The following discussion and analysis of the Company's 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 Annual Report on Form 10-K.
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 Annual Report on Form
10-K.
In this Amendment No. 2 ("Amendment No. 2") to the Annual Report on Form 10-K of
CHP Merger Corp. (the "Company") for the period ended December 31, 2020, we are
restating (i) the Post IPO Balance Sheet, as previously restated in the 2020
Form 10-K/A No. 1, (ii) FY 2019 statements as previously restated in the 2020
Form 10-K/A No. 1 and, (iii) FY 2020 statements as previously restated in the
2020 Form 10-K/A No. 1.
We have re-evaluated our application of ASC 480-10-S99-3A to our accounting and
classification of the Public Shares, issued as part of the units sold in the
initial public offering on October 20, 2020. Historically, a portion of the
Public Shares was classified as permanent equity to maintain shareholders'
equity greater than $5 million on the basis that we will not redeem our Public
Shares in an amount that would cause our net tangible assets to be less than
$5,000,001, as described in the Charter. Pursuant to such re-evaluation, our
management has determined that the Public Shares include certain provisions that
require classification of all of the Public Shares as temporary equity
regardless of the net tangible assets redemption limitation contained in the
Charter. In addition, in connection with the change in presentation for the
Public Shares, management determined it should restate earnings per share
calculation to allocate income and losses shared pro rata between the two
classes of ordinary shares. This presentation contemplates a Business
Combination as the most likely outcome, in which case, both classes of common
stock share pro rata in the income and losses of our Company.
On December 20, 2021, the Audit Committee concluded, after discussion with the
Company's management, that our previously issued (i) Post IPO Balance sheet, as
previously restated in the 2020 Form 10-K/A No. 1, (ii) FY 2019 Financial
Statements as previously restated in the 2020 Form 10-K/A No. 1, , (iii) FY 2020
Financial Statements as previously restated in the 2020 Form 10-K/A No. 1, (iii)
Q1 2021 Financial Statements included in our Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 2021, filed with the SEC on August 9, 2021
and (iv) Q2 Financial Statements included in our Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2021, filed with the SEC on August 16,
2021, should be restated to report all Public Shares as temporary equity and
should no longer be relied upon. As such, the Company is restating the Post IPO
Balance Sheet and the FY 2019 and FY 2020 Financial Statements herein and
intends to restate the Q1 2021 Financial Statements and the Q2 2021 Financial
Statements in the Q3 Form 10-Q/A.
The restatement does not have an impact on our cash position and the cash
balance held in trust account.
Our management has concluded that in light of the classification error described
above, a material weakness exists in our internal control over financial
reporting and that our disclosure controls and procedures were not effective.
In connection with the restatement, our management reassessed the effectiveness
of our disclosure controls and procedures for the periods affected by the
restatement. As a result of that reassessment, we determined that our disclosure
controls and procedures for such periods were not effective with respect to our
internal controls around the proper accounting and classification of complex
financial instruments. For more information, see Item 9A included in this
Amendment No. 2.
The restatement is more fully described in Note 2 of the notes to the financial
statements included herein.
Overview
We are a blank check company formed under the laws of the State of Delaware on
July 31, 2019 for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or similar Business
Combination with one or more target businesses. We intend to effectuate our
Business Combination using cash from the proceeds of our initial public offering
and the sale of the Private placement warrants that occurred simultaneously with
the completion of our initial public offering, 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.
Restatement of Previously Issued Financial Statements
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 Original Financial Statements. We are restating our historical financial
results to reclassify the accounting for complex financial instruments pursuant
to ASC 815-40. The impact of the restatement is reflected in the Management's
Discussion and Analysis of Financial Condition and Results of Operations below.
Other than as disclosed in the Explanatory Note and with respect to the impact
of the restatement, no other information in this Item 7 has been amended and
this Item 7 does not reflect any events occurring after the Original Filing. The
impact of the restatement is more fully described in Note 2 to our financial
statements included in Item 15 of Part IV of this Amendment and Item 9A:
Controls and Procedures, both contained herein.
46
--------------------------------------------------------------------------------
Table of Contents
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities through December 31, 2020 were organizational activities,
those necessary to prepare for the initial public offering, described below, and
identifying a target company for our initial Business Combination. We do not
expect to generate any operating revenues until after the completion of our
initial Business Combination at the earliest. We generate non-operating income
in the form of interest income on marketable securities held in the trust
account. 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 in connection with completing our initial Business
Combination.
As a result of the restatement described in Note 2 of the notes to the financial
statements included herein, we classify the warrants issued in connection with
our Initial Public Offering as liabilities at their fair value and adjust the
warrant instrument 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.
For the year ended December 31, 2020, we had a net loss of $24,470,087, which
consists of the change in fair value of warrant liability of $25,430,000,
operating costs of $651,434 and a provision for income taxes of $375,088, offset
by interest earned on marketable securities held in the trust account of
$1,986,435.
For the period from July 31, 2019 (inception) through December 31, 2019, we had
a net income of $5,071,142, which consists of interest earned on marketable
securities held in the trust account of $427,494 and the change in fair value of
warrant liability of $5,520,000, offset by operating costs of $170,940,
transaction costs allocable to warrant liability of $633,369 and a provision for
income taxes of $72,043.
Liquidity and Capital Resources
On November 26, 2019, we consummated the initial public offering of 30,000,000
Units, which included the partial exercise by the underwriters of the
over-allotment option to purchase an additional 2,500,000 Units, at $10.00 per
Unit, generating gross proceeds of $300,000,000. Simultaneously with the closing
of the initial public offering, we consummated the sale of 8,000,000 Private
placement warrants to our Sponsor at a price of $1.00 per warrant, generating
gross proceeds of $8,000,000.
Following the initial public offering, the exercise of the over-allotment option
and the sale of the Private placement warrants, a total of $300,000,000 was
placed in the trust account. We incurred $17,070,862 in transaction costs,
including $6,000,000 of underwriting fees, $10,500,000 of deferred underwriting
fees and $570,862 of other offering costs.
For the year ended December 31, 2020, cash used in operating activities was
$781,796. Net loss of $24,470,087 was affected by interest earned on marketable
securities held in the trust account of $1,986,435, a non-cash charge for the
change in fair value of warrant liability of $25,430,000 and changes in
operating assets and liabilities, which provided $244,726 of cash from operating
activities.
47
--------------------------------------------------------------------------------
Table of Contents
For the period from July 31, 2019 (inception) through December 31, 2019, cash
used in operating activities was $152,531. Net income of $5,071,142 was affected
by interest earned on marketable securities held in the trust account of
$427,494, non-cash charge for the change in fair value of warrant liability of
$5,520,000, transaction costs allocable to warrant liability of $633,369, and
changes in operating assets and liabilities, which provided $90,452 of cash from
operating activities.
As of December 31, 2020, we had cash and marketable securities held in the trust
account of $302,329,495. We intend to use substantially all of the funds held in
the trust account, including any amounts representing interest earned on the
trust account (less taxes payable and deferred underwriting commissions) to
complete our initial Business Combination. We may withdraw interest to pay
taxes. To the extent that our capital stock or debt is used, in whole or in
part, as consideration to complete our 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. During the year ended December
31, 2020, we withdrew $84,434 of interest income from the trust account to pay
our franchise taxes.
As of December 31, 2020, we had $604,245 of cash held 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 our initial Business Combination, our Sponsor or an affiliate of
our Sponsor or certain of 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 identical to the Private placement warrants, at a
price of $1.00 per warrant at the option of the lender. As of December 31,
2020, there were no amounts outstanding.
Going Concern
We have until May 26, 2022 to consummate a Business Combination. It is uncertain
that we will be able to consummate a Business Combination by this time. If a
Business Combination is not consummated by this date, there will be a mandatory
liquidation and subsequent dissolution. Management has determined that the
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 26, 2022.
Off-balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of December 31, 2020. 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 our 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 November 21, 2019 and will continue to incur these fees monthly
until the earlier of the completion of our initial Business Combination and the
Company's liquidation.
48
--------------------------------------------------------------------------------
Table of Contents
The underwriters are entitled to a deferred fee of $0.35 per Unit, or
$10,500,000 in the aggregate. The deferred fee will be forfeited by the
underwriters solely in the event that we fail to complete our initial Business
Combination, subject to the terms of the underwriting 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:
Warrant Liability
We account for the Warrants in accordance with the guidance contained in ASC
815-40 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 Warrants for periods where no observable traded
price was available are valued using a binomial lattice model. 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 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 feature redemption rights that is 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,
shares of Class A common stock subject to possible redemption are presented as
temporary equity, outside of the stockholders' equity section of our balance
sheets.
Net Income (Loss) Per Common Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share". We have two classes of shares, which are referred to as
Class A common stock and Class B common stock. Income and losses are shared pro
rata between the two classes of shares. Net income (loss) per common stock is
computed by dividing net income (loss) by the weighted average number of common
stock outstanding for the period. The Company applies the two-class method in
calculating earnings per share. Accretion associated with the redeemable shares
of Class A common stocks is excluded from earnings per share as the redemption
value approximates fair value.
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
financial statements.
49
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source Glimpses
CHP MERGER CORP. 