References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to CHP Merger Corp. References to our "management" or our
"management team" refer to our officers and directors, references to the
"Sponsor" refer to CHP 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 and Section 21E of 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 Amended
Quarterly Report including 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/A for the year
ending December 31, 2020 filed with the SEC on July 22, 2021. The Company's
filings pursuant to the Securities Act and Exchange Act 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 our Initial Public Offering, we improperly
valued our Class A common stock subject to possible redemption. We previously
determined the Class A common stock subject to possible redemption to be equal
to the redemption value of $10.00 per share of Class A common stock while also
taking into consideration a redemption cannot result in net tangible assets
being less than $5,000,001. Management determined that the Class A common stock
issued during the Initial Public Offering can be redeemed or become redeemable
subject to the occurrence of future events considered outside of the Company's
control. Therefore, management concluded that the redemption value should
include all 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 a restatement
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
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.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities through September 30, 2021 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. 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.
For the three months ended September 30, 2021, we had a net income of
$7,750,531, which consists of the change in fair value of warrant liability of
$8,280,000 and interest income on marketable securities held in the trust
account of $6,861, offset by operating costs of $536,330.
For the nine months ended September 30, 2021, we had a net income of
$22,675,522, which consists of the change in fair value of warrant liability of
$24,050,000 and interest income on marketable securities held in the trust
account of $59,364, offset by operating costs of $1,433,842.
For the three months ended September 30, 2020, we had a net loss of $3,509,898,
which consists of the change in fair value of warrant liability of $3,450,000,
general and administrative expenses of $140,833, and provision for income tax of
$8,224, offset by interest income on marketable securities held in the trust
account of $89,159.
For the nine months ended September 30, 2020, we had a net loss of $13,627,089,
which consists of the change in fair value of warrant liability of $14,720,000,
general and administrative expenses of $452,740, and provision for income tax of
$370,996, offset by interest income on marketable securities held in the trust
account of $1,916,647.
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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 nine months ended September 30, 2021, cash used in operating activities
was $952,171. For the nine months ended September 30, 2021, net income of
$22,675,522 was affected by interest earned on marketable securities held in the
trust account of $59,364, the non-cash charge for the change in fair value of
warrant liability of $24,050,000. Changes in operating assets and liabilities
provided $481,671 of cash from operating activities.
For the nine months ended September 30, 2020, cash used in operating activities
was $601,997. For the nine months ended September 30, 2020, net loss of
$13,627,089 was affected by interest earned on marketable securities held in the
trust account of $1,916,647, the non-cash charge for the change in fair value of
warrant liability of $14,720,000. Changes in operating assets and liabilities
provided $221,739 of cash from operating activities.
As of September 30, 2021, we had cash and marketable securities held in trust of
$301,660,344 comprised of money market funds, which are invested in U.S.
Treasury Securities. Interest earned on the balance in the Trust Account may be
used by us to pay taxes. During the nine months ended September 30, 2021 and
2020, the Company withdrew $728,515 and $84,433, respectively, of interest
income from the Trust Account to pay its franchise taxes.
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. 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.
As of September 30, 2021, we had $380,589 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. The Units would be
identical to the Private placement warrants.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimate of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating a Business Combination are less than the actual amount necessary
to do so, we may have insufficient funds available to operate our business prior
to our Business Combination. Moreover, we may need to obtain additional
financing either to complete our Business Combination or because we become
obligated to redeem a significant number of our Public Shares upon consummation
of our Business Combination, in which case we may issue additional securities or
incur debt in connection with such Business Combination.
Going Concern
In connection with the Company's assessment of going concern considerations in
accordance with FASB'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, obtain approval for an additional extension
of the deadline or complete a Business Combination by May 26, 2022, then the
Company will cease all operations except for the purpose of liquidating. The
liquidity condition and date for mandatory liquidation and subsequent
dissolution raise substantial doubt about the Company's ability to continue as a
going concern. No adjustments have been made to the carrying amounts of assets
or liabilities should the Company be required to liquidate after May 26, 2022.
The Company intends to complete a Business Combination before the mandatory
liquidation date or obtain approval for an extension.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 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 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.
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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 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 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
statements 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.
The measurement of the Private Warrants for periods subsequent to the initial
measurement were valued using a binomial lattice model.
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 condensed
balance sheets.
Net Income (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 franchise and income taxes, by the weighted average number of Class A
redeemable common stock outstanding for the period. Net loss per common share,
basic and diluted for Class B non-redeemable common stock is calculated by
dividing the net income, less income attributable to Class A redeemable common
stock, by the weighted average number of Class B non-redeemable common stock
outstanding for the period presented.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("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. ASU 2020-06 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 our financial statements.
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