References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to CHW Acquisition Corporation. References to our "management"
or our "management team" refer to our officers and directors, and references to
the "Sponsor" refer to CHW Acquisition Sponsor, 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 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 Registration Statement filed with the "SEC". 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.
Overview
We are a blank check company incorporated on January 12, 2021 as a Cayman
Islands corporation and formed for the purpose of effecting a merger, share
exchange, asset acquisition, share purchase, reorganization or similar Business
Combination with one or more businesses or entities that have not yet selected.
While we may pursue an acquisition opportunity in any business, industry,
sector, or geographical location, we intend to focus on industries that
complement our management's background and to capitalize on the ability of our
management team to identify and acquire a business. We may pursue a transaction
in which our shareholders immediately, prior to completion of our initial
Business Combination, would collectively own a minority interest in the
post-Business Combination company. We intend to effectuate our initial Business
Combination using cash from the proceeds of this offering and the sale of the
private placement warrants, our shares, debt or a combination of cash, equity
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
Our entire activity through September 30, 2021 was in preparation for an initial
public offering, and since our initial public offering, our activity has been
limited to the search for a prospective initial Business Combination. We will
not generate any operating revenues until after completion of our initial
Business Combination at the earliest. We expect to incur increased expenses as a
result of being a public company (for legal, financial reporting, accounting and
auditing compliance), as well as for due diligence expenses.
For the three months ended September 30, 2021, we had a net loss of $104,249,
which consisted of operating expenses of $104,249.
For the period January 12, 2021 (inception) through September 30, 2021, we had a
net loss of $120,121, which consisted of operating expenses of $120,121.
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Liquidity and Capital Resources
Until the consummation of our Initial Public Offering, our only source of
liquidity was an initial purchase of shares of Founder Shares by our Sponsor and
loans from our Sponsor.
On September 1, 2021, we consummated our Initial Public Offering of 12,500,000
Units, which includes 1,500,000 Units from the underwriters' partial exercise of
their over-allotment option, at $10.00 per Unit, generating gross proceeds of
$125,000,000. Simultaneously with the closing of the Initial Public Offering and
the underwriters' partial exercise of their over-allotment option, we
consummated the private placement of an aggregate of 4,238,636 Private Placement
Warrants to our Sponsor at a price of $1.00 per warrant, generating gross
proceeds of $4,238,636. Following our Initial Public Offering and the sale of
the Private Placement Warrants, a total of $125,000,000 was placed in the Trust
Account. We incurred $13,130,743 of transaction costs consisting of $2,187,500
of underwriting fees, $4,375,000 of deferred underwriting fees payable,
$5,975,625 for the fair value of shares issued to the anchor investors and
representative shares, and $592,618 of other costs. in connection with the
Initial Public Offering and the sale of the Private Placement Warrants.
For the period January 12, 2021 (inception) through September 30, 2021, net cash
used in operating activities was $628,700. Net loss of $120,121 was impacted by
an increase in due from related party of $68,591, an increase in prepaid
expenses and other assets of $551,042 and an increase in accounts payable of
$111,054.
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 income (if any) to pay taxes, if
any. Our annual tax obligations will depend on the amount of interest and other
income earned on the amounts held in the trust account. We expect the interest
income earned on the amount in the trust account (if any) will be sufficient to
pay our taxes. To the extent that our equity 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.
At September 30, 2021, we had cash of $897,818 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, properties 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.
We do not believe we will need to raise additional funds following this offering
in order to meet the expenditures required for operating our business prior to
our initial Business Combination, other than funds available from loans from our
Sponsor, its affiliates or members of our management team. However, if our
estimates of the costs of identifying a target business, undertaking in-depth
due diligence and negotiating an initial 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 initial Business Combination. In order to fund
working capital deficiencies or finance transaction costs in connection with an
intended 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 our initial Business
Combination, we may repay such loaned amounts out of the proceeds of the trust
account released to us. In the event that our 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 of the post-Business Combination entity at a price of
$1.00 per warrant at the option of the lender. The warrants would be identical
to the Private Placement Warrants. The terms of such loans, if any, have not
been determined and no written agreements exist with respect to such loans.
Prior to the completion of our initial Business Combination, we do not expect to
seek loans from parties other than our Sponsor, its affiliates or our management
team as we do not believe third parties will be willing to loan such funds and
provide a waiver against any and all rights to seek access to funds in our trust
account.
Moreover, we may need to obtain additional financing to complete our initial
Business Combination, either because the transaction requires more cash than is
available from the proceeds held in our trust account, or because we become
obligated to redeem a significant number of our public shares upon completion of
the Business Combination, in which case we may issue additional securities or
incur debt in connection with such Business Combination. If we have not
consummated our initial Business Combination within the required time period
because we do not have sufficient funds available to us, we will be forced to
cease operations and liquidate the trust account.
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Related Party Transactions
Founder Shares
On January 18, 2021, the Sponsor paid $25,000 for 2,875,000 shares of Ordinary
shares (the "Founder Shares"). The Founder Shares included an aggregate of up to
412,500 shares that were subject to forfeiture depending on the extent to which
the underwriters' over-allotment option was exercised, so that the number of
Founder Shares will equal, on an as-converted basis, 20% of the Company's issued
and outstanding shares of ordinary shares after the Initial Public Offering. On
September 1, 2021, the underwriters partially exercised the over-allotment
option and 37,500 Founder Shares were forfeited for no consideration by the
Sponsor.
The Sponsor has agreed, subject to limited exceptions, not to transfer, assign
or sell any of the Founder Shares until the earliest of: (A) six months after
the completion of a Business Combination and (B) subsequent to a Business
Combination, (x) if the closing price of the shares of Ordinary shares equals or
exceeds $12.50/share (as adjusted) for any 20 trading days within any 30-trading
day period commencing at least 150 days after a Business Combination, or (y) the
date on which the Company completes a liquidation, merger, share exchange or
other similar transaction that results in all of the Public Stockholders having
the right to exchange their shares of Ordinary shares for cash, securities or
other property.
Private Placement
Simultaneously with the closing of the Initial Public Offering and underwriters'
partial exercise of their over-allotment option, the Sponsor purchased 4,238,686
Private Placement Warrants at a price of $1.00 per Private Placement Warrant,
for an aggregate purchase price of $4,238,686. Each Private Placement Warrant is
exercisable to purchase one share Ordinary shares at a price of $11.50 per
share, subject to adjustment. A portion of the proceeds from the Private
Placement Warrants were added to the proceeds from the Initial Public Offering
held in the Trust Account. If the Company does not complete a Business
Combination within the Combination Period, the proceeds from the sale of the
Private Placement Warrants will be used to fund the redemption of the Public
Shares (subject to the requirements of applicable law), and the Private
Placement Warrants and all underlying securities will expire worthless.
Related Party Loans
On January 18, 2021, the Company issued an unsecured promissory note (the
"Promissory Note") to the Sponsor, pursuant to which the Company may borrow up
to an aggregate principal amount of $300,000. As of September 30, 2021, there
was $43,000 outstanding under the Promissory Note. The Promissory Note will be
repaid from the funds deposited into the operating account.
In addition, in order to finance transaction costs in connection with a Business
Combination, the Sponsor or an affiliate of the Sponsor, or certain of the
Company's officers and directors may, but are not obligated to, loan the Company
funds as may be required ("Working Capital Loans"). If we complete a Business
Combination, we would repay the Working Capital Loans out of the proceeds of the
trust account released to us. In the event that a Business Combination does not
close, we may use a portion of proceeds held outside the trust account to repay
the Working Capital Loans but no proceeds held in the trust account would be
used to repay the Working Capital Loans. Up to $1.5 million of such Working
Capital Loans may be convertible into warrants of the post-Business Combination
entity at a price of $1.00 per warrant at the option of the lender. The warrants
would be identical to the Private Placement Warrants. Notwithstanding the
foregoing, the Business Combination Agreement does not permit Working Capital
Loans to convert into warrants. Except as set forth above, to date, the terms of
the Working Capital Loans, if any, have not been determined and no written
agreements exist with respect to such loans. As of September 30, 2021, there
were no Working Capital Loans outstanding.
Administrative Services Fee
We agreed, commencing on the effective date of the Initial Public Offering
through the earlier of our consummation of a Business Combination or our
liquidation, to pay an affiliate of the Sponsor a monthly fee of $10,000 for
office space, secretarial and administrative services. As of September 30, 2021,
we incurred and paid $10,000 in fees for these services.
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Registration Rights
The holders of Founder Shares, Private Placement Warrants and warrants that may
be issued upon conversion of working capital loans, if any, are entitled to
registration rights (in the case of the Founder Shares, only after conversion of
such shares to shares of Ordinary shares) pursuant to a registration rights
agreement dated September 1, 2021. These holders are entitled to certain demand
and "piggyback" registration rights. However, the registration rights agreement
provides that the Company will not permit any registration statement filed under
the Securities Act to become effective until the termination of the applicable
lock-up period for the securities to be registered. The Company will bear the
expenses incurred in connection with the filing of any such registration
statements.
Deferred Underwriting Fees
The underwriter was paid a cash underwriting discount of 1.75% of the gross
proceeds of the Initial Public Offering, or $2,187,500. The underwriter is
entitled to a deferred fee of $0.35 per unit, or $4,375,000 in the aggregate.
The deferred fee will become payable to the underwriter from the amounts held in
the trust account solely in the event that we complete a Business Combination,
subject to the terms of the underwriting agreement.
Off-Balance Sheet Arrangements
As of September 30, 2021, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments
or contractual obligations.
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 Instruments
The Company accounts for warrants as either equity-classified or
liability-classified instruments based on an assessment of the instruments'
specific terms and applicable authoritative guidance in Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("ASC") 480,
Distinguishing Liabilities from Equity ("ASC 480") and ASC 815, Derivatives and
Hedging ("ASC 815"). The assessment considers whether the instruments are
freestanding financial instruments pursuant to ASC 480, meet the definition of a
liability pursuant to ASC 480, and whether the instruments meet all of the
requirements for equity classification under ASC 815, including whether the
instruments are indexed to the Company's own ordinary shares and whether the
instrument holders could potentially require "net cash settlement" in a
circumstance outside of the Company's 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 instruments are outstanding. The Company
determined that upon further review of the warrant agreement, management
concluded that the Public Warrants and Private Placement Warrants issued
pursuant to the warrant agreement qualify for equity accounting treatment.
Ordinary shares Subject to Possible Redemption
We account for our ordinary shares subject to possible redemption in accordance
with the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Ordinary shares subject to mandatory
redemption is classified as a liability instrument and is measured at fair
value. Conditionally redeemable ordinary shares (including ordinary shares that
features 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, ordinary
shares are classified as shareholders' equity. Our ordinary shares feature
certain redemption rights that are considered to be outside of our control and
subject to occurrence of uncertain future events. Accordingly, ordinary shares
subject to possible redemption is presented as temporary equity, outside of the
shareholders' equity section of our condensed balance sheets.
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Net Income (Loss) Per Share of Ordinary shares
We apply the two-class method in calculating earnings per share. Net income per
share of the redeemable shares, basic and diluted is calculated by dividing the
interest income earned on the Trust Account by the weighted average number of
shares of redeemable ordinary shares outstanding since original issuance. Net
loss per share of ordinary shares, basic and diluted, for non-redeemable
ordinary shares is calculated by dividing the net income (loss), less income
attributable to shares of redeemable ordinary shares, by the weighted average
number of shares of non-redeemable ordinary shares outstanding for the periods
presented.
Recently Adopted Accounting Standards
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 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 for fiscal years beginning after December 15, 2021, and should be
applied on a full or modified retrospective basis. Early adoption is permitted,
but no earlier than fiscal years beginning after December 15, 2020, including
interim periods within those fiscal years. The Company adopted ASU 2020-06
effective January 1, 2021. The adoption of ASU 2020-06 did not have a material
impact on the Company's financial statement.
Management does not believe that any recently issued, but not yet effective,
accounting pronouncements, if currently adopted, would have a material effect on
the Company's financial statement.
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 the Sponsor a monthly fee of $10,000 for office space, utilities
and secretarial, and administrative support services provided to the Company. We
began incurring these fees on June 15, 2021 and will continue to incur these
fees monthly until the earlier of the completion of a Business Combination and
the Company's liquidation.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or $4,375,000
in the aggregate. The deferred fee will become payable to the underwriters from
the amounts held in the Trust Account solely in the event that we complete a
Business Combination, subject to the terms of the underwriting agreement.
Pursuant to a registration and shareholder rights agreement entered into on
September 1, 2021, the holders of the Founder Shares, Private Placement Warrants
and any warrants that may be issued upon conversion of Working Capital Loans
(and any shares of Ordinary shares issuable upon the exercise of the Private
Placement Warrants and warrants that may be issued upon conversion of the
Working Capital Loans) will be entitled to registration rights pursuant to a
registration and shareholder rights agreement. The holders of these securities
are entitled to make up to three demands, excluding short form demands, that we
register such securities. In addition, the holders have certain "piggy-back"
registration rights with respect to registration statements filed subsequent to
the completion of a Business Combination. However, the registration and
shareholder rights agreement provides that we will not permit any registration
statement filed under the Securities Act to become effective until termination
of the applicable lockup period. We will bear the expenses incurred in
connection with the filing of any such registration statements.
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JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We will qualify as an "emerging growth company" and
under the JOBS Act will be allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for non-emerging growth companies. As such, our financial statements may not be
comparable to companies that comply with public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company," we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404 of the
Sarbanes-Oxley Act, (ii) provide all of the compensation disclosure that may be
required of non-emerging growth public companies under the Dodd-Frank Wall
Street Reform and Consumer Protection Act, (iii) comply with any requirement
that may be adopted by the PCAOB regarding mandatory audit firm rotation or a
supplement to the auditor's report providing additional information about the
audit and the financial statements (auditor discussion and analysis) and (iv)
disclose certain executive compensation related items such as the correlation
between executive compensation and performance and comparisons of executive
compensation to median employee compensation. These exemptions will apply for a
period of five years following the completion of our Initial Public Offering or
until we are no longer an "emerging growth company," whichever is earlier.
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