidity condition and mandatory liquidation, should a business combination not
occur, and potential subsequent dissolution, 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 be required to liquidate
after May 24, 2022. We intend to complete the proposed initial business
combination before the mandatory liquidation date. However, there can be no
assurance that we will be able to consummate any business combination by May 24,
2022. In addition, we may need to raise additional capital through loans or
additional investments from our Sponsor, stockholders, officers, directors or
third parties. Our officers, directors and Sponsor may, but are not obligated
to, loan us funds, from time to time or at any time, in whatever amount they
deem reasonable in their sole discretion, to meet our working capital needs.
Accordingly, we may not be able to obtain additional financing. If we are unable
to raise additional capital, we may be required to take additional measures to
conserve liquidity, which could include, but not necessarily be limited to,
curtailing operations, suspending the pursuit of a potential transaction, and
reducing overhead expenses. We cannot provide any assurance that new financing
will be available to it on commercially acceptable terms, if at all. These
conditions raise substantial doubt about our ability to continue as a going
concern through the liquidation date of May 24, 2022.
30
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of December 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.
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.
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 balance sheets.
31
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 public warrants (as described in Note 8) 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 (Loss) per Common Share
Net income (loss) per common share is computed by dividing net income (loss) 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 (loss) per common share as the redemption value
approximates fair value.
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 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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