References in this report (the "Quarterly Report") to "we," "us," "Cascade" or
the "Company" refer to Cascade Acquisition Corp. References to our "management"
refer to our officers and directors, and references to the "Sponsor" refer to
Cascade Acquisition Holdings, LLC. The following discussion and analysis of the
Company's financial condition and results of operations should be read in
conjunction with the financial statements and the notes thereto contained
elsewhere in this Quarterly Report. Certain information contained in the
discussion and analysis set forth below includes forward-looking statements that
involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Exchange Act that are not historical facts, and involve
risks and uncertainties that could cause actual results to differ materially
from those expected and projected. All statements, other than statements of
historical fact included in this Form 10-Q including, without limitation,
statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" regarding the Company's financial position, business
strategy and the plans and objectives of management for future operations, are
forward-looking statements. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. A number
of factors could cause actual events, performance or results to differ
materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to the Risk Factors section of the
Company's Amendment No 1 to the Annual Report on Form 10-K/A for the year ended
December 31, 2020 filed with the U.S. Securities and Exchange Commission (the
"SEC") on June 29, 2021. The Company's securities filings can be accessed on the
EDGAR section of the SEC's website at www.sec.gov. Except as expressly required
by applicable securities law, the Company disclaims any intention or obligation
to update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
Overview
We are a blank check company incorporated in the Delaware on August 14, 2020
formed for the purpose of effecting a merger, amalgamation, share exchange,
asset acquisition, share purchase, reorganization or other similar Business
Combination with one or more businesses. We intend to effectuate our Business
Combination using cash derived from the proceeds of the Initial Public Offering
and the sale of the Private Placement Warrants, our shares, debt or a
combination of cash, shares and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a Business
Combination will be successful.
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Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. All activity for the period from August 14, 2020 (inception) through
June 30, 2021 relates to the Company's formation and the initial public
offering, which is described below, and the search for a target for its initial
Business Combination. We do not expect to generate any operating revenues until
after the completion of a Business Combination, at the earliest. We expect to
generate non-operating income in the form of interest income and unrealized
gains or losses on marketable securities held after the Initial Public Offering.
We expect that we will 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 in connection with searching for, and
completing, a Business Combination, along with income or loss from the change in
fair value of the derivative liability.
For the three months ended June 30, 2021, we have a net loss of $3,115,097,
which consists of operating and formation costs of $1,066,874 a non-cash change
in fair value of derivative liability of $2,053,870, and an unrealized loss on
marketable securities held in the Trust Account of $19,592, partially offset by
interest income on marketable securities held in the Trust Account of $25,239.
For the six months ended June 30, 2021, we had net income of $5,701,676, which
consisted of operating and formation costs of $1,397,575 offset by a non-cash
change in fair value of derivative liability of $7,015,950 and interest income
on marketable securities held in the Trust Account of $83,301.
Liquidity and Going Concern
On November 24, 2020, we consummated the Initial Public Offering of 20,000,000
Units at a price of $10.00 per Unit, generating gross proceeds of $200,000,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 7,317,000 Private Placement Warrants to the Sponsor at a price of
$1.00 per Private Placement Warrant generating gross proceeds of $7,317,000.
On December 9, 2020, in connection with the underwriters' election to fully
exercise of their over-allotment option, we consummated the sale of an
additional 3,000,000 Units and the sale of an additional 900,000 Private
Placement Warrants, generating total gross proceeds of $30,900,000.
Following the Initial Public Offering, the full exercise of the over-allotment
option by the underwriters' and the sale of the Private Placement Warrants, a
total of $232,300,000 was placed in the Trust Account and we had $1,782,072 of
cash held outside of the Trust Account, after payment of costs related to the
Initial Public Offering, and available for working capital purposes. We incurred
$11,166,437 in transaction costs, including $3,917,000 of underwriting fees,
$6,854,750 of deferred underwriting fees and $394,687 of other offering costs.
For the six months ended June 30, 2021 cash used in operating activities was
$484,281. Net income of $5,701,676 was affected by non-cash items including the
change in fair value of warrant liability of $7,015,950, and interest earned on
marketable securities held in the Trust Account of $83,301. Changes in operating
assets and liabilities provided $913,294 of cash for operating activities.
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As of June 30, 2021, we had cash and marketable securities held in the Trust
Account of $232,379,830. 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 and excluding
deferred underwriting commissions, to complete our Business Combination. We may
withdraw interest from the Trust Account to pay taxes, if any (less up to
$100,000 of interest to pay dissolution expenses). Through June 30, 2021, we did
not withdraw any interest earned on the Trust Account to pay our taxes. To the
extent that our share capital or debt is used, in whole or in part, as
consideration to complete a Business Combination, the remaining proceeds held in
the Trust Account will be used as working capital to finance the operations of
the target business or businesses, make other acquisitions and pursue our growth
strategies.
As of June 30, 2021, we had cash of $793,427, and working capital of $146,608
(after adding back $69,399 in franchise tax payable as that liability, which is
included in accrued expenses in the accompanying condensed balance sheet, is
allowed to be settled using the trust account). We intend to use the funds held
outside the Trust Account primarily to identify and evaluate target businesses,
perform business due diligence on prospective target businesses, travel to and
from the offices, plants or similar locations of prospective target businesses
or their representatives or owners, review corporate documents and material
agreements of prospective target businesses, structure, negotiate and complete a
Business Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor, an affiliate of the
Sponsor, or our officers and directors may, but are not obligated to, loan us
funds as may be required. If we complete a Business Combination, we would repay
such loaned amounts. In the event that a Business Combination does not close, we
may use a portion of the working capital held outside the trust account to repay
such loaned amounts but no proceeds from our Trust Account would be used for
such repayment. Up to $1,500,000 of such loans may be convertible into warrants,
at a price of $1.00 per warrant at the option of the lender. The warrants would
be identical to the Private Placement Warrants, including as to exercise price,
exercisability and exercise period. 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 loans would be repaid upon consummation of a Business
Combination, without interest.
In connection with the Company's assessment of going concern considerations in
accordance with Financial Accounting Standard Board's Accounting Standards
Update ("ASU") 2014-15, "Disclosures of Uncertainties about an Entity's Ability
to Continue as a Going Concern," the Company has until May 24, 2022 to
consummate the proposed Business Combination. It is uncertain that the Company
will be able to consummate the proposed Business Combination by this time.
Additionally, the Company may not have sufficient liquidity to fund the working
capital needs of the Company through one year from the issuance of these
financial statements. If a business combination is not consummated by this date,
there will be a mandatory liquidation and subsequent dissolution of the Company.
Management has determined that the liquidity condition and mandatory
liquidation, should a business combination not occur, and potential subsequent
dissolution, raises substantial doubt about the Company's ability to continue as
a going concern. No adjustments have been made to the carrying amounts of assets
or liabilities should the Company be required to liquidate after May 24, 2022.
The Company intends to complete the proposed Business Combination before the
mandatory liquidation date. However, there can be no assurance that the Company
will be able to consummate any business combination by May 24, 2022. In
addition, the Company may need to raise additional capital through loans or
additional investments from our Sponsor, stockholders, officers, directors or
third parties. The Company's officers, directors and Sponsor may, but are not
obligated to, loan the Company funds, from time to time or at any time, in
whatever amount they deem reasonable in their sole discretion, to meet the
Company's working capital needs. Accordingly, the Company may not be able to
obtain additional financing. If the Company is unable to raise additional
capital, the Company may be required to take additional measures to conserve
liquidity, which could include, but not necessarily be limited to, curtailing
operations, suspending the pursuit of a potential transaction, and reducing
overhead expenses. The Company cannot provide any assurance that new financing
will be available to it on commercially acceptable terms, if at all. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern through the liquidation date of May 24, 2022.
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Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of June 30, 2021. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements,
established any special purpose entities, guaranteed any debt or commitments of
other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities.
Jay Levine, our Chief Executive Officer, Gene Weil, a director, and certain
affiliates of our Sponsor and Waterfall Asset Management, LLC purchased an
aggregate of 2.75% of the Units in the Initial Public Offering, and certain
other investors identified by our Sponsor purchased an aggregate of 14.3% of the
Units in the Initial Public Offering, in each case at the Initial Public
Offering price, for an aggregate of 3,415,000 Units. The underwriters did not
receive any underwriting discounts or commissions on the Units purchased by such
parties.
The underwriters are entitled to a deferred fee of $0.35 per Unit, excluding the
Units purchased by the parties described above, or $6,854,750 in the aggregate.
Subject to the terms of the underwriting agreement, (i) the deferred fee will be
placed in the Trust Account and released to the underwriters only upon the
completion of a Business Combination and (ii) the deferred fee will be waived by
the underwriters in the event that we do not complete a Business Combination. Up
to 50% of the deferred underwriting commissions may be paid at the sole
discretion of its management team to the underwriters in the allocations
determined by its management team and/or to third parties not participating in
the Initial Public Offering (but who are members of the Financial Industry
Regulatory Authority) that assist us in consummating our initial Business
Combination.
On January 30, 2021, we entered into a consulting agreement with a service
provider, pursuant to which the service provider will provide us with consulting
services in connection with our search for a potential merger, share exchange,
asset acquisition, share purchase, reorganization or similar business
combination. We agreed to pay the service provider an initial fee of $41,668 and
$20,834 per month thereafter up to a period of 16 months. Effective August 13,
2021, we terminated the agreement. An aggregate of $135,419.70 was paid under
the agreement, and no further fees are due upon termination.
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Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Class A Common Stock Subject to Redemption
We account for our shares of Class A common stock subject to possible redemption
in accordance with the guidance in ASC Topic 480 "Distinguishing Liabilities
from Equity." Shares of Class A common stock subject to mandatory redemption is
classified as a liability instrument and is measured at fair value.
Conditionally redeemable common stock (including common stock that features
redemption rights that are either within the control of the holder or subject to
redemption upon the occurrence of uncertain events not solely within our
control) is classified as temporary equity. At all other times, common stock is
classified as stockholders' equity. Our common stock features certain redemption
rights that are considered to be outside of our control and subject to
occurrence of uncertain future events. Accordingly, the shares of Class A common
stock subject to possible redemption is presented as temporary equity, outside
of the stockholders' equity section of our condensed balance sheets.
Warrant Liability
The Company does not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks. The Company accounts for warrants as either
equity-classified or liability-classified instruments based on an assessment of
the warrant's specific terms and applicable authoritative guidance in ASC 480,
Distinguishing Liabilities from Equity and ASC 815, Derivatives and
Hedging ("ASC 815"). The assessment considers whether the warrants are
freestanding financial instruments pursuant to ASC 480, meet the definition of a
liability pursuant to ASC 480, and whether the warrants meet all of the
requirements for equity classification under ASC 815, including whether the
warrants are indexed to the Company's own common stock and whether the warrant
holders could potentially require "net cash settlement" in a circumstance
outside of the Company's control, among other conditions for equity
classification. This assessment, which requires the use of professional
judgment, is conducted at the time of warrant issuance and as of each subsequent
quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity
classification, the warrants are required to be recorded as a component of
additional paid-in capital at the time of issuance. For issued or modified
warrants that do not meet all the criteria for equity classification, the
warrants are required to be recorded at their initial fair value on the date of
issuance, and each balance sheet date thereafter. The Company accounts for the
warrants issued in connection with our Initial Public Offering in accordance
with the guidance contained in ASC 815-40-15-7D, under which the warrants do not
meet the criteria for equity treatment and must be recorded as liabilities.
Accordingly, the Company classifies the warrants as liabilities at their fair
value and adjusts the warrants to fair value at each reporting period. This
liability is subject to re-measurement at each balance sheet date until
exercised, and any change in fair value is recognized in our condensed
statements of operations. The Private Warrants and the Public Warrants (as
described in Note 3) for periods where no observable traded price was available
are valued using a Monte Carlo simulation. For periods subsequent to the
detachment of the Public Warrants from the Units, the Public Warrant quoted
market price on the New York Stock Exchange was used as the fair value of each
relevant date.
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Net Income (Loss) Per Common Stock
Net income (loss) per common share is computed by dividing net income (loss) by
the weighted-average number of shares of common stock outstanding during the
period. The Company has not considered the effect of the warrants sold in the
Initial Public Offering and the private placement to purchase an aggregate of
19,717,000 shares in the calculation of diluted loss per share, since the
inclusion of such warrants would be anti-dilutive.
The Company's statements of operations include a presentation of income (loss)
per common share subject to possible redemption in a manner similar to the
two-class method of income (loss) per share. Net income (loss) per share of
common stock, basic and diluted, for common stock subject to possible redemption
is calculated by dividing the proportionate share of income or loss on
marketable securities held by the Trust Account by the weighted average number
of shares of common stock subject to possible redemption outstanding since
original issuance.
Net income (loss) per share, basic and diluted, for non-redeemable common stock
is calculated by dividing the net income (loss), adjusted for income or loss on
marketable securities attributable to common stock subject to possible
redemption, by the weighted average number of non-redeemable shares of common
stock outstanding for the period.
Non-redeemable common stock includes Founder Shares and non-redeemable shares of
common stock as these shares do not have any redemption features. Non-redeemable
common stock participates in the income or loss on marketable securities based
on the non-redeemable share's proportionate interest.
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update ("ASU") No. 2020-06,
"Debt-Debt with Conversion and Other Options(Subtopic 470-20) and Derivatives
and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for
Convertible Instruments and Contracts in an Entity's Own Equity" ("ASU
2020-06"), which simplifies accounting for convertible instruments by removing
major separation models required under current U.S. GAAP. The ASU also removes
certain settlement conditions that are required for equity-linked contracts to
qualify for the derivative scope exception, and it simplifies the diluted
earnings per share calculation in certain areas. The Company early adopted ASU
2020-06 on January 1, 2021. Adoption of the ASU did not impact the Company's
financial position, results of operations or cash flows.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on the accompanying condensed financial statements.
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CASCADE ACQUISITION CORP. 
