Attached files
| file | filename |
|---|---|
| EX-32.2 - EX-32.2 - UpHealth, Inc. | d262891dex322.htm |
| EX-32.1 - EX-32.1 - UpHealth, Inc. | d262891dex321.htm |
| EX-31.2 - EX-31.2 - UpHealth, Inc. | d262891dex312.htm |
| EX-31.1 - EX-31.1 - UpHealth, Inc. | d262891dex311.htm |
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2020
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File Number 001-38924
GigCapital2, Inc.
(Exact name of Registrant as specified in its Charter)
| Delaware | 83-3838045 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 1731 Embarcadero Rd., Suite 200 Palo Alto, CA |
94303 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (650) 276-7040
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| Units, each consisting of one share of Common Stock, one Right and one Warrant | GIX.U | New York Stock Exchange | ||
| Common Stock, par value $0.0001 per share | GIX | New York Stock Exchange | ||
| Rights to purchase one-twentieth of one share of Common Stock | GIX.RT | New York Stock Exchange | ||
| Warrants to purchase one share of Common Stock | GIX.WS | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
| Emerging growth company | ☒ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☒ NO ☐
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the common stock of the Company on the NYSE Stock Market as of the last business day of the Registrant’s most recently completed second fiscal quarter, June 30, 2020, was $174,915,000.
The number of shares of Registrant’s Common Stock outstanding as of March 26, 2021 was 19,812,315.
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Explanatory Note
GigCapital2, Inc. (the “Company”) is filing this amended Form 10-K/A (“Form 10-K/A”) to amend our Annual Report on Form 10-K for the year ended December 31, 2020, originally filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2021 (“Original Report”), to restate our financial statements and related footnote disclosures as of December 31, 2020 and 2019, for the year ended December 31, 2020 and the period from March 6, 2019 (date of inception) through December 31, 2019. This Form 10-K/A also amends certain other Items in the Original Report, as listed in “Items Amended in this Form 10-K/A” below.
Restatement Background
On April 11, 2021, the staff of the SEC issued a Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) (the “SEC Staff Statement”). The SEC Staff Statement addresses certain accounting and reporting considerations related to warrants of a kind similar to those issued by the Company at the time of its initial public offering in June 2019. In light of that new SEC Staff Statement, on April 20, 2021, the Audit Committee of our Board of Directors (the “Audit Committee”), after discussion with management, determined that the following financial statements previously filed with the SEC should no longer be relied upon: (1) the financial statements included in the Original Report, and; (2) the condensed financial statements included in our Quarterly Reports for the three month period ended March 31, 2020, the three and six month periods ended June 30, 2020 and 2019 and the three and nine month periods ended September 30, 2020 and 2019 (the “Affected Periods”). Similarly, the related press releases, the Report of Independent Registered Public Accounting Firm on the financial statements as of December 31, 2020 and 2019, for the year ended December 31, 2020 and the period from March 6, 2019 (date of inception) through December 31, 2019 and the stockholder communications describing the relevant portions of our financial statements for these periods that need to be restated should no longer be relied upon.
As discussed in further detail below and in Note 11 to the accompanying financial statements, the restatement is the result of a misapplication of the guidance on accounting for certain of our issued warrants, which was brought to light by the SEC Staff Statement. We evaluated the impact of this misapplication on the financial statements listed above and concluded that the impact was potentially material to those financial statements from a quantitative standpoint. Consequently, we have restated the financial statements identified above. All amounts in this Annual Report affected by the restatement adjustments reflect such amounts as restated.
Based on Accounting Standards Codification 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”), warrant instruments that do not meet the criteria to be considered indexed to an entity’s own stock shall be initially classified as derivative liabilities at their estimated fair values, regardless of the likelihood that such instruments will ever be settled in cash. In periods subsequent to issuance, changes in the estimated fair value of the derivative instruments should be reported in the statement of operations.
On June 10, 2019 and June 13, 2019, in addition to other securities, we issued to our Founders (as such term is defined below) private warrants to purchase 567,500 shares of our Common Stock (as such term is defined below) at an exercise price of $11.50 per share concurrently with our initial underwritten public offering. These private warrants and the shares of Common Stock issuable upon the exercise of the private warrants are not transferable, assignable or salable until after the completion of the Business Combination, subject to certain limited exceptions. Additionally, the private warrants are exercisable for cash or on a cashless basis, at the holder’s option, and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the private warrants are held by someone other than the initial purchasers or their permitted transferees, the private warrants will be redeemable by the Company and exercisable by such holders on the same basis as the warrants included in the units sold in the initial public offering, in which case the 567,500 private warrants could be redeemed by the Company for $5,675.
The Audit Committee, together with management, determined that the financial statements in the Affected Periods should be restated to reflect the warrants issued in June 2019 as a liability, with subsequent changes in their estimated fair value recorded as non-cash income or expense in each Affected Period. These restatements result in non-cash, non-operating financial statement corrections and will have no impact on the Company’s current or previously reported cash position, operating expenses or total operating, investing or financing cash flows. Furthermore, the most that the private warrants can be redeemed is $5,675, and then, only if the warrants have been transferred to a party that is not one of our Founders or their permitted transferees, and the then-holder of the warrants doesn’t exercise the warrants when the Company seeks to redeem the warrants.
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In connection with the restatement, management has re-evaluated the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting as of December 31, 2020 based on the framework in “Internal Control-Integrated Framework (2013 framework)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management has concluded that the Company’s disclosure controls and procedures and internal controls over financial reporting were not effective as of December 31, 2020, due to a material weakness in internal control over financial reporting related to the accounting for equity instruments. For a discussion of management’s consideration of our disclosure controls and procedures, internal controls over financial reporting, and the material weaknesses identified, see Part II, Item 9A, “Controls and Procedures” of this Form 10-K/A.
Items Amended in this Form 10-K/A
This Form 10-K/A presents the Original Report, amended and restated with modifications as necessary to reflect the restatements. The following items have been amended to reflect the restatement:
Part I, Item 1A. Risk Factors
Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part II, Item 8. Financial Statements
Part II, Item 9A. Controls and Procedures
In addition, the Company’s Chief Executive Officer and Principal Accounting Officer have provided new certifications dated as of the date of this filing in connection with this Form 10-K/A (Exhibits 31.1, 31.2, 32.1 and 32.2).
Except as described above, this Form 10-K/A does not amend, update or change any other items or disclosures in the Original Report and does not purport to reflect any information or events subsequent to the filing thereof. As such, this Form 10-K/A speaks only as of the date the Original Report was filed, and we have not undertaken herein to amend, supplement or update any information contained in the Original Report to give effect to any subsequent events. Accordingly, this Form 10-K/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Report, including any amendment to those filings.
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CERTAIN TERMS
References in this Annual Report on Form 10-K (the “Annual Report”) to “we,” “us,” “our,” “GigCapital2” or the “Company” refer to GigCapital2, Inc. References to our “management” or our “management team” refer to our officers and directors, references to the “Sponsor” refer to GigAcquisitions2, LLC, references to the “Founders” refer to the Sponsor, one of the underwriters, EarlyBirdCapital, Inc. (“EarlyBird”) and certain affiliates and employees of EarlyBird (the “EarlyBird Group”), and Northland Gig 2 Investment LLC (“Northland Investment”), and references to the “Initial Stockholders” refer to the Founders and Northland. 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 Annual 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 Annual Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 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 Annual Report 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. Actual results and stockholders’ value will be affected by a variety of risks and factors, including, without limitation, international, national and local economic conditions, merger, acquisition and business combination risks, financing risks, geo-political risks, acts of terror or war, and those risk factors described under “Item 1A. Risk Factors”, including risks related to the current pandemic as a result of COVID-19. Many of the risks and factors that will determine these results and stockholders’ value are beyond the Company’s ability to control or predict. 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.
All such forward-looking statements speak only as of the date of this Annual Report. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. All subsequent written or oral forward-looking statements attributable to us or persons acting on the Company’s behalf are qualified in their entirety by this Special Note Regarding Forward-Looking Statements.
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Introduction
We are a Delaware corporation formed for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, reorganization, recapitalization or other similar business combination with one or more businesses, which we refer to throughout this Annual Report as our initial business combination. On November 20, 2020, the Company entered into business combination agreements for its initial Business Combination. Upon consummation of the business combinations with UpHealth Holdings, Inc. and Cloudbreak Health, LLC, we expect to change our name and be known as UpHealth, Inc. (“New UpHealth”).
We seek to capitalize on the significant experience and contacts of our management team to complete our initial business combination. We believe our management team’s distinctive background and record of acquisition and operational success could have a transformative impact on verified target businesses. Although we may pursue our initial business combination in any business, industry or geographic location, we currently intend to focus on opportunities to capitalize on the ability of our management team, particularly our executive officers, to identify, acquire and operate a business in the Technology, Media and Telecommunications (“TMT”) industries. Specifically, we intend to target TMT companies that are at the forefront of high technology and are enabling the future evolution of intelligent systems and solutions (such as data-intense mobility, autonomous platforms, smart sensor applications, human interaction, unified data management and artificial intelligence). We intend to evaluate both private and public companies as potential initial business combination targets, focusing on opportunities that we believe would provide appropriate risk adjusted returns to stockholders. Following our initial business combination, our objective will be to implement or support the acquired company’s operating strategies in order to generate additional value for stockholders. General goals may include additional acquisitions and operational improvements.
Our management team has significant hands-on experience helping TMT companies optimize their existing and new growth initiatives by exploiting insights from rich data assets that already exist within most TMT companies. We intend to apply a unique “Mentor-Investor” philosophy to partner with our targets where we will offer financial, operational and executive mentoring in order to accelerate their growth and development from a privately held entity to a publicly traded company. Further, we intend to share best practices and key learnings, gathered from our management team’s operating and investing experience, as well as strong relationships in the TMT industry to help shape corporate strategies. Additionally, our management team has operated and invested in leading global TMT companies across their corporate life cycles, and has developed deep relationships with key large multi-national organizations and investors. We believe that these relationships and our management team’s know-how present a significant opportunity to help drive strategic dialogue, access new customer relationships and achieve global ambitions following the completion of our initial business combination. We believe that we are providing an interesting alternative investment opportunity that capitalizes on key trends impacting the capital markets for TMT companies.
We believe that our management team is well positioned to identify attractive businesses within the TMT industry that would benefit from access to the public markets and the skills of our management team. Our objective is to consummate our initial business combination with such a business and enhance stockholder value by improving its operational performance. We believe we can achieve this objective by utilizing our management team’s extensive experience in both TMT industry transactions and operating TMT companies in combination with our management team’s network of contacts in the TMT industry. We believe many companies in the TMT industry could benefit from access to the public markets but have been unable to do so due to a number of factors, including the time it takes to conduct a traditional initial public offering (“IPO”), market volatility and pricing uncertainty. We intend to focus on evaluating more established companies with leading competitive positions, strong management teams and strong long-term potential for revenue growth and margin expansion.
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Business Strategy
Our business strategy is to identify and complete our initial business combination with a company that complements the experience of our management team and can benefit from our management team’s operational expertise. Our selection process leverages our management team’s broad and deep relationship network and unique TMT industry expertise including proven deal-sourcing and structuring capabilities, to provide us with a multitude of business combination opportunities. Our management team has experience:
| • | operating companies, setting and changing strategies, and identifying, mentoring and recruiting world-class talent; |
| • | developing and growing companies, both organically and inorganically, and expanding the product ranges and geographic footprints of a number of businesses; |
| • | sourcing, structuring, acquiring and selling businesses and achieving synergies to create stockholder value; |
| • | establishing a wide deal flow and efficient methodology of screening superior mergers and acquisitions (“M&A”) targets worldwide; |
| • | partnering with industry-leading companies to increase sales and improve the competitive position of those companies; |
| • | addressing business and technological changes in an evolving global TMT landscape; |
| • | evaluating the viability of emerging TMT business models; |
| • | fostering relationships with sellers, capital providers and target management teams; and |
| • | accessing the capital markets across various business cycles, including financing businesses and assisting companies with the transition to public ownership. |
Business Combination
As set forth below and the Form 8-K filed with the Securities Exchange Commission (the “SEC”) dated November 23, 2020, on November 23, 2020, the Company executed a business combination agreement, dated as of November 20, 2020, with Uphealth Holdings, Inc. (“UpHealth”), and UpHealth Merger Sub, Inc., (“UpHealth Merger Sub”) (such business combination agreement, the “UpHealth BCA”), and such business combination, the “UpHealth Combination”). In addition, on November 23, 2020, the Company executed a business combination agreement, dated as of November 20, 2020, with Cloudbreak Health, LLC (“Cloudbreak”), Cloudbreak Merger Sub, LLC (“Cloudbreak Merger Sub”), Chirinjeev Kathuria and Mariya Pylypiv (collectively, the “UpHealth Significant Stockholders”) and UpHealth, and Shareholder Representative Services LLC, solely in its capacity as the representative, agent and attorney-in-fact of the Cloudbreak members (such business combination agreement, the “Cloudbreak BCA”, and such business combination, the “Cloudbreak Combination”). Consistent with our strategy, we have identified and used general criteria and guidelines that we believe are important in evaluating the targets businesses, and we conducted a thorough due diligence review that encompassed, among other things, meetings with incumbent managements and employees, document reviews and inspection of facilities, as applicable, as well as a review of financial and other information for each entity in the UpHealth Combination and Cloudbreak Combination, collectively referred as the “Business Combinations” in this Annual Report.
The UpHealth BCA
Pursuant to the terms of the UpHealth BCA, GigCapital2 will acquire UpHealth through the statutory merger of UpHealth Merger Sub with and into UpHealth, with UpHealth surviving the merger as a wholly owned subsidiary of GigCapital2 (the “UpHealth Merger”). At the effective time of the UpHealth Merger, each share of UpHealth common stock will be canceled and converted into the right to receive a number of shares of common stock, par value $0.0001 per share, of GigCapital2 (the “GigCapital2 Common Stock”) equal to the Exchange Ratio. The Exchange Ratio will be equal to the Aggregate Merger Consideration divided by the sum of the aggregate number of shares of UpHealth common stock issued and outstanding immediately prior to the effective time of the UpHealth Merger. The Aggregate Merger Consideration shall not exceed 99,000,000 shares of GigCapital2 Common Stock, subject to certain adjustments, less the Thrasys Incentive Amount (as defined below). UpHealth and Innovations Group, Inc., a Utah corporation (“Innovations Group”) previously entered into a merger agreement for UpHealth to acquire Innovations Group. UpHealth also has previously entered into a share purchase agreement providing for the purchase of 99% or more of the equity interests of Glocal Healthcare Systems Private Limited, a company incorporated under the laws of India (“Glocal”), and UpHealth as of the date of entry into the UpHealth BCA owns approximately 43% of the equity interests of Glocal. The Aggregate Merger Consideration shall be reduced by approximately (a) 14,142,857 shares of GigCapital2 Common Stock, if upon the UpHealth Closing (as defined below), UpHealth has not completed its acquisition of Innovations Group, and (b) 99,000 shares of GigCapital2 Common Stock for each 1.0% interest of Glocal that is below 90% and that is not yet acquired by UpHealth upon the UpHealth Closing. Adjustments to the Aggregate Merger Consideration will further be made to the extent that the indebtedness at the UpHealth Closing of UpHealth and the Company Subsidiaries less the cash and cash equivalents of UpHealth and the Company Subsidiaries as of immediately before such time is greater than $33,850,000 (excluding any Acquisition Promissory Notes). The Acquisition Promissory Notes are promissory notes previously issued by UpHealth for its acquisitions of Thrasys, Inc., a California corporation (“Thrasys”), Behavioral Health Services, LLC, a Missouri limited liability company (“Behavioral Health Services”), TTC Healthcare, Inc., a Delaware corporation (“TTC Healthcare”) and the interests in Glocal, or to be issued by UpHealth for its acquisitions of Innovations Group and TTC Healthcare, with a maximum aggregate principal amount of $86,200,000, of which $35,500,000 is due and payable at the UpHealth Closing; provided, that such amount shall be reduced by $30,000,000, if upon the UpHealth Closing, UpHealth has not completed its acquisition of Innovations Group.
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Two individuals who are officers of UpHealth, and were shareholders of Thrasys prior to its merger with UpHealth, will following the UpHealth Closing, if he or she is a service provider to GigCapital2, the Surviving Corporation or any of the Company Subsidiaries as of the date of grant, be awarded restricted stock units of GigCapital2 (the “Thrasys Incentive Amount”). The Thrasys Incentive Amount that shall be eligible to be granted shall be (a) 32.016% multiplied by (b) 15.136% multiplied by (c) the Adjusted Aggregate Merger/Incentive Amount. The Adjusted Aggregate Merger/Incentive Amount shall be (a) $990,000,000, subject to certain adjustments, divided by (b) $10.00. In the event that either individual ceases to be a service provider to GigCapital2, the Surviving Corporation or any of the Company Subsidiaries as of the date of grant, the portion of the Thrasys Incentive Amount allocated to such individual will not be reallocated to the other individual. Such restricted stock units shall vest into shares of GigCapital2 Common Stock at the earlier of (i) the date that is one year after the UpHealth Closing, (ii) the date on which the last sale price of GigCapital2 Common Stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 90 days after the UpHealth Closing, or (iii) the date on which GigCapital2 completes a liquidation, merger, stock exchange or other similar transaction that results in all of the GigCaptial2’s stockholders having the right to exchange their shares of GigCapital2 Common Stock for cash, securities or other property. If either of these individuals ceases to be a service provider to GigCapital2, the Surviving Corporation or any of the Company Subsidiaries prior to any vesting date, the unvested portion of the restricted stock units shall be cancelled and surrendered to GigCapital2.
The Cloudbreak BCA
Pursuant to the terms of the Cloudbreak BCA, GigCapital2 will acquire Cloudbreak through the statutory merger of Cloudbreak Merger Sub with and into Cloudbreak, with Cloudbreak surviving the merger as a wholly owned subsidiary of GigCapital2 (the “Cloudbreak Merger”). At the effective time of the Cloudbreak Merger (the “Cloudbreak Effective Time”): (i) each Common Unit (as defined in the Cloudbreak BCA) (and the membership interests represented thereby) issued and outstanding immediately prior to the Cloudbreak Effective Time shall be converted into the right to receive a number of shares of GigCapital2 Common Stock equal to the Common Unit Exchange Ratio (as defined in the Cloudbreak BCA) (together with any Business Combination Share Adjustment (defined below) to which each Common Unit is entitled, the “Common Unit Merger Consideration”); (ii) each Series A Preferred Unit (as defined in the Cloudbreak BCA) (and the membership interests represented thereby) issued and outstanding immediately prior to the Cloudbreak Effective Time shall be converted into the right to receive a number of shares of GigCapital2 Common Stock equal to the Preferred Unit Exchange Ratio (as defined in the Cloudbreak BCA) (in addition to any Business Combination Share Adjustment to which each Series A Preferred Unit is entitled); and (iii) each Option (as defined in the Cloudbreak BCA) that is outstanding and unexercised immediately prior to the Cloudbreak Effective Time, whether vested or unvested, shall be assumed by GigCapital2 and converted into an option to purchase a number of shares of GigCapital2 Common Stock in an amount set forth on the allocation schedule, which amount shall be equal to the product of (i) the number of Common Units subject to such Option, multiplied by (ii) the Common Unit Exchange Ratio (each such converted option, an “Exchanged Option”). Each holder of Exchanged Options shall also be entitled to any Business Combination Share Adjustment made pursuant to the Cloudbreak BCA. Additionally, immediately prior to the Cloudbreak Effective Time, each Common Warrant (as defined in the Cloudbreak BCA) shall convert into Common Units in accordance with their terms. The aggregate number of shares of GigCapital2 Common Stock issuable at the closing of the Cloudbreak Merger, and upon the exercise of all Exchanged Options on a net exercise basis, shall equal 11,000,000 shares of GigCapital2 Common Stock.
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Furthermore, in connection with the closing of the Cloudbreak Combination (the “Cloudbreak Closing”), (i) GigCapital2 has agreed to repay or cause to be repaid on behalf of Cloudbreak certain debt obligations of Cloudbreak of approximately $28 million and (ii) the Significant UpHealth Stockholders have agreed to subject 5,500,000 of their shares of GigCapital2 Common Stock (as adjusted for stock splits, combinations, reorganizations and the like) that they would receive upon the closing of the UpHealth Combination (the “UpHealth Closing”) to potential forfeiture and transfer (such transfer, the “Business Combination Share Adjustment”) to the Members (as defined in the Cloudbreak BCA) in connection with a Valuation Shortfall (defined below) on the 540th day from the Closing Date (as defined in the Cloudbreak BCA) (or if such day is not a Business Day, the following Business Day) (the “Measurement Date”) as provided in the Cloudbreak BCA. A Valuation Shortfall shall occur if the dollar volume-weighted average price for the GigCapital2 Common Stock on the New York Stock Exchange during the period beginning at 9:30 a.m., New York time, and ending at 4:00 p.m., New York time, as reported by Bloomberg through its “HP” function (set to weighted average) or if not available on Bloomberg, as reported by Morningstar (the “VWAP”) for the ten trading days preceding the Measurement Date (the “Reference VWAP”) is less than $13.64, and the amount of such Valuation Shortfall is the difference between $13.64 and the Reference VWAP. In the event that a Valuation Shortfall occurs, the amount of shares of GigCapital2 Common Stock that the Significant UpHealth Stockholders shall forfeit to the Members will be the lesser of (i) the Adjustment Amount (defined below) and (ii) 5,500,000 (or, if the Adjustment Amount equals 5,500,000, the Adjustment Amount). The Adjustment Amount means the quotient (rounded up to the nearest whole number) of (A) the Aggregate Valuation Shortfall (defined below), divided by (B) the Reference VWAP. The Aggregate Valuation Shortfall means the product of (A) the amount of the Valuation Shortfall, multiplied by (B) 11,000,000.
As stated in the Current Report on Form 8-K filed with the SEC dated February 4, 2021, on January 29, 2021, GigCapital2 executed a First Amendment to the UpHealth BCA with the parties to the UpHealth BCA, solely to amend Schedule 7.06(C) of the UpHealth BCA (the “UpHealth BCA Amendment No. 1”) for the purpose of revising the formula used to calculate the Thrasys Incentive Amount as such term is used in the UpHealth BCA Amendment No. 1. The terms of the Cloudbreak BCA were not modified in connection with the UpHealth BCA Amendment No. 1.
As stated in the Current Report on Form 8-K filed with the SEC dated March 26, 2021, on March 23, 2021, GigCapital2 executed a Second Amendment to the UpHealth BCA with the parties to the UpHealth BCA, solely to amend Schedule 7.06(C) of the UpHealth BCA (the “UpHealth BCA Amendment No. 2”) for the purpose of further revising the formula used to calculate the Thrasys Incentive Amount as such term is used in the UpHealth BCA Amendment No. 2. The terms of the Cloudbreak BCA were not modified in connection with the UpHealth BCA Amendment No. 2.
Incentive Plan
In connection with the Business Combinations, GigCapital2 will adopt, subject to the approval of the stockholders of GigCapital2, an equity incentive award plan for GigCapital2 with an initial award pool of GigCapital2 Common Stock equal to the sum of (i) the amount that is equal to ten percent (10%) of the shares of GigCapital2 Common Stock outstanding as of immediately after the UpHealth Closing and the Cloudbreak Closing (rounded up to the nearest whole share) and (ii) the Thrasys Incentive Amount, which plan shall include an “evergreen” provision pursuant to which such award pool will automatically increase on each of January 1, 2022 and each anniversary thereof during the effectiveness of such plan by an amount equal to the lesser of (i) five percent (5%) of the shares of GigCapital2 Common Stock issued and outstanding as of 12:01 a.m. (Central Time) on such date and (ii) such lesser amount determined by the GigCapital2 Board, and which plan shall be effective at and after UpHealth Closing and the Cloudbreak Closing.
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Upon the closing of the transactions, the combined company will be named UpHealth, Inc. and will continue to be listed on the NYSE under the new ticker symbol “UPH”.
1st Extension
The Company’s initial public offering prospectus and amended and restated certificate of incorporation provided that the Company initial had until December 10, 2020 (the date which was 18 months after the consummation of the Offering) to complete the Business Combination. As stated in the Form 8-K filed with SEC dated December 8, 2020, the Company held its 2020 Annual Stockholders’ Meeting (the “Annual Meeting”) and the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation that extended the date by which the Company must consummate a business combination transaction from December 10, 2020 to March 10, 2021. The Company’s stockholders elected to redeem 579,881 shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), which represents approximately 3.4% of the shares that were part of the units that were sold in the Company’s initial public offering.
At the Annual Meeting, of the 22,245,000 shares of Common Stock outstanding and entitled to vote, 18,625,346 shares were represented, constituting a quorum.
2nd Extension
As stated in the Form DEF 14A filed with the SEC dated February 12, 2021, the Company invited the stockholders of the Company to attend a special meeting (the “Special Meeting”) to be held on March 8, 2021 to vote to amend (the “2nd Extension Amendment”) the Company’s Amended and Restated Certificate of Incorporation (as amended by the Certificate of Amendment, dated December 8, 2020, our “Charter”) to extend the date by which the Company must consummate a Business Combination (as defined above) (the “Extension”) from March 10, 2021 (the date which is 21 months from the closing date of the Company’s initial public offering of our units (the “IPO”)) to June 10, 2021 (the date which is 24 months from the closing date of the IPO) (the “Extended Date”). The Special Meeting was subsequently moved to March 10, 2021 as announced by the Company on the Form 8-K filed with the SEC on March 3, 2021. The purpose of the 2nd Extension Amendment was to provide the Company more time to complete the Business Combinations, which the Board believed was in the best interests of our stockholders. The Company’s stockholders elected to redeem 1,852,804 shares of the Company’s Common Stock, which represents approximately 10.7% of the shares that were part of the units that were sold in the Company’s initial public offering.
At the Special Meeting, of the 21,665,119 shares of Common Stock outstanding and entitled to vote, 14,438,191 shares were represented, constituting a quorum. The Company’s stockholders approved the 2nd Extension Amendment.
PIPE Subscription Agreement
On January 20, 2021, GigCapital2 entered into subscription agreements (the “PIPE Subscription Agreements”), each dated January 20, 2021, with certain institutional investors (the “PIPE Investors”), including Oppenheimer & Co. Inc., the placement agent for the private placements under the PIPE Subscription Agreements, pursuant to which, among other things, GigCapital2 agreed to issue and sell, in private placements to close immediately prior to the closing of the Business Combinations, an aggregate of 3,000,000 shares (the “PIPE Shares”) of GigCapital2’s common stock (the “Common Stock”) to the PIPE Investors at $10.00 per share.
The obligations to consummate the subscriptions are conditioned upon, among other things, all conditions precedent to the closing of the transactions contemplated by the Note Subscription Agreements (as defined below) having been satisfied or waived, and the closing of the transaction contemplated by the PIPE Subscription Agreements occurring concurrently with the closing of the transactions contemplated by the Note Subscription Agreements.
Pursuant to the PIPE Subscription Agreements, GigCapital2 agreed that, prior to the closing of the Business Combinations, GigCapital2 will file with the SEC (at GigCapital2’s sole cost and expense) a registration statement registering the resale of the PIPE Shares (the “Resale Registration Statement”), and GigCapital2 will use its commercially reasonable efforts to have the Resale Registration Statement declared effective upon the closing of the Business Combinations, but no later than 60 calendar days (or 90 calendar days if the SEC notifies GigCapital2 that it will not review the Resale Registration Statement) after the closing of the Business Combinations, subject to customary conditions and covenants.
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On February 16, 2021, the Company filed a registration statement on Form S-1 with the SEC, which the Company amended in a subsequent filing with the SEC on March 26, 2021. This registration statement registers the resale of the PIPE Shares, par value $0.0001 per share of the Common Stock of the Company, by the selling stockholders named in the prospectus (or their permitted transferees) who are to be issued the PIPE Shares in a private placement immediately prior to the closing of the Business Combination.
The PIPE Shares were not issued and outstanding at the time of the Special Meeting of GigCapital2’s stockholders held to approve the Business Combinations that was held on March 10, 2021. Further, the holders of the PIPE Shares will not receive any proceeds from the trust account established in connection with GigCapital2’s initial public offering in the event GigCapital2 does not consummate an initial business combination by the June 10, 2021 deadline in its current Amended and Restated Certificate of Incorporation. In the event the Business Combinations are not approved by GigCapital2 stockholders or the other conditions precedent to the consummation of the Business Combination are not met, then the PIPE Shares will not be issued and GigCapital2 will seek to withdraw the registration statement prior to its effectiveness.
Lack of Business Diversification
For an indefinite period of time after consummation of our initial business combination, the prospects for our success may depend entirely on the future performance of a single business. Unlike other entities that have the resources to complete business combinations with multiple entities in one or several industries, it is probable that we will not have the resources to diversify our operations and mitigate the risks of being in a single line of business. By consummating our initial business combination with only a single entity, our lack of diversification may:
| • | Subject us to negative economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact on the particular industry in which we operate after our initial business combination, and |
| • | Cause us to depend on the marketing and sale of a single product or limited number of products or services. |
Stockholders May Not Have the Ability to Approve Our Business Combination
In connection with any proposed business combination, we will either (1) seek stockholder approval of our initial business combination at a meeting called for such purpose at which stockholders may seek to convert their shares, regardless of whether they vote for or against the proposed business combination, into their pro rata share of the aggregate amount then on deposit in the trust account, including interest (which interest shall be net of taxes payable), or (2) provide our stockholders with the opportunity to sell their shares to us by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount equal to their pro rata share of the aggregate amount then on deposit in the trust account (net of taxes payable), in each case subject to the limitations described herein. Our Founders and management team have agreed to vote any shares of common stock owned by them in favor of any proposed business combination (the “Founder Shares”) and the shares of Common Stock underlying the private placement units purchased by them in June 2019 (the “Placement Shares”). As a result, we would need only 4,911,158, or approximately 33%, of the 14,817,315 public shares to be voted in favor of a transaction in order to have our initial business combination approved.
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We will seek stockholder approval if it is required by applicable law or stock exchange listing requirement, provided, that we may also decide to seek stockholder approval for business or other reasons.
Under the rules of the New York Stock Exchange (“NYSE”), stockholder approval would be required for our initial business combination if, for example:
| • | We issue (other than in a public offering for cash) a number of shares of common stock that would either (a) be equal to or in excess of 20% of the number of shares of common stock then outstanding or (b) have voting power equal to or in excess of 20% of the voting power then outstanding; |
| • | Any of our management team or substantial security holders (as defined by the rules of the NYSE) has a 5% or greater interest, directly or indirectly, in the target business or assets to be acquired and if the number of shares of common stock to be issued, or if the number of shares of common stock into which the securities may be convertible or exercisable, exceeds either (a) 1% of the number of shares of common stock or 1% of the voting power outstanding before the issuance in the case of any of our management team or (b) 5% of the number of shares of common stock or 5% of the voting power outstanding before the issuance in the case of any substantial security holders; or |
| • | The issuance or potential issuance of shares of our common stock will result in our undergoing a change of control. |
If we determine to engage in a tender offer, such tender offer will be structured so that each stockholder may tender any or all of his, her or its shares rather than some pro rata portion of his, her or its shares. The decision as to whether we will seek stockholder approval of a proposed business combination or will allow stockholders to sell their shares to us in a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require us to seek stockholder approval. Unlike other blank check companies which require stockholder votes and conduct proxy solicitations in conjunction with their initial business combination and related conversions of public shares for cash upon consummation of such initial business combination even when a vote is not required by law, we will have the flexibility to avoid such stockholder vote and allow our stockholders to sell their shares pursuant to Rule 13e-4 and Regulation 14E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) which regulate issuer tender offers. In that case, we will file tender offer documents with the SEC which will contain substantially the same financial and other information about the initial business combination as is required under the SEC’s proxy rules. We will consummate our initial business combination only if we have net tangible assets of at least $5,000,001 upon such consummation and, if we seek stockholder approval, the affirmative vote of the holders of a majority of the shares of common stock that are voted at a stockholder meeting held to consider the initial business combination.
We chose our net tangible asset threshold of $5,000,001 to ensure that we would avoid being subject to Rule 419 promulgated under the Securities Act of 1933, as amended (the “Securities Act”). However, if we seek to consummate an initial business combination with a target business that imposes any type of working capital closing condition or requires us to have a minimum amount of funds available from the trust account upon consummation of such initial business combination, we may need to have more than $5,000,001 in net tangible assets upon consummation and this may force us to seek third party financing which may not be available on terms acceptable to us or at all. As a result, we may not be able to consummate such initial business combination and we may not be able to locate another suitable target within the applicable time period, if at all. Public stockholders may therefore have to wait until December 10, 2020 in order to be able to receive a pro rata share of the trust account.
Redemption Rights
At any meeting called to approve an initial business combination, public stockholders (but not our Founders or management team) may seek to redeem their shares of common stock, regardless of whether they vote for or against the proposed business combination, by converting such shares into their pro rata share of the aggregate amount then on deposit in the trust account as of two business days prior to the consummation of the initial business combination, less any taxes then due but not yet paid (which taxes may be paid only from the interest earned on the funds in the trust account). Alternatively, we may provide our public stockholders (but not our Founders or management team) with the opportunity to sell their shares of common stock to us through a tender offer (and thereby avoid the need for a stockholder vote) for an amount equal to their pro rata share of the aggregate amount then on deposit in the trust account, less any taxes then due but not yet paid.
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We may also require public stockholders seeking redemption, whether they are a record holder or hold their shares in “street name,” to either (i) tender their certificates to our transfer agent or (ii) deliver their shares to the transfer agent electronically using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option, in each case prior to a date set forth in the proxy materials sent in connection with the proposal to approve the business combination.
There is a nominal cost associated with the above-referenced delivery process and the act of certificating the shares or delivering them through the DWAC System. The transfer agent will typically charge the tendering broker $45.00 and it would be up to the broker whether or not to pass this cost on to the holder. This fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights to do so prior to the time that we know that the proposed business combination will be consummated. The need to deliver shares is a requirement of exercising redemption rights regardless of the timing of when such delivery must be effectuated. Thus, in the event we require stockholders seeking to exercise redemption rights to deliver their shares prior to the consummation of the proposed business combination and the proposed business combination is not consummated, this may result in an increased cost to stockholders.
Any proxy solicitation materials we furnish to stockholders in connection with a vote for any proposed business combination will indicate whether we are requiring stockholders to satisfy such certification and delivery requirements. Accordingly, a stockholder would have from the time the stockholder received our proxy statement up until the time designated in the proxy statement to deliver his, her or its shares if he, she or it wishes to seek to exercise his, her or its redemption rights. This time period varies depending on the specific facts of each transaction. However, as the delivery process can be accomplished by the stockholder, whether or not he, she or it is a record holder or his shares are held in “street name,” in a matter of hours by simply contacting the transfer agent or his, her or its broker and requesting delivery of his, her or its shares through the DWAC System, we believe this time period is sufficient for an average investor. However, we cannot assure you of this fact. Please see the risk factor titled “We will require public stockholders who wish to redeem their shares of common stock in connection with a proposed business combination to comply with specific requirements for redemption that may make it more difficult for them to exercise their redemption rights prior to the deadline for exercising their rights” for further information on the risks of failing to comply with these requirements.
The foregoing is different from the procedures historically used by some blank check companies. Traditionally, in order to perfect redemption rights in connection with a blank check company’s business combination, the company would distribute proxy materials for the stockholders’ vote on an initial business combination, and a holder could simply vote against a proposed business combination and check a box on the proxy card indicating such holder was seeking to exercise his, her or its redemption rights. After the business combination was approved, the company would contact such stockholder to arrange for him, her or it to deliver his, her or its certificate to verify ownership. As a result, the stockholder then had an “option window” after the consummation of the business combination during which he, she or it could monitor the price of the company’s stock in the market. If the price rose above the conversion price, he could sell his, her or its shares in the open market before actually delivering his, her or its shares to the company for cancellation. As a result, the redemption rights, to which stockholders were aware they needed to commit before the stockholder meeting, would become a “continuing” right surviving past the consummation of the business combination until the holder delivered his, her or its certificate or shares. The requirement for physical or electronic delivery prior to the meeting ensures that a holder’s election to convert his, her or its shares is irrevocable once the business combination is approved.
Any request to redeem such shares once made, may be withdrawn at any time up to the vote on the proposed business combination. Furthermore, if a holder of a public share delivered his, her or its certificate or shares in connection with an election of such shares’ redemption and subsequently decides prior to the vote on the proposed business combination not to elect to exercise such rights, he, she or it may simply request that the transfer agent return the certificate or shares (physically or electronically).
If the initial business combination is not approved or completed for any reason, then our public stockholders who elected to exercise their redemption rights would not be entitled to redeem their shares for the applicable pro rata share of the trust account as of two business days prior to the consummation of the initial business combination. In such case, we will promptly return any certificates or shares delivered by public holders. Furthermore, if the initial business combination is not approved or completed for any reason, then our public stockholders who elected to exercise their redemption rights will not be entitled to convert their shares into a full pro rata portion of the trust account, as applicable. We will thereafter promptly return any shares delivered by public stockholders. In such case, public stockholders may only share in the assets of the trust account upon our liquidation. This may result in public stockholders receiving less than they would have received if the business combination was completed and they had exercised redemption rights in connection therewith due to potential claims of creditors. If we would be left with less than $5,000,001 of net tangible assets as a result of the holders of public shares properly demanding redemption of their shares, we will likely be unable to consummate a business combination.
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Our Founders and management team have agreed that they will not propose any amendment to our amended and restated certificate of incorporation that would stop our public stockholders from converting or selling their shares of common stock to us in connection with a business combination or affect the substance or timing of our obligation to redeem 100% of our public shares if we do not complete a business combination by June 10, 2021, unless we provide our public stockholders with the opportunity to redeem their shares of common stock upon such approval at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, net of franchise and income taxes payable, divided by the number of then outstanding public shares. This redemption right shall apply in the event of the approval of any such amendment, whether proposed by our Founders, any executive officer, director or director nominee, or any other person.
Under the Delaware General Corporation law (“DGCL”), stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. The pro rata portion of our trust account distributed to our public stockholders upon the redemption of 100% of our outstanding public shares in the event we do not complete our initial business combination within the required time period may be considered a liquidation distribution under Delaware law. If the corporation complies with certain procedures set forth in Section 280 of the DGCL intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution.
Furthermore, if the pro rata portion of our trust account distributed to our public stockholders upon the redemption of 100% of our public shares in the event we do not complete our initial business combination within the required time period is not considered a liquidation distribution under Delaware law and such redemption distribution is deemed to be unlawful, then pursuant to Section 174 of the DGCL, the statute of limitations for claims of creditors could then be six years after the unlawful redemption distribution, instead of three years, as in the case of a liquidation distribution. However, if we are unable to complete a business combination within the prescribed time frame, we will proceed as provided for in our amended and restated certificate as described above. Accordingly, it is our intention to redeem our public shares as soon as reasonably possible following the expiration of the time periods described above and, therefore, we do not intend to comply with the procedures required by Section 280 of the DGCL, which would limit the amount and duration of our stockholders’ liability with respect to liquidating distributions as described above. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of our stockholders may extend well beyond the third anniversary of such date.
Because we will not be complying with Section 280 of the DGCL, Section 281(b) of the DGCL requires us to adopt a plan, based on facts known to us at such time that will provide for our payment of all existing and pending claims or claims that may be potentially brought against us within the subsequent ten years. However, because we are a blank check company, rather than an operating company, and our operations will be limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as lawyers, investment bankers, etc.) or prospective target businesses.
We anticipate notifying the trustee of the trust account to begin liquidating such assets promptly after such date and anticipate it will take no more than ten business days to effectuate such distribution. Our Founders and management team have waived their rights to participate in any liquidation distribution with respect to the Founder Shares and the Placement Shares. There will be no distribution from the trust account with respect to our warrants or rights, which will expire worthless. We will pay the costs of any subsequent liquidation from our remaining assets outside of the trust account and the interest earned on the funds held in the trust account that we are permitted to withdraw to pay such expenses.
Our public stockholders shall be entitled to receive funds from the trust account only in the event of our failure to complete a business combination within the required time period or if the stockholders seek to have us redeem or purchase their respective shares upon a business combination which is actually completed by us or upon certain amendments to our amended and restated certificate of incorporation as described elsewhere herein. In no other circumstances shall a stockholder have any right or interest of any kind to or in the trust account.
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If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, we cannot make any assurance of the amount we will be able to return to our public stockholders.
If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. Furthermore, because we intend to distribute the proceeds held in the trust account to our public stockholders promptly after June 10, 2021, this may be viewed or interpreted as giving preference to our public stockholders over any potential creditors with respect to access to or distributions from our assets. Furthermore, our board may be viewed as having breached their fiduciary duties to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.
Amended and Restated Certificate of Incorporation
As stated in the Form 8-K filed with SEC dated December 8, 2020, the Company held its 2020 Annual Stockholders’ Meeting (the “Annual Meeting”) and the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation that extends the date by which the Company must consummate a business combination transaction from December 10, 2020 to March 10, 2021.
Further, as stated in the Form 8-K filed with the SEC dated March 10, 2021, the Company held a special stockholder meeting, which the Company’s stockholders approved the second amendment to the Company’s Amended and Restated Certification of Incorporation that extends the date by which the Company must consummate a business combination transaction from March 10, 2021 to June 10, 2021.
Competition
In identifying, evaluating and selecting a target business, we may encounter intense competition from other entities having a business objective similar to ours. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources than us and our financial resources will be relatively limited when contrasted with those of many of these competitors. Although we believe there may be numerous potential target businesses that we could acquire with the net proceeds of the offering, our ability to compete in acquiring certain sizable target businesses may be limited by our available financial resources.
The following also may not be viewed favorably by certain target businesses:
| • | Our obligation to seek stockholder approval of a business combination or engage in a tender offer may delay the completion of a transaction; |
| • | Our obligation to convert or repurchase shares of common stock held by our public stockholders may reduce the resources available to us for a business combination; and |
| • | Our outstanding rights and warrants, and the potential future dilution they represent. |
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Any of these factors may place us at a competitive disadvantage in successfully negotiating a business combination. Our management believes, however, that our status as a public entity and potential access to the United States public equity markets may give us a competitive advantage over privately-held entities having a similar business objective as ours in acquiring a target business with significant growth potential on favorable terms.
If we succeed in effecting a business combination, there will be, in all likelihood, intense competition from competitors of the target business. We cannot assure you that, subsequent to a business combination, we will have the resources or ability to compete effectively.
Employees
We have two executive officers. These individuals are not obligated to devote any specific number of hours to our matters and intend to devote only as much time as they deem necessary to our affairs. The amount of time they will devote in any time period will vary based on whether a target business has been selected for the business combination and the stage of the business combination process the Company is in. Accordingly, once a suitable target business to acquire has been located, management will spend more time investigating such target business and negotiating and processing the business combination (and consequently spend more time on our affairs) than had been spent prior to locating a suitable target business. We presently expect our executive officers to devote such amount of time as they reasonably believe is necessary to our business. We do not intend to have any full time employees prior to the consummation of a business combination.
Periodic Reporting and Financial Information
We have registered our units, common stock, rights and warrants under the Exchange Act and have reporting obligations, including the requirement that we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, this Annual Report contains financial statements audited and reported on by our independent registered public accountants.
We will provide stockholders with audited financial statements of the prospective target business as part of any proxy solicitation materials or tender offer documents sent to stockholders to assist them in assessing the target business. These financial statements will need to be prepared in accordance with or reconciled to United States generally accepted accounting principles or international financial reporting standards, as issued by the International Accounting Standards Board. We cannot assure you that any particular target business identified by us as a potential acquisition candidate will have the necessary financial statements. To the extent that this requirement cannot be met, we may not be able to acquire the proposed target business.
An investment in our securities involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in this Annual Report, before making a decision to invest in our securities. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment.
You should not place undue reliance on these forward-looking statements. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:
| • | the occurrence of any event, change or other circumstances that could give rise to the termination of the Business Combination Agreements; |
| • | the outcome of any legal proceedings that may be instituted against the Company, UpHealth, Cloudbreak or others following announcement of the Business Combinations and the transactions contemplated in the Business Combination Agreements; |
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| • | the inability to complete the transactions contemplated by the Business Combination Agreements due to the failure to obtain approval of the equity holders of the Company, UpHealth or Cloudbreak or other conditions to closing in the Business Combination Agreements; |
| • | the ability to obtain or maintain the listing of New UpHealth Common Stock on the NYSE following the Business Combinations; |
| • | the risk that the proposed transaction disrupts current plans and operations as a result of the announcement and consummation of the Business Combinations; |
| • | the ability to recognize the anticipated benefits of the Business Combinations, which may be affected by, among other things, the ability of the Company to grow and manage growth profitably, maintain relationships with customers, compete within its industry and retain its key employees; |
| • | costs related to the proposed Business Combinations; |
| • | changes in applicable laws or regulations; |
| • | the effect of the COVID-19 pandemic on New UpHealth’s business; |
| • | the ability of New UpHealth to execute its business model, including market acceptance of its planned products and services and achieving sufficient production volumes at acceptable quality levels and prices; |
| • | New UpHealth’s ability to raise capital; |
| • | the possibility that the Company, UpHealth or Cloudbreak may be adversely impacted by other economic, business, and/or competitive factors; |
| • | future exchange and interest rates; and |
| • | other risks and uncertainties indicated in this proxy statement/prospectus, including those under “Risk Factors” in this proxy statement/prospectus, and other filings that have been made or will be made with the SEC by the Company. |
Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
The Company has no operating history and is subject to a mandatory liquidation and subsequent dissolution requirement. If the Company is unable to consummate a business combination, including the Business Combinations, its public stockholders may be forced to wait until after June 10, 2021 (or such later date as may arise if we amend our certificate of incorporation again to further extend the time that we have to consummate a business combination) before receiving distributions from the Trust Account.
The Company is a development stage blank check company, and as it has no operating history and is subject to a mandatory liquidation and subsequent dissolution requirement. The Company has until June 10, 2021 to complete a business combination, unless we amend our certificate of incorporation again to further extend the time that we have to consummate a business combination. The Company has no obligation to return funds to investors prior to such date unless (i) it consummates a business combination prior thereto or (ii) it seeks to amend its current amended and restated certificate of corporation prior to consummation of a business combination, and only then in cases where investors have sought to convert or sell their shares to the Company. Only after the expiration of this full time period will public security holders be entitled to distributions from the Trust Account if the Company is unable to complete a business combination. Accordingly, investors’ funds may be unavailable to them until after such date and to liquidate their investment, public security holders may be forced to sell their public shares, rights or warrants, potentially at a loss. In addition, if the Company fails to complete an initial business combination by June 10, 2021 (or such later date as may arise if we amend our certificate of incorporation again to further extend the time that we have to consummate a business combination), there will be no Redemption Rights or liquidating distributions with respect to the rights and warrants, which will expire worthless, unless the Company amends its certificate of incorporation to extend its life and certain other agreements it has entered into.
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We have no operating or financial history and our results of operations and those of the post-combination company may differ significantly from the unaudited pro forma financial data included in the Registration Statement on Form S-4/A filed with the SEC on March 23, 2021.
We are a blank check company and we have no operating history and no revenues. The Registration Statement on Form S-4/A filed with the SEC on March 23, 2021 includes unaudited pro forma condensed combined financial statements for the post-combination company. The unaudited pro forma condensed combined statement of operations of the post-combination company combines the historical audited results of operations of the Company for the year ended December 31, 2020, with the historical audited results of operations of UpHealth and Cloudbreak for the year ended December 31, 2020, respectively, and gives pro forma effect to the Business Combinations as if it had been consummated on January 1, 2020. The unaudited pro forma condensed combined balance sheet of the post-combination company combines the historical balance sheets of the Company as of December 31, 2020, of UpHealth as of December 31, 2020 and of Cloudbreak as of December 31, 2020 and gives pro forma effect to the Business Combinations as if it had been consummated on December 31, 2020.
The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only, are based on certain assumptions, address a hypothetical situation and reflect limited historical financial data. Therefore, the unaudited pro forma condensed combined financial statements are not necessarily indicative of the results of operations and financial position that would have been achieved had the Business Combinations and the acquisitions of UpHealth and Cloudbreak been consummated on the dates indicated above, or the future consolidated results of operations or financial position of the post-combination company. Accordingly, the post-combination company’s business, assets, cash flows, results of operations and financial condition may differ significantly from those indicated by the unaudited pro forma condensed combined financial statements included in this document.
Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations.
We will be subject to income taxes in the United States and other jurisdictions, and our tax liabilities will be subject to the allocation of expenses in differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:
| • | changes in the valuation of our deferred tax assets and liabilities; |
| • | expected timing and amount of the release of any tax valuation allowances; |
| • | tax effects of stock-based compensation; |
| • | costs related to intercompany restructurings; |
| • | changes in tax laws, regulations or interpretations thereof; or |
| • | lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates. |
In addition, we may be subject to audits of our income, sales and other transaction taxes by taxing authorities. Outcomes from these audits could have an adverse effect on our financial condition and results of operations.
If we are unable to complete an initial business combination, our public stockholders may receive only approximately $10.00 per share on the liquidation of the Trust Account (or less than $10.00 per share in certain circumstances where a third party brings a claim against us that our Sponsor is unable to indemnify), and our warrants will expire worthless.
If we are unable to complete an initial business combination by the applicable deadline, our public stockholders may receive only approximately $10.00 per share on the liquidation of the Trust Account (or less than $10.00 per share in certain circumstances where a third-party brings a claim against us that our Sponsor is unable to indemnify (as described herein)) and our warrants will expire worthless.
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Following the consummation of the Business Combinations, our only significant asset will be our ownership interest in New UpHealth and such ownership may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on our Common Stock or satisfy our other financial obligations.
Following the consummation of the Business Combinations, we will have no direct operations and no significant assets other than our ownership of UpHealth and Cloudbreak. The UpHealth equity holders, the Cloudbreak equity holders, the directors and officers of UpHealth and the directors and officers of Cloudbreak and their respective affiliates will become stockholders of the post-combination company at that time. We will depend on UpHealth and Cloudbreak for distributions, loans and other payments to generate the funds necessary to meet our financial obligations, including our expenses as a publicly traded company and to pay any dividends with respect to our Common Stock. The financial condition and operating requirements of UpHealth and Cloudbreak may limit our ability to obtain cash from UpHealth or Cloudbreak. The earnings from, or other available assets of, UpHealth or Cloudbreak may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on our Common Stock or satisfy our other financial obligations.
The ability of UpHealth or Cloudbreak to make distributions, loans and other payments to us for the purposes described above and for any other purpose may be limited by credit agreements to which UpHealth or Cloudbreak is party from time to time, including existing loans and security agreements described in “TTC Healthcare’s Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and “Cloudbreak’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and will be subject to the negative covenants set forth therein. Any loans or other extensions of credit to us from UpHealth or Cloudbreak will be permitted only to the extent there is an applicable exception to the investment covenants under these credit agreements. Similarly, any dividends, distributions or similar payments to us from UpHealth or Cloudbreak will be permitted only to the extent there is an applicable exception to the dividends and distributions covenants under these credit agreements.
Because we have no current plans to pay cash dividends on shares of Common Stock for the foreseeable future, you may not receive any return on investment unless you sell your shares of Common Stock for a price greater than that which you paid for it.
We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay any cash dividends for the foreseeable future. Any decision to declare and pay dividends as a public company in the future will be made at the discretion of the Company’s Board and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that the Board may deem relevant. In addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur. As a result, you may not receive any return on an investment in the Company’s Common Stock unless you sell your Common Stock for a price greater than that which you paid for it.
There can be no assurance that New UpHealth Common Stock will be approved for listing on the NYSE or that New UpHealth will be able to comply with the continued listing standards of NYSE.
In connection with the closing of the Business Combinations, we intend to list New UpHealth’s Common Stock and warrants on the NYSE under the symbols “UPH” and “UPH.WS,” respectively. New UpHealth’s continued eligibility for listing may depend on the number of the Company’s shares that are redeemed. If, after the Business Combinations, the NYSE delists New UpHealth’s shares from trading on its exchange for failure to meet the listing standards, New UpHealth and its stockholders could face significant material adverse consequences including:
| • | a limited availability of market quotations for New UpHealth’s securities; |
| • | a determination that New UpHealth Common Stock is a “penny stock” which will require brokers trading in New UpHealth Common Stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for shares of New UpHealth Common Stock; |
| • | a limited amount of analyst coverage; and |
| • | a decreased ability to issue additional securities or obtain additional financing in the future. |
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The Company’s independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about its ability to continue as a “going concern.”
As of December 31, 2020, the Company had $168,384,949 in cash held in trust. As of March 10, 2021, the cash held in trust was reduced to $149,604,108 as a result of redemptions in conjunction with the Special Meeting held on March 10, 2021. As of December 31, 2020, the Company had a working capital deficit of $2,012,409. Further, the Company has incurred and expects to continue to incur significant costs in pursuit of its financing and acquisition plans, including the Business Combination Agreements. The Company cannot assure you that its plans to raise capital or to consummate an initial business combination, including the Business Combination Agreements, will be successful. These factors, among others, raise substantial doubt about its ability to continue as a going concern. The financial statements contained elsewhere in this Annual Report do not include any adjustments that might result from its inability to consummate the Business Combinations or its inability to continue as a going concern.
Subsequent to the consummation of the Business Combinations, the post-combination company may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on its financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.
Although the Company has conducted due diligence on UpHealth and Cloudbreak, the Company cannot assure you that this diligence revealed all material issues that may be present in UpHealth’s or Cloudbreak’s business, as applicable, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of the Company’s, UpHealth’s and Cloudbreak’s control will not later arise. As a result, the post-combination company may be forced to later write-down or write-off assets, restructure its operations, or incur impairment or other charges that could result in losses. Even if the Company’s due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with the Company’s preliminary risk analysis. Even though these charges may be non-cash items and may not have an immediate impact on the post-combination company’s liquidity, the fact that the post-combination company reports charges of this nature could contribute to negative market perceptions about it or its securities. In addition, charges of this nature may cause the post-combination company to be unable to obtain future financing on favorable terms or at all.
Following the consummation of the Business Combinations, New UpHealth will incur significant increased expenses and administrative burdens as a public company, which could have an adverse effect on its business, financial condition and results of operations.
Following the consummation of the Business Combinations, New UpHealth will face increased legal, accounting, administrative and other costs and expenses as a public company that UpHealth and Cloudbreak do not incur as private companies. The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated and to be promulgated thereunder, Public Company Accounting Oversight Board (the “PCAOB”) and the securities exchanges, impose additional reporting and other obligations on public companies. Compliance with public company requirements will increase costs and make certain activities more time-consuming. A number of those requirements will require New UpHealth to carry out activities neither UpHealth nor Cloudbreak has not done previously. For example, New UpHealth will create new board committees and adopt new internal controls and disclosure controls and procedures. In addition, expenses associated with SEC reporting requirements will be incurred. Furthermore, if any issues in complying with those requirements are identified (for example, if the auditors identify a material weakness or significant deficiency in the internal control over financial reporting), New UpHealth could incur additional costs rectifying those issues, and the existence of those issues could adversely affect New UpHealth’s reputation or investor perceptions of it. It may also be more expensive to obtain director and officer liability insurance. Risks associated with New UpHealth’s status as a public company may make it more difficult to attract and retain qualified persons to serve on the New UpHealth Board or as executive officers. The additional reporting and other obligations imposed by these rules and regulations will increase legal and financial compliance costs and the costs of related legal, accounting and administrative activities. These increased costs will require New UpHealth to divert a significant amount of money that could otherwise be used to expand the business and achieve strategic objectives. Advocacy efforts by stockholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase costs.
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The Initial Stockholders have agreed to vote in favor of the Business Combinations, regardless of how the Company’s public stockholders vote.
Unlike some other blank check companies in which the initial stockholders agree to vote their Founder shares in accordance with the majority of the votes cast by the public stockholders in connection with an initial business combination, the Initial Stockholders have agreed (i) to vote their shares in favor of any proposed business combination, including the Business Combinations, (ii) not to convert their shares in connection with a stockholder vote to approve a proposed initial business combination, and (iii) not to sell any such shares to the Company in a tender offer in connection with any proposed business combination. Our Initial Stockholders have agreed to vote their shares in favor of each of the UpHealth Business Combination Proposal and the Cloudbreak Business Combination Proposal. As a result, we would need only 4,911,158, or approximately 33%, of the 14,817,315 public shares, to be voted in favor of the Business Combination Agreements in order to have the Business Combinations approved. Accordingly, it is more likely that the necessary stockholder approval will be received than would be the case if the Initial Stockholders agreed to vote their Founder Shares and Private Placement Shares in accordance with the majority of the votes cast by the Company’s public stockholders.
The unaudited pro forma condensed combined financial information included in the Registration Statement on Form S-4/A filed with the SEC on March 23, 2021 may not be indicative of what the Company’s actual financial position or results of operations would have been.
The unaudited pro forma condensed combined financial information in the Registration Statement on Form S-4/A filed with the SEC on March 23, 2021 is presented solely for illustrative purposes only and is not necessarily indicative of what the Company’s actual financial position or results of operations would have been had the Business Combinations completed on the dates indicated.
If third parties bring claims against the Company, the proceeds held in trust could be reduced and the per-share redemption price received by stockholders may be less than $10.00 per share.
The Company’s placing of funds in trust may not protect those funds from third party claims against the Company. Although the Company has sought to have all vendors and service providers the Company engages and prospective target businesses the Company negotiated with execute agreements with the Company waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of the Company’s public stockholders, they may not execute such agreements. Furthermore, even if such entities execute such agreements with the Company, they may seek recourse against the Trust Account. A court may not uphold the validity of such agreements. Accordingly, the proceeds held in trust could be subject to claims which could take priority over those of the Company’s public stockholders. If the Company is unable to complete a business combination and distribute the proceeds held in trust to the Company’s public stockholders, the Sponsor has agreed (subject to certain exceptions described elsewhere in this Annual Report) that it will be liable to ensure that the proceeds in the Trust Account are not reduced below $10.00 per share by the claims of target businesses or claims of vendors or other entities that are owed money by the Company for services rendered or contracted for or products sold to the Company. However, it may not be able to meet such obligation. Therefore, the per-share distribution from the Trust Account may be less than $10.00, plus interest, due to such claims.
Additionally, if the Company is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against the Company’s which is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy law, and may be included in the Company’s bankruptcy estate and subject to the claims of third parties with priority over the claims of the Company’s stockholders. To the extent any bankruptcy claims deplete the Trust Account, the Company may not be able to return to the Company’s public stockholders at least $10.00. The Sponsor may not have sufficient funds to satisfy its indemnity obligations, as its only assets are securities of the Company. The Company has not asked the Sponsor to reserve for such indemnification obligations. As a result, if any such claims were successfully made against the Trust Account, the funds available for the Company’s initial business combination, including the Business Combinations, and redemptions could be reduced to less than $10.00 per public share.
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Our directors may decide not to enforce the indemnification obligations of our Sponsor, resulting in a reduction in the amount of funds in the Trust Account available for distribution to our public stockholders.
In the event that the proceeds in the Trust Account are reduced below the lesser of (i) $10.00 per public share and (ii) the actual amount per share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.00 per share due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to pay taxes, and our Sponsor asserts that it is unable to satisfy its obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment and subject to their fiduciary duties may choose not to do so in any particular instance if, for example, the cost of such legal action is deemed by the independent directors to be too high relative to the amount recoverable or if the independent directors determine that a favorable outcome is not likely. If our independent directors choose not to enforce these indemnification obligations, the amount of funds in the Trust Account available for distribution to our public stockholders may be reduced below $10.00 per share.
If, before distributing the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our stockholders and the per-share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.
If, before distributing the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the Trust Account, the per-share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.
If, after we distribute the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, a bankruptcy court may seek to recover such proceeds, and we and our Board may be exposed to claims of punitive damages.
If, after we distribute the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. In addition, our Board may be viewed as having breached its fiduciary duty to our creditors and/or having acted in bad faith, thereby exposing itself and us to claims of punitive damages, by paying public stockholders from the Trust Account prior to addressing the claims of creditors.
The Company’s stockholders may be held liable for claims by third parties against the Company to the extent of distributions received by them.
The Company’s certificate of incorporation provides that it will continue in existence only until June 10, 2021, unless we amend our certificate of incorporation again to further extend the time that we have to consummate a business combination. If the Company has not completed a business combination by such date, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including any interest earned on the funds held in the Trust Account net of interest that may be used by the Company to pay its franchise and income taxes payable and up to $100,000 for dissolution expenses, divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and our Board, dissolve and liquidate, subject (in the case of(ii) and (iii) above) to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
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If the Company is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against the Company which is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by the Company’s stockholders. Furthermore, because GigCapital2 intends to distribute the proceeds held in the public shares to the Company’s public stockholders promptly after expiration of the time the Company has to complete an initial business combination, this may be viewed or interpreted as giving preference to the Company’s public stockholders over any potential creditors with respect to access to or distributions from the Company’s assets. Furthermore, our Board may be viewed as having breached their fiduciary duties to the Company’s creditors and/or may have acted in bad faith, and thereby exposing itself and the Company to claims of punitive damages, by paying public stockholders from the Trust Account prior to addressing the claims of creditors. The Company cannot assure you that claims will not be brought against it for these reasons.
Neither the Company nor its stockholders will have the protection of any indemnification, escrow, price adjustment or other provisions that allow for a post-closing adjustment to be made to the total aggregate closing consideration in the event that any of the representations and warranties made by UpHealth or Cloudbreak in the Business Combinations, as applicable, ultimately proves to be inaccurate or incorrect.
The representations and warranties made by UpHealth, Cloudbreak and the Company to each other in the Business Combination Agreements will not survive the consummation of the Business Combinations. As a result, the Company and its stockholders will not have the protection of any indemnification, escrow, price adjustment or other provisions that allow for a post-closing adjustment to be made to the total merger consideration if any representation or warranty made by UpHealth in the UpHealth Business Combination Agreement and Cloudbreak in the Cloudbreak Business Combination Agreement proves to be inaccurate or incorrect. Accordingly, to the extent such representations or warranties are incorrect, the Company would have no indemnification claim with respect thereto and its financial condition or results of operations could be adversely affected.
GigCapital2 may not have sufficient funds to satisfy indemnification claims of its directors and executive officers.
GigCapital2 has agreed to indemnify its officers and directors to the fullest extent permitted by law. However, GigCapital2’s officers and directors have agreed to waive any right, title, interest or claim of any kind in or to any monies in the Trust Account and not to seek recourse against the Trust Account for any reason whatsoever. Accordingly, any indemnification provided will be able to be satisfied by GigCapital2 only if (i) GigCapital2 has sufficient funds outside of the Trust Account or (ii) GigCapital2 consummates an initial business combination. GigCapital2’s obligation to indemnify its officers and directors may discourage stockholders from bringing a lawsuit against its officers or directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against GigCapital2’s officers and directors, even though such an action, if successful, might otherwise benefit GigCapital2 and its stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent GigCapital2 pays the costs of settlement and damage awards against its officers and directors pursuant to these indemnification provisions.
If the Company does not file and maintain a current and effective prospectus relating to the Common Stock issuable upon exercise of the warrants, holders will only be able to exercise such warrants on a “cashless basis.”
If the Company does not file and maintain a current and effective prospectus relating to the Common Stock issuable upon exercise of the warrants at the time that holders wish to exercise such warrants, they will only be able to exercise them on a “cashless basis” provided that an exemption from registration is available. As a result, the number of shares of Common Stock that holders will receive upon exercise of the warrants will be fewer than it would have been had such holder exercised its warrant for cash. Further, if an exemption from registration is not available, holders would not be able to exercise on a cashless basis and would only be able to exercise their warrants for cash if a current and effective prospectus relating to the Common Stock issuable upon exercise of the warrants is available. Under the terms of the warrant agreement, the Company has agreed to use its best efforts to meet these conditions and to file and maintain a current and effective prospectus relating to the Common Stock issuable upon exercise of the warrants until the expiration of the warrants. However, the Company cannot assure you that it will be able to do so. If the Company is unable to do so, the potential “upside” of the holder’s investment in the Company may be reduced or the warrants may expire worthless.
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Even if the Company consummates the Business Combinations, there is no guarantee that the warrants will ever be in the money, and they may expire worthless and the terms of warrants may be amended.
The exercise price for the warrants is $11.50 per share of Common Stock. There is no guarantee that the public warrants will ever be in the money prior to their expiration, and as such, the warrants may expire worthless.
In addition, the Company’s warrants were issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and the Company. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 65% of the then outstanding public warrants to make any other change. Accordingly, the Company may amend the terms of the warrants in a manner adverse to a holder if holders of at least 65% of the then outstanding public warrants approve of such amendment. Although the Company’s ability to amend the terms of the warrants with the consent of at least 65% of the then outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, shorten the exercise period or decrease the number of shares and their respective affiliates and associates have of Common Stock purchasable upon exercise of a warrant.
The exercise price for our public warrants is higher than in many similar blank check company offerings in the past, and, accordingly, the public warrants are more likely to expire worthless.
The exercise price of our public warrants is higher than is typical with many similar blank check companies in the past. Historically, with regard to units offered by blank check companies, the exercise price of a public warrant was generally a fraction of the purchase price of the units in the initial public offering. The exercise price for our public warrants is $11.50 per share, subject to adjustment as provided herein. As a result, the public warrants are less likely to ever be in the money and more likely to expire worthless.
The Company may amend the terms of the rights in a manner that may be adverse to holders with the approval by the holders of at least 65% of the then outstanding rights.
The rights are issued in registered form under a right agreement between Continental Stock Transfer & Trust Company, as rights agent, and the Company. The right agreement provides that the terms of the rights may be amended without the consent of any holder to cure any ambiguity or correct any defective provision. The right agreement requires the approval by the holders of at least 65% of the then outstanding rights in order to make any change that adversely affects the interests of the registered holders.
Warrants will become exercisable for our Common Stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
Our public warrants are exercisable for 17,250,000 shares of Common Stock as part of our IPO at $11.50 per share. The additional shares of our Common Stock issued upon exercise of our warrants will result in dilution to the then existing holders of Common Stock of the Company and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our Common Stock.
Stockholders may not know immediately after the Special Meeting whether we have satisfied the closing condition that the Trust Account equal or exceed $150,000,000.
If we receive valid redemption requests from holders of public shares prior to the redemption deadline, we may, at our sole discretion, following the redemption deadline and until the Closing Date, seek and permit withdrawals by one or more of such holders of their redemption requests. We may select which holders to seek such withdrawals of redemption requests from based on any factors we may deem relevant, and the purpose of seeking such withdrawals may be to increase the funds held in the trust account, including where we otherwise would not satisfy the closing condition that the amount of cash or cash equivalents that we have from any source equals or exceeds $150,000,000. This process could take a number of days, and there may be a period of time after the special meeting and before the Closing when stockholders do not know whether we have satisfied this closing condition.
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The Company has no obligation to net cash settle the rights or warrants.
In no event will the Company have any obligation to net cash settle the rights or warrants. Furthermore, there are no contractual penalties for failure to deliver securities to the holders of the rights or warrants upon consummation of an initial business combination, including the Business Combinations, or exercise of the warrants. Accordingly, the rights and Warrants may expire worthless.
Certain of our warrants are being accounted for as a warrant liability and are being recorded at fair value upon issuance with changes in fair value each period reported in earnings, which may have an adverse effect on the market price of our Common Stock or may make it more difficult for us to consummate an initial business combination.
In the private placement of units that occurred concurrently with our initial public offering, our Founders acquired 567,500 private warrants. These private warrants and the shares of common stock issuable upon the exercise of the private warrants are not transferable, assignable or salable until after the completion of the Business Combination, subject to certain limited exceptions. Additionally, the private warrants are exercisable for cash or on a cashless basis, at the holder’s option, and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the private warrants are held by someone other than the initial purchasers or their permitted transferees, the private warrants will be redeemable by the Company and exercisable by such holders on the same basis as the warrants included in the units sold in the initial public offering, in which case the 567,500 private warrants could be redeemed by the Company for $5,675. Under GAAP (as defined below in Part II, Item 7), we are required to evaluate contingent exercise provisions of these warrants and then their settlement provisions to determine whether they should be accounted for as a warrant liability or as equity. Any settlement amount not equal to the difference between the fair value of a fixed number of our equity shares and a fixed monetary amount precludes these warrants from being considered indexed to our own stock, and therefore, from being accounted for as equity. As a result of the provision that the private warrants, when held by someone other than the initial purchasers or their permitted transferees, will be redeemable by the Company, the requirements for accounting for these warrants as equity are not satisfied. Therefore, as described in our financial statements included in Part II, Item 8, to this Annual Report on Form 10-K/A, we are accounting for these private warrants as a warrant liability and are recording that liability at fair value upon issuance and are recording any subsequent changes in fair value as of the end of each period for which earnings are reported, as we determine based upon a valuation report obtained from our independent third party valuation firm. The impact of changes in fair value on earnings may have an adverse effect on the market price of our Common Stock. In addition, potential targets may seek a SPAC that does not have warrants that are accounted for as a warrant liability, which may make it more difficult for us to consummate an initial business combination with a target business.
The Company’s ability to successfully effect the Business Combinations and to be successful thereafter will be totally dependent upon the efforts of its key personnel, including each of UpHealth’s and Cloudbreak’s key personnel, all of whom are expected to join the Company following the Business Combinations. While the Company intends to closely scrutinize any individuals it engages after the Business Combinations, it cannot assure you that its assessment of these individuals will prove to be correct.
The Company’s ability to successfully effect the Business Combinations is dependent upon the efforts of key personnel of UpHealth, Cloudbreak and of the Company, including Dr. Avi Katz, the Company’s Executive Chairman Dr. Chirinjeev Kathuria, Executive Chairman of UpHealth, Dr. Mariya Pylypiv, Vice Chairwoman of UpHealth, Ramesh Balakrishnan and Al Gatmaitan, UpHealth’s Co-Chief Executive Officers and Jamey Edwards, Cloudbreak’s Chief Executive Officer. Although the Company expects all of UpHealth’s and Cloudbreak’s key personnel to remain with the post-combination company following the Business Combinations, it is possible that the post-combination company will lose some key personnel, the loss of which could negatively impact the operations and profitability of the post-combination company. While the post-combination company intends to closely scrutinize any individuals it engages after the Business Combinations, it cannot assure you that its assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements of operating a public company which could cause the post-combination company to have to expend time and resources helping them become familiar with such requirements. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect its operations.
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The Company, UpHealth and Cloudbreak will be subject to business uncertainties and contractual restrictions while the Business Combinations are pending.
Uncertainty about the effect of the Business Combinations on employees and third parties may have an adverse effect on the Company, UpHealth and Cloudbreak. These uncertainties may impair our, UpHealth’s or Cloudbreak’s ability to retain and motivate key personnel and could cause third parties that deal with any of us or them to defer entering into contracts or making other decisions or seek to change existing business relationships. If key employees depart because of uncertainty about their future roles and the potential complexities of the Business Combination, our, UpHealth’s or Cloudbreak’s business could be harmed.
We may waive one or more of the conditions to the Business Combinations.
We may agree to waive, in whole or in part, one or more of the conditions to our obligations to complete the Business Combinations, to the extent permitted by our current amended and restated certificate of incorporation and bylaws and applicable laws. In addition, if any of the proposed acquisitions or Business Combinations fails to occur, but our stockholders have approved the Business Combinations, we may decide to waive a condition or proceed with the rest of the Business Combinations without resoliciting stockholder. We may not waive the condition that our stockholders approve the Business Combinations.
The exercise of discretion by our directors and officers in agreeing to changes to the terms of or waivers of closing conditions in the Business Combination Agreements may result in a conflict of interest when determining whether such changes to the terms of the Business Combination Agreements or waivers of conditions are appropriate and in the best interests of our stockholders.
In the period leading up to the Closing, other events may occur that, pursuant to the Business Combination Agreements, would require the Company to agree to further amend the UpHealth Business Combination Agreement and amend the Cloudbreak Business Combination Agreement to consent to certain actions or to waive rights that we are entitled to under those agreements. Such events could arise because of changes in the course of UpHealth’s business, Cloudbreak’s business, a request by UpHealth to undertake actions that would otherwise be prohibited by the terms of the UpHealth Business Combination Agreement, a request by Cloudbreak to undertake actions that would otherwise be prohibited by the terms of the Cloudbreak Business Combination Agreement or the occurrence of other events that would have a material adverse effect on UpHealth’s or Cloudbreak’s business and would entitle the Company to terminate the Business Combination Agreements, as applicable. In any of such circumstances, it would be in the discretion of the Company, acting through the Board, to grant its consent or waive its rights. The existence of the financial and personal interests of the directors described elsewhere in this Annual Report may result in a conflict of interest on the part of one or more of the directors between what he or she may believe is best for the Company and our stockholders and what he or she may believe is best for himself or herself or his or her affiliates in determining whether or not to take the requested action. As of the date of this Annual Report, we do not believe there will be any changes or waivers that our directors and officers would be likely to make after stockholder approval of the Business Combinations has been obtained. While certain changes could be made without further stockholder approval, if there is a change to the terms of the Business Combinations that would have a material impact on the stockholders, we will be required to circulate a new or amended proxy statement or supplement thereto and resolicit the vote of our stockholders with respect to the UpHealth Business Combination Proposal and the Cloudbreak Business Combination Proposal, as applicable.
We, UpHealth and Cloudbreak will incur significant transaction and transition costs in connection with the Business Combinations.
We, UpHealth and Cloudbreak have both incurred and expect to incur significant, non-recurring costs in connection with consummating the Business Combinations and operating as a public company following the consummation of the Business Combinations. We, UpHealth and Cloudbreak may also incur additional costs to retain key employees. All expenses incurred in connection with the Business Combination Agreements and the transactions contemplated thereby (including the Business Combinations), including all legal, accounting, consulting, investment banking and other fees, expenses and costs, will be for the account of the party incurring such fees, expenses and costs or paid by the Company following the Closing.
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The aggregate transaction expenses as a result of the Business Combinations are expected to be approximately $43,000,000. The per-share amount we will distribute to stockholders who properly exercise their redemption rights will not be reduced by the transaction expenses and after such redemptions, the per-share value of shares held by non-redeeming stockholders will reflect our obligation to pay the transaction expenses.
Our Sponsor, certain members of our Board and our officers have interests in the Business Combinations that are different from or are in addition to other stockholders in recommending that stockholders vote in favor of approval of the UpHealth Business Combination Proposal and the Cloudbreak Business Combination Proposal and approval of the other proposals described in this Annual Report.
When considering our Board’s recommendation that our stockholders vote in favor of the approval of the UpHealth Business Combination Proposal and the Cloudbreak Business Combination Proposal, our stockholders should be aware that the directors and officers of the Company have interests in the Business Combinations that may be different from, or in addition to, the interests of our stockholders. These interests include:
| • | the fact that our Initial Stockholders have agreed not to redeem any of the Founder Shares in connection with a stockholder vote to approve the Business Combinations; |
| • | the fact that our Initial Stockholders have agreed to waive their rights to liquidating distributions from the Trust Account with respect to their Founder Shares if we fail to complete an initial business combination by the applicable deadline; |
| • | if the Trust Account is liquidated, including in the event we are unable to complete an initial business combination within the required time period, our Sponsor has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10.00 per public share, or such lesser per public share amount as is in the Trust Account on the liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party (other than our independent public accountants) for services rendered or products sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account; |
| • | the continued indemnification of our existing directors and officers and the continuation of our directors’ and officers’ liability insurance after the Business Combinations; |
| • | the fact that Dr. Avi Katz, Dr. Raluca Dinu and Neil Miotto will remain as board members of the post-combination company and each shall be entitled to receive compensation for serving on the board of directors of the post-combination company; |
| • | the fact that we engaged the underwriters of our IPO as advisors to assist it in holding meetings with our stockholders to discuss potential business combination, introduce GigCapital2 to potential investors that are interested in purchasing our securities in connection with a potential business combination, assist it in obtaining stockholder approval for the business combination and assist us with our press releases and public filings in connection with a business combination. Pursuant to that agreement, we will pay the underwriters a cash fee for such services upon the consummation of the Business Combinations in an amount equal to, in the aggregate, 3.5% of the gross proceeds of the IPO, including any proceeds from the exercise of the over-allotment option; and |
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| • | the fact that our Sponsor, officers and directors will lose their entire investment in us if an initial business combination is not consummated by the applicable deadline. Prior to GigCapital2’s initial public offering, our Founders purchased an aggregate of 4,307,500 Founder Shares for an aggregate purchase price of $25,000, or approximately $0.0058 per share (as compared to the $10.00 per share price being used to determine the number of shares of Common Stock being issued to the UpHealth and Cloudbreak equity holders in the Business Combinations or at which the PIPE Investors have agreed to purchase Common Stock), with the Sponsor purchasing 4,018,987 Founder Shares, Northland Investment purchasing 173,108 Founder Shares and the EarlyBird Group purchasing 115,405 Founder Shares. Additionally, the Founders purchased from GigCapital2 an aggregate of 567,500 Private Placement Units at a price of $10.00 per unit simultaneously with the consummation of GigCapital2’s initial public offering for an aggregate purchase price of $5,675,000, with the Sponsor purchasing 481,250 Private Placement Units, Northland Investment purchasing 56,350 Private Placement Units and the EarlyBird Group purchasing 29,900 Private Placement Units. In addition, Northland concurrently purchased 120,000 Private Underwriter Shares at a price of $10.00 per share. Certain of GigCapital2’s directors and executive officers, including Dr. Avi Katz, Dr. Raluca Dinu, Neil Miotto, John Mikulsky and Gil Frostig, also have a direct or indirect economic interest in the 481,250 Private Placement Units and in the 4,018,987 Founder Shares owned by the Sponsor. The 4,018,987 Founder Shares owned by the Sponsor would have had an aggregate market value of $40,230,060 based upon the closing price of $10.01 per public share on the NYSE on March 26, 2021, the most recent practicable date prior to the date of this Annual Report. The 481,250 private placement units held by the Sponsor would have had an aggregate market value of $4,817,313 based upon the closing price of $10.01 per public unit on the NYSE on March 26, 2021, the most recent practicable date prior to the date of this Annual Report. Additionally, the Sponsor, officers and directors do not currently have any unreimbursed out-of-pocket expenses in connection with the Business Combinations. |
Our Initial Stockholders, including our Sponsor and our independent directors, hold a significant number of shares of our Common Stock. They will lose their entire investment in us if a business combination is not completed.
Our Initial Stockholders hold in the aggregate 4,995,000 Founder Shares, representing 23% of the total shares outstanding as of the date of this Annual Report. The Founder Shares will be worthless if we do not complete a business combination by the applicable deadline.
The Founder Shares are identical to the shares of Common Stock included in the public units, except that: (i) the Founder Shares are subject to certain transfer restrictions; (ii) our Initial Stockholders, officers and directors have entered into a letter agreement with us, pursuant to which they have agreed: (a) to waive their redemption rights with respect to their shares of Common Stock in connection with the completion of our Business Combinations; (b) waive their redemption rights with respect to their shares of Common Stock in connection with a stockholder vote to approve an amendment to our current amended and restated certificate of incorporation to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination within 18 months from the closing of the IPO or to provide for redemption in connection with a business combination; and (c) to waive their rights to liquidating distributions from the Trust Account with respect to their Initial Stockholder Shares if we fail to complete our initial business combination by the applicable deadline (although they will be entitled to liquidating distributions from the Trust Account with respect to any public shares they hold if we fail to complete our initial business combination by the applicable deadline.
The personal and financial interests of our officers and directors may have influenced their motivation in identifying and selecting each of UpHealth and Cloudbreak, completing a business combination with each of UpHealth and Cloudbreak and may influence their operation of the post-combination company following the Business Combinations. This risk may become more acute as the deadline of the applicable deadline for completing an initial business combination nears.
Our Sponsor, directors or officers or their affiliates may elect to purchase shares or warrants from public stockholders, which may influence a vote on a proposed Business Combinations and the other proposals described in this Annual Report and reduce the public “float” of our Common Stock.
Our Sponsor, directors or officers or their affiliates may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of our Business Combinations, although they are under no obligation to do so. Such a purchase may include a contractual acknowledgement that such stockholder, although still the record holder of our shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our Sponsor, directors, officers or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. The purpose of such purchases could be to vote such shares in favor of the Business Combinations and thereby increase the likelihood of obtaining stockholder approval of the Business Combinations or to satisfy closing conditions in the Business Combination Agreements regarding required amounts of cash or cash equivalents that we have from any source equal or exceeds certain thresholds where it appears that such requirements would otherwise not be met. The purpose of any such purchases of public warrants could be to reduce the number of public warrants outstanding or to vote such warrants on any matters submitted to the warrant holders for approval in connection with our initial business combination. This may result in the completion of our Business Combinations that may not otherwise have been possible. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements.
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In addition, if such purchases are made, the public “float” of our Common Stock and the number of beneficial holders of our securities may be reduced, possibly making it difficult to obtain or maintain the quotation, listing or trading of our securities on the NYSE or another national securities exchange or reducing the liquidity of the trading market for our Common Stock.
Stockholders of the post-combination company may not be able to enforce judgments entered by United States courts against certain of our officers and directors.
We are incorporated in the State of Delaware. However, following the Business Combinations, some of our directors and executive officers may reside outside of the U.S. As a result, stockholders of the post-combination company may not be able to effect service of process upon those persons within the U.S. or enforce against those persons judgments obtained in U.S. courts.
A market for the Company’s securities may not continue, which would adversely affect the liquidity and price of its securities.
Following the Business Combinations, the price of the post-combination company’s securities may fluctuate significantly due to the market’s reaction to the Business Combinations and general market and economic conditions. An active trading market for the Company’s securities following the Business Combinations may never develop or, if developed, it may not be sustained. In addition, the price of the post-combination company’s securities after the Business Combinations can vary due to general economic conditions and forecasts, the post-combination company’s general business condition and the release of the post-combination company’s financial reports. Additionally, if the post-combination company’s securities are not listed on, or become delisted from, the NYSE for any reason, and are quoted on the OTC Bulletin Board (an inter-dealer automated quotation system for equity securities that is not a national securities exchange) or the post-combination company’s securities are not listed on the NYSE and are quoted on the OTC Bulletin Board, the liquidity and price of the post-combination company’s securities may be more limited than if the post-combination company’s securities were quoted or listed on the NYSE or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained.
The ability to execute the post-combination company’s strategic plan could be negatively impacted to the extent a significant number of stockholders choose to redeem their shares in connection with the Business Combinations.
Depending upon the aggregate amount of cash consideration the Company would be required to pay for all shares of Common Stock that are validly submitted for redemption, the post-combination company may be required to increase the financial leverage the post-combination company’s business would have to support. This may negatively impact its ability to execute on its own future strategic plan and its financial viability.
If the post-combination company fails to introduce or acquire new products or services that achieve broad market acceptance on a timely basis, or if its products or services are not adopted as expected, the combined company will not be able to compete effectively.
The post-combination company will operate in a highly competitive, quickly changing environment, and the combined company’s future success depends on its ability to develop or acquire, and introduce new products and services that achieve broad market acceptance. The post-combination company’s ability to successfully introduce and market new products is unproven. Because the post-combination company will have a limited operating history and the market for its products, including newly acquired or developed products, is rapidly evolving, it is difficult to predict the combined company’s operating results, particularly with respect to any new products that it may introduce. The post-combination company’s future success will depend in large part upon its ability to identify demand trends in the market in which it will operate and quickly develop or acquire, and design, manufacture and sell, products and services that satisfy these demands in a cost-effective manner.
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In order to differentiate the post-combination company’s products and services from competitors’ products, the post-combination company will need to increase focus and capital investment in research and development, including software development. If any products currently sold by, and services offered by, either UpHealth or Cloudbreak do not continue, or if the post-combination company’s new products or services fail to achieve widespread market acceptance, or if we are unsuccessful in capitalizing on opportunities in the market in which the post-combination company will operate, the post-combination company’s future growth may be slowed and its business, results of operations and financial condition could be materially adversely affected. Successfully predicting demand trends is difficult, and it is very difficult to predict the effect that introducing a new product or service will have on existing product or service sales. It is possible that the post-combination company may not be successful with its new products and services, and as a result the post-combination company’s future growth may be slowed and its business, results of operations and financial condition could be materially adversely affected. Also, the post-combination company’s may not be able to respond effectively to new product or service announcements by competitors by quickly introducing competitive products and services.
In addition, the post-combination company may acquire companies and technologies in the future. In these circumstances, the combined company may not be able to successfully manage integration of the new product and service lines with the combined company’s existing suite of products and services. If the post-combination company is unable to effectively and successfully further develop these new product and service lines, the post-combination company may not be able to increase or maintain sales (as compared to sales of UpHealth or Cloudbreak, as applicable, on a standalone basis), and the post-combination company’s gross margin (as compared to sales of UpHealth or Cloudbreak, as applicable, on a standalone basis) may be adversely affected.
Furthermore, the success of the post-combination company’s new products will depend on several factors, including, but not limited to, market demand costs, timely completion and introduction of these products, prompt resolution of any defects or bugs in these products, the post-combination company’s ability to support these products, differentiation of new products from those of the post-combination company’s competitors, market acceptance of these products, delays and quality issues in releasing new products and services. The occurrence of one or more of the foregoing factors may result in lower quarterly revenue than expected, and the post-combination company may in the future experience product or service introductions that fall short of its projected rates of market adoption.
If the post-combination company’s products and services fail to achieve and sustain sufficient market acceptance, the combined company’s revenue will be adversely affected.
The post-combination company’s success will depend on its ability to develop and market products and services that are recognized and accepted as reliable, enabling and cost-effective. Some potential customers of the combined company may already use products or services similar to what UpHealth and Cloudbreak currently offers and similar to what the post-combination company may offer in the future and may be reluctant to replace those products or services with what UpHealth and Cloudbreak currently offers or which the combined company may offer in the future. Market acceptance of the post-combination company’s products, services and technology will depend on many factors, including the post-combination company’s ability to convince potential customers that the post-combination company’s products, services and technology are an attractive alternative to existing products, services and technology. Prior to adopting the post-combination company’s products, services and technology, some potential customers may need to devote time and effort to testing and validating the post-combination company’s systems. Any failure of the post-combination company’s systems to meet these customer benchmarks could result in potential customers choosing to retain their existing systems or to purchase systems other than the combined company’s.
If the Business Combinations’ benefits do not meet the expectations of investors, stockholders or financial analysts, the market price of the Company’s securities may decline.
If the benefits of the Business Combinations do not meet the expectations of investors or securities analysts, the market price of the Company’s securities prior to the Closing may decline. The market values of the Company’s securities at the time of the Business Combinations may vary significantly from their prices on the date the Business Combinations were executed, the date of this Annual Report, or the date on which the Company’s stockholders vote on the Business Combinations.
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In addition, following the Business Combinations, fluctuations in the price of the Company’s securities could contribute to the loss of all or part of your investment. Prior to the Business Combinations, there has not been a public market for UpHealth’s or Cloudbreak’s stock and trading in the shares of Company Common Stock has not been active. Accordingly, the valuation ascribed to UpHealth, Cloudbreak and Company Common Stock in the Business Combinations may not be indicative of the price that will prevail in the trading market following the Business Combinations. If an active market for the Company’s securities develops and continues, the trading price of the Company’s securities following the Business Combinations could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond the Company’s control. Any of the factors listed below could have a material adverse effect on your investment in the Company’s securities and the Company’s securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of the Company’s securities may not recover and may experience a further decline.
Factors affecting the trading price of the Company’s securities following the Business Combinations may include:
| • | actual or anticipated fluctuations in the post-combination company’s quarterly financial results or the quarterly financial results of companies perceived to be similar to the post-combination company; |
| • | changes in the market’s expectations about the post-combination company’s operating results; |
| • | success of competitors; |
| • | the post-combination company’s operating results failing to meet the expectation of securities analysts or investors in a particular period; |
| • | changes in financial estimates and recommendations by securities analysts concerning the post-combination company or the market in general; |
| • | operating and stock price performance of other companies that investors deem comparable to the post-combination company’s; |
| • | the post-combination company’s ability to market new and enhanced services and products on a timely basis; |
| • | changes in laws and regulations affecting the post-combination company’s business; |
| • | commencement of, or involvement in, litigation involving the Company; |
| • | changes in the post-combination company’s capital structure, such as future issuances of securities or the incurrence of additional debt; |
| • | the volume of shares of the post-combination company’s securities available for public sale; |
| • | any major change in the board or management; |
| • | sales of substantial amounts of Common Stock by the post-combination company’s directors, executive officers or significant stockholders or the perception that such sales could occur; and |
| • | general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism. |
Broad market and industry factors may materially harm the market price of the Company’s securities irrespective of its operating performance. The stock market in general and the NYSE have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of the Company’s securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to the Company could depress the Company’s stock price regardless of the Company’s business, prospects, financial condition or results of operations. A decline in the market price of the Company’s securities also could adversely affect the Company’s ability to issue additional securities and the Company’s ability to obtain additional financing in the future.
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Following the Business Combinations, if securities or industry analysts do not publish or cease publishing research or reports about the Company, its business, or its market, or if they change their recommendations regarding the Company’s securities adversely, the price and trading volume of the Company’s securities could decline.
The trading market for the post-combination company’s securities will be influenced by the research and reports that industry or securities analysts may publish about the post-combination company, its business, its market, or its competitors. Securities and industry analysts do not currently, and may never, publish research on the post-combination company. If no securities or industry analysts commence coverage of the post-combination company, the post-combination company’s stock price and trading volume would likely be negatively impacted. If any of the analysts who may cover the post-combination company, change their recommendation regarding the post-combination company’s stock adversely, or provide more favorable relative recommendations about the post-combination company’s competitors, the price of the post-combination company’s securities would likely decline. If any analyst who may cover the post-combination company were to cease coverage of the post-combination company or fail to regularly publish reports on it, the post-combination company could lose visibility in the financial markets, which could cause its stock price or trading volume to decline.
The future sales of shares by existing stockholders may adversely affect the market price of the Company’s Common Stock.
Sales of a substantial number of shares of the Company’s Common Stock in the public market could occur at anytime. If the Company’s stockholders sell, or the market perceives that the Company’s stockholders intend to sell, substantial amounts of the Company’s Common Stock in the public market, the market price of the Company’s Common Stock could decline.
Our public stockholders will experience dilution as a consequence of, among other transactions, the issuance of Common Stock as consideration in the Business Combinations. Having a minority share position may reduce the influence that our current stockholders have on the management of the post-combination company.
The issuance of the Common Stock in the Business Combinations will dilute the equity interest of our existing stockholders and may adversely affect prevailing market prices for our public shares and/or public warrants.
It is anticipated that, upon completion of the Business Combinations, assuming no redemptions: (i) the Company’s public stockholders will retain an ownership interest of approximately 12.35% in the post-combination company (not including shares beneficially owned by our Sponsor); (ii) the PIPE Investors will own approximately 2.36% of the post-combination company (such that public stockholders, including the PIPE Investors, will own approximately 14.72% of the post-combination company); (iii) our Initial Stockholders (including our Sponsor) will own approximately 3.6% of the post-combination company; (iv) the former UpHealth equity holders will own approximately 74.22% of the post-combination company, assuming $86,200,000 of cash is used to repurchase UpHealth shares and (v) the former Cloudbreak equity holders will own approximately 7.11% of the post-combination company, assuming no cash is used to repurchase Cloudbreak Units. The ownership percentage with respect to the post-combination company following the Business Combinations does not take into account (i) warrants to purchase Common Stock that will remain outstanding immediately following the Business Combinations (ii) conversion of the Convertible Notes into shares of Common Stock or (iii) the issuance of any shares upon completion of the Business Combinations under the Incentive Plan. Depending on the number of public shares redeemed, our current stockholders could own a majority of the voting rights in the post-combination company, but would not have effective control over the post-combination company.
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The NYSE may not list our securities on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
In connection with the Business Combinations, in order to obtain the listing of the post-combination company’s securities on the NYSE, we will be required to demonstrate compliance with the NYSE’s initial listing requirements, which are more rigorous than the NYSE’s continued listing requirements. We will seek to have the post-combination company’s securities listed on the NYSE upon consummation of the Business Combinations. We cannot assure you that we will be able to meet all initial listing requirements. Even if the post-combination company’s securities are listed on the NYSE, we may be unable to maintain the listing of its securities in the future.
If we fail to meet the initial listing requirements and the NYSE does not list the post-combination company’s securities on its exchange, neither UpHealth nor Cloudbreak would not be required to consummate the Business Combinations. In the event that either UpHealth or Cloudbreak elected to waive this condition, and the Business Combinations were consummated without the post-combination company’s securities being listed on the NYSE or on another national securities exchange, we could face significant material adverse consequences, including:
| • | a limited availability of market quotations for our securities; |
| • | reduced liquidity for our securities; |
| • | a determination that our Common Stock is a “penny stock” which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; |
| • | a limited amount of news and analyst coverage; and |
| • | a decreased ability to issue additional securities or obtain additional financing in the future. |
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” If the post-combination company’s securities were not listed on the NYSE, such securities would not qualify as covered securities and we would be subject to regulation in each state in which we offer our securities because states are not preempted from regulating the sale of securities that are not covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state, other than the State of Idaho, having used these powers to prohibit or restrict the sale of securities issued by blank check companies, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states.
Resales of the shares of Common Stock included in the stock consideration could depress the market price of our Common Stock.
We will have approximately 128,942,357 shares of Common Stock outstanding immediately following the Business Combinations, and there may be a large number of shares of Common Stock sold in the market following the completion of the Business Combinations or shortly thereafter. The shares held by the Company’s public stockholders are freely tradable. In addition, the Company will be obligated to register the resale of shares of Common Stock issued as merger consideration, which shares will become available for resale following the expiration of any applicable lockup period. We also expect that Rule 144 will become available for the resale of shares of our Common Stock that are not registered for resale once one year has elapsed from the date that we file the Current Report on Form 8-K following the Closing that includes the required Form 10 information that reflects we are no longer a shell company. Such sales of shares of Common Stock or the perception of such sales may depress the market price of our Common Stock.
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The post-combination company may redeem the unexpired warrants prior to their exercise at a time that is disadvantageous to warrant holders, thereby making their warrants worthless.
The post-combination company has the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of the Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date the post-combination company sends the notice of redemption to the warrant holders. If and when the warrants become redeemable by the post-combination company, the post-combination company may exercise its redemption right even if the post-combination company is unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force you (i) to exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) to accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants. None of the Private Placement Warrants and warrants underlying the units issuable upon conversion of working capital loan will be redeemable by the post-combination company so long as they are held by their initial purchasers or their permitted transferees.
Anti-takeover provisions contained in the proposed Second Amended and Restated Certificate of Incorporation as well as provisions of Delaware law, could impair a takeover attempt.
The proposed Second Amended and Restated Certificate of Incorporation will contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. The post-combination company is also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for the post-combination company’s securities. These provisions will include:
| • | no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; |
| • | a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of the Board; |
| • | the right of our Board to elect a director to fill a vacancy created by the expansion of our Board or the resignation, death or removal of a director in certain circumstances, which prevents stockholders from being able to fill vacancies on our Board; |
| • | a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; and |
| • | the requirement that a meeting of stockholders may only be called by members of our Board or the stockholders holding a majority of our shares, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors. |
These provisions, alone or together, could delay hostile takeovers and changes in control of New UpHealth or changes in the New UpHealth Board and New UpHealth’s management.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the DGCL, which prevents some stockholders holding more than 15% of our outstanding Common Stock from engaging in certain business combinations without approval of the holders of substantially all of New UpHealth Common Stock. Any provision of Amended and Restated Certificate of Incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Common Stock and could also affect the price that some investors are willing to pay for our Common Stock.
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The JOBS Act permits “emerging growth companies” like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.
We currently qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act. As such, we take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as we continue to be an emerging growth company, including: (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of SOX; (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements; and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. As a result, our stockholders may not have access to certain information they deem important. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year: (a) following October 18, 2023, the fifth anniversary of our IPO; (b) in which we have total annual gross revenue of at least $1.07 billion; or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Common Stock that is held by non-affiliates exceeds $700,000,000 as of the prior June 30th, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. We have elected to avail ourselves of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
We cannot predict if investors will find our Common Stock less attractive because we rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
If we fail to maintain effective internal control over financial reporting, the price of our Common Stock may be adversely affected.
We identified a material weakness in our internal control over financial reporting, the disclosure of which may have an adverse impact on the price of our Common Stock (please refer to Part II, Item 9A for further discussion). We are required to establish and maintain appropriate internal control over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, financial condition or results of operations. In addition, management’s assessment of internal control over financial reporting may identify weaknesses and conditions that need to be addressed in our internal control over financial reporting, or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, or disclosure of management’s assessment of our internal control over financial reporting, may have an adverse impact on the price of our Common Stock.
We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002, and if we fail to continue to comply, our business could be harmed and our stock price could decline.
Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require an annual assessment of internal control over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal control over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In addition, although attestation requirements by our independent registered public accounting firm are not presently applicable to us we could become subject to these requirements in the future and we may encounter problems or delays in completing the implementation of any resulting changes to internal control over financial reporting. In the event that our Chief Executive Officer or Chief Financial Officer determine that our internal control over financial reporting is not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our shares will be affected; however, we believe that there is a risk that investor confidence and share value may be negatively affected.
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Our internal control over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.
As a public company, we are required to comply with the SEC’s rules implementing Sections 302 and 404 of SOX, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of internal control over financial reporting. To comply with the requirements of being a public company, the post-combination company will be required to provide management’s assessment on internal controls commencing with the annual report for fiscal year ending December 31, 2022, and we may need to undertake various actions, such as implementing additional internal controls and procedures and hiring additional accounting or internal audit staff. The standards required for a public company under Section 404 of SOX are significantly more stringent than those required of UpHealth and Cloudbreak as privately-held companies. Further, as an emerging growth company, our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event that it is not satisfied with the level at which the controls of the post-combination company are documented, designed or operating.
Testing and maintaining these controls can divert our management’s attention from other matters that are important to the operation of our business. If we identify material weaknesses in the internal control over financial reporting of the post-combination company or are unable to comply with the requirements of Section 404 or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting when we no longer qualify as an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Common Stock could be negatively affected, and we could become subject to investigations by the SEC or other regulatory authorities, which could require additional financial and management resources.
Activities taken by the Company’s affiliates to purchase, directly or indirectly, public shares will increase the likelihood of approval of the UpHealth Business Combination Proposal, the Cloudbreak Business Combination Proposal and the other Proposals and may affect the market price of the Company’s securities.
The Company’s Founders, directors, officers, advisors or their affiliates may purchase shares in privately negotiated transactions either prior to or following the consummation of the Business Combinations. None of the Company’s Founders, directors, officers, advisors or their affiliates will make any such purchases when such parties are in possession of any material non-public information not disclosed to the seller or during a restricted period under Regulation M under the Exchange Act. Although none of the Company’s Founders, directors, officers, advisors or their affiliates currently anticipate paying any premium purchase price for such public shares, in the event such parties do, the payment of a premium may not be in the best interest of those stockholders not receiving any such additional consideration. There is no limit on the number of shares that could be acquired by the Company’s Founders, directors, officers, advisors or their affiliates, or the price such parties may pay.
If such transactions are effected, the consequence could be to cause the Business Combinations to be approved in circumstances where such approval could not otherwise be obtained. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the UpHealth Business Combination Proposal, the Cloudbreak Business Combination Proposal and other proposals and would likely increase the chances that such Proposals would be approved. If the market does not view the Business Combinations positively, purchases of public shares may have the effect of counteracting the market’s view, which would otherwise be reflected in a decline in the market price of the Company’s securities. In addition, the termination of the support provided by these purchases may materially adversely affect the market price of the Company’s securities.
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As of the date of this Annual Report, no agreements with respect to the private purchase of public shares by the Company or the persons described above have been entered into with any such investor or holder. The Company will file a Current Report on Form 8-K with the SEC to disclose private arrangements entered into or significant private purchases made by any of the aforementioned persons that would affect the vote on the Business Combinations Proposal or other proposals.
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect the Company’s business, investments and results of operations.
The Company is subject to laws, regulations and rules enacted by national, regional and local governments. In particular, the Company is required to comply with certain SEC, NYSE and other legal or regulatory requirements, including the NYSE upon the transfer of its listing. Compliance with, and monitoring of, applicable laws, regulations and rules may be difficult, time consuming and costly. Those laws, regulations and rules and their interpretation and application may also change from time to time and those changes could have a material adverse effect on the Company’s business, investments and results of operations. In addition, a failure to comply with applicable laws, regulations and rules, as interpreted and applied, could have a material adverse effect on the Company’s business and results of operations.
We have not registered the shares of Common Stock issuable upon exercise of the public warrants under the Securities Act or any state securities laws at this time, and such registration may not be in place when an investor desires to exercise public warrants, thus precluding such investor from being able to exercise its public warrants except on a cashless basis and potentially causing such public warrants to expire worthless.
We have not registered the shares of Common Stock issuable upon exercise of the public warrants under the Securities Act or any state securities laws at this time. However, under the terms of the warrant agreement, we have agreed that as soon as practicable, but in no event later than 15 business days after the closing of our initial business combination, we will use our best efforts to file with the SEC a registration statement for the registration under the Securities Act of the shares of Common Stock issuable upon exercise of the warrants and thereafter will use our best efforts to cause the same to become effective within 60 business days following our initial business combination and to maintain a current prospectus relating to the Common Stock issuable upon exercise of the public warrants, until the expiration of the public warrants in accordance with the provisions of the warrant agreement. We cannot assure you that we will be able to do so if, for example, any facts or events arise which represent a fundamental change in the information set forth in the registration statement or prospectus, the financial statements contained or incorporated by reference therein are not current or correct or the SEC issues a stop order. If the shares issuable upon exercise of the public warrants are not registered under the Securities Act, we will be required to permit holders to exercise their public warrants on a cashless basis. However, no public warrant will be exercisable for cash or on a cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their public warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder or an exemption from registration is available. Notwithstanding the above, if our Common Stock is at the time of any exercise of a public warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of public warrants who exercise their public warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, and in the event we do not so elect, we will use our best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. In no event will we be required to net cash settle any public warrant, or issue securities or other compensation in exchange for the public warrants in the event that we are unable to register or qualify the shares underlying the public warrants under applicable state securities laws and there is no exemption available. If the issuance of the shares upon exercise of the public warrants is not so registered or qualified or exempt from registration or qualification, the holder of such public warrant shall not be entitled to exercise such public warrant and such public warrant may have no value and expire worthless. In such event, holders who acquired their public warrants as part of a purchase of public units will have paid the full unit purchase price solely for the shares of Common Stock included in the public units. If and when the public warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. We will use our best efforts to register or qualify such shares of Common Stock under the blue sky laws of the state of residence in those states in which the warrants were offered by us in the IPO. However, there may be instances in which holders of our public warrants may be unable to exercise such public warrants but holders of our private warrants may be able to exercise such private warrants.
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Our Board did not obtain a third-party valuation or fairness opinion in determining whether or not to proceed with the business combination.
Our Board did not obtain a third-party valuation or fairness opinion in connection with their determination to approve the Business Combinations. In analyzing the Business Combinations, our Board and management conducted due diligence on each of UpHealth and Cloudbreak and researched the industry in which it operates and concluded that the Business Combinations were in the best interest of our stockholders. Accordingly, investors will be relying solely on the judgment of our Board in valuing each of UpHealth’s business and Cloudbreak’s business, and our Board may not have properly valued such business. The lack of a third-party valuation or fairness opinion may also lead an increased number of stockholders to vote against the proposed business combination or demand redemption of their shares for cash, which could potentially impact the ability to consummate the Business Combinations or the operations of the post-combination company.
The Company may be a “controlled company” within the meaning of the applicable rules of the NYSE and, as a result, may qualify for exemptions from certain corporate governance requirements. If the Company relies on these exemptions, its stockholders will not have the same protections afforded to stockholders of companies that are subject to such requirements.
Upon the Closing, depending on the number of shares of Common Stock redeemed by the Company’s public stockholders, the former UpHealth equityholders and former Cloudbreak equityholders may control a majority of the voting power of the post-combination company’s outstanding Common Stock, and the Company may then be a “controlled company” within the meaning of applicable rules of the NYSE upon the Closing of the Business Combinations. Under these rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirements:
| • | that a majority of the board consists of independent directors; |
| • | for an annual performance evaluation of the nominating and corporate governance and compensation committees; |
| • | that the controlled company has a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and |
| • | that the controlled company has a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibility. |
If available, the post-combination company may use these exemptions now or in the future. As a result, the post-combination company’s stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.
If the conditions to the Business Combination Agreements are not met, the Business Combination may not occur.
Even if the Business Combination Agreements are approved by the stockholders of GigCapital2, specified conditions must be satisfied or waived before the parties to the Business Combination Agreements are obligate to complete the Business Combinations. GigCapital2, UpHealth and Cloudbreak may not satisfy all of the closing conditions in the Business Combination Agreements. If the closing conditions are not satisfied or waived, the Business Combinations will not occur, or will be delayed pending later satisfaction or waiver, and such delay may cause GigCapital2, UpHealth and Cloudbreak to each lose some or all of the intended benefits of the Business Combinations.
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The Company’s current Amended and Restated Certificate of Incorporation and proposed Second Amended and Restated Certificate of Incorporation provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the sole and exclusive forums for substantially all disputes between the Company and its stockholders, which could limit the Company’s stockholders’ ability to obtain a favorable judicial forum for disputes with the Company or its directors, officers, or employees.
Our Amended and Restated Certificate of Incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against our directors, officers, and employees for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel except any action (A) as to which the Court of Chancery in the State of Delaware determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), (B) which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, (C) for which the Court of Chancery does not have subject matter jurisdiction, or (D) any action arising under the Exchange Act or the Securities Act, as to which the Court of Chancery and the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive forum. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our Amended and Restated Certificate of Incorporation. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or employees which may discourage lawsuits with respect to such claims, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. However, there is no assurance that a court would enforce the choice of forum provision contained in our Amended and Restated Certificate of Incorporation. If a court were to find such provision to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
Our current Amended and Restated Certificate of Incorporation and our proposed Second Amended and Restated Certificate of Incorporation will provide that the exclusive forum provision will be applicable to the fullest extent permitted by applicable law. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
The future exercise of registration rights may adversely affect the market price of our Common Stock.
Certain of our stockholders will have registration rights for restricted securities. We are obligated to register certain securities, including all of the shares of Common Stock held by the Initial Stockholders, shares of Common Stock received by certain significant UpHealth stockholders as part of the UpHealth Business Combination, shares of Common Stock received by certain significant Cloudbreak members as part of the Cloudbreak Business Combination. We are obligated to (i) file a resale “shelf” registration statement to register such securities (and any shares of UpHealth Common Stock and any Cloudbreak Units into which they may be exercised following the consummation of the Business Combinations) within 15 business days after of the Closing Date and (ii) use reasonable best efforts to cause such registration statement to be declared effective by the SEC as soon as reasonably practicable after the filing. Sales of a substantial number of shares of Common Stock pursuant to the resale registration statement in the public market could occur at any time the registration statement remains effective. In addition, certain registration rights holders can request underwritten offerings to sell their securities. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our Common Stock.
There is uncertainty regarding the U.S. federal income tax consequences of the redemption to the holders of our Common Stock.
There is some uncertainty regarding the U.S. federal income tax consequences to holders of our Common Stock who exercise their redemption rights. The uncertainty of tax consequences relates primarily to the individual circumstances of the taxpayer and include (i) whether the redemption results in a dividend or a sale taxable as capital gain, and (ii) whether such capital gain is “long-term” or “short-term.” Whether the redemption qualifies for sale treatment will depend largely on whether the holder owns (or is deemed to own) any shares of our Common Stock following the redemption, and if so, the total number of shares of our Common Stock held by the holder both before and after the redemption relative to all shares of our Common Stock outstanding both before and after the redemption. The redemption generally will be treated as a sale, rather than a dividend, if the redemption (i) is “substantially disproportionate” with respect to the holder, (ii) results in a “complete termination” of the holder’s interest in GigCapital2 or (iii) is “not essentially equivalent to a dividend” with respect to the holder. Due to the personal and subjective nature of certain of such tests and the absence of clear guidance from the IRS, there is uncertainty as to whether a holder who elects to exercise its redemption rights will be treated as receiving a dividend or recognizing capital gain.
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Item 1B. Unresolved Staff Comments.
None.
We currently maintain our corporate offices at 1731 Embarcadero Rd., Suite 200, Palo Alto, CA 94303. The cost for this space is included in the $20,000 per month fee that we pay an affiliate of our Sponsor for office space, administrative and support services. We believe, based on fees for similar services in the San Francisco Bay Area, that the fee charged by our Sponsor is at least as favorable as we could have obtained from an unaffiliated party. We consider our current office space, combined with the other office space otherwise available to our executive officers, adequate for our current operations.
We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us or any of our officers or directors in their corporate capacity.
Item 4. Mine Safety Disclosures.
None.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(a) Market Information
Our units began trading on the NYSE under the symbol “GIX.U” on June 6, 2019. On June 26, 2019, the Company announced that the holders of the Company’s units may elect to separately trade the securities underlying such units. On July 1, 2019, our shares of common stock, warrants and rights began trading on the NYSE under the symbols “GIX”, “GIX.WS” and “GIX.RT” respectively. No fractional warrants will be issued upon separation of the units and only whole warrants will trade. Each warrant entitles the holder to purchase one common share at a price of $11.50. Warrants may only be exercised for whole shares and will become exercisable 30 days after the completion of our initial business combination. Our warrants expire five years after the completion of our initial business combination or earlier upon redemption or liquidation as described in “Item 1. Business.”
(b) Holders
At March 2, 2020, there were five holders of record of our Units, four holders of record of our separately traded shares of common stock, one holder of record of our separately traded warrants, and one holder of record of our separately traded rights. The actual number of holders of our Units, separately traded shares of common stock, separately traded warrants, and separately traded rights is greater than the number of record holders, and includes stockholders who are beneficial owners, but whose securities are held in “nominee” or “street name” by brokers and other nominees. The number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
(c) Dividends
We have not paid any cash dividends on our shares of common stock to date and do not intend to pay cash dividends prior to the completion of a business combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of a business combination. The payment of any dividends subsequent to a business combination will be within the discretion of our then Board of Directors. It is the present intention of our Board of Directors to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future.
d) Securities Authorized for Issuance Under Equity Compensation Plans
None.
e) Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings
Founder Shares
During the period from March 6, 2019 (date of inception) to March 12, 2019, the Sponsor and Northland Investment purchased 2,500,000 Founder Shares for an aggregate purchase price of $25,000, or $0.01 per share. In April 2019, we effected a stock dividend of 0.493 shares of common stock for each outstanding share of common stock, resulting in the Sponsor and Northland Investment holding an aggregate of 3,732,500 Founder Shares. On April 29, 2019, the Sponsor and Northland Investment sold 68,041 shares and 31,959 shares, respectively, to EarlyBird and the EarlyBird Group collectively for an aggregate purchase price of $670, or $0.0067 per share. In June 2019, we effected a stock dividend of 0.1541 shares of common stock for each outstanding share of common stock. As a result, there were 4,307,500 Founder Shares outstanding as of December 31, 2020.
The Founder Shares were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). Each holder of Founder Shares is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D under the Securities Act.
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Private Placement
On June 5, 2019, the Founders purchased from us an aggregate of 492,500 private placement units at a price of $10.00 per unit in a private placement that occurred simultaneously with the completion of the initial closing of our IPO (the “Offering”). On June 13, 2019, the Founders also purchased from us an aggregate of 75,000 private placement units at a price of $10.00 per unit in a private placement that occurred simultaneously with the completion of the second closing of the Offering with the exercise of the over-allotment option. Each private placement unit consists of one Placement Share, one warrant, and one right to receive one-twentieth of a share of common stock upon the consummation of our initial Business Combination. Warrants will be exercisable for $11.50 per share, and the exercise price of the warrants may be adjusted in certain circumstances as described in Note 6 to our financial statements. Unlike the warrants included in the units sold in our IPO, if held by the original holder or its permitted transferees, the warrants included in the private placement units are not redeemable by us and subject to certain limited exceptions, will be subject to transfer restrictions until one year following the consummation of the initial business combination. If the warrants included in the private placement units are held by holders other than the initial holders or their permitted transferees, the warrants included in the private placement units will be redeemable by us and exercisable by holders on the same basis as the warrants included in our IPO.
On June 5, 2019, one of our underwriters, Northland, purchased 100,000 private underwriter shares at a purchase price of $10.00 per share in a private placement that occurred simultaneously with the completion of the initial closing of the Offering. Northland also purchased from us an additional 20,000 private underwriter shares at a price of $10.00 per share in a private placement that occurred simultaneously with the completion of the second closing of our Offering with the exercise of the over-allotment option. The private underwriter shares are identical to the Placement Shares.
The private placement units and the private underwriter shares were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The Founders and Northland are each an “accredited investor” as such term is defined in Rule 501(a) of Regulation D under the Securities Act.
Insider Shares
Simultaneously with the completion of the initial closing of the Offering, we issued 5,000 insider shares, in consideration of future services, to Ms. Tara McDonough, our former Vice President and Chief Financial Officer. The insider shares were forfeited upon Ms. McDonough’s resignation on August 12, 2019. The insider shares were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. Ms. McDonough was an “accredited investor” as such term is defined in Rule 501(a) of Regulation D under the Securities Act at the time of the issuance of the insider shares.
PIPE Shares
On January 20, 2021, we entered into PIPE Subscription Agreements with certain investors (the PIPE Investors”), pursuant to which, among other things, we agreed to issue and sell to the PIPE Investors, in private placements to close immediately prior to the closing of the Business Combinations, an aggregate of 3,000,000 shares of our Common Stock at $10.00 per share, for an aggregate purchase price of $30,000,000. The obligations of the parties to consummate the PIPE investment are conditioned upon, among other things, all conditions precedent to the closing of the transactions contemplated by the Convertible Note Subscription Agreements having been satisfied or waived, and the closing of the transaction contemplated by the PIPE Subscription Agreements occurring concurrently with the closing of the transactions contemplated by the Convertible Note Subscription Agreements. The PIPE investment will be consummated concurrently with the closing of the Business Combinations.
Convertible Notes
On January 20, 2021, we entered into Convertible Note Subscription Agreements with certain investors (the “Convertible Note Investors”), pursuant to which, among other things, we agreed to issue and sell to the Convertible Note Investors, in private placements to close immediately prior to closing of the Business Combinations, the Convertible Notes for an aggregate purchase price of $255,000,000. The Convertible Notes are convertible into 22,173,913 shares of our Common Stock at a conversion price of $11.50. The obligations to consummate the Convertible Note investment are conditioned upon, among other things, customary closing conditions and the consummation of the transactions contemplated by the Business Combination Agreements. The Convertible Note investment will be consummated substantially concurrently with the closing of the Business Combinations.
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Use of Proceeds
On June 10, 2019, we completed the initial closing of our Offering whereby we sold 15,000,000 units. On June 13, 2019, we completed the second closing of our Offering with the exercise of the over-allotment option with the consummation of the sale of an additional 2,250,000 units. Each unit consists of one share of our common stock, one warrant to purchase one share of common stock, and one right to receive one-twentieth (1/20) of one share of common stock upon consummation of the initial business combination. The units in our Offering were sold at an offering price of $10.00 per unit, generating total gross proceeds from the initial and second closings of our Offering in the aggregate amount of $172,500,000. The units sold in our Offering were registered under the Securities Act on registration statements on Form S-1 (No. 333-231337 and 333-231979), which were declared effective by the SEC on June 5, 2019. The underwriters for our Offering were EarlyBird, Northland and Odeon Capital Group LLC.
We paid $4,332,430 in transaction costs, consisting of $3,450,000 of underwriting fees and $882,430 of the offering costs. After deducting the underwriting discounts and commissions and offering expenses, the total net proceeds from our Offering and private placements was $175,042,570 of which $172,500,000 were placed in our trust account at UBS Financial Services Inc. in New York, New York with Continental Stock Transfer & Trust Company acting as trustee. Using a portion of the net proceeds of our Offering that was not placed in the trust account, we repaid a promissory note issued to our Sponsor, which bore the outstanding principal amount of $99,937, when we repaid it upon the initial closing of our Offering. The proceeds held in the trust account may be invested by the trustee only in U.S. government treasury bills with a maturity of one hundred and eighty-five (185) days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940 which invest only in direct U.S. government obligations.
As of December 31, 2020, we had cash of $478,737 held outside the trust account for working capital purposes.
Item 6. Selected Financial Data.
Not required for smaller reporting companies.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the audited financial statements and the notes related thereto which are included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Special Note Regarding Forward-Looking Statements,” “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K.
Overview
We are a Private-to-Public Equity (PPE) company, also known as a blank check company or special purpose acquisition vehicle, incorporated in the State of Delaware and formed for the purpose of acquiring, engaging in a share exchange, share reconstruction and amalgamation with, purchasing all or substantially all of the assets of, or engaging in any other similar business combination with one or more businesses or entities. We intend to effectuate our initial Business Combination using cash from the proceeds from the sale of units in our initial public offering (the “Offering”), the sale of the Private Placement Units to our Founders and the sale of the Private Underwriter Shares to one of our underwriters, both of which occurred simultaneously with the completion of the Offering, our common equity or any preferred equity that we may create in accordance with the terms of our charter documents, debt, or a combination of cash, common or preferred equity and debt. The units sold in the Offering each consisted of one share of Common Stock, one warrant to purchase one share of Common Stock, and one right to receive one-twentieth (1/20) of one share of Common Stock upon or consummation of our initial Business Combination. The Private Placement Units were substantially similar to the units sold in the Offering, but for certain differences in the warrants included in each of them. For clarity, the warrants included in the units are referred to herein as the “public warrants”, and the warrants included in the Private Placement Units are referred to herein as the “private warrants.”
The issuance of additional shares of Common Stock or the creation of one or more classes of preferred stock during our initial Business Combination:
| • | may significantly dilute the equity interest of investors in the offering who would not have pre-emption rights in respect of any such issue; |
| • | may subordinate the rights of holders of Common Stock if the rights, preferences, designations and limitations attaching to the preferred shares are senior to those afforded our shares of Common Stock; |
| • | could cause a change in control if a substantial number of shares of 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 share ownership or voting rights of a person seeking to obtain control of us; and |
| • | may adversely affect prevailing market prices for our shares of Common Stock. |
Similarly, if we issue debt securities or otherwise incur significant indebtedness, it could result in:
| • | default and foreclosure on our assets if our operating revenues after our 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; |
| • | our inability to obtain necessary additional financing if any document governing such debt contains covenants restricting our ability to obtain such financing while the debt security is outstanding; |
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| • | our inability to pay dividends on our shares of 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 incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to raise capital or to complete our initial Business Combination will be successful.
We had until December 10, 2020 to complete a Business Combination. On December 8, 2020, after approval by our stockholders of Extension Amendment No. 1 at our annual meeting of stockholders, we filed the Extension Amendment No. 1 to our current Amended and Restated Certificate of Incorporation to extend the date by which we had to consummate an initial Business Combination from December 10, 2020 to March 10, 2021. In connection with Extension Amendment No. 1, an aggregate 579,881 shares of the Company’s Common Stock were redeemed, and $5,857,340 was withdrawn out of the Trust Account to pay for such redemption leaving approximately $168.4 million remaining in our Trust Account as of December 31, 2020 to consummate a Business Combination.
On March 10, 2021, the Company held a special meeting of its stockholders (the “Special Meeting”). At the Special Meeting, the Company’s stockholders approved Extension Amendment No. 2. The certificate of amendment was filed with the Delaware Secretary of State and has an effective date of March 10, 2021. In connection with this Extension Amendment No. 2, an aggregate 1,852,804 shares of the Company’s Common Stock were redeemed, and $18,715,459 was withdrawn out of the Trust Account to pay for such redemption leaving approximately $149.6 million remaining in our Trust Account to consummate a Business Combination.
Results of Operations and Known Trends or Future Events
We have neither engaged in any operations nor generated any revenues to date. For the period from March 6, 2019 (date of inception) through December 31, 2020, our only activities have been organizational activities, those necessary to prepare for the Offering and to identify a target business for the Business Combination. We do not expect to generate any operating revenues until after completion of our initial Business Combination. We expect to generate non-operating income in the form of interest income on cash and marketable securities held in the trust account at UBS Financial Services, Inc. in New York, New York with Continental Stock Transfer & Trust Company acting as trustee (the “Trust Account”), which was funded after the Offering to hold an amount of cash and marketable securities equal to that raised in the Offering. Due to the recent impact from the COVID-19 pandemic that started in March 2020, many investors sold U.S. treasuries to meet their investment objectives, including but not limited to, the purchase of depressed equities, the forced sale by losses on other positions, and the need to settle short-term debts. This created volatility in the financial markets and reduced return on investments in U.S. treasury bills. As a result, we shifted our investment portfolio held in the Trust Account from U.S. treasury bills to money market funds in May 2020. 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 year ended December 31, 2020, we had a net loss of $4,128,841, which consisted of operating expenses of $3,949,600, other expense resulting from the revaluation of the warrant liability of $930,700 and a provision for income taxes of $271,087 partially offset by interest income on marketable securities held in the Trust Account of $1,022,546.
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For the period from March 6, 2019 (date of inception) through December 31, 2019, we had net income of $295,115 which consisted of interest income on marketable securities held in the Trust Account of $1,872,701, which was partially offset by operating expenses of $953,436, other expense resulting from the revaluation of the warrant liability of $65,336 and a provision for income taxes of $558,814.
Liquidity and Capital Resources
On June 10, 2019, we consummated the initial closing of the Offering with the delivery of 15,000,000 Units at a price of $10.00 per unit, generating gross proceeds of $150,000,000. Simultaneously with the initial closing of the Offering, we consummated the initial closing of the Private Placement with the sale of 492,500 Private Placement Units at a price of $10.00 per unit and the sale of 100,000 Private Underwriter Shares at a price of $10.00 per share, generating aggregated gross proceeds of $5,925,000.
On June 13, 2019, in connection with the underwriters’ exercise in full of their option to purchase an additional 2,250,000 units solely to cover over-allotments, if any (the “over-allotment option”), we consummated the sale of an additional 2,250,000 Units at a price of $10.00 per unit, generating gross proceeds of $22,500,000. Simultaneously with the closing of the sale of such additional units, the Company consummated the second closing of the Private Placement resulting in the sale of an additional 75,000 Private Placement Units at a price of $10.00 per unit and the sale of 20,000 Private Underwriter Shares at a price of $10.00 per share, generating aggregated gross proceeds of $950,000.
Following the initial and second closings of the Offering and the Private Placement, a total of $172,500,000 was placed in the Trust Account. We incurred $4,332,430 in offering related costs, including $3,450,000 of underwriting fees and $882,430 of other costs.
As of December 31, 2020, we held cash and marketable securities in the Trust Account of $168,384,949 (including $2,895,247 of interest income earned, less $1,152,958 withdrawn from the interest earned on the Trust Account to pay tax obligations and $5,857,340 on redemptions) in the Trust Account. The marketable securities consisted of money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940 which invest only in direct U.S. government obligations. Interest income earned from the funds held in the Trust Account may be used by us to pay taxes. For the year ended December 31, 2020, we withdrew $774,840 from the interest earned on the Trust Account to pay tax obligations.
As of December 31, 2019, we held cash and marketable securities in the Trust Account of $173,994,583 (including $1,872,701 of interest earned) in the Trust Account. The marketable securities consisted of U.S. treasury bills with a maturity of 180 days or less. Interest income earned from the funds held in the Trust Account may be used by us to pay taxes. For the period March 6, 2019 (date of inception) through December 31, 2019, we withdrew $378,118 from the interest earned on the Trust Account to pay tax obligations.
For the year ended December 31, 2020, cash used in operating activities was $2,064,391, consisting of a net loss of $4,128,841, interest earned on marketable securities held in the Trust Account of $1,022,546, partially offset by the increase in the fair value of the warrant liability of $930,700 and changes in operating assets and liabilities of $2,156,296, including the increase in accrued liabilities of $2,153,000 and decreases in prepaid expenses, receivable from related party and other non-current assets of $132,797 and an increase in accounts payable of $52,135 partially offset by decreases in payable to related party and other current liabilities of $181,636.
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For the period March 6, 2019 (date of inception) through December 31, 2019, cash used in operating activities was $1,477,400, consisting of interest earned on marketable securities held in the Trust Account of $1,872,701, partially offset by net income of $295,115, the increase in the fair value of the warrant liability of $65,336 and changes in operating assets and liabilities of $34,850.
We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (which interest shall be net of taxes payable by us), to acquire a target business or businesses to complete our initial Business Combination and to pay our expenses relating thereto. We may withdraw interest to pay taxes. We estimate our annual franchise tax obligations to be approximately $200,000. Our annual income tax obligations will depend on the amount of interest and other income earned on the amounts held in the Trust Account. To the extent that our capital stock is used in whole or in part as consideration to effect our initial Business Combination, the remaining proceeds held in the Trust Account as well as any other net proceeds not expended will be used as working capital to finance the operations of the target business or businesses. Such working capital funds could be used in a variety of ways including continuing or expanding the target business’ operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also be used to repay any operating expenses or finders’ fees which we had incurred prior to the completion of our initial business combination if the funds available to us outside of the Trust Account were insufficient to cover such expenses.
As of December 31, 2020 and 2019, we had cash of $478,737 and $1,576,508, respectively, held outside the Trust Account. In December 2020, we raised additional funds to ensure the proceeds not held in the Trust Account will be sufficient to allow us to operate for at least 24 months from the closing date of the Offering, assuming that a Business Combination is not consummated during that time. Over this time period, we intend to use these funds primarily for identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the Business Combinations.
If our estimates of the costs of undertaking in-depth due diligence and negotiating our 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. Moreover, we may need to obtain additional financing either to consummate our initial Business Combination or because we become obligated to redeem a significant number of our public shares upon consummation of our initial Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. In order to finance operating and/or transaction costs in connection with a Business Combination, our Sponsor, executive officers, directors, or their affiliates may, but are not obligated to, loan us funds. 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 units of the post-business combination entity at a price of $10.00 per unit at the option of the lender. The units would be identical to the Private Placement Units.
Following our initial Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
On November 2, 2020, the Company filed a definitive proxy statement with the SEC, to invite the stockholders of the Company to attend the 2020 annual meeting Annual Meeting to be held on December 3, 2020. At the Annual Meeting, the stockholders voted on Extension Amendment No.1 to extend the date by which the Company must consummate a Business Combination from December 10, 2020 to March 10, 2021 (the date which is 21 months from the closing date of the IPO).
On March 10, 2021, the Company held a special meeting of its stockholders (the “Special Meeting”). At the Special Meeting, the Company’s stockholders approved Extension Amendment No. 2. The certificate of amendment was filed with the Delaware Secretary of State and has an effective date of March 10, 2021.
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If the Company is unable to consummate its initial Business Combination by June 10, 2021, the Company shall (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably possible, but not more than ten business days thereafter, redeem the public shares of Common Stock for a per share pro rata portion of the Trust Account, including interest, but less taxes payable (less up to $100,000 of such net interest to pay dissolution expenses) and (iii) as promptly as possible following such redemption, dissolve and liquidate the balance of the Company’s net assets to its creditors and remaining stockholders, as part of its plan of dissolution and liquidation. The mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern.
Off-Balance Sheet Arrangements
As of December 31, 2020, we have not entered into any off-balance sheet financing arrangements. 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
As of December 31, 2020 and 2019, we do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay our Sponsor a monthly fee of $20,000 for office space, administrative services and secretarial support. We began incurring these fees on June 6, 2019 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination or the liquidation of the Company.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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:
Emerging Growth Company
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when an accounting standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, will adopt the new or revised accounting standard at the time private companies adopt the new or revised standard.
Net Loss Per Common Share
Net loss per share of Common Stock is computed by dividing net loss by the weighted-average number of shares of Common Stock outstanding for the period. We apply the two-class method in calculating the net loss per common share. Shares of Common Stock subject to possible redemption as of December 31, 2020 and 2019 have been excluded from the calculation of the basic net loss per share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. When calculating our diluted net loss per share, we have not considered the effect of (i) the incremental number of shares of Common Stock to settle warrants sold in the Offering and Private Placement, as calculated using the treasury stock method; (ii) the contingently issuable shares associated with the rights sold in the Offering and Private Placement to receive one-twentieth (1/20) of one share of Common Stock upon the consummation of our initial Business Combination, and (iii) the insider shares issued to the former Chief Financial Officer representing 5,000 shares of Common Stock underlying restricted stock awards for the period they were outstanding. Since we were in a net loss position during the periods after deducting net income attributable to Common Stock subject to redemption, diluted net loss per common share is the same as basic net loss per common share for the periods presented as the inclusion of all potential common shares outstanding would have been anti-dilutive.
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In accordance with the two-class method, our net income (loss) is adjusted for net income that is attributable to common stock subject to redemption, as these shares only participate in the income of the Trust Account and not our losses. Accordingly, net loss per common share, basic and diluted as restated, is calculated as follows:
| Year Ended December 31, 2020 |
Period from March 6, 2019 (Date of Inception) through December 31, 2019 |
|||||||
| (As Restated) | (As Restated) | |||||||
| Net income (loss) |
$ | (4,128,841 | ) | $ | 295,115 | |||
| Less: net income attributable to common stock subject to redemption |
(555,866 | ) | (1,005,550 | ) | ||||
|
|
|
|
|
|||||
| Net loss attributable to common stockholders |
$ | (4,684,707 | ) | $ | (710,435 | ) | ||
|
|
|
|
|
|||||
| Weighted-average common shares outstanding, basic and diluted |
5,304,752 | 4,847,100 | ||||||
|
|
|
|
|
|||||
| Net loss per share common share, basic and diluted |
$ | (0.88 | ) | $ | (0.15 | ) | ||
|
|
|
|
|
|||||
Common Stock subject to possible redemption
Common stock subject to mandatory redemption (if any) 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, as of December 31, 2020 and 2019, Common Stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of our balance sheets.
Warrant Liability
We account for warrants for shares of our Common Stock that are not indexed to our own stock as liabilities at fair value on the balance sheet. The warrants are subject to remeasurement at each balance sheet date, and any change in fair value is recognized as a component of other income (expense), net on the statement of operations. We will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the Common Stock warrants. At that time, the portion of the warrant liability related to the Common Stock warrants will be reclassified to additional paid-in capital.
Recent Accounting Pronouncements
We do not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
To date, our efforts have been limited to organizational activities and activities relating to the Offering and the identification and evaluation of a potential initial business combination. We have neither engaged in any operations nor generated any revenues. As of December 31, 2020, the net proceeds from our Offering held in the Trust Account were comprised entirely of money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest solely in United States Treasuries. Due to the short-term nature of the money market fund’s investments, we do not believe that there will be an associated material exposure to interest rate risk.
As of December 31, 2020, $168,384,949 was held in the Trust Account for the purposes of consummating the initial Business Combination.
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Item 8. Financial Statements and Supplementary Data.
| 47 | ||||
| 48 | ||||
| 49 | ||||
| 50 | ||||
| 51 | ||||
| 52 | ||||
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of GigCapital2, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of GigCapital2, Inc. (a Delaware corporation) (the “Company”) as of December 31, 2020 and 2019, and the related statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for the year ended December 31, 2020 and the period from March 6, 2019 (date of inception) through December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the year ended December 31, 2020 and the period from March 6, 2019 (date of inception) through December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming that GigCapital2, Inc. will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has no present revenue, its business plan is dependent on the completion of a financing and the Company’s cash and working capital are not sufficient to complete its planned activities for the upcoming year. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Restatement of the 2020 and 2019 Financial Statements
As discussed in Note 11 to the financial statements, the accompanying 2020 and 2019 financial statements have been restated to correct misstatements.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BPM LLP
We have served as the Company’s auditor since 2019.
San Jose, California
April 21, 2021
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GIGCAPITAL2, INC.
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| As Restated | As Restated | |||||||
| ASSETS |
|
|||||||
| Current assets |
||||||||
| Cash |
$ | 478,737 | $ | 1,576,508 | ||||
| Prepaid expenses |
62,691 | 161,609 | ||||||
| Receivable from related party |
1,400 | 1,952 | ||||||
|
|
|
|
|
|||||
| Total current assets |
542,828 | 1,740,069 | ||||||
| Cash and marketable securities held in Trust Account |
168,384,949 | 173,994,583 | ||||||
| Other non-current assets |
— | 33,327 | ||||||
|
|
|
|
|
|||||
| TOTAL ASSETS |
$ | 168,927,777 | $ | 175,767,979 | ||||
|
|
|
|
|
|||||
| LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities |
||||||||
| Accounts payable |
$ | 86,528 | $ | 142,613 | ||||
| Payable to related parties |
15,709 | 16,649 | ||||||
| Accrued liabilities |
2,153,000 | — | ||||||
| Notes payable to related parties |
300,000 | — | ||||||
| Other current liabilities |
— | 180,696 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
2,555,237 | 339,958 | ||||||
| Warrant liability |
1,112,300 | 181,600 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
3,667,537 | 521,558 | ||||||
|
|
|
|
|
|||||
| Commitments and contingencies (Note 6) |
||||||||
| Common stock subject to possible redemption, 16,026,023 shares and 17,024,642 shares as of December 31, 2020 and 2019, respectively, at a redemption value of $10.00 per share |
160,260,230 | 170,246,420 | ||||||
| Stockholders’ equity |
||||||||
| Preferred stock, par value of $0.0001 per share; 1,000,000 shares authorized; none issued or outstanding |
— | — | ||||||
| Common stock, par value of $0.0001 per share; 100,000,000 shares authorized; 5,639,096 shares and 5,220,358 shares as of December 31, 2020 and 2019, respectively, issued and outstanding |
564 | 522 | ||||||
| Additional paid-in capital |
8,833,172 | 4,704,364 | ||||||
| Retained earnings (accumulated deficit) |
(3,833,726 | ) | 295,115 | |||||
|
|
|
|
|
|||||
| Total stockholders’ equity |
5,000,010 | 5,000,001 | ||||||
|
|
|
|
|
|||||
| TOTAL LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ EQUITY |
$ | 168,927,777 | $ | 175,767,979 | ||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of these financial statements.
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GIGCAPITAL2, INC.
Statements of Operations and Comprehensive Income (Loss)
| Years Ended December 31, 2020 |
Period from March 6, 2019 (Date of Inception) through December 31, 2019 |
|||||||
| As Restated | As Restated | |||||||
| Revenues |
$ | — | $ | — | ||||
| General and administrative expenses |
3,949,600 | 953,436 | ||||||
|
|
|
|
|
|||||
| Loss from operations |
(3,949,600 | ) | (953,436 | ) | ||||
| Other income (expense) |
||||||||
| Other expense |
(930,700 | ) | (65,336 | ) | ||||
| Interest income on cash and marketable securities held in Trust Account |
1,022,546 | 1,872,701 | ||||||
|
|
|
|
|
|||||
| Income (loss) before provision for income taxes |
(3,857,754 | ) | 853,929 | |||||
| Provision for income taxes |
271,087 | 558,814 | ||||||
|
|
|
|
|
|||||
| Net income (loss) and comprehensive income (loss) |
$ | (4,128,841 | ) | $ | 295,115 | |||
|
|
|
|
|
|||||
| Net loss attributable to common stockholders |
$ | (4,684,707 | ) | $ | (710,435 | ) | ||
|
|
|
|
|
|||||
| Weighted-average shares of common stock outstanding, basic and diluted |
5,304,752 | 4,847,100 | ||||||
| Net loss per share of common stock, basic and diluted |
$ | (0.88 | ) | $ | (0.15 | ) | ||
|
|
|
|
|
|||||
The accompanying notes are an integral part of these financial statements.
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GIGCAPITAL2, INC.
Statements of Stockholders’ Equity
| Common Stock | Additional Paid-In Capital |
Retained Earnings (Accumulated Deficit) |
||||||||||||||||||
| Shares | Amount | Stockholders’ Equity |
||||||||||||||||||
| Balance as of March 6, 2019 (Date of Inception) |
— | $ | — | $ | — | $ | — | $ | — | |||||||||||
| Sale of common stock to Founders at $0.005804 per share |
4,307,500 | 431 | 24,569 | — | 25,000 | |||||||||||||||
| Sale of common stock to Founders in private placement at $10 per share |
567,500 | 56 | 5,674,944 | — | 5,675,000 | |||||||||||||||
| Sale of common stock to underwriters at $10 per share |
120,000 | 12 | 1,199,988 | — | 1,200,000 | |||||||||||||||
| Issuance of insider shares for no consideration |
5,000 | 1 | (1 | ) | — | — | ||||||||||||||
| Cancellation of insider shares |
(5,000 | ) | (1 | ) | 1 | — | ||||||||||||||
| Sale of common stock in IPO, net of offering costs |
17,250,000 | 1,725 | 168,165,845 | — | 168,167,570 | |||||||||||||||
| Fair value of warrants (As Restated) |
— | — | (116,264 | ) | — | (116,264 | ) | |||||||||||||
| Shares subject to redemption (As Restated) |
(17,024,642 | ) | (1,702 | ) | (170,244,718 | ) | — | (170,246,420 | ) | |||||||||||
| Net income (As Restated) |
— | — | — | 295,115 | 295,115 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Balance as of December 31, 2019 (As Restated) |
5,220,358 | 522 | 4,704,364 | 295,115 | 5,000,001 | |||||||||||||||
| Shares subject to redemption (As Restated) |
998,619 | 100 | 9,986,090 | — | 9,986,190 | |||||||||||||||
| Shares redeemed |
(579,881 | ) | (58 | ) | (5,857,282 | ) | — | (5,857,340 | ) | |||||||||||
| Net loss (As Restated) |
— | — | — | (4,128,841 | ) | (4,128,841 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Balance as of December 31, 2020 (As Restated) |
5,639,096 | $ | 564 | $ | 8,833,172 | $ | (3,833,726 | ) | $ | 5,000,010 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
The accompanying notes are an integral part of these financial statements.
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GIGCAPITAL2, INC.
| Years Ended December 31, 2020 |
Period from March 6, 2019 (Date of Inception) through December 31, 2019 |
|||||||
| As Restated | As Restated | |||||||
| OPERATING ACTIVITIES |
|
|||||||
| Net income (loss) |
$ | (4,128,841 | ) | $ | 295,115 | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: |
||||||||
| Interest earned on cash and marketable securities held in Trust Account |
(1,022,546 | ) | (1,872,701 | ) | ||||
| Change in fair value of warrant liability |
930,700 | 65,336 | ||||||
| Change in operating assets and liabilities: |
||||||||
| Prepaid expenses |
98,918 | (161,609 | ) | |||||
| Receivable from related party |
552 | (1,952 | ) | |||||
| Other non-current assets |
33,327 | (33,327 | ) | |||||
| Accounts payable |
52,135 | 34,393 | ||||||
| Payable to related parties |
(940 | ) | 16,649 | |||||
| Accrued liabilities |
2,153,000 | — | ||||||
| Other current liabilities |
(180,696 | ) | 180,696 | |||||
|
|
|
|
|
|||||
| Net cash used in operating activities |
(2,064,391 | ) | (1,477,400 | ) | ||||
|
|
|
|
|
|||||
| INVESTING ACTIVITIES |
||||||||
| Investment of cash in Trust Account |
— | (172,500,000 | ) | |||||
| Cash withdrawn from Trust Account |
6,632,180 | 378,118 | ||||||
|
|
|
|
|
|||||
| Net cash provided by (used in) investing activities |
6,632,180 | (172,121,882 | ) | |||||
|
|
|
|
|
|||||
| FINANCING ACTIVITIES |
||||||||
| Proceeds from sale of common stock to Founder |
— | 25,000 | ||||||
| Borrowing from related party |
300,000 | 99,937 | ||||||
| Repayment of borrowing from related party |
— | (99,937 | ) | |||||
| Proceeds from sale of Private Placements Units |
— | 5,675,000 | ||||||
| Proceeds from sale of common stock to underwriters |
— | 1,200,000 | ||||||
| Proceeds from sale of Units, net of underwriting discounts paid |
— | 169,050,000 | ||||||
| Payment of offering costs |
(108,220 | ) | (774,210 | ) | ||||
| Redemption of Units |
(5,857,340 | ) | — | |||||
|
|
|
|
|
|||||
| Net cash provided by (used in) financing activities |
(5,665,560 | ) | 175,175,790 | |||||
|
|
|
|
|
|||||
| Net change in cash during period |
(1,097,771 | ) | 1,576,508 | |||||
| Cash, beginning of period |
1,576,508 | — | ||||||
|
|
|
|
|
|||||
| Cash, end of period |
$ | 478,737 | $ | 1,576,508 | ||||
|
|
|
|
|
|||||
| SUPPLEMENTAL DISCLOSURE |
||||||||
| Cash paid for income taxes |
$ | 476,973 | $ | 378,118 | ||||
|
|
|
|
|
|||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES |
||||||||
| Offering costs included in accounts payable |
$ | — | $ | 108,220 | ||||
|
|
|
|
|
|||||
| Change in value of common stock subject to possible redemption |
$ | (4,128,850 | ) | $ | 2,195,114 | |||
|
|
|
|
|
|||||
| Fair value of warrant liability |
$ | — | $ | 116,264 | ||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of these financial statements.
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Table of Contents
GIGCAPITAL2, INC.
1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Organization and General
GigCapital2, Inc. (the “Company” or “GigCapital2”) was incorporated in Delaware on March 6, 2019. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).
As of December 31, 2020, the Company had not commenced any operations. All activity for the period from March 6, 2019 (date of inception) through December 31, 2020 relates to the Company’s formation and the initial public offering (the “Offering”), as described in Note 4, and identifying a target Business Combination, as described below. The Company will not generate any operating revenues until after completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash from the proceeds derived from the Offering that is held as investments in the Trust Account. The Company has selected December 31 as its fiscal year end.
The Company’s sponsor, GigAcquisitions2, LLC, a Delaware limited liability company (the “Sponsor”), together with one of the underwriters, EarlyBirdCapital, Inc. (“EarlyBird”) and certain affiliates and employees of EarlyBird (the “EarlyBird Group”), and Northland Gig 2 Investment LLC, a Delaware limited liability company (“Northland Investment”) collectively make up the founders of the Company (the “Founders”).
On June 5, 2019, the initial registration statement on Form S-1, as amended, filed in connection with the Offering, and the subsequent registration statement on Form S-1 filed by the Company pursuant to Section 462(b) of the Securities Act to register additional securities, also in connection with the Offering, were declared effective. The Company concurrently entered into an underwriting agreement on June 5, 2019 to conduct the Offering, the initial closing of which was consummated on June 10, 2019 with the delivery of 15,000,000 units (the “Units”). The Units sold in the Offering consisted of the securities described in Note 4. The Offering generated gross proceeds of $150,000,000.
Simultaneously with the initial closing of the Offering, the Company consummated the initial closing of a private placement sale (the “Private Placement”) of 492,500 units (the “Private Placement Units”), at a price of $10.00 per unit, to its Founders, and 100,000 shares of its common stock (the “Private Underwriter Shares”), at a price of $10.00 per share, to Northland Securities, Inc. (“Northland”), an affiliate of Northland Investment. The Private Placement Units consisted of the securities described in Note 5. The initial closing of the Private Placement generated gross proceeds of $5,925,000.
Following the initial closing of the Offering, net proceeds in the amount of $147,000,000 from the sale of the Units and proceeds in the amount of $3,000,000 from the sale of Private Placement Units, for a total of $150,000,000, were placed in a trust account (“Trust Account”) which is described further below.
On June 13, 2019, in connection with the underwriters’ exercise in full of their option to purchase an additional 2,250,000 Units solely to cover over-allotments, if any (the “over-allotment option”), the Company consummated the sale of an additional 2,250,000 Units at $10.00 per unit. Simultaneously with the closing of the sale of the additional Units, the Company consummated a second closing of the Private Placement, resulting in the sale of an additional 75,000 Private Placement Units at $10.00 per unit to the Founders, and an additional 20,000 Private Underwriter Shares at $10.00 per share to Northland. Following the closings, an additional $22,500,000 of net proceeds were placed in the Trust Account.
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Transaction costs amounted to $4,332,430, consisting of $3,450,000 of underwriting fees and $882,430 of offering costs. The Company’s remaining cash after payment of the offering costs will be held outside of the Trust Account for working capital purposes.
First Extension
The Company’s initial public offering prospectus and Amended and Restated Certificate of Incorporation provided that the Company initial had until December 10, 2020 (the date which was 18 months after the consummation of the Offering) to complete the Business Combination. On December 8, 2020, the Company held its 2020 Annual Stockholders’ Meeting (the “Annual Meeting”) and the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation that extends the date by which the Company must consummate a Business Combination transaction from December 10, 2020 to March 10, 2021. The Company’s stockholders elected to redeem 579,881 shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), which represented approximately 3.4% of the shares that were part of the Units that were sold in the Company’s initial public offering.
Second Extension
On March 10, 2021, the Company held a special meeting of its stockholders (the “Special Meeting”). At the Special Meeting, the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation that extends the date by which the Company must consummate a Business Combination transaction from March 10, 2021 to June 10, 2021. The certificate of amendment was filed with the Delaware Secretary of State and has effective date of March 10, 2021. The Company’s stockholders elected to redeem 1,852,804 shares of the Company’s Common Stock, which represented approximately 10.7% of the shares that were part of the Units that were sold in the Company’s initial public offering.
Working Capital Note
On December 19, 2020, the Company issued a convertible unsecured promissory note (the “Working Capital Note”) in the aggregate principal amount of $300,000 to the Sponsor. The Company issued the Working Capital Note in consideration for a loan from the Sponsor to fund the Company’s working capital requirements between now and March 10, 2021, which is the period of time that the Company has available to complete its initial Business Combination following the December 8, 2020 amendment to its certificate of incorporation. Subsequently, the Company further extended the date which it must complete the Business Combination from March 10, 2021 to June 10, 2021 as described under Second Extension above. The Working Capital Note was issued to provide the Company with additional working capital and will not be deposited into the Company’s Trust Account. The Working Capital Note is convertible at the Sponsor’s election upon the consummation of the proposed business combinations (the “Business Combinations”) described in Note 2. Business Combinations and Related Agreements.
Upon such election, the Working Capital Note will convert, at a price of $10.00 per Unit, into Units identical to the Private Placement Units issued in connection with the Company’s initial public offering. The issuance of the Working Capital Note resulted in a contingent beneficial conversion feature which was determined to be insignificant and will be recorded when the Business Combinations close.
The Working Capital Note bears no interest and is repayable in full upon the consummation of the Company’s Business Combination.
The Trust Account
The funds in the Trust Account have been invested only in U.S. government treasury bills with a maturity of one hundred and eighty-five (185) days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940 which invest only in direct U.S. government obligations. Funds will remain in the Trust Account until the earlier of (i) the consummation of the Business Combination or (ii) the distribution of the Trust Account as described below. The remaining proceeds from the Offering outside the Trust Account may be used to pay for business, legal and accounting due diligence expenses on acquisition targets and continuing general and administrative expenses.
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The Company’s Amended and Restated Certificate of Incorporation provides that, other than the withdrawal of interest to pay taxes, none of the funds held in the Trust Account will be released until the earlier of: (i) the completion of the Business Combination; (ii) the redemption of 100% of the shares of common stock included in the units sold in the Offering (the “public shares”) if the Company is unable to complete a Business Combination within 24 months from the closing of the Offering on June 10, 2019; or (iii) the redemption of the public shares in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation to modify the substance or timing of the Company’s obligation to redeem 100% of its public shares if it does not complete its initial Business Combination within 24 months from the closing of the Offering on June 10, 2019.
Business Combination
The Company will have 24 months from June 10, 2019, the closing date of the Offering, to complete its initial Business Combination. If the Company does not complete a Business Combination within this period of time, it shall (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably possible, but not more than ten business days thereafter, redeem the public shares of common stock for a per share pro rata portion of the Trust Account, including interest, but less taxes payable (less up to $100,000 of such net interest to pay dissolution expenses) and (iii) as promptly as possible following such redemption, dissolve and liquidate the balance of the Company’s net assets to its creditors and remaining stockholders, as part of its plan of dissolution and liquidation. The Founders, Northland and the Company’s former Chief Financial Officer, Ms. McDonough, who received 5,000 shares of common stock (the “insider shares”), have entered into letter agreements with the Company, pursuant to which they have waived their rights to participate in any redemption with respect to their initial shares; however, if the Founders, Northland or Ms. McDonough or any of the Company’s officers, directors or affiliates acquired shares of common stock after the Offering, they will be entitled to a pro rata share of the Trust Account upon the Company’s redemption or liquidation in the event the Company does not complete a Business Combination within the required time period. As a result of Ms. McDonough’s resignation effective as of August 12, 2019, Ms. McDonough forfeited her insider shares.
In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per unit.
Going Concern Consideration
As of December 31, 2020, the Company had $478,737 in cash and a working capital deficit of $2,012,409. Further, the Company has no present revenue, its business plan is dependent on the completion of a financing and it expects to continue to incur significant costs in pursuit of its financing and acquisition plans. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. There is no assurance that the Company’s plans to raise capital or to consummate a Business Combination will be successful or successful within the target business acquisition period. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Restatement of Previously Issued Financial Statements
The Company has restated its financial statements as of December 31, 2020 and 2019, for the year ended December 31, 2020 and the period from March 6, 2019 (Date of Inception) through December 31, 2019, as well as the unaudited condensed financial statements for the three month period ended March 31, 2020, the three and six month periods ended June 30, 2020 and 2019 and the three and nine month periods ended September 30, 2020 and 2019, to correct misstatements in those prior periods primarily related to misstatements identified in improperly applying accounting guidance on certain warrants, recognizing them as equity instead of a warrant liability, under the guidance of Accounting Standards Codification (“ASC”) 815-40, Contracts in Entity’s Own Equity.
See Note 11, Restatement of Previously Issued Financial Statements for additional information regarding the errors identified and the restatement adjustments made to the financial statements.
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2. Business Combinations and Related Agreements
Business Combinations
On November 23, 2020, the Company executed a business combination agreement, dated as of November 20, 2020, with UpHealth Holdings, Inc. (“UpHealth”), and UpHealth Merger Sub, Inc., (“UpHealth Merger Sub”) (such business combination agreement, the “UpHealth BCA”, and such business combination, the “UpHealth Combination”). In addition, on November 23, 2020, the Company executed a business combination agreement, dated as of November 20, 2020, with Cloudbreak Health, LLC (“Cloudbreak”), Cloudbreak Merger Sub, LLC (“Cloudbreak Merger Sub”), Chirinjeev Kathuria and Mariya Pylypiv (collectively, the “UpHealth Significant Stockholders”) and UpHealth, and Shareholder Representative Services LLC, solely in its capacity as the representative, agent and attorney-in-fact of the Cloudbreak members (such business combination agreement, the “Cloudbreak BCA”, and such business combination, the “Cloudbreak Combination”).
The UpHealth BCA
Pursuant to the terms of the UpHealth BCA, GigCapital2 will acquire UpHealth through the statutory merger of UpHealth Merger Sub with and into UpHealth, with UpHealth surviving the merger as a wholly owned subsidiary of GigCapital2 (the “UpHealth Merger”). At the effective time of the UpHealth Merger, each share of UpHealth common stock will be canceled and converted into the right to receive a number of shares of common stock, par value $0.0001 per share, of GigCapital2 (the “GigCapital2 Common Stock”) equal to the Exchange Ratio. The Exchange Ratio will be equal to the Aggregate Merger Consideration divided by the sum of the aggregate number of shares of UpHealth common stock issued and outstanding immediately prior to the effective time of the UpHealth Merger. The Aggregate Merger Consideration shall not exceed 99,000,000 shares of GigCapital2 Common Stock, subject to certain adjustments, less the Thrasys Incentive Amount (as defined below). UpHealth and each of TTC Healthcare, Inc., a Delaware corporation (“TTC Healthcare”) and Innovations Group, Inc., a Utah corporation (“Innovations Group”) previously entered into merger agreements for UpHealth to acquire each of TTC Healthcare and Innovations Group. UpHealth also has previously entered into a share purchase agreement providing for the purchase of 99% or more of the equity interests of Glocal Healthcare Systems Private Limited, a company incorporated under the laws of India (“Glocal”), and UpHealth as of the date of entry into the UpHealth BCA owns approximately 43% of the equity interests of Glocal.
The Aggregate Merger Consideration shall be reduced by approximately (a) 14,142,857 shares of GigCapital2 Common Stock, if upon the Closing, UpHealth has not completed its acquisition of Innovations Group, and (b) 99,000 shares of GigCapital2 Common Stock for each 1.0% interest of Glocal that is below 90% and that is not yet acquired by UpHealth upon the UpHealth Closing. Adjustments to the Aggregate Merger Consideration will further be made to the extent that the indebtedness at the Closing of UpHealth and the Company Subsidiaries less the cash and cash equivalents of UpHealth and the Company Subsidiaries as of immediately before such time is greater than $33,850,000 (excluding any Acquisition Promissory Notes), provided, that such amount shall be reduced by $12,550,000, if upon the UpHealth Closing, UpHealth has not completed its acquisition of Innovations Group. The Acquisition Promissory Notes are promissory notes previously issued by UpHealth for its acquisitions of Thrasys,Inc. (“Thrasys”), Behavioral Health Services, LLC (“Behavioral Health Services”), TTC Healthcare and the interests in Glocal, or to be issued by UpHealth for its acquisition of Innovations Group, with a maximum aggregate principal amount of $86,200,000; provided, that such amount shall be reduced by $30,000,000, if upon the Closing UpHealth has not completed its acquisition of Innovations Group.
Two individuals who are officers of UpHealth, and were shareholders of Thrasys prior to its merger with UpHealh, will following the UpHealth Closing, if he or she is a service provider to GigCapital2, the Surviving Corporation or any of the Company Subsidiaries as of the date of grant, be awarded restricted stock units of GigCapital2 in the amount of the Thrasys Incentive Amount.
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Following the amendment of the UpHealth Business Combination Agreement on March 23, 2021, the Thrasys Incentive Amount that shall be eligible to be granted shall be (a) 32.016% multiplied by (b) 15.136% multiplied by (c) the Adjusted Aggregate Merger/Incentive Amount. The Adjusted Aggregate Merger/Incentive Amount shall be (a) $990,000,000, subject to certain adjustments, divided by (b) $10.00. In the event that either individual ceases to be a service provider to GigCapital2, the Surviving Corporation or any of the Company Subsidiaries as of the date of grant, the portion of the Thrasys Incentive Amount allocated to such individual will not be reallocated to the other individual. Such restricted stock units shall vest into shares of GigCapital2 Common Stock at the earlier of (i) the date that is one year after the UpHealth Closing, (ii) the date on which the last sale price of GigCapital2 Common Stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 90 days after the UpHealth Closing, or (iii) the date on which GigCapital2 completes a liquidation, merger, stock exchange or other similar transaction that results in all of the GigCaptial2’s stockholders having the right to exchange their shares of GigCapital2 Common Stock for cash, securities or other property. If either of these individuals ceases to be a service provider to GigCapital2, the Surviving Corporation or any of the Company Subsidiaries prior to any vesting date, the unvested portion of the restricted stock units shall be cancelled and surrendered to GigCapital2.
The Cloudbreak BCA
Pursuant to the terms of the Cloudbreak BCA, GigCapital2 will acquire Cloudbreak through the statutory merger of Cloudbreak Merger Sub with and into Cloudbreak, with Cloudbreak surviving the merger as a wholly owned subsidiary of GigCapital2 (the “Cloudbreak Merger”). At the effective time of the Cloudbreak Merger (the “Cloudbreak Effective Time”): (i) each Common Unit (and the membership interests represented thereby) issued and outstanding immediately prior to the Cloudbreak Effective Time shall be converted into the right to receive a number of shares of GigCapital2 Common Stock equal to the Common Unit Exchange Ratio (together with any Business Combination Share Adjustment to which each Common Unit is entitled, the “Common Unit Merger Consideration”); (ii) each Series A Preferred Unit (and the membership interests represented thereby) issued and outstanding immediately prior to the Cloudbreak Effective Time shall be converted into the right to receive a number of shares of GigCapital2 Common Stock equal to the Preferred Unit Exchange Ratio (in addition to any Business Combination Share Adjustment to which each Series A Preferred Unit is entitled); and (iii) each Option that is outstanding and unexercised immediately prior to the Cloudbreak Effective Time, whether vested or unvested, shall be assumed by GigCapital2 and converted into an option to purchase a number of shares of GigCapital2 Common Stock in an amount set forth on the Allocation Schedule, which amount shall be equal to the product of (i) the number of Common Units subject to such Option, multiplied by (ii) the Common Unit Exchange Ratio (each such converted option, an “Exchanged Option”). Each holder of Exchanged Options shall also be entitled to any Business Combination Share Adjustment made pursuant to the Cloudbreak BCA. Additionally, immediately prior to the Cloudbreak Effective Time, each Common Warrant shall convert into Common Units in accordance with their terms. The aggregate number of shares of GigCapital2 Common Stock issuable at the closing of the Cloudbreak Merger, and upon the exercise of all Exchanged Options on a net exercise basis, shall equal 11,000,000 shares of GigCapital2 Common Stock.
Furthermore, in connection with the closing of the Cloudbreak Combination (the “Cloudbreak Closing”), (i) GigCapital2 has agreed to repay or cause to be repaid on behalf of Cloudbreak certain debt obligations of Cloudbreak and (ii) the Significant UpHealth Stockholders have agreed to subject 5,500,000 of their shares of GigCapital2 Common Stock (as adjusted for stock splits, combinations, reorganizations and the like) that they would receive upon the closing of the Upalth Combination (the “UpHealth Closing”) to potential forfeiture and transfer (such transfer, the “Business Combination Share Adjustment”) to the Members in connection with a Valuation Shortfall on the 540th day from the Closing Date (or if such day is not a Business Day, the following Business Day) (the “Measurement Date”) as provided in the Cloudbreak BCA.
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A Valuation Shortfall shall occur if the dollar volume-weighted average price for the GigCapital2 Common Stock on the New York Stock Exchange during the period beginning at 9:30 a.m., New York time, and ending at 4:00 p.m., New York time, as reported by Bloomberg through its “HP” function (set to weighted average) or if not available on Bloomberg, as reported by Morningstar (the “VWAP”) for the ten trading days preceding the Measurement Date (the “Reference VWAP”) is less than $13.64, and the amount of such Valuation Shortfall is the difference between $13.64 and the Reference VWAP. In the event that a Valuation Shortfall occurs, the amount of shares of GigCapital2 Common Stock that the Significant UpHealth Stockholders shall forfeit to the Members will be the lesser of (i) the Adjustment Amount and (ii) 5,500,000 (or, if the Adjustment Amount equals 5,500,000, the Adjustment Amount). The Adjustment Amount means the quotient (rounded up to the nearest whole number) of (A) the Aggregate Valuation Shortfall, divided by (B) the Reference VWAP. The Aggregate Valuation Shortfall means the product of (A) the amount of the Valuation Shortfall, multiplied by (B) 11,000,000. Upon the closingof the transactions, the combined company will be named UpHealth, Inc. and will continue to be listed on the NYSE under the new ticker symbol “UPH”.
Termination
The UpHealth BCA and the Cloudbreak BCA each allow the parties to terminate such agreements if certain conditions described therein are satisfied. Additionally, under the Cloudbreak BCA, Cloudbreak is allowed to terminate the Cloudbreak BCA if there is less than $125,000,000 of cash and cash equivalents in the Trust Account at any time prior to the Cloudbreak Closing.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Emerging Growth Company
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when an accounting standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised accounting standard at the time private companies adopt the new or revised standard.
Net Loss Per Share of Common Stock
Net loss per share of common stock is computed by dividing net loss by the weighted-average number of shares of common stock outstanding for the period. The Company applies the two-class method in calculating the net loss per common share. Shares of common stock subject to possible redemption as of December 31, 2020 and 2019 have been excluded from the calculation of the basic net loss per share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. When calculating its diluted net loss per share, the Company has not considered the effect of (i) the incremental number of shares of common stock to settle warrants sold in the Offering and Private Placement, as calculated using the treasury stock method; (ii) the contingently issuable shares associated with the rights sold in the Offering and Private Placement to receive one-twentieth of one share of common stock upon the consummation of the Company’s initial Business Combination; and (iii) the insider shares issued to the former Chief Financial Officer representing 5,000 shares of common stock underlying restricted stock awards for the period they were outstanding. Since the Company was in a net loss position during the year ended December 31, 2020 and the period from March 6, 2019 (inception) through December 31, 2019 after deducting net income attributable to common stock subject to redemption, diluted net loss per common share is the same as basic net loss per common share for the periods presented.
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Reconciliation of Net Loss Per Common Share
In accordance with the two-class method, the Company’s net income (loss) is adjusted for net income that is attributable to common stock subject to redemption, as these shares only participate in the income of the Trust Account and not the losses of the Company. Accordingly, net loss per common share, basic and diluted, is calculated as follows:
| Year ended December 31, 2020 |
Period from March 6, 2019 (Date of Inception) through December 31, 2019 |
|||||||
| As Restated | As Restated | |||||||
| Net income (loss) |
$ | (4,128,841 | ) | $ | 295,115 | |||
| Less: net income attributable to common stock subject to redemption |
(555,866 | ) | (1,005,550 | ) | ||||
|
|
|
|
|
|||||
| Net loss attributable to common stockholders |
$ | (4,684,707 | ) | $ | (710,435 | ) | ||
|
|
|
|
|
|||||
| Weighted-average common shares outstanding, basic and diluted |
5,304,752 | 4,847,100 | ||||||
|
|
|
|
|
|||||
| Net loss per share common share, basic and diluted |
$ | (0.88 | ) | $ | (0.15 | ) | ||
|
|
|
|
|
|||||
Cash and Cash Equivalents
The Company considers all short-term investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains cash balances that at times may be uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation limits. The Company maintains its cash deposits with major financial institutions.
Cash and Marketable Securities Held in Trust Account
As of December 31, 2020, the assets held in the Trust Account consisted of money market funds and cash.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which at times, may exceed federally insured limits. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Financial Instruments
The fair value of the Company’s assets and liabilities approximates the carrying amounts represented in the balance sheets primarily due to their short-term nature.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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Offering Costs
Offering costs in the amount of $4,332,430 consist of legal, accounting, underwriting fees and other costs incurred since inception that are directly related to the Offering. Offering costs were charged to stockholders’ equity and recorded in additional paid-in capital as a reduction to the gross proceeds received upon completion of the Offering.
Common Stock Subject to Possible Redemption
Common stock subject to mandatory redemption (if any) 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 the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, as of December 31, 2020 and 2019, common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of the Company’s balance sheets.
Stock-based Compensation
Stock-based compensation related to restricted stock awards are based on fair value of common stock on the grant date. The shares underlying the Company’s restricted stock awards are subject to forfeiture if these individuals resign or are terminated for cause prior to the completion of the Business Combination. Therefore, the related stock-based compensation will be recognized upon the completion of a Business Combination, unless the related shares are forfeited prior to a Business Combination occurring.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
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The Company prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. The amount paid for interest and penalties during the year ended December 31, 2020 was $724, which was related to 2019 income taxes. No amounts were paid for interest and penalties during the period from March 6, 2019 (inception) through December 31, 2019. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
Warrant Liability
The Company accounts for warrants for shares of the Company’s common stock that are not indexed to its own stock as liabilities at fair value on the balance sheet. The warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized as a component of other income (expense), net on the statement of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the common stock warrants. At that time, the portion of the warrant liability related to the common stock warrants will be reclassified to additional paid-in capital.
Recent Accounting Pronouncements
The Company 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 statements.
4. OFFERING
On June 10, 2019, the Company completed the initial closing of the Offering whereby the Company sold 15,000,000 Units at a price of $10.00 per Unit. On June 13, 2019, the Company completed the second closing of the Offering with the exercise of the over-allotment option with the consummation of the sale of an additional 2,250,000 Units at a price of $10.00 per Unit. Each Unit consists of one share of the Company’s common stock, $0.0001 par value, one warrant to purchase one share of common stock (the “Warrants”), and one right to receive one-twentieth (1/20) of one share of common stock upon consummation of the initial Business Combination (the “Rights”). Warrants will be exercisable for $11.50 per share, and the exercise price of the Warrants may be adjusted in certain circumstances as discussed in Note 7.
On June 26, 2019, the Company announced that the holders of the Company’s Units may elect to separately trade the securities underlying such Units which commenced on July 1, 2019. Any Units not separated will continue to trade on the New York Stock Exchange under the symbol “GIX.U”. Any underlying shares of common stock, warrants and rights that are separated will trade on the New York Stock Exchange under the symbols “GIX,” “GIX.WS” and “GIX.RT,” respectively.
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5. RELATED PARTY TRANSACTIONS
Founder Shares
During the period from March 6, 2019 (date of inception) to March 12, 2019, the Sponsor and Northland Investment purchased 2,500,000 shares of common stock (the “Founder Shares”) for an aggregate purchase price of $25,000, or $0.01 per share. In April 2019, the Company effected a stock dividend of 0.493 shares of common stock for each outstanding share of common stock, resulting in the Sponsor and Northland Investment holding an aggregate of 3,732,500 shares of its common stock. Subsequently, the Sponsor and Northland Investment sold 68,041 shares and 31,959 shares, respectively, to EarlyBird and the EarlyBird Group collectively for an aggregate purchase price of $670, or $0.0067 per share. In June 2019, the Company effected a stock dividend of 0.1541 shares of common stock for each outstanding share of common stock, resulting in the Sponsor, Northland Investment, EarlyBird and the EarlyBird Group holding an aggregate of 4,307,500 shares of its common stock as of December 31, 2020 and 2019. The Founder Shares are identical to the common stock included in the Units sold in the Offering except that the Founder Shares are subject to certain transfer restrictions, as described in more detail below.
Private Placement
The Founders purchased from the Company an aggregate of 492,500 Private Placement Units at a price of $10.00 per unit in a private placement that occurred simultaneously with the completion of the initial closing of the Offering. The Founders also purchased from the Company an aggregate of 75,000 Private Placement Units at a price of $10.00 per unit in a private placement that occurred simultaneously with the completion of the second closing of the Offering with the exercise of the over-allotment option. Among the Private Placement Units, 481,250 units were purchased by the Sponsor, 29,900 units were purchased by EarlyBird, and 56,350 units were purchased by Northland Investment. Each Private Placement Unit consists of one share of the Company’s common stock, $0.0001 par value, one Warrant, and one right to receive one-twentieth of a share of common stock upon the consummation of the Company’s initial Business Combination. Warrants will be exercisable for $11.50 per share, and the exercise price of the Warrants may be adjusted in certain circumstances as described in Note 7.
One of the Company’s underwriters, Northland, purchased 100,000 Private Underwriter Shares, at a purchase price of $10.00 per share in a private placement that occurred simultaneously with the completion of the initial closing of the Offering. Northland also purchased from the Company an aggregate of 20,000 Private Underwriter Shares at a price of $10.00 per share in a private placement that occurred simultaneously with the completion of the second closing of the Offering with the exercise of the over-allotment option. The Private Underwriter Shares are identical to the shares of common stock included in the Private Placement Units.
The Company’s Founders and underwriters have agreed not to transfer, assign or sell any of their Founder Shares, Private Placement Units, shares or other securities underlying such Private Placement Units, or Private Underwriter Shares until the earlier of (i) twelve months after the completion of the Company’s initial Business Combination, or earlier if, subsequent to the Company’s initial Business Combination, the last sale price of the Company’s common stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 90 days after the Company’s initial Business Combination or (ii) the date on which the Company completes a liquidation, merger, stock exchange or other similar transaction after the initial Business Combination that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.
Unlike the Warrants included in the Units sold in the Offering, if held by the original holder or its permitted transferees, the warrants included in the Private Placement Units are not redeemable by the Company and subject to certain limited exceptions, will be subject to transfer restrictions until one year following the consummation of the Business Combination. If the warrants included in the Private Placement Units are held by holders other than the initial holders or their permitted transferees, the warrants included in the Private Placement Units will be redeemable by the Company and exercisable by holders on the same basis as the Warrants included in the Offering.
If the Company does not complete a Business Combination, then a portion of the proceeds from the sale of the Private Placement Units and all of the proceeds from the sale of the Private Underwriter Shares will be part of the liquidating distribution to the public stockholders.
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Registration Rights
On June 5, 2019, the Company entered into a Registration Rights Agreement with its Founders, Northland and Ms. McDonough. These holders will be entitled to make up to three demands, excluding short form registration demands, that the Company register such securities for sale under the Securities Act. In addition, these holders will have “piggy-back” registration rights to include their securities in other registration statements filed by the Company. The Company will bear the expenses incurred in connection with the filing of any such registration statements. There will be no penalties associated with delays in registering the securities under the Registration Rights Agreement. Upon cancellation of Ms. McDonough’s insider shares following her resignation, effective as of August 12, 2019, she was no longer subject to the terms and conditions set forth in the Registration Rights Agreement.
Underwriters Agreement
The Company granted the underwriters a 45-day option to purchase up to 2,250,000 additional Units to cover any over-allotments, at the Offering price less deferred underwriting discounts and commissions. On June 13, 2019, the underwriters elected to fully exercise their over-allotment option to purchase 2,250,000 Units at a purchase price of $10.00 per unit.
The Company paid an underwriting discount of $0.20 per Unit to the underwriters.
Administrative Services Agreement and Other Agreements
The Company agreed to pay $20,000 a month for office space, administrative services and secretarial support to an affiliate of the Sponsor, GigFounders, LLC. Services commenced on June 6, 2019, the date the securities were first listed on the New York Stock Exchange and will terminate upon the earlier of the consummation by the Company of an initial Business Combination or the liquidation of the Company.
Related Party Loan
The Company entered into a promissory note agreement with the Sponsor under which $99,937 was loaned to the Company for the payment of expenses related to the Offering. The promissory note was non-interest bearing, unsecured and was repaid in full on June 20, 2019.
On December 19, 2020, the Company issued the Working Capital Note in the aggregate principal amount of $300,000 to the Sponsor. The Company issued the Working Capital Note in consideration for a loan from the Sponsor to fund the Company’s working capital requirements between now and June 10, 2021, which is the period of time that the Company has available to complete its initial business combination following the December 8, 2020 amendment to its certificate of incorporation. The Working Capital Note was issued to provide the Company with additional working capital and will not be deposited into the Company’s Trust Account. The Working Capital Note is convertible at the Sponsor’s election upon the consummation of the proposed Business Combinations described in Note 2.
Upon such election, the Working Capital Note will convert, at a price of $10.00 per Unit, into Units identical to the Private Placement Units issued in connection with the Company’s initial public offering. The issuance of the Working Capital Note resulted in a contingent beneficial conversion feature which was determined to be insignificant and will be recorded when the Business Combinations close.
The Working Capital Note bears no interest and is repayable in full upon the consummation of the Company’s Business Combinations.
6. COMMITMENTS AND CONTINGENCIES
Business Combination Marketing Agreement
The Company engaged its underwriters as advisors to assist it in holding meetings with its stockholders to discuss the potential Business Combination and the Target Business’s attributes, introduce it to potential investors that are interested in purchasing its securities in connection with the potential Business Combination, assist it in obtaining stockholder approval for the Business Combination and assist it with its press releases and public filings in connection with the Business Combination. Pursuant to that agreement, the Company will pay the underwriters a cash fee for such services upon the consummation of its initial Business Combination in an amount equal to, in the aggregate, 3.5% of the gross proceeds of the Offering, including any proceeds from the exercise of the over-allotment options.
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7. STOCKHOLDERS’ EQUITY
Common Stock
The authorized common stock of the Company includes up to 100,000,000 shares. Holders of the Company’s common stock are entitled to one vote for each share of common stock. As of December 31, 2020 and 2019, there were 5,639,096 and 5,220,358 shares of common stock issued and outstanding and not subject to possible redemption (of which there are 16,026,023 and 17,024,642 such shares outstanding, respectively).
In connection with the First Extension as described in Note 1, to amend the Company’s Amended and Restated Certificate of Incorporation to extend the date by which the Company must consummate a business combination transaction from December 10, 2020 to March 10, 2021, stockholders elected to redeem 579,881 shares of the Company’s Common Stock, which represents approximately 3.4% of the shares that were part of the Units that were sold in the Company’s initial public offering. As such in December 2020, the Company paid $5,857,340 to redeem the 579,881 shares of Common Stock. Following such redemptions, $168,384,949 remained in the Trust Account and 21,665,119 shares of Common Stock remained issued and outstanding as of December 31, 2020.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. As of December 31, 2020 and 2019, there were no shares of preferred stock issued and outstanding.
Warrants
Warrants will be exercisable for $11.50 per share, and the exercise price and number of Warrant shares issuable on exercise of the Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation of the Company. In addition, if (x) the Company issues additional shares of common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial Business Combination at an issue price or effective issue price of less than $9.50 per share of common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors, and in the case of any such issuance to the Company’s Founders or their affiliates, without taking into account any Founder Shares held by them prior to such issuance), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the Company’s initial Business Combination on the date of the consummation of its initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s common stock during the 20 trading-day period starting on the trading day prior to the day on which the Company consummates its initial Business Combination (such price, the “Market Value”) is below $9.50 per share, the exercise price of the Warrants will be adjusted (to the nearest cent) to be equal to 115% of the greater of (i) the Market Value or (ii) the price at which the Company issues the additional shares of common stock or equity-linked securities.
Each Warrant will become exercisable on the later of 30 days after the completion of the Company’s initial Business Combination or 12 months from the closing of the Offering and will expire five years after the completion of the Company’s initial Business Combination or earlier upon redemption or liquidation. However, if the Company does not complete its initial Business Combination on or prior to the 24-month period allotted to complete the Business Combination, the Warrants will expire at the end of such period. If the Company is unable to deliver registered shares of common stock to the holder upon exercise of the Warrants during the exercise period, there will be no net cash settlement of these Warrants and the Warrants will expire worthless, unless they may be exercised on a cashless basis in the circumstances described in the Warrant agreement. Once the Warrants become exercisable, the Company may redeem the outstanding Warrants in whole and not in part at a price of $0.01 per Warrant upon a minimum of 30 days’ prior written notice of redemption, only in the event that the last sale price of the Company’s shares of common stock equals or exceeds $18.00 per share for any 20 trading days within the 30-trading day period ending on the third trading day before the Company sends the notice of redemption to the Warrant holders.
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Under the terms of the Warrant agreement, the Company has agreed to use its best efforts to file a new registration statement under the Securities Act, following the completion of the Company’s initial Business Combination, for the registration of the shares of common stock issuable upon exercise of the Warrants included in the Units.
As of December 31, 2020 and 2019, there were 17,817,500 warrants outstanding.
Rights
Each holder of a right will receive one-twentieth (1/20) of one share of common stock upon consummation of an initial Business Combination, even if the holder of such right redeemed all shares of common stock held by it in connection with an initial Business Combination. No additional consideration will be required to be paid by a holder of rights in order to receive its additional shares upon consummation of an initial Business Combination, as the consideration related thereto has been included in the unit purchase price paid for by investors in the Offering. If the Company enters into a definitive agreement for a Business Combination in which the Company will not be the surviving entity, the definitive agreement therefore will provide for the holders of rights to receive the same per share consideration the holders of the common stock will receive in the transaction on an as-converted into common stock basis, and each holder of a right will be required to affirmatively convert its rights in order to receive the 1/20 share underlying each right (without paying any additional consideration) upon consummation of a Business Combination. More specifically, the right holder will be required to indicate its election to convert the rights into underlying shares as well as to return the original rights certificates to the Company.
If the Company is unable to complete an initial Business Combination within 24 months from the closing date of the Offering and the Company liquidates the funds held in the Trust Account, holders of rights will not receive any such funds with respect to their rights, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such rights, and the rights will expire worthless. Further, there are no contractual penalties for failure to deliver shares of common stock to the holders of the rights upon consummation of an initial Business Combination. Additionally, in no event will the Company be required to net cash settle the rights.
As of December 31, 2020 and 2019, there were 17,817,500 rights outstanding.
Stock-based Compensation
The 5,000 shares issued to Ms. McDonough, the Company’s former Chief Financial Officer, were forfeited upon her resignation in August 2019. Since an initial Business Combination did not occur prior to the forfeiture of these shares, no stock-based compensation expense was recorded in the Company’s statements of operations and comprehensive income (loss).
8. FAIR VALUE MEASUREMENTS
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
| Level 1: | Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
| Level 2: | Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. |
| Level 3: | Unobservable inputs which are supported by little or no market activity and which are significant to the fair value of the assets or liabilities. |
The Company has determined that the Warrants issued as part of the Private Placement Units are subject to treatment as a liability. As the transfer of these Warrants to anyone other than the purchasers or their permitted transferees, would result in these Warrants having substantially the same terms as the Warrants issued in the Offering, the Company has determined that the fair value of each Warrant issued as part of the Private Placement Units is the same as that of a Warrant issued in the Offering, with an insignificant adjustment for short-term marketability restrictions. Accordingly, the Warrants issued as part of the Private Placement Units are classified as Level 2 financial instruments.
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The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2020 and 2019, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Description: |
Level | December 31, 2020 | December 31, 2019 | |||||||||
| Assets: |
||||||||||||
| Cash and marketable securities held in Trust Account |
1 | $ | 168,384,949 | $ | 173,994,583 | |||||||
|
|
|
|
|
|||||||||
| Liabilities: |
||||||||||||
| Warrants |
2 | $ | 1,112,300 | $ | 181,600 | |||||||
|
|
|
|
|
|||||||||
9. INCOME TAX
The sources of income (loss) before provision for income taxes are as follows for the year ended December 31, 2020 and the period from March 6, 2019 (date of inception) through December 31, 2019:
| Year ended December 31, 2020 |
Period from March 6, 2019 (Date of Inception) through December 31, 2019 |
|||||||
| As Restated | As Restated | |||||||
| Domestic |
$ | (3,857,754 | ) | $ | 853,929 | |||
| Foreign |
— | — | ||||||
|
|
|
|
|
|||||
| Total |
$ | (3,857,754 | ) | $ | 853,929 | |||
|
|
|
|
|
|||||
The provision for income taxes was comprised of the following for the year ended December 31, 2020 and the period from March 6, 2019 (date of inception) through December 31, 2019:
| Year ended December 31, 2020 |
Period from March 6, 2019 (Date of Inception) through December 31, 2019 |
|||||||
| As Restated | As Restated | |||||||
| Current: |
||||||||
| Federal |
$ | 180,694 | $ | 393,267 | ||||
| State and local |
90,393 | 165,547 | ||||||
| Foreign |
— | — | ||||||
|
|
|
|
|
|||||
| Total Current |
271,087 | 558,814 | ||||||
|
|
|
|
|
|||||
| Deferred: |
||||||||
| Federal |
— | — | ||||||
| State and local |
— | — | ||||||
| Foreign |
— | — | ||||||
|
|
|
|
|
|||||
| Total deferred income tax expense |
— | — | ||||||
|
|
|
|
|
|||||
| Total provision for income taxes |
$ | 271,087 | $ | 558,814 | ||||
|
|
|
|
|
|||||
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Reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:
| Year ended December 31, 2020 |
Period from March 6, 2019 (Date of Inception) through December 31, 2019 |
|||||||
| As Restated | As Restated | |||||||
| Statutory income tax expense (benefit) |
$ | (810,128 | ) | $ | 179,325 | |||
| State income tax expense (benefit), net of federal |
(268,438 | ) | 59,420 | |||||
| Other permanent items |
263,152 | 23,835 | ||||||
| Valuation allowance on start-up costs |
1,086,501 | 296,234 | ||||||
|
|
|
|
|
|||||
| Provision for income taxes |
$ | 271,087 | $ | 558,814 | ||||
|
|
|
|
|
|||||
For the year ended December 31, 2020 and the period from March 6, 2019 (date of inception) through December 31, 2020, the effective tax rate differs from the U.S. statutory rate primarily due to the valuation allowance on the Start-up Costs and tax expense associated with nondeductible permanent adjustments.
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities as of December 31, 2020 and 2019 were as follows:
| December 31, 2020 |
December 31, 2019 |
|||||||
| As Restated | As Restated | |||||||
| Deferred Tax Assets: |
||||||||
| Start-up costs |
$ | 1,382,735 | $ | 296,234 | ||||
| Valuation allowance |
(1,382,735 | ) | (296,234 | ) | ||||
|
|
|
|
|
|||||
| Net deferred tax assets (liabilities) |
$ | — | $ | — | ||||
|
|
|
|
|
|||||
As of December 31, 2020 and 2019, the Company has recorded a valuation allowance of $1,382,735 and $296,234, respectively, to offset deferred tax assets related to its start-up costs. As of December 31, 2020 and 2019, the Company has no unrecognized tax benefits for which a liability should be recorded. The Company records interest and penalties associated with unrecognized tax benefits as a component of tax expense. As of December 31, 2020 and 2019, the Company has not accrued interest or penalties on unrecognized tax benefits, as there is no position recorded as of 2020 or 2019. No changes to the uncertain tax position balance are anticipated within the next 12 months and are not expected to materially impact the financial statements.
10. SUBSEQUENT EVENTS
PIPE Subscription Agreement
On January 20, 2021, GigCapital2 entered into subscription agreements (the “PIPE Subscription Agreements”), each dated January 20, 2021, with certain institutional investors (the “PIPE Investors”), including Oppenheimer & Co. Inc., the placement agent for the private placements under the PIPE Subscription Agreements, pursuant to which, among other things, GigCapital2 agreed to issue and sell, in private placements to close immediately prior to the closing of the Business Combinations, an aggregate of 3,000,000 shares (the “PIPE Shares”) of GigCapital2’s common stock (the “Common Stock”) to the PIPE Investors at $10.00 per share.
The obligations to consummate the subscriptions are conditioned upon, among other things, all conditions precedent to the closing of the transactions contemplated by the Note Subscription Agreements (as defined below) having been satisfied or waived, and the closing of the transaction contemplated by the PIPE Subscription Agreements occurring concurrently with the closing of the transactions contemplated by the Note Subscription Agreements.
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Pursuant to the PIPE Subscription Agreements, GigCapital2 agreed that, prior to the closing of the Business Combinations, GigCapital2 will file with the Securities and Exchange Commission (“SEC”) (at GigCapital2’s sole cost and expense) a registration statement registering the resale of the PIPE Shares (the “Resale Registration Statement”), and GigCapital2 will use its commercially reasonable efforts to have the Resale Registration Statement declared effective upon the closing of the Business Combinations, but no later than 60 calendar days (or 90 calendar days if the SEC notifies GigCapital2 that it will not review the Resale Registration Statement) after the closing of the Business Combinations, subject to customary conditions and covenants.
On February 16, 2021, the Company filed a registration statement on Form S-1 with the SEC. This registration statement registers the resale of the PIPE Shares, par value $0.0001 per share of the Common Stock of the Company, by the selling stockholders named in the prospectus (or their permitted transferees) who are to be issued the PIPE Shares in a private placement immediately prior to the closing of the Business Combination.
The PIPE Shares were not issued and outstanding at the time of the Special Meeting of GigCapital2’s stockholders held to approve the Business Combinations that was held on March 10, 2021. Further, the holders of the PIPE Shares will not receive any proceeds from the Trust Account established in connection with GigCapital2’s initial public offering in the event GigCapital2 does not consummate an initial Business Combination by the June 10, 2021 deadline in its current Amended and Restated Certificate of Incorporation. In the event the Business Combination are not approved by GigCapital2 stockholders or the other conditions precedent to the consummation of the Business Combination are not met, then the PIPE Shares will not be issued and GigCapital2 will seek to withdraw the registration statement prior to its effectiveness.
Notes Subscription Agreements and Indenture
On January 20, 2021, GigCapital2 also entered into convertible note subscription agreements (the “Note Subscription Agreements”), each dated January 20, 2021, with certain institutional investors (the “Note Investors”), pursuant to which GigCapital2 agreed to issue and sell, in a private placement to close immediately prior to the closing of the Business Combinations, $255,000,000 aggregate principal amount of unsecured convertible notes (the “Notes”).
The Notes are to be issued under an indenture to be entered into in connection with the closing of the Business Combinations, between UpHealth, Inc. (formerly GigCapital2) (“New UpHealth”) and Wilmington Trust, National Association, a national banking association, in its capacity as trustee thereunder (the “Indenture”).
The Notes will bear interest at a rate of 6.25% per annum, payable semi-annually, and be convertible into shares of Common Stock at a conversion price of $11.50 per share of Common Stock in accordance with the terms of the Indenture, and will mature five years after their issuance.
New UpHealth may, at its election, force conversion of the Notes after the first anniversary of the issuance of the Notes, subject to a holder’s prior right to convert, if the last reported sale price of the Common Stock exceeds 130% of the conversion price for at least 20 trading days during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter, and the 30-day average daily trading volume of the Common Stock ending on, and including, the last trading day of the applicable exercise period is greater than or equal to $2,000,000. Following certain corporate events that occur prior to the maturity date or if New UpHealth forces a mandatory conversion, New UpHealth will, in certain circumstances, increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event or has its notes mandatorily converted, as the case may be. In addition, in the event that a holder of the Notes elects to convert its Notes prior to the second anniversary of the issuance of the Notes, New UpHealth will be obligated to pay an amount equal to twelve months of interest, or if on or after such second anniversary of the issuance of the Notes, any remaining amounts that would be owed to, but excluding, the third anniversary of the issuance of the Notes (the “Interest Make-Whole Payment”). The Interest Make-Whole Payment will be payable in cash or shares of the Common Stock as set forth in the Indenture.
New UpHealth will be obligated to register the shares issuable upon conversion of the Notes. GigCapital2 agreed that, within 45 days after the consummation of the Business Combinations (the “Convertible Note Resale Registration Filing Deadline”), New UpHealth will file with the SEC a registration statement (the “Convertible Note Resale Registration Statement”) registering the resale of the shares of Common Stock issuable upon conversion of the Notes (the “Convertible Note Registrable Securities”), and New UpHealth will use its commercially reasonable efforts to have the Convertible Note Resale Registration Statement declared effective as soon as practicable after the filing thereof, but no later than the 60th calendar day (or 90th calendar day if the SEC notifies New UpHealth that it will “review” the Convertible Note Resale Registration Statement) following the Convertible Note Resale Registration Filing Deadline.
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The obligations of the Note Investors to consummate the subscriptions provided for in the Note Subscription Agreements are conditioned upon, among other things, New UpHealth (i) having received cash and cash equivalents from the issuance and sale of the Notes of an aggregate amount not less than $150,000,000 and from the issuance and sale of the Common Stock of an aggregate amount not less than $30,000,000 and (ii) having at least $50,000,000 in the trust account after giving effect to any redemptions, and all conditions precedent to the closing of the transactions contemplated by the PIPE Subscription Agreements having been satisfied or waived, and the closing under the Note Subscription Agreements occurring concurrently with the investment by the PIPE Investors.
Common Stock Subject to Possible Redemption
In connection with the Second Extension, as described in Note 1, to amend the Company’s Amended and Restated Certificate of Incorporation to extend the date by which the Company must consummate a business combination transaction from March 10, 2021 to June 10, 2021, stockholders elected to redeem 1,852,804 shares of the Company’s Common Stock, which represents approximately 10.7% of the shares that were part of the Units that were sold in the Company’s initial public offering. As such in March 2021, the Company paid $18,715,459 to redeem the 1,852,804 shares of Common Stock.
Amendments to the UpHealth BCA
On January 29, 2021, the Company executed a First Amendment to the UpHealth BCA with the parties to the UpHealth BCA, solely to amend Schedule 7.06(C) of the UpHealth BCA (the “UpHealth BCA Amendment No. 1”) for the purpose of revising the formula used to calculate the Thrasys Incentive Amount as such term is used in the UpHealth BCA Amendment No. 1. The terms of the Cloudbreak BCA were not modified in connection with the UpHealth BCA Amendment No. 1.
On March 23, 2021, the Company executed a Second Amendment to the UpHealth BCA with the parties to the UpHealth BCA, solely to amend Schedule 7.06(C) of the UpHealth BCA (the “UpHealth BCA Amendment No. 2”) for the purpose of further revising the formula used to calculate the Thrasys Incentive Amount as such term is used in the UpHealth BCA Amendment No. 2. The foregoing description of the UpHealth BCA Amendment No. 2 is not complete and is subject to, and qualified in its entirety by reference to, the terms and conditions of such agreement. The terms of the Cloudbreak BCA were not modified in connection with the UpHealth BCA Amendment No. 2.
11. Restatement of Previously Issued Audited and Unaudited Financial Statements
As discussed in Note 1, the Company has restated previously issued financial statements after considering newly released guidance by the SEC staff regarding the accounting and reporting for warrants.
The errors that caused the Company to conclude that its financial statements should be restated are the result of a misapplication of the guidance on accounting for certain of its issued warrants, which came to light when the staff of the SEC issued a Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) dated April 12, 2021 (the “SEC Staff Statement”). The SEC Staff Statement addresses certain accounting and reporting considerations related to warrants of a kind similar to those issued by the Company at the time of its initial public offering in June 2019. Based on ASC 815-40, Contracts in Entity’s Own Equity, warrant instruments that do not meet the criteria to be considered indexed to an entity’s own stock shall be initially classified as liabilities at their estimated fair values. In periods subsequent to issuance, changes in the estimated fair value of the derivative instruments should be reported in the statement of operations and comprehensive income (loss).
On June 10, 2019 and June 13, 2019, in addition to other securities, the Company issued Warrants as part of the Private Placement Units to purchase 567,500 shares of Common Stock. The Company determined that the financial statements should be restated to reflect these Warrants as a liability, with subsequent changes in their estimated fair value recorded as non-cash income or expense in the statements of operations and comprehensive income (loss) for all periods since issuance.
The following presents the restated financial statements as of December 31, 2020 and 2019, for the year ended December 31, 2020 and the period from March 6, 2019 (Date of Inception) through December 31, 2019, as well as the unaudited condensed financial statements for the three month period ended March 31, 2020, the three and six month periods ended June 30, 2020 and 2019 and the three and nine month periods ended September 30, 2020 and 2019.
The following presents a reconciliation of the balance sheets, statements of operations and comprehensive income (loss) and cash flows from the prior periods as previously reported to the restated amounts as of December 31, 2020 and 2019, for the year ended December 31, 2020 and for the period from March 6, 2019 (Date of Inception) through December 31, 2019. The statements of stockholders’ equity for the year ended December 31, 2020 and for the period from March 6, 2019 (Date of Inception) through December 31, 2019 have been restated respectively, for the restatement impact to net income (loss) and common stock subject to possible redemption. See the statement of operations and comprehensive income (loss) reconciliation tables below for additional information on the restatement and impact to net income (loss).
| December 31, 2020 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| ASSETS |
||||||||||||
| Current assets |
||||||||||||
| Cash |
$ | 478,737 | $ | — | $ | 478,737 | ||||||
| Prepaid expenses |
62,691 | — | 62,691 | |||||||||
| Receivable from related party |
1,400 | — | 1,400 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total current assets |
542,828 | — | 542,828 | |||||||||
| Cash and marketable securities held in Trust Account |
168,384,949 | — | 168,384,949 | |||||||||
|
|
|
|
|
|
|
|||||||
| TOTAL ASSETS |
$ | 168,927,777 | $ | — | $ | 168,927,777 | ||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ EQUITY |
||||||||||||
| Current liabilities |
||||||||||||
| Accounts payable |
$ | 86,528 | $ | — | $ | 86,528 | ||||||
| Payable to related parties |
15,709 | — | 15,709 | |||||||||
| Accrued liabilities |
2,153,000 | — | 2,153,000 | |||||||||
| Notes payable to related parties |
300,000 | — | 300,000 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total current liabilities |
2,555,237 | — | 2,555,237 | |||||||||
| Warrant liability |
— | 1,112,300 | (A) | 1,112,300 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total liabilities |
2,555,237 | 1,112,300 | 3,667,537 | |||||||||
|
|
|
|
|
|
|
|||||||
| Common stock subject to possible redemption |
161,372,530 | (1,112,300 | )(A) | 160,260,230 | ||||||||
| Stockholders’ equity |
||||||||||||
| Preferred stock |
— | — | — | |||||||||
| Common stock |
553 | 11 | (A) | 564 | ||||||||
| Additional paid-in capital |
7,837,147 | 996,025 | (A) | 8,833,172 | ||||||||
| Accumulated deficit |
(2,837,690 | ) | (996,036 | )(A) | (3,833,726 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total stockholders’ equity |
5,000,010 | — | 5,000,010 | |||||||||
|
|
|
|
|
|
|
|||||||
| TOTAL LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ EQUITY |
$ | 168,927,777 | $ | — | $ | 168,927,777 | ||||||
|
|
|
|
|
|
|
|||||||
A reconciliation of the shares of common stock subject to possible redemption outstanding and the shares of common stock outstanding is as follows:
| As Filed | Restatement Adjustment |
As Restated | ||||||||||
| Common stock subject to possible redemption—shares outstanding |
16,137,253 | (111,230 | )(A) | 16,026,023 | ||||||||
|
|
|
|
|
|
|
|||||||
| Common stock—shares issued and outstanding |
5,527,866 | 111,230 | (A) | 5,639,096 | ||||||||
|
|
|
|
|
|
|
|||||||
| December 31, 2019 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| ASSETS |
||||||||||||
| Current assets |
||||||||||||
| Cash |
$ | 1,576,508 | $ | — | $ | 1,576,508 | ||||||
| Prepaid expenses |
161,609 | — | 161,609 | |||||||||
| Receivable from related party |
1,952 | — | 1,952 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total current assets |
1,740,069 | — | 1,740,069 | |||||||||
| Cash and marketable securities held in Trust Account |
173,994,583 | — | 173,994,583 | |||||||||
| Other non-current assets |
33,327 | — | 33,327 | |||||||||
|
|
|
|
|
|
|
|||||||
| TOTAL ASSETS |
$ | 175,767,979 | $ | — | $ | 175,767,979 | ||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ EQUITY |
||||||||||||
| Current liabilities |
||||||||||||
| Accounts payable |
$ | 142,613 | $ | — | $ | 142,613 | ||||||
| Payable to related parties |
16,649 | — | 16,649 | |||||||||
| Other current liabilities |
180,696 | — | 180,696 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total current liabilities |
339,958 | — | 339,958 | |||||||||
| Warrant liability |
— | 181,600 | (A) | 181,600 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total liabilities |
339,958 | 181,600 | 521,558 | |||||||||
|
|
|
|
|
|
|
|||||||
| Common stock subject to possible redemption |
170,428,020 | (181,600 | )(A) | 170,246,420 | ||||||||
| Stockholders’ equity |
||||||||||||
| Preferred stock |
— | — | — | |||||||||
| Common stock |
520 | 2 | (A) | 522 | ||||||||
| Additional paid-in capital |
4,639,030 | 65,334 | (A) | 4,704,364 | ||||||||
| Retained earnings |
360,451 | (65,336 | )(A) | 295,115 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total stockholders’ equity |
5,000,001 | — | 5,000,001 | |||||||||
|
|
|
|
|
|
|
|||||||
| TOTAL LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ EQUITY |
$ | 175,767,979 | $ | — | $ | 175,767,979 | ||||||
|
|
|
|
|
|
|
|||||||
A reconciliation of the shares of common stock subject to possible redemption outstanding and the shares of common stock outstanding is as follows:
| As Filed | Restatement Adjustment |
As Restated | ||||||||||
| Common stock subject to possible redemption—shares outstanding |
17,042,802 | (18,160 | )(A) | 17,024,642 | ||||||||
|
|
|
|
|
|
|
|||||||
| Common stock—shares issued and outstanding |
5,202,198 | 18,160 | (A) | 5,220,358 | ||||||||
|
|
|
|
|
|
|
|||||||
68
Table of Contents
| For the Year Ended December 31, 2020 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| Revenues |
$ | — | $ | — | $ | — | ||||||
| General and administrative expenses |
3,949,600 | — | 3,949,600 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss from operations |
(3,949,600 | ) | — | (3,949,600 | ) | |||||||
| Other income (expense) |
||||||||||||
| Other expense |
— | (930,700 | )(A) | (930,700 | ) | |||||||
| Interest income on cash and marketable securities held in Trust Account |
1,022,546 | — | 1,022,546 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss before provision for income taxes |
(2,927,054 | ) | (930,700 | ) | (3,857,754 | ) | ||||||
| Provision for income taxes |
271,087 | — | 271,087 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss and comprehensive loss |
$ | (3,198,141 | ) | $ | (930,700 | ) | $ | (4,128,841 | ) | |||
|
|
|
|
|
|
|
|||||||
| Net loss attributable to common stockholders |
$ | (3,757,865 | ) | $ | (926,842 | ) | $ | (4,684,707 | ) | |||
|
|
|
|
|
|
|
|||||||
| Weighted-average shares of common stock outstanding, basic and diluted |
5,263,939 | 40,813 | 5,304,752 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss per share of common stock, basic and diluted |
$ | (0.71 | ) | $ | (0.17 | ) | $ | (0.88 | ) | |||
|
|
|
|
|
|
|
|||||||
|
|
Period from March 6, 2019 (Date of Inception) through December 31, 2019 |
|||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| Revenues |
$ | — | $ | — | $ | — | ||||||
| General and administrative expenses |
953,436 | — | 953,436 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss from operations |
(953,436 | ) | — | (953,436 | ) | |||||||
| Other income (expense) |
||||||||||||
| Other expense |
— | (65,336 | )(A) | (65,336 | ) | |||||||
| Interest income on cash and marketable securities held in Trust Account |
1,872,701 | — | 1,872,701 | |||||||||
|
|
|
|
|
|
|
|||||||
| Income (loss) before provision for income taxes |
919,265 | (65,336 | ) | 853,929 | ||||||||
| Provision for income taxes |
558,814 | — | 558,814 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net income (loss) and comprehensive income (loss) |
$ | 360,451 | $ | (65,336 | ) | $ | 295,115 | |||||
|
|
|
|
|
|
|
|||||||
| Net loss attributable to common stockholders |
$ | (646,171 | ) | $ | (64,264 | ) | $ | (710,435 | ) | |||
|
|
|
|
|
|
|
|||||||
| Weighted-average shares of common stock outstanding, basic and diluted |
4,836,966 | 10,134 | 4,847,100 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss per share of common stock, basic and diluted |
$ | (0.13 | ) | $ | (0.02 | ) | $ | (0.15 | ) | |||
|
|
|
|
|
|
|
|||||||
|
|
For the Year Ended December 31, 2020 | |||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| OPERATING ACTIVITIES |
||||||||||||
| Net loss |
$ | (3,198,141 | ) | $ | (930,700 | )(A) | $ | (4,128,841 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
| Interest earned on cash and marketable securities held in Trust Account |
(1,022,546 | ) | — | (1,022,546 | ) | |||||||
| Change in fair value of warrant liability |
— | 930,700 | (A) | 930,700 | ||||||||
| Change in operating assets and liabilities: |
||||||||||||
| Prepaid expenses |
98,918 | — | 98,918 | |||||||||
| Receivable from related party |
552 | — | 552 | |||||||||
| Other non-current assets |
33,327 | — | 33,327 | |||||||||
| Accounts payable |
52,135 | — | 52,135 | |||||||||
| Payable to related parties |
(940 | ) | — | (940 | ) | |||||||
| Accrued liabilities |
2,153,000 | — | 2,153,000 | |||||||||
| Other current liabilities |
(180,696 | ) | — | (180,696 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net cash used in operating activities |
(2,064,391 | ) | — | (2,064,391 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| INVESTING ACTIVITIES |
||||||||||||
| Cash withdrawn from Trust Account |
6,632,180 | — | 6,632,180 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net cash provided by investing activities |
6,632,180 | — | 6,632,180 | |||||||||
|
|
|
|
|
|
|
|||||||
| FINANCING ACTIVITIES |
||||||||||||
| Borrowing from related party |
300,000 | — | 300,000 | |||||||||
| Payment of offering costs |
(108,220 | ) | — | (108,220 | ) | |||||||
| Redemption of Units |
(5,857,340 | ) | — | (5,857,340 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net cash used in financing activities |
(5,665,560 | ) | — | (5,665,560 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net decrease in cash during period |
(1,097,771 | ) | — | (1,097,771 | ) | |||||||
| Cash, beginning of period |
1,576,508 | — | 1,576,508 | |||||||||
|
|
|
|
|
|
|
|||||||
| Cash, end of period |
$ | 478,737 | $ | — | $ | 478,737 | ||||||
|
|
|
|
|
|
|
|||||||
| SUPPLEMENTAL DISCLOSURE |
||||||||||||
| Cash paid for income taxes |
$ | 476,973 | $ | — | $ | 476,973 | ||||||
|
|
|
|
|
|
|
|||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES |
||||||||||||
| Change in value of common stock subject to possible redemption |
$ | (3,198,150 | ) | $ | (930,700 | )(A) | $ | (4,128,850 | ) | |||
|
|
|
|
|
|
|
|||||||
69
Table of Contents
|
|
Period from March 6, 2019, (Date of Inception) through December 31, 2019 |
|||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| OPERATING ACTIVITIES |
||||||||||||
| Net income |
$ | 360,451 | $ | (65,336 | )(A) | $ | 295,115 | |||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||||||
| Interest earned on cash and marketable securities held in Trust Account |
(1,872,701 | ) | — | (1,872,701 | ) | |||||||
| Change in fair value of warrant liability |
— | 65,336 | (A) | 65,336 | ||||||||
| Change in operating assets and liabilities: |
||||||||||||
| Prepaid expenses |
(161,609 | ) | — | (161,609 | ) | |||||||
| Receivable from related party |
(1,952 | ) | — | (1,952 | ) | |||||||
| Other non-current assets |
(33,327 | ) | — | (33,327 | ) | |||||||
| Account payable |
34,393 | — | 34,393 | |||||||||
| Payable to related parties |
16,649 | — | 16,649 | |||||||||
| Other current liabilities |
180,696 | — | 180,696 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net cash used in operating activities |
(1,477,400 | ) | — | (1,477,400 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| INVESTING ACTIVITIES |
||||||||||||
| Investment of cash in Trust Account |
(172,500,000 | ) | — | (172,500,000 | ) | |||||||
| Cash withdrawn from Trust Account |
378,118 | — | 378,118 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net cash used in investing activities |
(172,121,882 | ) | — | (172,121,882 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| FINANCING ACTIVITIES |
||||||||||||
| Proceeds from sale of common stock to Founders |
25,000 | — | 25,000 | |||||||||
| Borrowing from related party |
99,937 | — | 99,937 | |||||||||
| Repayment of borrowing from related party |
(99,937 | ) | — | (99,937 | ) | |||||||
| Proceeds from sale of Private Placements Units |
5,675,000 | — | 5,675,000 | |||||||||
| Proceeds from sale of common stock to underwriters |
1,200,000 | — | 1,200,000 | |||||||||
| Proceeds from sale of Units, net of underwriting discounts paid |
169,050,000 | — | 169,050,000 | |||||||||
| Payment of offering costs |
(774,210 | ) | — | (774,210 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net cash provided by financing activities |
175,175,790 | — | 175,175,790 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net change in cash during period |
1,576,508 | — | 1,576,508 | |||||||||
| Cash, beginning of period |
— | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Cash, end of period |
$ | 1,576,508 | $ | — | $ | 1,576,508 | ||||||
|
|
|
|
|
|
|
|||||||
| SUPPLEMENTAL DISCLOSURE |
||||||||||||
| Cash paid for income taxes |
$ | 378,118 | $ | — | $ | 378,118 | ||||||
|
|
|
|
|
|
|
|||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES |
||||||||||||
| Offering costs included in accounts payable |
$ | 108,220 | $ | — | $ | 108,220 | ||||||
|
|
|
|
|
|
|
|||||||
| Change in value of common stock subject to possible redemption |
$ | 2,260,450 | $ | (65,336 | )(A) | $ | 2,195,114 | |||||
|
|
|
|
|
|
|
|||||||
| Fair value of warrant liability |
$ | — | $ | 116,264 | (A) | $ | 116,264 | |||||
|
|
|
|
|
|
|
|||||||
Following are the restatement of previously reported condensed balance sheets for the quarters ended March 31, 2020, June 30, 2020, September 30, 2020, June 30, 2019 and September 30, 2019.
| March 31, 2020 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| ASSETS |
||||||||||||
| Current assets |
||||||||||||
| Cash |
$ | 1,194,013 | $ | — | $ | 1,194,013 | ||||||
| Prepaid expenses |
156,471 | — | 156,471 | |||||||||
| Receivable from related party |
2,152 | — | 2,152 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total current assets |
1,352,636 | — | 1,352,636 | |||||||||
| Cash and marketable securities held in Trust Account |
174,745,646 | — | 174,745,646 | |||||||||
| Other non-current assets |
13,326 | — | 13,326 | |||||||||
|
|
|
|
|
|
|
|||||||
| TOTAL ASSETS |
$ | 176,111,608 | $ | — | $ | 176,111,608 | ||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ EQUITY |
||||||||||||
| Current liabilities |
||||||||||||
| Accounts payable |
$ | 151,314 | $ | — | $ | 151,314 | ||||||
| Payable to related parties |
11,727 | — | 11,727 | |||||||||
| Accrued liabilities |
24,269 | — | 24,269 | |||||||||
| Other current liabilities |
419,264 | — | 419,264 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total current liabilities |
606,574 | — | 606,574 | |||||||||
| Warrant liability |
— | 175,925 | (A) | 175,925 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total liabilities |
606,574 | 175,925 | 782,499 | |||||||||
|
|
|
|
|
|
|
|||||||
| Common stock subject to possible redemption |
170,505,030 | (175,930 | )(A) | 170,329,100 | ||||||||
| Stockholders’ equity |
||||||||||||
| Preferred stock |
— | — | — | |||||||||
| Common stock |
519 | 2 | (A) | 521 | ||||||||
| Additional paid-in capital |
4,562,021 | 59,664 | (A) | 4,621,685 | ||||||||
| Retained earnings |
437,464 | (59,661 | )(A) | 377,803 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total stockholders’ equity |
5,000,004 | 5 | 5,000,009 | |||||||||
|
|
|
|
|
|
|
|||||||
| TOTAL LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ EQUITY |
$ | 176,111,608 | $ | — | $ | 176,111,608 | ||||||
|
|
|
|
|
|
|
|||||||
A reconciliation of the shares of common stock subject to possible redemption outstanding and the shares of common stock outstanding is as follows:
| As Filed | Restatement Adjustment |
As Restated | ||||||||||
| Common stock subject to possible redemption—shares outstanding |
17,050,503 | (17,593 | )(A) | 17,032,910 | ||||||||
| Common stock—shares issued and outstanding |
5,194,497 | 17,593 | (A) | 5,212,090 | ||||||||
70
Table of Contents
| June 30, 2020 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| ASSETS |
|
|||||||||||
| Current assets |
||||||||||||
| Cash |
$ | 883,918 | $ | — | $ | 883,918 | ||||||
| Prepaid expenses |
115,312 | — | 115,312 | |||||||||
| Receivable from related parties |
6,270 | — | 6,270 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total current assets |
1,005,500 | — | 1,005,500 | |||||||||
| Cash and marketable securities held in Trust Account |
174,734,722 | — | 174,734,722 | |||||||||
|
|
|
|
|
|
|
|||||||
| TOTAL ASSETS |
$ | 175,740,222 | $ | — | $ | 175,740,222 | ||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ EQUITY |
||||||||||||
| Current liabilities |
||||||||||||
| Accounts payable |
$ | 136,100 | $ | — | $ | 136,100 | ||||||
| Payable to related parties |
8,892 | — | 8,892 | |||||||||
| Other current liabilities |
435,986 | — | 435,986 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total current liabilities |
580,978 | — | 580,978 | |||||||||
| Warrant liability |
— | 278,075 | (A) | 278,075 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total liabilities |
580,978 | 278,075 | 859,053 | |||||||||
|
|
|
|
|
|
|
|||||||
| Common stock subject to possible redemption |
170,159,240 | (278,080 | )(A) | 169,881,160 | ||||||||
| Stockholders’ equity |
||||||||||||
| Preferred stock |
— | — | — | |||||||||
| Common stock |
523 | 3 | (A) | 526 | ||||||||
| Additional paid-in capital |
4,907,807 | 161,813 | (A) | 5,069,620 | ||||||||
| Retained earnings (accumulated deficit) |
91,674 | (161,811 | )(A) | (70,137 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Total stockholders’ equity |
5,000,004 | 5 | 5,000,009 | |||||||||
|
|
|
|
|
|
|
|||||||
| TOTAL LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ EQUITY |
$ | 175,740,222 | $ | — | $ | 175,740,222 | ||||||
|
|
|
|
|
|
|
|||||||
A reconciliation of the shares of common stock subject to possible redemption outstanding and the shares of common stock outstanding is as follows:
| As Filed | Restatement Adjustment |
As Restated | ||||||||||
| Common stock subject to possible redemption - shares outstanding |
17,015,924 | (27,808 | )(A) | 16,988,116 | ||||||||
|
|
|
|
|
|
|
|||||||
| Common stock - shares issued and outstanding |
5,229,076 | 27,808 | (A) | 5,256,884 | ||||||||
|
|
|
|
|
|
|
|||||||
71
Table of Contents
| September 30, 2020 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| ASSETS |
||||||||||||
| Current assets |
||||||||||||
| Cash |
$ | 387,430 | $ | — | $ | 387,430 | ||||||
| Prepaid expenses |
178,047 | 178,047 | ||||||||||
| Receivable from related party |
10,078 | 10,078 | ||||||||||
|
|
|
|
|
|
|
|||||||
| Total current assets |
575,555 | — | 575,555 | |||||||||
| Cash and marketable securities held in Trust Account |
174,284,387 | 174,284,387 | ||||||||||
|
|
|
|
|
|
|
|||||||
| TOTAL ASSETS |
$ | 174,859,942 | $ | — | $ | 174,859,942 | ||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ EQUITY |
||||||||||||
| Current liabilities |
||||||||||||
| Accounts payable |
$ | 24,597 | $ | — | $ | 24,597 | ||||||
| Payable to related parties |
6,185 | 6,185 | ||||||||||
| Accrued liabilities |
150 | 150 | ||||||||||
|
|
|
|
|
|
|
|||||||
| Total current liabilities |
30,932 | — | 30,932 | |||||||||
| Warrant liability |
516,425 | (A) | 516,425 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total liabilities |
30,932 | 516,425 | 547,357 | |||||||||
|
|
|
|
|
|
|
|||||||
| Common stock subject to possible redemption |
169,829,000 | (516,420 | )(A) | 169,312,580 | ||||||||
| Stockholders’ equity |
||||||||||||
| Preferred stock |
— | — | ||||||||||
| Common stock |
526 | 5 | (A) | 531 | ||||||||
| Additional paid-in capital |
5,238,044 | 400,151 | (A) | 5,638,195 | ||||||||
| Accumulated deficit |
(238,560 | ) | (400,161 | )(A) | (638,721 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total stockholders’ equity |
5,000,010 | (5 | ) | 5,000,005 | ||||||||
|
|
|
|
|
|
|
|||||||
| TOTAL LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ EQUITY |
$ | 174,859,942 | $ | — | $ | 174,859,942 | ||||||
|
|
|
|
|
|
|
|||||||
A reconciliation of the shares of common stock subject to possible redemption outstanding and the shares of common stock outstanding is as follows:
| As Filed | Restatement Adjustment |
As Restated | ||||||||||
| Common stock subject to possible redemption - shares outstanding |
16,982,900 | (51,642 | )(A) | 16,931,258 | ||||||||
|
|
|
|
|
|
|
|||||||
| Common stock - shares issued and outstanding |
5,262,100 | 51,642 | (A) | 5,313,742 | ||||||||
|
|
|
|
|
|
|
|||||||
72
Table of Contents
| June 30, 2019 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| ASSETS |
||||||||||||
| Current assets |
||||||||||||
| Cash |
$ | 2,529,478 | $ | — | $ | 2,529,478 | ||||||
| Prepaid expenses |
176,337 | — | 176,337 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total current assets |
2,705,815 | — | 2,705,815 | |||||||||
| Cash and marketable securities held in Trust Account |
172,718,104 | — | 172,718,104 | |||||||||
|
|
|
|
|
|
|
|||||||
| TOTAL ASSETS |
$ | 175,423,919 | $ | — | $ | 175,423,919 | ||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ EQUITY |
||||||||||||
| Current liabilities |
||||||||||||
| Accounts payable |
$ | 227,986 | $ | — | $ | 227,986 | ||||||
| Accrued liabilities |
7,083 | — | 7,083 | |||||||||
| Other current liabilities |
65,082 | — | 65,082 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total current liabilities |
300,151 | — | 300,151 | |||||||||
| Warrant liability |
— | 105,518 | (A) | 105,518 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total liabilities |
300,151 | 105,518 | 405,669 | |||||||||
|
|
|
|
|
|
|
|||||||
| Common stock subject to possible redemption |
170,123,760 | (105,520 | )(A) | 170,018,240 | ||||||||
| Stockholders’ equity |
||||||||||||
| Preferred stock |
— | — | — | |||||||||
| Common stock |
524 | 1 | (A) | 525 | ||||||||
| Additional paid-in capital |
5,028,286 | (10,745 | )(A) | 5,017,541 | ||||||||
| Accumulated deficit |
(28,802 | ) | 10,746 | (A) | (18,056 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total stockholders’ equity |
5,000,008 | 2 | 5,000,010 | |||||||||
|
|
|
|
|
|
|
|||||||
| TOTAL LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ EQUITY |
$ | 175,423,919 | $ | — | $ | 175,423,919 | ||||||
|
|
|
|
|
|
|
|||||||
A reconciliation of the shares of common stock subject to possible redemption outstanding and the shares of common stock outstanding is as follows:
| As Filed | Restatement Adjustment |
As Restated | ||||||||||
| Common stock subject to possible redemption - shares outstanding |
17,012,376 | (10,552 | )(A) | 17,001,824 | ||||||||
|
|
|
|
|
|
|
|||||||
| Common stock - shares issued and outstanding |
5,237,624 | 10,552 | (A) | 5,248,176 | ||||||||
|
|
|
|
|
|
|
|||||||
73
Table of Contents
| September 30, 2019 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| ASSETS |
||||||||||||
| Current assets |
||||||||||||
| Cash |
$ | 2,035,701 | $ | — | $ | 2,035,701 | ||||||
| Prepaid expenses |
187,100 | — | 187,100 | |||||||||
| Receivable from related party |
30,054 | — | 30,054 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total current assets |
2,252,855 | — | 2,252,855 | |||||||||
| Cash and marketable securities held in Trust Account |
173,580,367 | — | 173,580,367 | |||||||||
| Other non-current assets |
53,368 | — | 53,368 | |||||||||
|
|
|
|
|
|
|
|||||||
| TOTAL ASSETS |
$ | 175,886,590 | $ | — | $ | 175,886,590 | ||||||
|
|
|
|
|
|
|
|||||||
| LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ EQUITY |
||||||||||||
| Current liabilities |
||||||||||||
| Accounts payable |
$ | 289,852 | $ | — | $ | 289,852 | ||||||
| Accrued liabilities |
5,000 | — | 5,000 | |||||||||
| Other current liabilities |
293,362 | — | 293,362 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total current liabilities |
588,214 | — | 588,214 | |||||||||
| Warrant liability |
— | 158,900 | (A) | 158,900 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total liabilities |
588,214 | 158,900 | 747,114 | |||||||||
|
|
|
|
|
|
|
|||||||
| Common stock subject to possible redemption |
170,298,370 | (158,900 | )(A) | 170,139,470 | ||||||||
| Stockholders’ equity |
||||||||||||
| Preferred stock |
— | — | — | |||||||||
| Common stock |
522 | 1 | (A) | 523 | ||||||||
| Additional paid-in capital |
4,768,678 | 42,635 | (A) | 4,811,313 | ||||||||
| Retained earnings |
230,806 | (42,636 | )(A) | 188,170 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total stockholders’ equity |
5,000,006 | — | 5,000,006 | |||||||||
|
|
|
|
|
|
|
|||||||
| TOTAL LIABILITIES, COMMON STOCK SUBJECT TO REDEMPTION AND STOCKHOLDERS’ EQUITY |
$ | 175,886,590 | $ | — | $ | 175,886,590 | ||||||
|
|
|
|
|
|
|
|||||||
| A reconciliation of the shares of common stock subject to possible redemption outstanding and the shares of common stock outstanding is as follows:
|
| |||||||||||
| As Filed | Restatement Adjustment |
As Restated | ||||||||||
| Common stock subject to possible redemption - shares outstanding |
17,029,837 | (15,890 | )(A) | 17,013,947 | ||||||||
|
|
|
|
|
|
|
|||||||
| Common stock - shares issued and outstanding |
5,215,163 | 15,890 | (A) | 5,231,053 | ||||||||
|
|
|
|
|
|
|
|||||||
The following tables contain the restatement of previously reported unaudited condensed statements of operations for the three month period ended March 31, 2020, the three and six month periods ended June 30, 2020, the three and nine month periods ended September 30, 2020, the three and six month periods ended June 30, 2019 and the three and nine month periods ended September 30, 2019.
74
Table of Contents
| Three Months Ended March 31, 2020 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| Revenues |
$ | — | $ | — | $ | — | ||||||
| General and administrative expenses |
600,414 | — | 600,414 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss from operations |
(600,414 | ) | — | (600,414 | ) | |||||||
| Other income |
||||||||||||
| Other income |
— | 5,675 | (A) | 5,675 | ||||||||
| Interest income on cash and marketable securities held in Trust Account |
915,995 | — | 915,995 | |||||||||
|
|
|
|
|
|
|
|||||||
| Income before provision for income taxes |
315,581 | 5,675 | 321,256 | |||||||||
| Provision for income taxes |
238,568 | — | 238,568 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net income and comprehensive income |
$ | 77,013 | $ | 5,675 | $ | 82,688 | ||||||
|
|
|
|
|
|
|
|||||||
| Net loss attributable to common stockholders |
$ | (442,226 | ) | $ | 6,211 | $ | (436,015 | ) | ||||
|
|
|
|
|
|
|
|||||||
| Weighted-average shares of common stock outstanding, basic and diluted |
5,198,305 | 17,874 | 5,216,179 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss per share of common stock, basic and diluted |
$ | (0.09 | ) | $ | 0.01 | $ | (0.08 | ) | ||||
|
|
|
|
|
|
|
|||||||
| Three Months Ended June 30, 2020 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| Revenues |
$ | — | $ | — | $ | — | ||||||
| General and administrative expenses |
385,106 | — | 385,106 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss from operations |
(385,106 | ) | — | (385,106 | ) | |||||||
| Other income (expense) |
||||||||||||
| Other expense |
— | (102,150 | )(A) | (102,150 | ) | |||||||
| Interest income on cash and marketable securities held in Trust Account |
56,038 | — | 56,038 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss before provision for income taxes |
(329,068 | ) | (102,150 | ) | (431,218 | ) | ||||||
| Provision for income taxes |
16,772 | — | 16,722 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss and comprehensive loss |
$ | (345,790 | ) | $ | (102,150 | ) | $ | (447,940 | ) | |||
|
|
|
|
|
|
|
|||||||
| Net loss attributable to common stockholders |
$ | (375,864 | ) | $ | (102,101 | ) | $ | (477,965 | ) | |||
|
|
|
|
|
|
|
|||||||
| Weighted-average shares of common stock outstanding, basic and diluted |
5,212,356 | 22,869 | 5,235,225 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss per share of common stock, basic and diluted |
$ | (0.07 | ) | $ | (0.02 | ) | $ | (0.09 | ) | |||
|
|
|
|
|
|
|
|||||||
| Three Months Ended September 30, 2020 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| Revenues |
$ | — | $ | — | $ | — | ||||||
| General and administrative expenses |
361,005 | — | 361,005 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss from operations |
(361,005 | ) | — | (361,005 | ) | |||||||
| Other income (expense) |
||||||||||||
| Other expense |
— | (238,350 | )(A) | (238,350 | ) | |||||||
| Interest income on cash and marketable securities held in Trust Account |
44,890 | — | 44,890 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss before provision for income taxes |
(316,115 | ) | (238,350 | ) | (554,465 | ) | ||||||
| Provision for income taxes |
14,119 | — | 14,119 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss and comprehensive loss |
$ | (330,234 | ) | $ | (238,350 | ) | $ | (568,584 | ) | |||
|
|
|
|
|
|
|
|||||||
| Net loss attributable to common stockholders |
$ | (353,726 | ) | $ | (238,279 | ) | $ | (592,005 | ) | |||
|
|
|
|
|
|
|
|||||||
| Weighted-average shares of common stock outstanding, basic and diluted |
5,245,947 | 39,984 | 5,285,931 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss per share of common stock, basic and diluted |
$ | (0.07 | ) | $ | (0.04 | ) | $ | (0.11 | ) | |||
|
|
|
|
|
|
|
|||||||
75
Table of Contents
| Six Months Ended June 30, 2020 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| Revenues |
$ | — | $ | — | $ | — | ||||||
| General and administrative expenses |
985,520 | — | 985,520 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss from operations |
(985,520 | ) | — | (985,520 | ) | |||||||
| Other income (expense) |
||||||||||||
| Other expense |
— | (96,475 | )(A) | (96,475 | ) | |||||||
| Interest income on cash and marketable securities held in Trust Account |
972,033 | — | 972,033 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss before provision for income taxes |
(13,487 | ) | (96,475 | ) | (109,962 | ) | ||||||
| Provision for income taxes |
255,290 | — | 255,290 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss and comprehensive loss |
$ | (268,777 | ) | $ | (96,475 | ) | $ | (365,252 | ) | |||
|
|
|
|
|
|
|
|||||||
| Net loss attributable to common stockholders |
$ | (817,037 | ) | $ | (95,579 | ) | $ | (912,616 | ) | |||
|
|
|
|
|
|
|
|||||||
| Weighted-average shares of common stock outstanding, basic and diluted |
5,205,331 | 20,371 | 5,225,702 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss per share of common stock, basic and diluted |
$ | (0.16 | ) | $ | (0.01 | ) | $ | (0.17 | ) | |||
|
|
|
|
|
|
|
|||||||
| Nine Months Ended September 30, 2020 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| Revenues |
$ | — | $ | — | $ | — | ||||||
| General and administrative expenses |
1,346,525 | — | 1,346,525 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss from operations |
(1,346,525 | ) | — | (1,346,525 | ) | |||||||
| Other income (expense) |
||||||||||||
| Other expense |
— | (334,825 | )(A) | (334,825 | ) | |||||||
| Interest income on cash and marketable securities held in Trust Account |
1,016,923 | — | 1,016,923 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss before provision for income taxes |
(329,602 | ) | (334,825 | ) | (664,427 | ) | ||||||
| Provision for income taxes |
269,409 | — | 269,409 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss and comprehensive loss |
$ | (599,011 | ) | $ | (334,825 | ) | $ | (933,836 | ) | |||
|
|
|
|
|
|
|
|||||||
| Net loss attributable to common stockholders |
$ | (1,169,699 | ) | $ | (333,090 | ) | $ | (1,502,789 | ) | |||
|
|
|
|
|
|
|
|||||||
| Weighted-average shares of common stock outstanding, basic and diluted |
5,218,968 | 26,957 | 5,245,925 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss per share of common stock, basic and diluted |
$ | (0.22 | ) | $ | (0.07 | ) | $ | (0.29 | ) | |||
|
|
|
|
|
|
|
|||||||
76
Table of Contents
| Three Months Ended June 30, 2019 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| Revenues |
$ | — | $ | — | $ | — | ||||||
| General and administrative expenses |
146,624 | — | 146,624 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss from operations |
(146,624) | — | (146,624) | |||||||||
| Other income |
||||||||||||
| Other income |
— | 10,746 | (A) | 10,746 | ||||||||
| Interest income on cash and marketable securities held in Trust Account |
218,104 | — | 218,104 | |||||||||
|
|
|
|
|
|
|
|||||||
| Income before provision for income taxes |
71,480 | 10,746 | 82,226 | |||||||||
| Provision for income taxes |
65,082 | — | 65,082 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net income and comprehensive income |
$ | 6,398 | $ | 10,746 | $ | 17,144 | ||||||
|
|
|
|
|
|
|
|||||||
| Net loss attributable to common stockholders |
$ | (110,603) | $ | 10,819 | $ | (99,784) | ||||||
|
|
|
|
|
|
|
|||||||
| Weighted-average shares of common stock outstanding, basic and diluted |
4,510,025 | 2,087 | 4,512,112 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss per share of common stock, basic and diluted |
$ | (0.02) | $ | — | $ | (0.02) | ||||||
|
|
|
|
|
|||||||||
| Three Months Ended September 30, 2019 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| Revenues |
$ | — | $ | — | $ | — | ||||||
| General and administrative expenses |
395,583 | — | 395,583 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss from operations |
(395,583) | — | (395,583) | |||||||||
| Other income (expense) |
||||||||||||
| Other expense |
— | (53,382 | )(A) | (53,382) | ||||||||
| Interest income on cash and marketable securities held in Trust Account |
933,853 | — | 933,853 | |||||||||
|
|
|
|
|
|
|
|||||||
| Income before provision for income taxes |
538,270 | (53,382) | 484,888 | |||||||||
| Provision for income taxes |
278,662 | — | 278,662 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net income and comprehensive income |
$ | 259,608 | $ | (53,382) | $ | 206,226 | ||||||
|
|
|
|
|
|
|
|||||||
| Net loss attributable to common stockholders |
$ | (241,866) | $ | (53,027) | $ | (294,893) | ||||||
|
|
|
|
|
|
|
|||||||
| Weighted-average shares of common stock outstanding, basic and diluted |
5,223,704 | 13,279 | 5,236,983 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss per share of common stock, basic and diluted |
$ | (0.05) | $ | (0.01) | $ | (0.06) | ||||||
|
|
|
|
|
|
|
|||||||
77
Table of Contents
| Period from March 6, 2019 (Date of Inception) through June 30, 2019 |
||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| Revenues |
$ | — | $ | — | $ | — | ||||||
| General and administrative expenses |
181,824 | — | 181,824 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss from operations |
(181,824 | ) | — | (181,824 | ) | |||||||
| Other income |
||||||||||||
| Other income |
— | 10,746 | (A) | 10,746 | ||||||||
| Interest income on cash and marketable securities held in Trust Account |
218,104 | — | 218,104 | |||||||||
|
|
|
|
|
|
|
|||||||
| Income before provision for income taxes |
36,280 | 10,746 | 47,026 | |||||||||
| Provision for income taxes |
65,082 | — | 65,082 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss and comprehensive loss |
$ | (28,802 | ) | $ | 10,746 | $ | (18,056 | ) | ||||
|
|
|
|
|
|
|
|||||||
| Net loss attributable to common stockholders |
$ | (145,803 | ) | $ | 10,819 | $ | (134,984 | ) | ||||
|
|
|
|
|
|
|
|||||||
| Weighted-average shares of common stock outstanding, basic and diluted |
4,244,122 | 1,623 | 4,245,745 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss per share of common stock, basic and diluted |
$ | (0.03 | ) | $ | — | $ | (0.03 | ) | ||||
|
|
|
|
|
|
|
|||||||
| Period from March 6, 2019 (Date of Inception) through September 30, 2019 |
||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| Revenues |
$ | — | $ | — | $ | — | ||||||
| General and administrative expenses |
577,407 | — | 577,407 | |||||||||
|
|
|
|
|
|
|
|||||||
| Loss from operations |
(577,407 | ) | — | (577,407 | ) | |||||||
| Other income (expense) |
||||||||||||
| Other expense |
— | (42,636 | )(A) | (42,636 | ) | |||||||
| Interest income on cash and marketable securities held in Trust Account |
1,151,957 | — | 1,151,957 | |||||||||
|
|
|
|
|
|
|
|||||||
| Income before provision for income taxes |
574,550 | (42,636 | ) | 531,914 | ||||||||
| Provision for income taxes |
343,744 | — | 343,744 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net income and comprehensive income |
$ | 230,806 | $ | (42,636 | ) | $ | 188,170 | |||||
|
|
|
|
|
|
|
|||||||
| Net loss attributable to common stockholders |
$ | (387,789 | ) | $ | (42,198 | ) | $ | (429,987 | ) | |||
|
|
|
|
|
|
|
|||||||
| Weighted-average shares of common stock outstanding, basic and diluted |
4,675,325 | 6,754 | 4,682,079 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net loss per share of common stock, basic and diluted |
$ | (0.08 | ) | $ | (0.01 | ) | $ | (0.09 | ) | |||
|
|
|
|
|
|
|
|||||||
The following tables contain the restatement of previously reported unaudited condensed statements of cash flows for the three month period ended March 31, 2020, the six month period ended June 30, 2020, the nine month period ended September 30, 2020, the period from March 6, 2019 (date of inception) through June 30, 2019 and the period from March 6, 2019 (date of inception) through September 30, 2019.
| Three Months Ended March 31, 2020 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| OPERATING ACTIVITIES |
||||||||||||
| Net income |
$ | 77,013 | $ | 5,675 | (A) | $ | 82,688 | |||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||||||
| Interest earned on cash and marketable securities held in Trust Account |
(915,995 | ) | — | (915,995 | ) | |||||||
| Change in fair value of warrant liability |
— | (5,675 | )(A) | (5,675 | ) | |||||||
| Change in operating assets and liabilities: |
||||||||||||
| Prepaid expenses |
5,138 | — | 5,138 | |||||||||
| Receivable from related party |
(200 | ) | — | (200 | ) | |||||||
| Other non-current assets |
20,001 | — | 20,001 | |||||||||
| Accounts payable |
8,701 | — | 8,701 | |||||||||
| Payable to related parties |
(4,922 | ) | — | (4,922 | ) | |||||||
| Accrued liabilities |
24,269 | — | 24,269 | |||||||||
| Other current liabilities |
238,568 | — | 238,568 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net cash used in operating activities |
(547,427 | ) | — | (547,427 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| INVESTING ACTIVITIES |
||||||||||||
| Cash withdrawn from Trust Account |
164,932 | — | 164,932 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net cash provided by investing activities |
164,932 | — | 164,932 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net change in cash during period |
(382,495 | ) | — | (382,495 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Cash, beginning of period |
1,576,508 | — | 1,576,508 | |||||||||
|
|
|
|
|
|
|
|||||||
| Cash, end of period |
$ | 1,194,013 | $ | — | $ | 1,194,013 | ||||||
|
|
|
|
|
|
|
|||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES |
||||||||||||
| Offering costs included in accounts payable and accrued liabilities |
$ | 108,220 | $ | — | $ | 108,220 | ||||||
|
|
|
|
|
|
|
|||||||
| Change in value of common stock subject to possible redemption |
$ | 77,010 | $ | 5,670 | (A) | $ | 82,680 | |||||
|
|
|
|
|
|
|
|||||||
78
Table of Contents
| Six Months Ended June 30, 2020 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| OPERATING ACTIVITIES |
||||||||||||
| Net loss |
$ | (268,777 | ) | $ | (96,475 | )(A) | $ | (365,252 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
| Interest earned on cash and marketable securities held in Trust Account |
(972,033 | ) | — | (972,033 | ) | |||||||
| Change in fair value of warrant liability |
— | 96,475 | (A) | 96,475 | ||||||||
| Change in operating assets and liabilities: |
||||||||||||
| Prepaid expenses |
46,297 | — | 46,297 | |||||||||
| Receivable from related parties |
(4,318 | ) | — | (4,318 | ) | |||||||
| Other non-current assets |
33,327 | — | 33,327 | |||||||||
| Accounts payable |
(6,513 | ) | — | (6,513 | ) | |||||||
| Payable to related parties |
(7,757 | ) | — | (7,757 | ) | |||||||
| Other current liabilities |
255,290 | — | 255,290 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net cash used in operating activities |
(924,484 | ) | — | (924,484 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| INVESTING ACTIVITIES |
||||||||||||
| Cash withdrawn from Trust Account |
231,894 | — | 231,894 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net cash provided by investing activities |
231,894 | — | 231,894 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net change in cash during period |
(692,590 | ) | — | (692,590 | ) | |||||||
| Cash, beginning of period |
1,576,508 | — | 1,576,508 | |||||||||
|
|
|
|
|
|
|
|||||||
| Cash, end of period |
$ | 883,918 | $ | — | $ | 883,918 | ||||||
|
|
|
|
|
|
|
|||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES |
||||||||||||
| Change in value of common stock subject to possible redemption |
$ | (268,780 | ) | $ | (96,480 | )(A) | $ | (365,260 | ) | |||
|
|
|
|
|
|
|
|||||||
| Nine Months Ended September 30, 2020 | ||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| OPERATING ACTIVITIES |
||||||||||||
| Net loss |
$ | (599,011 | ) | $ | (334,825 | )(A) | $ | (933,836 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
| Interest earned on cash and marketable securities held in Trust Account |
(1,016,923 | ) | — | (1,016,923 | ) | |||||||
| Change in fair value of warrant liability |
— | 334,825 | (A) | 334,825 | ||||||||
| Change in operating assets and liabilities: |
||||||||||||
| Prepaid expenses |
(16,438 | ) | — | (16,438 | ) | |||||||
| Receivable from related parties |
(8,126 | ) | — | (8,126 | ) | |||||||
| Other non-current assets |
33,327 | — | 33,327 | |||||||||
| Accounts payable |
(118,016 | ) | — | (118,016 | ) | |||||||
| Payable to related parties |
(10,464 | ) | — | (10,464 | ) | |||||||
| Accrued liabilities |
150 | — | 150 | |||||||||
| Other current liabilities |
(180,696 | ) | — | (180,696 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net cash used in operating activities |
(1,916,197 | ) | — | (1,916,197 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| INVESTING ACTIVITIES |
||||||||||||
| Cash withdrawn from Trust Account |
727,119 | — | 727,119 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net cash provided by investing activities |
727,119 | — | 727,119 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net change in cash during period |
(1,189,078 | ) | — | (1,189,078 | ) | |||||||
| Cash, beginning of period |
1,576,508 | — | 1,576,508 | |||||||||
|
|
|
|
|
|
|
|||||||
| Cash, end of period |
$ | 387,430 | $ | — | $ | 387,430 | ||||||
|
|
|
|
|
|
|
|||||||
| SUPPLEMENTAL DISCLOSURE |
||||||||||||
| Cash paid for income taxes |
$ | 462,238 | $ | — | $ | 462,238 | ||||||
|
|
|
|
|
|
|
|||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES |
||||||||||||
| Change in value of common stock subject to possible redemption |
$ | (599,020 | ) | $ | (334,820 | )(A) | $ | (933,840 | ) | |||
|
|
|
|
|
|
|
|||||||
79
Table of Contents
| Period from March 6, 2019 (Date of Inception) through June 30,2019 |
||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| OPERATING ACTIVITIES |
||||||||||||
| Net loss |
$ | (28,802 | ) | $ | 10,746 | (A) | $ | (18,056 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
| Interest earned on cash and marketable securities held in Trust Account |
(218,104 | ) | — | (218,104 | ) | |||||||
| Change in fair value of warrant liability |
— | (10,746 | )(A) | (10,746 | ) | |||||||
| Change in operating assets and liabilities: |
||||||||||||
| Prepaid expenses |
(176,337 | ) | — | (176,337 | ) | |||||||
| Accounts payable |
70,695 | — | 70,695 | |||||||||
| Accrued liabilities |
7,083 | — | 7,083 | |||||||||
| Other current liabilities |
65,082 | — | 65,082 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net cash used in operating activities |
(280,383 | ) | — | (280,383 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| INVESTING ACTIVITIES |
||||||||||||
| Investment of cash in Trust Account |
(172,500,000 | ) | — | (172,500,000 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net cash used in investing activities |
(172,500,000 | ) | — | (172,500,000 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| FINANCING ACTIVITIES |
||||||||||||
| Proceeds from sale of common stock to Founders |
25,000 | — | 25,000 | |||||||||
| Borrowing from related party |
99,937 | — | 99,937 | |||||||||
| Repayment of borrowing from related party |
(99,937 | ) | — | (99,937 | ) | |||||||
| Proceeds from sale of Private Placements Units |
5,675,000 | — | 5,675,000 | |||||||||
| Proceeds from sale of common stock to underwriters |
1,200,000 | — | 1,200,000 | |||||||||
| Proceeds from sale of Units, net of underwriting discounts paid |
169,050,000 | — | 169,050,000 | |||||||||
| Payment of offering costs |
(640,139 | ) | — | (640,139 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net cash provided by financing activities |
175,309,861 | — | 175,309,861 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net change in cash during period |
2,529,478 | — | 2,529,478 | |||||||||
| Cash, beginning of period |
— | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Cash end of period |
$ | 2,529,478 | $ | — | $ | 2,529,478 | ||||||
|
|
|
|
|
|
|
|||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES |
||||||||||||
| Offering costs included in accounts payable |
$ | 157,291 | $ | — | $ | 157,291 | ||||||
|
|
|
|
|
|
|
|||||||
| Change in value of common stock subject to possible redemption |
$ | 1,956,190 | $ | 10,744 | (A) | $ | 1,966,934 | |||||
|
|
|
|
|
|
|
|||||||
| Fair value of warrant liability |
$ | — | $ | 116,264 | (A) | $ | 116,264 | |||||
|
|
|
|
|
|
|
|||||||
80
Table of Contents
| Period from March 6, 2019 (Date of Inception) through September 30,2019 |
||||||||||||
| As Filed | Restatement Adjustments |
As Restated | ||||||||||
| OPERATING ACTIVITIES |
||||||||||||
| Net income |
$ | 230,806 | $ | (42,636 | )(A) | $ | 188,170 | |||||
| Adjustments to reconcile income to net cash used in operating activities: |
||||||||||||
| Interest earned on cash and marketable securities held in Trust Account |
(1,151,957 | ) | — | (1,151,957 | ) | |||||||
| Change in fair value of warrant liability |
— | 42,636 | (A) | 42,636 | ||||||||
| Change in operating assets and liabilities: |
||||||||||||
| Prepaid expenses |
(187,100 | ) | — | (187,100 | ) | |||||||
| Receivable from related party |
(30,054 | ) | — | (30,054 | ) | |||||||
| Other non-current assets |
(53,368 | ) | — | (53,368 | ) | |||||||
| Accounts payable |
96,632 | — | 96,632 | |||||||||
| Accrued liabilities |
5,000 | — | 5,000 | |||||||||
| Other current liabilities |
293,362 | — | 293,362 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net cash used in operating activities |
(796,679 | ) | — | (796,679 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| INVESTING ACTIVITIES |
||||||||||||
| Investment of cash in Trust Account, net |
(172,500,000 | ) | — | (172,500,000 | ) | |||||||
| Cash withdrawn from Trust Account |
71,590 | — | 71,590 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net cash used in investing activities |
(172,428,410 | ) | — | (172,428,410 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| FINANCING ACTIVITIES |
||||||||||||
| Proceeds from sale of common stock to Founders |
25,000 | — | 25,000 | |||||||||
| Borrowing from related party |
99,937 | — | 99,937 | |||||||||
| Repayment of borrowing from related party |
(99,937 | ) | — | (99,937 | ) | |||||||
| Proceeds from sale of Private Placements Units |
5,675,000 | — | 5,675,000 | |||||||||
| Proceeds from sale of common stock to underwriters |
1,200,000 | — | 1,200,000 | |||||||||
| Proceeds from sale of Units, net of underwriting discounts paid |
169,050,000 | — | 169,050,000 | |||||||||
| Payment of offering costs |
(689,210 | ) | — | (689,210 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net cash provided by financing activities |
175,260,790 | — | 175,260,790 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net change in cash during period |
2,035,701 | — | 2,035,701 | |||||||||
| Cash, beginning of period |
— | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Cash, end of period |
$ | 2,035,701 | $ | — | $ | 2,035,701 | ||||||
|
|
|
|
|
|
|
|||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES |
||||||||||||
| Offering costs included in accounts payable |
$ | 193,220 | $ | — | $ | 193,220 | ||||||
|
|
|
|
|
|
|
|||||||
| Change in value of common stock subject to possible redemption |
$ | 2,130,800 | $ | (42,636 | )(A) | $ | 2,088,164 | |||||
|
|
|
|
|
|
|
|||||||
| Fair value of warrant liability |
$ | — | $ | 116,264 | (A) | $ | 116,264 | |||||
|
|
|
|
|
|
|
|||||||
| A – | The Restatement Adjustments reflect the entries to record the initial warrant liability from the Warrants issued as part of the Private Placement Units and to revalue the warrant liability to the then fair value at the end of each period presented. The initial fair value of the Warrants issued as part of the Private Placement Units of $116,264 was recorded in June 2019 as a warrant liability with an offset to additional paid-in capital. Each subsequent quarter end, starting with June 30, 2019, the warrant liability was adjusted to fair value and the difference is reflected in other income (expense) in the statement of operations and comprehensive income (loss). In addition, each period presented has an adjustment to the common stock subject to possible redemption to ensure that the Company maintains the required net tangible assets of at least $5,000,001. |
81
Table of Contents
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2020. On April 1, 2021, we filed our original Annual Report on Form 10-K for the year ended December 31, 2020 (the “Original Report”). Based upon their evaluation at that earlier time, our Chief Executive Officer and Chief Financial Officer had concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective. Subsequently, and as a result of the material weakness in our internal control over financial reporting as described below, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2020 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in rules and forms of the SEC.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 based upon the framework in “Internal Control – Integrated Framework” (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. On April 1, 2021, we filed the Original Report. At that time, our Chief Executive Officer and our Chief Financial Officer had performed an evaluation and concluded that our internal control over financial reporting was effective as of December 31, 2020. Subsequent to performing that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that we did not maintain effective internal control over financial reporting as of December 31, 2020, due to a material weakness in our internal control over financial reporting, described below, related to mistakes in our accounting for warrants issued in connection with our private placement. Notwithstanding this material weakness, management has concluded that our audited financial statements included in this Annual Report on Amended Form 10-K/A are fairly stated in all material respects in accordance with GAAP for each of the periods presented herein.
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Our internal control over financial reporting did not result in the proper classification of certain of the warrants we issued in June 2019 which, due to its impact on our financial statements, we determined to be a material weakness. This mistake in classification was brought to our attention only when the SEC issued a Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) dated April 12, 2021 (the “SEC Staff Statement”). The SEC Staff Statement addresses certain accounting and reporting considerations related to warrants of a kind similar to those we issued at the time of our initial public offering in June 2019. In response to this material weakness, the Company’s management has expended, and will continue to expend, a substantial amount of effort and resources for the remediation and improvement of our internal control over financial reporting. While we have processes to properly identify and evaluate the appropriate accounting technical pronouncements and other literature for all significant or unusual transactions, we are improving these processes to ensure that the nuances of such transactions are effectively evaluated in the context of the increasingly complex accounting standards. Our plans at this time include acquiring enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding the application of complex accounting transactions. In addition, we are expecting to consummate the Business Combinations in the near term, and as a result, make changes to the individuals who are part of the finance function at the Company. Our remediation plan can only be accomplished over time and will be continually reviewed to determine that it is achieving its objectives. We can offer no assurance that these initiatives will ultimately have the intended effects.
Changes in Internal Control over Financial Reporting
During the period from October 1, 2020 through December 31, 2020, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
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Item 10. Directors, Executive Officers and Corporate Governance.
Our directors and executive officers as of December 31, 2020 are listed below.
| Name |
Age | Position | ||||
| Dr. Raluca Dinu |
47 | President and Chief Executive Officer | ||||
| Brad Weightman |
66 | Vice President and Chief Financial Officer | ||||
| Avi S. Katz |
62 | Executive Chairman of the Board and Secretary | ||||
| Neil Miotto |
74 | Director | ||||
| John Mikulsky |
75 | Director | ||||
| Gil Frostig |
62 | Director | ||||
Dr. Raluca Dinu joined our Board of Directors in March 2019 and has served as our President and Chief Executive Officer since August of 2019. She has also served as a director of GigCapital3, Inc. since February 2020 and as a member of the board of directors, President, Chief Executive Officer and Secretary of GIG4 since its inception in December 2020. In January 2021, Drs. Katz and Dinu co-founded GIG5 and GIG6, and Dr. Dinu serves as the Chief Executive Officer, President and Secretary of GIG5, as well as on its board of directors, and as the Executive Chairman of the board of directors, Chief Executive Officer, President, and Secretary of GIG6. Dr. Dinu is also a managing member of GigManagement, LLC. From April 2017 to May 2019, Dr. Dinu was the Vice President and General Manager of IDT’s Optical Interconnects Division. Prior to that, she held several executive-level positions at GigPeak, including Executive Vice President and Chief Operation Officer from April 2016 until it was acquired by IDT in April 2017, and before that, as its Executive Vice President of Global Sales and Marketing from August 2015 to April 2016, and as its Senior Vice President of Global Sales and Marketing from December 2014 to August 2015. From February 2014 to September 2017, Dr. Dinu was a member of the board of directors of Brazil-Photonics, in Campinas, Brazil, a joint venture that GigPeak established with the Centro de Pesquisa e Desenvolvimento em Telecomunicações (CPqD). From 2001 to 2008, Dr. Dinu was VP of Engineering at Lumera Corporation (“Lumera”) (Nasdaq: LMRA). Lumera was acquired by GigPeak in 2008, and Dr. Dinu joined GigPeak at that time. Dr. Dinu holds a B.Sc. in Physics and Ph.D. in Solid State Condensed Matter Physics from the University of Bucharest, and an Executive-M.B.A. from Stanford University. Dr. Dinu is married to Dr. Katz, our Executive Chairman of our board of directors, Chief Executive Officer, President and Secretary.
Brad Weightman has served as our Chief Financial Officer since August 2019. Mr. Weightman has more than 30 years of global finance and accounting experience with a combination of large, mid-sized, and small public and private companies in the semiconductor, internet of things, hardware and software industries. Mr. Weightman has been the Chief Financial Officer of GIG3 since February 2020, the Chief Financial Officer of GIG4 since December 2020 and the Chief Financial Officer of GIG5 and GIG6 since January 2021, and was also the Chief Financial Officer of GIG1 from that time until the closing of its business combination with Kaleyra, Inc. on November 25, 2019. Before then, beginning in April 2017, Mr. Weightman was Senior Business Controller at IDT, providing strategic and financial support for the General Manager and the division, prior to IDTI being acquired by Renesas Electronics Corp (TSE 6723:JP) in April 2019. Prior to GigPeak being acquired by IDT in April 2017, Mr. Weightman was Corporate Controller at GigPeak from September 2015 to April 2017. Before joining GigPeak, Mr. Weightman was self-employed as a financial consultant in 2015. Additionally, Mr. Weightman has held various finance and accounting positions at Echelon Corporation, an early developer of the internet of things market, supporting company growth from early stages to a mid-sized public company, as well as large corporations such as Advanced Micro Devices, Inc. and Xerox Holdings Corporation. Mr. Weightman received a Bachelor of Science degree in Accounting from San Jose State University, and is a Certified Public Accountant in California (inactive).
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Dr. Avi S. Katz has served as our Executive Chairman of our Board of Directors since March 2019, and from that time until August 2019, was also our Chief Executive Officer, President and Secretary. In March 2019, Dr. Katz founded the Company. The Company completed its initial public offering in June 2019, in which it sold 17,250,000 units at a per unit price of $10.00, with each unit consisting of one share of our Common Stock, one warrant to purchase one share of our Common Stock, and one right to receive one-twentieth (1/20) of one share of our Common Stock, generating aggregate proceeds of $172,500,000. On November 23, 2020, GigCapital2 announced that it had executed business combination agreements with each of UpHealth Holdings, Inc. and Cloudbreak Health, LLC. The deal combines UpHealth’s patient care management, telemedicine and digital pharmacy services with Cloudbreak’s video consultation platform for doctors and patients, and is expected to close in the first half of 2021. Upon the closing of the transaction, the combined company will be named UpHealth, Inc. and will continue to be listed on the NYSE under the new ticker symbol “UPH.” Dr. Katz has spent approximately 33 years in international executive positions within the TMT industry working for privately held start-ups, middle-cap companies and large enterprises. In these roles, Dr. Katz has been instrumental in launching and accelerating entities, building teams, large scale fund-raising, developing key alliances and technology partnerships, M&A activities, business development, financial management, global operations and sales and marketing. In October 2017, Dr. Katz founded GigCapital, Inc. (“GIG1”, now known as Kaleyra, Inc. (“Kaleyra”)), a Private-to-Public Equity (PPE) company formed for the purpose of acquiring a company in the technology industry. GIG1 completed its initial public offering in December 2017, in which it sold 14,375,000 units at price of $10.00 per unit, with each unit consisting of one share of GIG1 common stock, three-fourths of one warrant to purchase one share of GIG1 common stock and one right to receive one-tenth of one share of GIG1 common stock, generating aggregate proceeds of $143,750,000, and, at that time, was listed on the NYSE under the symbol “GIG.” On February 22, 2019, after intensive screening of more than 400 companies worldwide, GIG1 entered into a stock purchase agreement to acquire Kaleyra at a transaction enterprise value of $187 million with combined cash and/or promissory note consideration of $15 million. Kaleyra is a global company specialized in providing mobile messaging services for financial institutions and companies of all sizes. The transaction closed on November 25, 2019, and GIG1 was renamed Kaleyra, Inc. and listed on the NYSE American stock exchange under the symbol “KLR” at that time. Dr. Katz has served as the Executive Chairman and Secretary of Kaleyra, Inc. since the consummation of the transaction in November 2019. Prior to that time, in addition to being the Executive Chairman and Secretary, he was also the Chief Executive Officer of GIG1. In February 2020, Dr. Katz and Dr. Dinu co-founded GigCapital3, another PPE company formed for the purpose of acquiring a company in the TMT industry. GigCapital3 completed its initial public offering in May 2020, in which it sold 20,000,000 units at a per unit price of $10.00, with each unit consisting of one share of GigCapital3’s common stock and three-fourths (3/4) of one warrant to purchase one share of GIG3 common stock, generating aggregate proceeds of $200,000,000. GigCapital3 is listed on the NYSE under the symbol “GIK.” On December 10, 2020, GigCapital3 announced that it had executed a business combination agreement with Lightning Systems, Inc., a company that designs and manufactures all-electric powertrains for medium- and heavy-duty vehicles, which does business as Lightning eMotors, and the combined company will retain such name. The deal is expected to close in the first half of 2021. Dr. Katz serves as the Chief Executive Officer, Executive Chairman and Secretary of GigCapital3. In December 2020, Drs. Katz and Dinu co-founded GigCapital4, Inc. (“GIG4”), a PPE company formed for the purpose of acquiring a company in the TMT and sustainable industries. GIG4 completed its initial public offering in February 2021, in which it sold 35,880,000 units at a per unit price of $10.00, with each unit consisting of one share of GIG4 common stock and one-third (1/3) of one warrant to purchase one share of GIG4 common stock, generating aggregate proceeds of $358,800,000. GIG4 is listed on Nasdaq under the symbol “GIG.” GIG4 is engaged in intensive efforts of searching and screening companies worldwide and has not yet completed its initial business combination. Dr. Katz has served as the Executive Chairman of GIG4 since its inception. In January 2021, Drs. Katz and Dinu co-founded GigCapital5, Inc. (“GIG5”), another company formed for the purpose of acquiring a company in the TMT, A&D, intelligent automation and sustainable industries, which is expected to complete its initial public offering in April 2021. GIG5 is expected to apply for listing on the NYSE under the symbol “GIA.” Dr. Katz has served as the Executive Chairman of GIG5 since its inception. In January 2021, Drs. Katz and Dinu also co-founded GigCapital6, Inc. (“GIG6”), another PPE company formed for the purpose of acquiring a company in the TMT, cybersecurity and privacy industries, which is expected to complete its initial public offering in April 2021. GIG6 is expected to apply for listing on Nasdaq under the symbol “GIF.” Dr. Katz has been a director of GIG6 since its inception. Dr. Katz is also the sole managing member of GigFounders, LLC and a managing member of GigManagement, LLC. He was also the co-founder of Cognizer, a software company specializing in deep-learning powered natural language artificial intelligence, and was the Executive Chairman of Cognizer’s board of directors from its inception in December 2018 until August 2020. Prior to GIG1 and GIG2, Dr. Katz dedicated 10 years to bootstrap, develop and manage GigPeak (NYSE American: formerly GIG), originally known as GigOptix, Inc. He served as Chairman of the Board, Chief Executive Officer and President of GigPeak. From its inception in 2007, which occurred through the acquisition of assets valued at less than $1 million, until its sale in April 2017 to IDT for $250 million in cash, GigPeak provided semiconductor integrated circuits (ICs) and software solutions for high-speed connectivity and video compression. While Dr. Katz was at GigPeak’s helm, the company completed 10 M&A deals. From 2003 to 2005, Dr. Katz was the chief executive officer, president, and member of the board of directors of Intransa, Inc., which at the time provided full-featured, enterprise-class IP-based Storage Area Networks (SAN). From 2000 to 2003, Dr. Katz was the Chief Executive Officer and a member of the board of directors of Equator Technologies, which at the time sought to commercialize leading edge programmable media processing platform technology for the rapid design and deployment of digital media and imaging products. Equator Technologies was sold to Pixelworks, Inc. for $110 million in 2005. Dr. Katz has held several leadership positions over the span of his career within the technology industry since serving as Member of Technical Staff at AT&T Bell Laboratories in the 1980s, and has made numerous angel investments in high-tech companies around the world. Dr. Katz is a graduate of the Israeli Naval Academy and holds a B.Sc. and Ph.D. in Semiconductors Materials from the Technion (Israel Institute of Technology). He is a serial entrepreneur, holds many U.S. and international patents, has published many technical papers and is the editor of a number of technical books. Dr. Katz is married to Dr. Dinu, one of our directors, and our President and Chief Executive Officer.
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Neil Miotto joined the Board of Directors in March 2019. Mr. Miotto is a financial consultant and a retired assurance partner of KPMG LLP (“KPMG”), where he was a partner for 27 years until his retirement in September 2006. Since his retirement from KPMG, Mr. Miotto has provided high-level financial consulting services to companies in need of timely accounting assistance and has served on public company boards. He is deemed to be a “audit committee financial expert” under SEC rules. While at KPMG, Mr. Miotto focused on serving large public companies. Mr. Miotto also served as an SEC reviewing partner while at KPMG. Mr. Miotto became a member of the board of directors of GIG1 in October 2017 and has continued in that role after that company became Kaleyra, Inc. Mr. Miotto has also served on the board of directors of GIG3 since February 2020, and the board of directors of GIG4 since December 2020 and GIG5 since January 2021. In addition, Mr. Miotto served on the board of directors of Micrel, Inc. prior to its sale to Microchip Technology Inc. in May 2015, and on the board of directors of GigPeak from 2008 until its sale to IDT in April 2017. He also previously served on the board of directors of Cognizer from March 2019 to August 2020. He is a member of the American Institute of Certified Public Accountants and holds a Bachelor of Business Administration degree from Baruch College of The City University of New York.
John J. Mikulsky joined the Board of Directors as an independent director in March 2019. Mr. Mikulsky became a member of the board of directors of GIG1 since December 2017 and has continued in that role after the company became Kaleyra, Inc. He joined the board of directors of Gig3 in February 2020. Mr. Mikulsky served as the board of directors of Cognizer from March 2019 to August 2020. Mr. Mikulsky served as the Chief Executive Officer of Traycer Diagnostic Systems, Inc. from August 2016 to December 2017, and as a director, from October 2014 to December 2017. He previously served as President and Chief Executive Officer of Endwave Corporation (Nasdaq: ENWV) from December 2009 until June 2011, when Endwave Corporation was acquired by GigPeak; subsequent to such acquisition, he served on the board of directors of GigPeak from June 2011 until its sale IDT in April 2017. From May 1996 until November 2009, Mr. Mikulsky served Endwave Corporation in a multitude of capacities including Vice President of Product Development, Vice President of Marketing and Business Development and Chief Operating Officer. Prior to Endwave Corporation, Mr. Mikulsky worked as a Technology Manager for Balazs Analytical Laboratory, a provider of analytical services to the semiconductor and disk drive industries, from 1993 until 1996. Prior to 1993, Mr. Mikulsky worked at Raychem Corporation, most recently as a Division Manager for its Electronic Systems Division. Mr. Mikulsky holds a B.S. in electrical engineering from Marquette University, an M.S. in electrical engineering from Stanford University and an S.M. in Management from the Sloan School at the Massachusetts Institute of Technology.
Gil Frostig joined the Board of Directors as an independent director in March 2019. Mr. Frostig is a member of J-Angels Investment Group and also acts as an independent investor and adviser to start-up companies. Since 2018, he has served on the Technology Advisory Council for Benhamou Global Ventures. From 2013 to 2018, Mr. Frostig served as the Vice President of Engineering at Qualcomm Corporation, where he was in charge of Bluetooth and NFC Si components development, and part of the executive team of its WiFi product line, capturing the number one market share position for Access Points and Clients in enterprise and in retail. From 1983 to 2013, Mr. Frostig served as Vice President and General Manager at Intel Corp. (“Intel”). While at Intel, he managed all of the Ethernet (LAN) developments and products for client and server solutions, capturing the number one market share position in 1 Gbps Ethernet. Mr. Frostig led Intel’s foray into WiFi by developing and providing the WiFi solution for Intel’s Centrino platform, which started the global success of WiFi in general. Mr. Frostig received his B.Sc. in Electrical Engineering from the Technion, Israel Institute of Technology.
Number, Terms of Office and Election of Executive Officers and Directors
Our Board of Directors will be elected each year at our annual meeting of stockholders. We may not hold an annual meeting of stockholders until after we consummate our initial business combination (unless required by NYSE).
Our executive officers are elected by the Board of Directors and serve at the discretion of the Board of Directors, rather than for specific terms of office. Our Board of Directors is authorized to appoint persons to the offices set forth in our bylaws as it deems appropriate. Our bylaws provide that our executive officers may consist of a Chief Executive Officer, a President, a Chief Financial Officer, Vice Presidents, a Secretary, Assistant Secretaries, a Treasurer and such other offices as may be determined by the Board of Directors.
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Committees of the Board of Directors
Our Board of Directors has three standing committees: an audit committee; a compensation committee; and a nominating and compensation committee. Each of our audit committee, our compensation committee and our nominating and corporate governance committee are composed solely of independent directors. Each committee operates under a charter that is approved by our board and has the composition and responsibilities described below. The committee assignments set forth below were in effect as of December 31, 2020.
Audit Committee
We have established an audit committee of the Board of Directors. Messrs. Miotto, Mikulsky and Frostig will serve as members of our audit committee. Mr. Miotto serves as chairman of the audit committee. Under the NYSE listing standards and applicable SEC rules, we are required to have three members of the audit committee all of whom must be independent. Messrs. Miotto, Mikulsky and Frostig are independent.
Each member of the audit committee is financially literate and our Board of Directors has determined that Mr. Miotto qualifies as an “audit committee financial expert” as defined in applicable SEC rules.
We have adopted an audit committee charter, which details the purpose and principal functions of the audit committee, including:
| • | assisting the Board of Directors in the oversight of (1) the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company, (2) the preparation and integrity of the financial statements of the Company, (3) the compliance by the Company with financial statement and regulatory requirements, (4) the performance of the Company’s internal finance and accounting personnel and its independent registered public accounting firm, and (5) the qualifications and independence of the Company’s independent registered public accounting firm; |
| • | reviewing with each of the internal auditors and independent registered public accounting firm the overall scope and plans for audits, including authority and organizational reporting lines and adequacy of staffing and compensation. |
| • | reviewing and discussing with management and internal auditors the Company’s system of internal control and discussing with the independent registered public accounting firm any significant matters regarding internal controls over financial reporting that have come to its attention during the conduct of its audit; |
| • | reviewing and discussing with management, internal auditors and independent registered public accounting firm the Company’s financial and critical accounting practices, and policies relating to risk assessment and management; |
| • | receiving and reviewing reports of the independent registered public accounting firm discussing 1) all critical accounting policies and practices to be used in the firm’s audit of the Company’s financial statements, 2) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent registered public accounting firm, and 3) other material written communications between the independent registered public accounting firm and management, such as any management letter or schedule of unadjusted differences; |
| • | reviewing and discussing with management and the independent registered public accounting firm the annual and quarterly financial statements and section entitled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” of the Company prior to the filing of the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q; |
| • | reviewing, or establishing, standards for the type of information and the type of presentation of such information to be included in, earnings press releases and earnings guidance provided to analysts and rating agencies; |
| • | discussing with management and the independent registered public accounting firm any changes in the Company’s critical accounting principles and the effects of alternative GAAP methods, off-balance sheet structures and regulatory and accounting initiatives; |
| • | reviewing material pending legal proceedings involving the Company and other contingent liabilities; |
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| • | meeting periodically with the Chief Executive Officer, Chief Financial Officer, the senior internal auditing executive and the independent registered public accounting firm in separate executive sessions to discuss results of examinations; |
| • | reviewing and approving all transactions between the Company and related parties or affiliates of the officers of the Company requiring disclosure under Item 404 of Regulation S-K prior to the Company entering into such transactions; |
| • | establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submissions by employees or contractors of concerns regarding questionable accounting or accounting matters; |
| • | reviewing periodically with the Company’s management, independent registered public accounting firm and outside legal counsel (i) legal and regulatory matters which may have a material effect on the financial statements, and (ii) corporate compliance policies or codes of conduct, including any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding the Company’s financial statements or accounting policies and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities; and |
| • | establishing policies for the hiring of employees and former employees of the independent registered public accounting firm. |
Compensation Committee
We have established a compensation committee of the Board of Directors. The members of our Compensation Committee are Messrs. Mikulsky and Frostig. Mr. Mikulsky serves as chairman of the compensation committee. We have adopted a compensation committee charter, which details the purpose and responsibility of the compensation committee, including:
| • | reviewing the performance of the Chief Executive Officer and executive management; |
| • | assisting the Board in developing and evaluating potential candidates for executive positions (including Chief Executive Officer); |
| • | reviewing and approving goals and objectives relevant to the Chief Executive Officer and other executive officer compensation, evaluate the Chief Executive Officer’s and other executive officers’ performance in light of these corporate goals and objectives, and set Chief Executive Officer and other executive officer compensation levels consistent with its evaluation and the company philosophy; |
| • | approving the salaries, bonus and other compensation for all executive officers; |
| • | reviewing and approving compensation packages for new corporate officers and termination packages for corporate officers as requested by management; |
| • | reviewing and discussing with the Board of Directors and senior officers plans for officer development and corporate succession plans for the Chief Executive Officer and other senior officers; |
| • | reviewing and making recommendations concerning executive compensation policies and plans; |
| • | reviewing and recommending to the Board of Directors the adoption of or changes to the compensation of the Company’s directors; |
| • | reviewing and approving the awards made under any executive officer bonus plan, and provide an appropriate report to the Board of Directors; |
| • | reviewing and making recommendations concerning long-term incentive compensation plans, including the use of stock options and other equity-based plans, and, except as otherwise delegated by the Board of Directors, acting on as the “Plan Administrator” for equity-based and employee benefit plans; |
| • | approving all special perquisites, special cash payments and other special compensation and benefit arrangements for the Company’s executive officers and employees; |
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| • | reviewing periodic reports from management on matters relating to the Company’s personnel appointments and practices; |
| • | assisting management in complying with the Company’s proxy statement and annual report disclosure requirements; |
| • | issuing an annual report of the Compensation Committee on Executive Compensation for the Company’s annual proxy statement in compliance with applicable SEC rules and regulations; |
| • | annually evaluating the Committee’s performance and the committee’s charter and recommending to the Board of Directors any proposed changes to the charter or the committee; and |
| • | undertaking all further actions and discharge all further responsibilities imposed upon the Committee from time to time by the Board, the federal securities laws or the rules and regulations of the SEC. |
The charter also provides that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, independent legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required by the NYSE and the SEC.
Nominating and Corporate Governance Committee
We have established a nominating and corporate governance committee of the Board of Directors. The members of our nominating and corporate governance are Messrs. Frostig, Mikulsky and Miotto. Mr. Frostig serves as chair of the nominating and corporate governance committee. We have adopted a nominating and corporate governance committee charter, which details the purpose and responsibilities of the nominating and corporate governance committee, including:
| • | developing and recommending to the Board of Directors the criteria for appointment as a director; |
| • | identifying, considering, recruiting and recommending candidates to fill new positions on the Board of Directors; |
| • | reviewing candidates recommended by stockholders; |
| • | conducting the appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates; and |
| • | recommending director nominees for approval by the Board of Directors and election by the stockholders at the next annual meeting. |
The charter also provides that the nominating and corporate governance committee may, in its sole discretion, retain or obtain the advice of, and terminate, any search firm to be used to identify director candidates, and will be directly responsible for approving the search firm’s fees and other retention terms.
We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, the Board of Directors considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our stockholders. Prior to our initial business combination, holders of our public shares will not have the right to recommend director candidates for nomination to our Board of Directors.
Director Independence
NYSE requires that a majority of our board must be composed of “independent directors,” which is defined generally as a person other than an executive officer or employee of the Company or its subsidiaries or any other individual having a relationship, which, in the opinion of the Company’s Board of Directors would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director.
Messrs. Miotto, Mikulsky and Frostig are our independent directors. Our independent directors have regularly scheduled meetings at which only independent directors are present. Any affiliated transactions will be on terms no less favorable to us than could be obtained from independent parties. Any affiliated transactions must be approved by a majority of our independent and disinterested directors.
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Code of Ethics
We have adopted a Code of Ethics applicable to our management team and employees in accordance with applicable federal securities laws. We have filed a copy of our form of Code of Ethics and our board committee charters as exhibits to the initial registration statement. You are able to review these documents by accessing our public filings at the SEC’s web site at www.sec.gov. In addition, a copy of the Code of Ethics will be provided without charge upon request from us, or may accessed on our company website at https://www.gigcapitalglobal.com/investors. We intend to disclose any amendments to or waivers of certain provisions of our Code of Ethics in a Current Report on Form 8-K.
Conflicts of Interest
Investors should be aware of the following potential conflicts of interest:
None of our management team is required to commit their full time to our affairs and, accordingly, they may have conflicts of interest in allocating their time among various business activities.
| • | In the course of their other business activities, our Sponsor and management team may become aware of investment and business opportunities which may be appropriate for presentation to our company as well as the other entities with which they are affiliated. However, our management teams have agreed to present to us all suitable target business opportunities, subject to any fiduciary or contractual obligations. |
| • | Unless we consummate our initial business combination, our management team and Sponsor will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceed the amount of available proceeds not deposited in the trust account. |
| • | The Founder Shares and Placement Shares will be released from lockup only if an initial business combination is successfully completed, and the private warrants and private rights will expire worthless if an initial business combination is not consummated. For the foregoing reasons, our board may have a conflict of interest in determining whether a particular target business is appropriate for effecting an initial business combination. |
In general, executive officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present business opportunities to a corporation if:
| • | the corporation could financially undertake the opportunity; |
| • | the opportunity is within the corporation’s line of business; and |
| • | it would not be fair to the corporation and its stockholders for the opportunity not to be brought to the attention of the corporation. |
Accordingly, as a result of multiple business affiliations, our management team may have similar legal obligations relating to presenting business opportunities meeting the above-listed criteria to multiple entities. In addition, conflicts of interest may arise when our board evaluates a particular business opportunity with respect to the above-listed criteria. We cannot assure you that any of the above mentioned conflicts will be resolved in our favor.
In order to minimize potential conflicts of interest which may arise from multiple corporate affiliations, each of our management team has contractually agreed, pursuant to a written agreement with us, until the earliest of our execution of a definitive agreement for a business combination, our liquidation or such time as he ceases to be an officer or director, to present to our company for our consideration, prior to presentation to any other entity, any suitable business opportunity which may reasonably be required to be presented to us, subject to any fiduciary or contractual obligations he might have. Accordingly, our amended and restated certificate of incorporation will provide that the doctrine of corporate opportunity will not apply with respect to any of our management team in circumstances where the application of the doctrine would conflict with any fiduciary duties or contractual obligations they may have.
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Below is a table summarizing the entities to which our executive officers and directors currently have fiduciary duties or contractual obligations.
| Individual |
Entity |
Entity’s Business |
Affiliation | |||
| Dr. Raluca Dinu | GigCapital3, Inc. Kaleyra, Inc. GigManagement, LLC GigCapital4, Inc. GigCapital5, Inc. GigCapital6, Inc. |
PPE (SPAC) Mobile Messaging Services Management Company PPE (SPAC) PPE (SPAC) PPE (SPAC) |
Chief Executive Officer and Director Strategic Advisory Board, Chair Founder and managing member President and Chief Executive Officer President and Chief Executive Officer Executive Chairman, President and Chief Executive Officer | |||
| Brad Weightman | GigCapital3, Inc. GigCapital4, Inc. GigCapital5, Inc. GigCapital6, Inc. |
PPE (SPAC) PPE (SPAC) PPE (SPAC) PPE (SPAC) |
Chief Financial Officer Chief Financial Officer Chief Financial Officer Chief Financial Officer | |||
| Avi S. Katz | Kaleyra, Inc. GigNext, LLC GigFounders, LLC GigManagement, LLC GigAcquisitions, LLC GigAcquisitions2, LLC GigCapital3, Inc. GigAcquisitions3, LLC GigAcquisitions4, LLC GigCapital4, Inc. GigAcquisitions5, LLC GigCapital5, Inc. GigAcquisitions6, LLC GigCapital6, Inc. |
Mobile Messaging Services Consulting and Investment Consulting and Investment Management Company PPE (SPAC) sponsorship PPE (SPAC) sponsorship PPE (SPAC) PPE (SPAC) sponsorship PPE (SPAC) sponsorship PPE (SPAC) PPE (SPAC) sponsorship PPE (SPAC) PPE (SPAC) sponsorship PPE (SPAC) |
Executive Chairman Founder and managing member Founder and managing member Founder and managing member Founder and manager Founder and manager Founder and Executive Chairman Founder and manager Founder and manager Founder and Executive Chairman Founder and manager Founder and Executive Chairman Founder and manager Founder and director | |||
| Neil Miotto | Kaleyra, Inc. GigFounders, LLC GigManagement, LLC GigCapital3, Inc. GigCapital4, Inc. GigCapital5, Inc. |
Mobile Messaging Services Consulting and Investment Management Company PPE (SPAC) PPE (SPAC) PPE (SPAC) |
Director Minority member Minority member Director Director Director | |||
| John Mikulsky | Kaleyra, Inc. GigCapital3, Inc. |
Mobile Messaging Services PPE (SPAC) |
Director Director | |||
| Gil Frostig | N/A | N/A | N/A |
In addition, our management team have agreed not to participate in the formation of, or become an executive officer or director of, any other special purpose acquisition company with a class of securities registered under the Exchange Act until we have entered into a definitive agreement regarding our initial business combination or we have failed to complete our initial business combination by June 10, 2021.
If we submit our initial business combination to our public stockholders for a vote, our Founders, as well as all of our management team have agreed to vote any shares held by them in favor of our initial business combination. In addition, they have agreed to waive their respective rights to participate in any liquidation distribution with respect to their Founder Shares or the Placement Shares. If they purchase shares of common stock, however, they would be entitled to participate in any liquidation distribution in respect of such shares but have agreed not to redeem or sell such shares to us in connection with the consummation of an initial business combination.
All ongoing and future transactions between us and any of our Sponsor or management team, or their respective affiliates, will be on terms believed by us to be no less favorable to us than are available from unaffiliated third parties. Such transactions will require prior approval by a majority of our uninterested “independent” directors or the members of our Board of Directors who do not have an interest in the transaction, in either case who had access, at our expense, to our attorneys or independent legal counsel. We will not enter into any such transaction unless our disinterested “independent” directors determine that the terms of such transaction are no less favorable to us than those that would be available to us with respect to such a transaction from unaffiliated third parties.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange requires our management team and persons who beneficially own more than ten percent of our common stock to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of such forms, we believe that during the fiscal year ended December 31, 2020 there were no delinquent filers.
Item 11. Executive Compensation.
Compensation of our Executive Officers and Directors
As we are a special purpose acquisition company, formed for the purpose of effecting a business combination, our primary objective with respect to executive and director compensation is to retain the executives and directors to help identify and close a business combination.
Commencing on the date that our securities were first listed on NYSE through the earlier of consummation of our initial business combination and our liquidation, we will pay our Sponsor a total of $20,000 per month, which funds were used to pay for office space, utilities, secretarial and administrative services. This arrangement was agreed to by an affiliate of our Executive Chairman for our benefit and is not intended to provide such affiliate of our Executive Chairman compensation in lieu of a salary. We believed that such fees are at least as favorable as we could have obtained from an unaffiliated third party for such services.
On March 20, 2019, we entered into a Strategic Services Agreement with Tara McDonough, our former Vice President and Chief Financial Officer, which was effective through August 12, 2019, Ms. McDonough’s last day providing services for the Company. Ms. McDonough was paid at an hourly rate of $200 per hour. Ms. McDonough was paid a total of $41,950 pursuant to her Strategic Services Agreement. On August 6, 2019, we entered into a Strategic Services Agreement with Brad Weightman, our current Vice President and Chief Financial Officer, pursuant to which Mr. Weightman was paid $10,000 per month. We entered into an Amended and Restated Strategic Services Agreement, effective as of June 30, 2020, with Mr. Weightman, pursuant to which, Mr. Weightman is paid up to $10,000 per month.
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Following are the tabular disclosures of our executive officer and director compensation:
Management Compensation
| Name and principal position |
Year |
Salary | Bonus | Stock Awards |
Option Awards |
Nonequity incentive plan compensation |
Nonqualified deferred compensation earnings |
All other compensation |
Total | |||||||||||||||||||||||||
| Dr. Avi S. Katz, Executive Chairman of the Board of Directors and Former President and Chief Executive Officer (Principal Executive Officer) |
March 6, 2019 (Date of Inception) through December 31, 2019 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 45,000 | (1) | $ | 45,000 | ||||||||||||||||
| 2020 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 51,000 | (1) | $ | 51,000 | |||||||||||||||||
| Dr. Raluca Dinu, Director and President and Chief Executive Officer (Principal Executive Officer) |
March 6, 2019 (Date of Inception) through December 31, 2019 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 54,000 | (1) | $ | 54,000 | ||||||||||||||||
| 2020 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 66,000 | (1) | $ | 66,000 | |||||||||||||||||
| Brad Weightman, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
March 6, 2019 (Date of Inception) through December 31, 2019 | $ | 50,000 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 50,000 | |||||||||||||||||
| 2020 | $ | 62,250 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 62,250 | ||||||||||||||||||
| Tara McDonough, Former Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
March 6, 2019 (Date of Inception) through December 31, 2019 | $ | 41,950 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 41,950 | |||||||||||||||||
| 2020 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
| (1) | Advisory fees were paid to directors for board committee service and administrative and analytical services, including certain activities on the Company’s behalf, such as identifying and investigating possible business targets and business combinations. |
| (2) | 5,000 restricted common stock shares were granted on June 10, 2019 to Ms. Tara McDonough. The shares underlying the Company’s restricted stock awards were subject to forfeiture if a business combination is not completed or if the individual resigns or is terminated for cause prior to the completion of a business combination. As the shares are subject to forfeiture, no compensation expense was recorded in the financial statements. As Ms. McDonough resigned on August 12, 2019, Ms. McDonough’s 5,000 shares were cancelled. |
Independent Director Compensation
| Name |
Year |
Fees earned or paid in cash |
Stock Awards |
Option Awards |
Nonequity incentive plan compensation |
Change in pension value and nonqualified deferred compensation earnings |
All other compensation(1) |
Total | ||||||||||||||||||||||
| Neil Miotto, Independent Director and Chairman of the Audit Committee |
March 6, 2019 (Date of Inception) through December 31, 2019 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 45,000 | $ | 45,000 | |||||||||||||||
| 2020 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 51,000 | $ | 51,000 | ||||||||||||||||
| John Mikulsky, Independent Director and Chairman of the Compensation Committee |
March 6, 2019 (Date of Inception) through December 31, 2019 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 36,000 | $ | 36,000 | |||||||||||||||
| 2020 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 36,000 | $ | 36,000 | ||||||||||||||||
| Gil Frostig, Independent Director |
March 6, 2019 (Date of Inception) through December 31, 2019 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 36,000 | $ | 36,000 | |||||||||||||||
| 2020 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 36,000 | $ | 36,000 | ||||||||||||||||
| (1) | Advisory fees were paid to directors for board committee service and administrative and analytical services, including certain activities on the Company’s behalf, such as identifying and investigating possible business targets and business combinations. |
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Except as set forth above, no compensation was paid to our Sponsor, or management team, or any of their respective affiliates, prior to or in connection with the consummation of our initial business combination. Additionally, these individuals are reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our independent directors review on a quarterly basis all payments that were made to our Sponsor, management team or our or their affiliates.
Members of our management team who remain with us, may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to stockholders, to the extent then known, in the tender offer materials or proxy solicitation materials furnished to our stockholders in connection with a proposed business combination. It is unlikely the amount of such compensation will be known at the time, as it will be up to the directors of the post-combination business to determine executive and director compensation. Any compensation to be paid to our officers will be determined, or recommended, to the Board of Directors for determination, either by a committee constituted solely by independent directors or by a majority of the independent directors on our Board.
We do not intend to take any action to ensure that members of our management team maintain their positions with us after the consummation of our initial business combination, although it is possible that some or all of our officers and directors may negotiate employment or consulting arrangements to remain with us after the initial business combination. The existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management’s motivation in identifying or selecting a target business but we do not believe that the ability of our management to remain with us after the consummation of our initial business combination will be a determining factor in our decision to proceed with any potential business combination. We are not party to any agreements with our officers and directors that provide for benefits upon termination of employment.
After the completion of the Business Combinations, Dr. Katz, Dr. Dinu and Mr. Miotto will serve on the Board of the post-combination company and each shall be entitled to receive compensation for serving on the Board of the post-combination company. The amount of such compensation is not known at the time, as it will be up to the directors of the post-combination company following completion of the Business Combinations to determine executive and director compensation. Any compensation to be paid to the post-combination company’s officers will be determined, or recommended, to its board for determination, either by a committee constituted solely by independent directors or by a majority of the independent directors on such board.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
We have no compensation plans under which equity securities are authorized for issuance.
The following table sets forth information regarding the beneficial ownership of our shares of common stock as of the date of this Annual Report, and as adjusted to reflect the sale of our shares of common stock included in the Units, by:
| • | each person known by us to be the beneficial owner of more than 5% of the outstanding shares of common stock; |
| • | each of our management team that beneficially owns shares of common stock; and |
| • | all our management team as a group. |
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Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them. The following table does not reflect record or beneficial ownership of any shares of common stock issuable upon exercise of warrants as these warrants are not exercisable within 60 days of the date of this annual report, or any shares of common stock receivable upon conversion of rights, as no rights are convertible within 60 days of the date of this annual report.
| Name and Address of Beneficial Owner (1) |
Number of Shares Beneficially Owned |
Approximate Percentage of Outstanding Common Stock (2) |
||||||
| GigAcquisitions, LLC (3) |
4,500,237 | (4) | 22.71 | % | ||||
| Dr. Avi S. Katz (3) |
4,500,237 | (4) | 22.71 | % | ||||
| Dr. Raluca Dinu |
— | — | ||||||
| Brad Weightman |
— | — | ||||||
| Neil Miotto |
— | — | ||||||
| John Mikulsky |
— | — | ||||||
| Gil Frostig |
— | — | ||||||
|
|
|
|
|
|||||
| All directors and officers as a group (6 individuals) |
4,500,237 | 22.71 | % | |||||
| (1) | Unless otherwise indicated, the business address of each of the individuals is 1731 Embarcadero Road, Suite 200, Palo Alto CA. |
| (2) | Based on 19,812,315 shares of common stock outstanding as of December 31, 2020. |
| (3) | Represents shares held by our Sponsor. The shares held by our Sponsor are beneficially owned by Dr. Avi Katz, our Executive Chairman and Secretary, and the manager of our Sponsor, who has sole voting and dispositive power over the shares held by our Sponsor. |
| (4) | Does not include 481,250 shares of common stock underlying warrants or 24,063 shares of common stock underlying rights that are not exercisable within 60 days. |
Our Founders, and management team beneficially own approximately 25.21% of our issued and outstanding common stock, with our Sponsor beneficially owning approximately 22.71% of such issued and outstanding common stock. Because of this ownership block, our Founders, together, and our Sponsor acting alone, may be able to effectively influence the outcome of all matters requiring approval by our stockholders, including the election of directors, amendments to our amended and restated certificate of incorporation and approval of significant corporate transactions.
The Founders and each of our management team have agreed not to transfer, assign or sell any of Founder Shares, Private Placement Units or any securities underlying the Private Placement Units (including the Placement Shares) until the date that is one year after the date of the consummation of our initial business combination. Notwithstanding the foregoing, (1) if the last sale price of our common stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 90 days after our initial business combination, or (2) if we consummate a liquidation, merger, stock exchange or other similar transaction after our initial business combination which results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property, then the private shares will be released from the lock-up. Notwithstanding the foregoing, during the lockup period, the Founders and our management team may transfer, assign or sell any of the aforenamed securities (1) amongst the Founders and their affiliates, to our management team, or to any affiliate or family member of any of our management team, (2) in the case of an entity, as a distribution to its partners, stockholders or members upon its liquidation, (3) in the case of an individual, (i) by bona fide gift to such person’s immediate family or to a trust, the beneficiary of which is a member of such person’s immediate family, an affiliate of such person or to a charitable organization, (ii) by virtue of the laws of descent and distribution upon death of such person, or (iii) or pursuant to a qualified domestic relations order, (4) by certain pledges to secure obligations incurred in connection with purchases of the Company’s securities, (5) through private sales or transfers made in connection with the consummation of our initial business combination at prices no greater than the price at which such securities were originally purchased or (6) to us for no value for cancellation in connection with the consummation of our initial business combination; provided , that, in each such case (except clause (6)), these transferees (the “Permitted Transferees”) shall be enter into a written agreement with us agreeing to be bound by the transfer restrictions agreed to by the original holder in connection with the purchase of the securities being transferred.
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Registration Rights
The Founders and management team are entitled to registration rights pursuant to a registration rights agreement signed on June 5, 2019. The Company’s Founders and management team are entitled to make up to three demands, excluding short form registration demands, that the Company register such securities for sale under the Securities Act. In addition, these holders have “piggy-back” registration rights to include their securities in other registration statements filed by the Company. The Company will bear the expenses incurred in connection with the filing of any such registration statements. There will be no penalties associated with delays in registering the securities under the registration rights agreement. Notwithstanding the foregoing, EarlyBird, Northland Investment, and Northland may not exercise their demand and “piggyback” registration rights after five and seven years, respectively, after, June 5, 2019 the effective date of the registration statement for our initial public offering, and may not exercise their demand rights on more than one occasion.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
During the period from March 6, 2019 (date of inception) to March 12, 2019, the Sponsor and Northland Investment purchased 2,500,000 Founder Shares for an aggregate purchase price of $25,000, or $0.01 per share. In April 2019, we effected a stock dividend of 0.493 shares of common stock for each outstanding share of common stock, resulting in the Sponsor and Northland Investment holding an aggregate of 3,732,500 Founder Shares. Subsequently, the Sponsor and Northland Investment sold 68,041 shares and 31,959 shares, respectively, to EarlyBird and the EarlyBird Group collectively for an aggregate purchase price of $670, or $0.0067 per share. In June 2019, we effected a stock dividend of 0.1541 shares of common stock for each outstanding share of common stock, resulting in the Sponsor, Northland Investment, EarlyBird and the EarlyBird Group holding an aggregate of 4,307,500 Founder Shares as of December 31, 2019. The Founder Shares are identical to the common stock included in the Units sold in the Offering except that the Founder Shares are subject to certain transfer restrictions, as described in more detail below.
The Founders purchased from us an aggregate of 492,500 Private Placement Units at a price of $10.00 per unit in a private placement that occurred simultaneously with the completion of the initial closing of the Offering. The Founders also purchased from us an aggregate of 75,000 Private Placement Units at a price of $10.00 per unit in a private placement that occurred simultaneously with the completion of the second closing of the Offering with the exercise of the over-allotment option. Among the Private Placement Units, 481,250 units were purchased by the Sponsor, 29,900 units were purchased by EarlyBird, and 56,350 units were purchased by Northland Investment. Each Private Placement Unit consists of one Placement Share, $0.0001 par value, one warrant, and one right to receive one-twentieth of a share of common stock upon the consummation of the Company’s initial business combination. Warrants will be exercisable for $11.50 per share, and the exercise price of the Warrants may be adjusted in certain circumstances as described in Note 6 of the financial statements.
One of our underwriters, Northland, purchased 100,000 Private Underwriter Shares, at a purchase price of $10.00 per share in a private placement that occurred simultaneously with the completion of the initial closing of the Offering. Northland also purchased from us an aggregate of 20,000 Private Underwriter Shares at a price of $10.00 per share in a private placement that occurred simultaneously with the completion of the second closing of the Offering with the exercise of the over-allotment option. The Private Underwriter Shares are identical to the Placement Shares.
Subject to certain limited exceptions, our Founders and management team have agreed not to transfer, assign or sell any of their Founder Shares or private placement units, or the securities underlying the private placement units, including the Placement Shares, until one year after the date of the consummation of our initial business combination. Notwithstanding the foregoing, (1) if the last sale price of our common stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 90 days after our initial business combination, or (2) if we consummate a liquidation, merger, stock exchange or other similar transaction after our initial business combination which results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property, then the aforenamed securities will be released from the lock-up. Permitted transferees would be subject to the same restrictions and other agreements of our initial stockholders with respect to any such securities.
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In order to meet our working capital needs, our Sponsor, executive officers and directors, or their affiliates may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion. Each loan would be evidenced by a promissory note. Up to $1,500,000 of such loans may be convertible into additional units of the post-business combination entity at a price of $10.00 per unit at the option of the lender. The units would be identical to the private placement units. The terms of such loans by our officers and directors, if any, have not been determined and no written agreements exist with respect to such loans.
The holders of our Founder Shares issued and outstanding, as well as the holders of the private placement units and any units our Sponsor, officers, directors or their affiliates may be issued in payment of working capital loans made to us (and all underlying securities), will be entitled to registration rights pursuant to an agreement to be signed prior to or on the effective date of this offering. The holders of a majority of these securities are entitled to make up to three demands that we register such securities. The holders of the majority of the Founder Shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of common stock are to be released from escrow. The holders of a majority of the Founders’ private placement units or units issued in payment of working capital loans made to us (or underlying securities) can elect to exercise these registration rights at any time after we consummate a business combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our consummation of a business combination. Notwithstanding the foregoing, EarlyBird, Northland Investment, and Northland may not exercise their demand and “piggyback” registration rights after five and seven years, respectively, after the effective date of the registration statement, June 5, 2019 and may not exercise their demand rights on more than one occasion. We will bear the expenses incurred in connection with the filing of any such registration statements.
An affiliate of our Sponsor, GigFounders, LLC, has agreed that, commencing on the effective date of the registration statement, June 5, 2019, through the earlier of our consummation of our initial business combination or our liquidation, it will make available to us certain general and administrative services, including office space, utilities and administrative support, as we may require from time to time. We have agreed to pay it an aggregate of $20,000 per month for these services. Dr. Avi S. Katz, our Executive Chairman of the Board of Directors, is the manager of our Sponsor, and is also the managing member of GigFounders, LLC. In addition, he and Mr. Miotto, one of our independent directors, are the members of GigFounders, LLC, of which 90% is owned by Dr. Katz and the remaining 10% is owned by Mr. Miotto, and that partnership has a financial and voting interest in our Sponsor that entitles this partnership to participate in any economic return that the Sponsor receives for its investment in the Company in accordance with terms negotiated with the other holders of financial and voting interests in our Sponsor. Mr. Miotto’s minority interest in GigFounders, LLC is passive as he does not participate in the governance of GigFounders, LLC. In addition, Messrs. Mikulsky and Frostig, our other two independent directors, each have a financial and voting interest in our Sponsor that entitles each of them to participate in any economic return that the Sponsor receives for its investment in the Company in accordance with terms negotiated with the other holders of financial and voting interests in our Sponsor. Accordingly, they will benefit from the transaction to the extent of their interest in our Sponsor. The arrangement that we have with GigFounders, LLC is solely for our benefit and is not intended to provide our officers or directors compensation in lieu of a salary. We believe, based on rents and fees for similar services in the San Francisco Bay Area, that the fee charged by our Sponsor is at least as favorable as we could have obtained from an unaffiliated person.
In conjunction with our services agreement with GigFounders, LLC and in connection with GigFounders, LLC’s affiliation with our Sponsor, we have a licensing arrangement with GigFounders, LLC whereby we are permitted to use their “Private-to-Public Equity (PPE) TM” and “Mentor-Investor TM” trademarks.
On March 20, 2019, we entered into a Strategic Services Agreement with Tara McDonough, our former Vice President and Chief Financial Officer at an hourly rate of $200 per hour, which was effective through August 12, 2019, Ms. McDonough’s last day providing services to us. On August 6, 2019, we entered into a Strategic Services Agreement with Brad Weightman, our current Vice President and Chief Financial Officer at a monthly rate of $10,000 per month.
On December 19, 2020, the Company issued a convertible unsecured promissory note (the “Working Capital Note”) in the aggregate principal amount of $300,000 to the Sponsor. The Company issued the Working Capital Note in consideration for a loan from the Sponsor to fund the Company’s working capital requirements between now and March 10, 2021, which is the period of time that the Company has available to complete its initial business combination following the December 8, 2020 amendment to its certificate of incorporation. The Working Capital Note was issued to provide the Company with additional working capital and will not be deposited into the Company’s Trust Account. The Working Capital Note is convertible at the Sponsor’s election upon the consummation of the proposed business combinations, described in the Company’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on November 23, 2020 (the “Business Combinations”) and also described in the Business Combination section of Item 8.
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Upon such election, the Working Capital Note will convert, at a price of $10.00 per unit, into units identical to the private placement units issued in connection with the Company’s initial public offering.
The Working Capital Note bears no interest and is repayable in full upon the consummation of the Company’s Business Combinations.
Other than the foregoing and as described in this paragraph, no compensation or fees of any kind, including finder’s, consulting fees and other similar fees, will be paid to our Sponsor, members of our management team or their respective affiliates, for services rendered prior to or in connection with the consummation of our initial business combination (regardless of the type of transaction that it is). However, such individuals will receive the repayment of any loans from our Sponsor, officers and directors for working capital purposes and reimbursement for any out-of-pocket expenses incurred by them in connection with activities on our behalf, such as identifying potential target businesses, performing business due diligence on suitable target businesses and business combinations as well as traveling to and from the offices, plants or similar locations of prospective target businesses to examine their operations. Our Board of Directors may also approve the payment of advisory fees for such activities, including board committee service, and extraordinary administrative and analytical services. There is no limit on the amount of out-of-pocket expenses reimbursable by us. Our independent directors will review on a quarterly basis all payments that were made to our Sponsor, executive officers or our or their affiliates.
After our initial business combination, members of our management team who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to stockholders, to the extent then known, in the proxy solicitation materials furnished to our stockholders. It is unlikely the amount of such compensation will be known at the time of a stockholder meeting held to consider an initial business combination, as it will be up to the directors of the post-combination business to determine executive and director compensation. In this event, such compensation will be publicly disclosed at the time of its determination in a Current Report on Form 8-K, as required by the SEC.
All ongoing and future transactions between us and any of our officers and directors or their respective affiliates will be on terms believed by us to be no less favorable to us than are available from unaffiliated third parties. Such transactions will require prior approval by a majority of our uninterested “independent” directors or the members of our board who do not have an interest in the transaction, in either case who had access, at our expense, to our attorneys or independent legal counsel. We will not enter into any such transaction unless our disinterested “independent” directors determine that the terms of such transaction are no less favorable to us than those that would be available to us with respect to such a transaction from unaffiliated third parties.
Dr. Katz, our Secretary and Executive Chairman of the Board of Directors, and Dr. Raluca Dinu, one of our directors and our President and Chief Executive Officer, are husband and wife.
Dr. Katz and Messrs. Miotto and Mikulsky are on the boards of directors of Kaleyra, Inc., Drs. Katz and Dinu and Messrs. Miotto and Mikulsky are on the board of directors of GigCapital3, Inc., Drs. Katz and Dinu and Messrs. Miotto and Betti-Berutto are on the board of directors of GigCapital4, Inc., Drs. Katz and Dinu and Mr. Miotto are on the board of directors of GigCapital5, Inc., and Drs. Katz and Dinu and Mr. Wang are on the board of directors of GigCapital6, Inc.
Related Party Policy
Our Code of Ethics will require us to avoid, wherever possible, all related party transactions that could result in actual or potential conflicts of interests, except under guidelines approved by the Board of Directors (or the audit committee). Related-party transactions are defined as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of our shares of common stock, or (c) immediate family member, of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position.
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Our audit committee, pursuant to its written charter, will be responsible for reviewing and approving related- party transactions to the extent we enter into such transactions. The audit committee will consider all relevant factors when determining whether to approve a related party transaction, including whether the related party transaction is on terms no less favorable to us than terms generally available from an unaffiliated third-party under the same or similar circumstances and the extent of the related party’s interest in the transaction. No director may participate in the approval of any transaction in which he is a related party, and that director is required to provide the audit committee with all material information concerning the transaction. We also require each of our directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information about related party transactions.
These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer.
To further minimize conflicts of interest, we have agreed not to consummate an initial business combination with an entity that is affiliated with any of our Sponsor or management team including (i) an entity that is either a portfolio company of, or has otherwise received a material financial investment from, any private equity fund or investment company (or an affiliate thereof) that is affiliated with any of the foregoing, (ii) an entity in which any of the foregoing or their affiliates are currently passive investors, (iii) an entity in which any of the foregoing or their affiliates are currently officers or directors, or (iv) an entity in which any of the foregoing or their affiliates are currently invested through an investment vehicle controlled by them, unless we have obtained an opinion from an independent investment banking firm, or another independent entity that commonly renders valuation opinions on the type of target business we are seeking to acquire, and the approval of a majority of our disinterested independent directors that the business combination is fair to our unaffiliated stockholders from a financial point of view.
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Item 14. Principal Accounting Fees and Services.
Fees for professional services provided by our independent registered public accounting firm since inception include:
| Year ended December 31, 2020 |
Period from March 6, 2019 (Date of Inception) through December 31, 2019 |
|||||||
| Audit Fees (1) |
$ | 81,584 | $ | 132,905 | ||||
| Audit-Related Fees (2) |
18,738 | 34,240 | ||||||
| Tax Fees (3) |
6,420 | — | ||||||
| All Other Fees (4) |
— | — | ||||||
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|
|
|
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| Total |
$ | 106,742 | $ | 167,145 | ||||
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| (1) | Audit Fees. Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services that are normally provided by our independent registered public accounting firm in connection with statutory and regulatory filings. |
| (2) | Audit-Related Fees. Audit-related fees consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our year-end financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultation concerning financial accounting and reporting standards, including permitted due diligence services related to a potential business combination. |
| (3) | Tax Fees. Tax fees consist of fees billed for professional services relating to tax compliance, tax planning and tax advice. |
| (4) | All Other Fees. All other fees consist of fees billed for all other services. |
Policy on Board Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Auditors
The audit committee is responsible for appointing, setting compensation and overseeing the work of the independent auditors. In recognition of this responsibility, the audit committee shall review and, in its sole discretion, pre-approve all audit and permitted non-audit services to be provided by the independent auditors as provided under the audit committee charter.
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Item 15. Exhibits, Financial Statement Schedules.
| (a) | The following documents are filed as part of this Annual Report on Form 10-K: |
| Financial Statements: See “Item 8. Financial Statements and Supplementary Data” herein. |
| (b) | Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K. |
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| * | Previously filed with that certain Registration Statement on Form S-1 filed with the Securities and Exchange Commission on May 31, 2019, and incorporated herein by reference. |
| ** | Previously filed with that certain Current Report on Form 8-K filed with the Securities and Exchange Commission on June 10, 2019, and incorporated herein by reference. |
| *** | Previously filed with that certain Current Report on Form 8-K filed with the Securities and Exchange Commission on August 8, 2019, and incorporated herein by reference. |
| **** | Previously filed with that certain Current Report on Form 8-K filed with the Securities and Exchange Commission on July 6, 2020. |
| ***** | Previously filed with that certain Current Report on Form 8-K filed with the Securities and Exchange Commission on November 23, 2020, and incorporated herein by reference. |
| † | Previously filed with that certain Current Report on Form 8-K filed with the Securities and Exchange Commission on December 8, 2020. |
| †† | Previously filed with that certain Current Report on Form 8-K filed with the Securities and Exchange Commission on December 22, 2020. |
| ††† | Previously filed with that certain Current Report on Form 8-K filed with the Securities and Exchange Commission on January 21, 2021. |
| †††† | Previously filed with that certain Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2021. |
| ††††† | Previously filed with that certain Current Report on Form 8-K filed with the Securities and Exchange Commission on March 26, 2021. |
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| ‡ | Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(b)(2). The Registrant agrees to furnish supplementally a copy of all omitted exhibits and schedules to the SEC upon its request. |
| ‡‡ | This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act. |
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| GigCapital2, Inc. | ||||||
| Date: April 21, 2021 | By: | /s/ Raluca Dinu | ||||
| Raluca Dinu | ||||||
| President and Chief Executive Officer (Principal Executive Officer) | ||||||
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dr. Raluca Dinu and Brad Weightman and each or any one of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the United States Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
| Name |
Title |
Date | ||
| /s/ Raluca Dinu |
President and Chief Executive Officer (Principal Executive Officer) |
April 21, 2021 | ||
| Dr. Raluca Dinu | ||||
| /s/ Brad Weightman |
Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
April 21, 2021 | ||
| Brad Weightman | ||||
| /s/ Avi S. Katz |
Chairman of the Board of Directors | April 21, 2021 | ||
| Dr. Avi S Katz | ||||
| /s/ Neil Miotto |
Director | April 21, 2021 | ||
| Neil Miotto | ||||
| /s/ John Mikulsky |
Director | April 21, 2021 | ||
| John Mikulsky | ||||
| /s/ Gil Frostig |
Director | April 21, 2021 | ||
| Gil Frostig | ||||
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