References in this report (the "Quarterly Report") to the "Company," "CHW,"
"our," "us" or "we" 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 unaudited condensed financial
statements and the notes thereto contained elsewhere in this report. Certain
information contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Unless otherwise defined herein, the capitalized terms used below are defined in
the business combination agreement, dated as of February 2, 2022 (the "Business
Combination Agreement"), by and among CHW, CHW Merger Sub Inc., a Delaware
corporation and wholly owned direct subsidiary of CHW ("Merger Sub"), and Wag
Labs, Inc. ("Wag!"), pursuant to which, and subject to the terms and conditions
contained therein, the business combination of CHW, Merger Sub and Wag! (the
"Business Combination") will be effected.
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, and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). We have based
these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements are subject to known and
unknown risks, uncertainties and assumptions about us that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions. Such statements include, but are not limited to, possible business
combinations, including our proposed Wag! Business Combination, and the
financing thereof, and related matters, as well as all other statements other
than statements of historical fact included in this Form 10-Q. Factors that
might cause or contribute to such a discrepancy include, but are not limited to,
those described in the "Risk Factors" section of our Annual Report on Form 10-K
for the year ended December 31, 2021 (the "Form 10-K"), in the Registration
Statement on Form S-4 that the Company has filed with the U.S. Securities and
Exchange Commission (the "SEC") relating to our proposed business combination
with Wag!, and in our other filings with the SEC. Our filings with the SEC can
be accessed on the EDGAR section of the SEC's website at sec.gov. Except as
expressly required by applicable securities law, we disclaim 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. 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 March 31, 2022 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.
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For the three months ended March 31, 2022, we had a net loss of $2,171,947 which
consisted of operating expenses of $2,182,149 and interest income was $10,202.
For the period January 12, 2021 (inception) through March 31, 2021, we had a net
loss of $11,634, which consisted of operating expenses of $11,634.
Liquidity and Capital Resources
Until the consummation of our Initial Public Offering, our only source of
liquidity was an initial purchase 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 three months ended March 31, 2022, net cash used in operating activities
was $352,419. Net loss of $2,171,947 was impacted by an increase in prepaid
expenses and other assets of $26,265, accrued and other expenses of $2,334,300
and decrease in accounts payable of $530,835.
For the period January 12, 2021 (inception) through March 31, 2021, net cash
used in operating activities was 11,634. Net loss of $11,634 was impacted by an
increase in general and administrative expenses.
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 March 31, 2022, we had cash of $335,162 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.
Liquidity and Going Concern
As of March 31, 2022, the Company had $335,162 in its operating bank accounts,
$125,013,199 in securities held in the Trust Account to be used for a Business
Combination or to repurchase or redeem its Ordinary Shares in connection
therewith and working capital deficit of $1,650,918. As of March 31, 2022,
approximately $10,202 of the amount deposit in the Trust Account represented
interest income.
Until the consummation of a Business Combination, the Company will be using the
funds not held in the Trust Account for identifying and evaluating prospective
acquisition candidates, performing due diligence on prospective target
businesses, paying for travel expenditures, selecting the target business to
acquire, and structuring, negotiating and consummating the Business Combination.
The Company will need to raise additional capital through loans or additional
investments from its Sponsor, shareholders, officers, directors, or third
parties. The Company's officers, directors and Sponsor may, but are not
obligated to, loan the Company funds, from time to time or at any time, in
whatever amount they deem reasonable in their sole discretion, to meet the
Company's working capital needs. Accordingly, the Company may not be able to
obtain additional financing.
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If the Company is unable to raise additional capital, it 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. The Company 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 the
Company's ability to continue as a going concern for a reasonable period of
time, which is considered to be one year from the issuance date of the financial
statements. These unaudited condensed financial statements do not include any
adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should the Company be
unable to continue as a going concern.
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
this instance, the Company will need to raise additional capital through loans
or additional investments from its Sponsor, shareholders, officers, directors,
or third parties. 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.
Related Party Transactions
Founder Shares
On January 18, 2021, the Sponsor paid $25,000 for 2,875,000 Ordinary Shares (the
"Founder Shares"). On August 30, 2021, the Company effectuated a 1.1-for-1 share
split, resulting in an aggregate of 3,162,500 Founder Shares outstanding. 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 Shareholders 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.
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Due from related party
As of March 31, 2022, the Sponsor held $68,591 from the closing of the IPO that
will be deposited as soon as practical from the Company's operating account.
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 March 31, 2022, there was no
outstanding under the Promissory Note.
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 March 31, 2022, 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 March 31, 2022, we
incurred and paid $30,000 in fees for these services.
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
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of March 31, 2022. We do not participate in
transactions that create relationships with 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.
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Critical Accounting Policies
The preparation of unaudited 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
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 unaudited condensed balance sheets.
Net 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 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
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 unaudited condensed financial statements.
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.
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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 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.
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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CHW ACQUISITION CORPORATION 