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MarketScreener Homepage  >  Equities  >  Nasdaq  >  CHP Merger Corp.    CHPM


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11/13/2020 | 04:14pm EST

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 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 for the year ending December 31, 2019 filed with the SEC on March 23, 2020. 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.


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.

The issuance of additional shares in connection with an initial Business Combination to the owners of the target or other investors:

• may significantly dilute the equity interest of investors, which dilution would

   increase if the anti-dilution provisions in the founder shares resulted in the
   issuance of shares of Class A common stock on a greater than one-to-one basis
   upon conversion of the founder shares;

• may subordinate the rights of holders of common stock if preferred stock is

issued with rights senior to those afforded our common stock;

• could cause a change in control if a substantial number of shares of our common

   stock are issued, which may affect, among other things, our ability to use our
   net operating loss carry forwards, if any, and could result in the resignation
   or removal of our present officers and directors;

• may have the effect of delaying or preventing a change of control of us by

   diluting the stock ownership or voting rights of a person seeking to obtain
   control of us; and

• may adversely affect prevailing market prices for our Units, Class A common

stock and/or warrants.

Similarly, if we issue debt securities or otherwise incur significant debt to bank or other lenders or the owners of a target, it could result in:

• default and foreclosure on our assets if our operating revenues after an

initial Business Combination are insufficient to repay our debt obligations;

• acceleration of our obligations to repay the indebtedness even if we make all

   principal and interest payments when due if we breach certain covenants that
   require the maintenance of certain financial ratios or reserves without a
   waiver or renegotiation of that covenant;

• our immediate payment of all principal and accrued interest, if any, if the

   debt is payable on demand;



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• our inability to obtain necessary additional financing if the debt contains

   covenants restricting our ability to obtain such financing while the debt is

• our inability to pay dividends on our common stock;

• using a substantial portion of our cash flow to pay principal and interest on

   our debt, which will reduce the funds available for dividends on our common
   stock if declared, expenses, capital expenditures, acquisitions and other
   general corporate purposes;

• limitations on our flexibility in planning for and reacting to changes in our

business and in the industry in which we operate;

• increased vulnerability to adverse changes in general economic, industry and

competitive conditions and adverse changes in government regulation; and

• limitations on our ability to borrow additional amounts for expenses, capital

expenditures, acquisitions, debt service requirements, execution of our

strategy and other purposes and other disadvantages compared to our competitors

who have less 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, 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. 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, 2020, we had a net loss of $59,898, which consists of operating costs of $140,833 and a provision for income taxes 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 income of $1,092,911, which consists of interest income on marketable securities held in the trust account of $1,916,647, offset by operating costs of $452,740 and a provision for income taxes of $370,996.

For the period from July 31, 2019 (inception) through September 30, 2019, we had net loss $1,445, which consisted of formation and operating costs.

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, 2020, cash used in operating activities was $601,997. Net income of $1,092,911 was offset by interest earned on marketable securities held in the trust account of $1,916,647 and changes in operating assets and liabilities, which provided $221,739 of cash from operating activities.

As of September 30, 2020, we had cash and marketable securities held in the trust account of $302,259,708. 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 nine months ended September 30, 2020, we withdrew $84,433 of interest income from the trust account to pay our franchise taxes.



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As of September 30, 2020, we had $784,043 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.

Off-balance Sheet Financing Arrangements

We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 30, 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.

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:

Common Stock Subject to Possible Redemption

We account for our common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification ("ASC") Topic 480 "Distinguishing Liabilities from Equity." 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, common stock subject to possible redemption is 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.



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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.

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