CHENGHE ACQUISITION I CO. References in this quarterly report to "we," "us," "Company" or "our company"
are to
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this
quarterly report, including, without limitation, statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
regarding our financial position, business strategy and the plans and objectives
of management for future operations, are forward-looking statements. When used
in this quarterly report, words such as "anticipate," "believe," "estimate,"
"expect," "intend" and similar expressions, as they relate to us or our
management, identify forward-looking statements. Such forward-looking statements
are based on the beliefs of management, as well as assumptions made by, and
information currently available to, our management. Actual results could differ
materially from those contemplated by the forward- looking statements as a
result of certain factors detailed in our filings with the
The following discussion and analysis of our 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 quarterly report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Overview
We are a blank check company incorporated on
The issuance of additional shares in connection with a business combination to the owners of the target or other investors:
may significantly dilute the equity interest of investors in our IPO, which
? dilution would increase if the anti-dilution provisions in the Class B ordinary
shares resulted in the issuance of Class A ordinary shares on a greater than
one-to-one basis upon conversion of the Class B ordinary shares;
may subordinate the rights of holders of Class A ordinary shares if preference
? shares are issued with rights senior to those afforded our Class A ordinary
shares;
could cause a change in control if a substantial number of our Class A ordinary
? shares are issued, which 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 share ownership or voting rights of a person seeking to obtain
control of us; and
? may adversely affect prevailing market prices for our Class A ordinary shares
and/or warrants.
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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 security is payable on demand;
our inability to obtain necessary additional financing if the debt security
? contains covenants restricting our ability to obtain such financing while the
debt security is outstanding;
? our inability to pay dividends on our Class A ordinary shares;
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 Class A
ordinary shares, 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.
As indicated in the accompanying financial statements, at
Results of Operations and Known Trends or Future Events
As of
For the three months ended
Liquidity and Capital Resources; Going Concern
As of
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On
We believe that the
We can raise additional capital through Working Capital Loans from the Sponsor, an affiliate of the Sponsor, certain of the Company's officers and directors, or through loans from third parties. If we are unable to raise additional capital, we 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 our business plan, and reducing overhead expenses. We cannot provide assurance that new financing will be available to us on commercially acceptable terms, if at all.
We have until
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of
Contractual Obligations
As of
Critical Accounting Policies
The preparation of unaudited condensed financial statements and related
disclosures in conformity with accounting principles generally accepted in
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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 as our critical accounting policies:
Offering Costs
Deferred offering costs consist of legal and accounting expenses incurred through the balance sheet date that are directly related to our IPO. Deferred offering costs, other than the underwriting discount, were allocated to the Units issued in our IPO and the Private Placement Warrants based on a relative fair value basis, compared to total proceeds received. The underwriting discount was allocated to the Units based on a relative fair value basis, compared to total proceeds received. Upon completion of our IPO, offering costs associated with warrant liabilities were expensed, and presented as non-operating expenses in the statement of operations and offering costs associated with the Class A ordinary shares were applied against Class A ordinary shares subject to possible redemption which are classified as temporary equity.
Fair Value of Financial Instruments
The fair value of our assets and liabilities, which qualify as financial instruments under FASB ASC 820, "Fair Value Measurements and Disclosures," approximates the carrying amounts represented in the balance sheet, primarily due to its short-term nature.
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Our financial instruments are classified as either Level 1, Level 2 or Level 3. These tiers include:
? Level 1, defined as observable inputs such as quoted prices (unadjusted) for
identical instruments in active markets;
Level 2, defined as inputs other than quoted prices in active markets that are
? either directly or indirectly observable such as quoted prices for similar
instruments in active markets or quoted prices for identical or similar
instruments in markets that are not active; and
Level 3, defined as unobservable inputs in which little or no market data
? exists, therefore requiring an entity to develop its own assumptions, such as
valuations derived from valuation techniques in which one or more significant
inputs or significant value drivers are unobservable.
Derivative Financial Instruments and Warrant and Over-allotment Liability
We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity and measurement of fair value is re-assessed at the end of each reporting period. In accordance with ASC 825-10 "Financial Instruments", offering costs attributable to the issuance of the derivative warrant liabilities and overallotment option have been allocated based on their relative fair value of total proceeds and are recognized in the statement of operations as incurred. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or the creation of current liabilities.
We account for warrants and over-allotment as either equity-classified or
liability-classified instruments based on an assessment of the warrant and
over-allotment option's specific terms and applicable authoritative guidance in
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pursuant to ASC 480, and whether the warrants and over-allotment option meet all of the requirements for equity classification under ASC 815, including whether the warrants and over-allotment option are indexed to our own ordinary shares, among other conditions for equity classification. This assessment is conducted at the time of warrant and over-allotment option issuance and as of each subsequent quarterly period end date while the warrants and over-allotment option are outstanding.
For issued or modified warrants and over-allotment option that meet all of the criteria for equity classification, the warrants and over-allotment option are recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants and over-allotment option that do not meet all the criteria for equity classification, the warrants and over-allotment option are required to be recorded as a liability at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants and over-allotment option are recognized as a non-cash gain or loss on the statement of operations.
We accounted for the warrants and over-allotment option in accordance with the guidance contained in ASC 815-40. The warrants and over-allotment are not considered indexed to our own ordinary shares, and as such, they do not meet the criteria for equity treatment and are recorded as liabilities.
Redeemable Share Classification
Our ordinary shares that were sold as part of the Units in our IPO ("public ordinary shares") contain a redemption feature which allows for the redemption of such public shares in connection with a shareholder vote or tender offer in connection with our initial Business Combination. In accordance with ASC 480-10-S99, we classify public ordinary shares subject to redemption outside of permanent equity as the redemption provisions are not solely within our control. The public ordinary shares sold as part of the Units in our IPO were issued with other freestanding instruments (i.e., Public Warrants) and as such, the initial carrying value of public ordinary shares classified as temporary equity, and the Public Warrants are considered a derivative liability and as such, the fair value of the Public Warrants is bifurcated and presented as a liability. The public ordinary shares are subject to ASC 480-10-S99 and are currently not redeemable as the redemption is contingent upon the occurrence of events mentioned above.
Net Income Per Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share." Net income per share is computed by dividing net income by
the weighted average number of ordinary shares outstanding during the period,
excluding ordinary shares subject to forfeiture by the Sponsor. At
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on our financial statements.
JOBS Act
The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an "emerging growth company" and under the JOBS Act are 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 a result, our unaudited condensed financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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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 independent registered public accounting firm's attestation report on our system of internal controls over financial reporting pursuant to Section 404, (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 report of the independent registered public accounting firm 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 the CEO's compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our IPO or until we are no longer an "emerging growth company," whichever is earlier.
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