CHENGHE ACQUISITION I CO. Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this annual
report, including, without limitation, statements under "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. When used in
this annual report, words such as "anticipate," "believe," "estimate," "expect,"
"intend" and similar expressions, as they relate to us or the Company's
management, identify forward-looking statements. Such forward-looking statements
are based on the beliefs of management, as well as assumptions made by, and
information currently available to, the Company's management. Actual results
could differ materially from those contemplated by the forward- looking
statements as a result of certain factors detailed in our filings with the
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the 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.
Overview
We are a blank check company incorporated on
The issuance of additional shares in connection with a business combination to the owners of the target or other investors:
· may significantly dilute the equity interest of investors in our IPO,
which dilution would increase if the anti-dilution provisions in the
Class B ordinary shares resulted in the issuance of Class A ordinary
shares on a greater than one-to-one basis upon conversion of the Class B
ordinary shares;
· may subordinate the rights of holders of Class A ordinary shares if
preferred shares are issued with rights senior to those afforded our
Class A ordinary shares;
· could cause a change in control if a substantial number of our Class A
ordinary shares are issued, which could result in the resignation or
removal of our present officers and directors;
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· may have the effect of delaying or preventing a change of control of us by
diluting the share ownership or voting rights of a person seeking to
obtain control of us; and
· may adversely affect prevailing market prices for our Class A ordinary
shares and/or warrants.
Similarly, if we issue debt securities or otherwise incur significant debt to bank or other lenders or the owners of a target, it could result in:
· default and foreclosure on our assets if our operating revenues after an
initial business combination are insufficient to repay our debt
obligations;
· acceleration of our obligations to repay the indebtedness even if we make
all principal and interest payments when due if we breach certain
covenants that require the maintenance of certain financial ratios or
reserves without a waiver or renegotiation of that covenant;
· our immediate payment of all principal and accrued interest, if any, if
the debt security is payable on demand;
· our inability to obtain necessary additional financing if the debt
security contains covenants restricting our ability to obtain such
financing while the debt security is outstanding;
· our inability to pay dividends on our Class A ordinary shares;
· using a substantial portion of our cash flow to pay principal and interest
on our debt, which will reduce the funds available for dividends on our
Class A ordinary shares, expenses, capital expenditures, acquisitions and
other general corporate purposes;
· limitations on our flexibility in planning for and reacting to changes in
our business and in the industry in which we operate;
· increased vulnerability to adverse changes in general economic, industry
and competitive conditions and adverse changes in government regulation;
and
· limitations on our ability to borrow additional amounts for expenses,
capital expenditures, acquisitions, debt service requirements, execution
of our strategy and other purposes and other disadvantages compared to our
competitors who have less debt.
As indicated in the accompanying financial statements, at
Results of Operations
As of
For the period from
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Liquidity and Capital Resources
As of
On
Simultaneously with the closing of our IPO, we consummated the sale of 7,900,000
private placement warrants at a price of
In order to fund working capital deficiencies or finance transaction costs in
connection with an intended initial business combination, our sponsor or an
affiliate of our sponsor or certain of our officers and directors may, but are
not obligated to, loan us funds as may be required. If we complete an initial
business combination, we may repay such loaned amounts out of the proceeds of
the trust account released to us. In the event that an 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
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our initial business combination. Moreover, we may need to obtain additional financing to complete our initial business combination, either because the transaction requires more cash than is available from the funds held in our trust account or because we become obligated to redeem a significant number of our public shares upon completion of the business combination, in which case we may issue additional securities or incur debt in connection with such business combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our initial business combination. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. In addition, following our initial business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of
Contractual Obligations
As of
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in
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Deferred Offering Costs
Deferred offering costs consist of legal and accounting expenses incurred through the balance sheet date that are directly related to our IPO. Deferred offering costs, other than the underwriting discount, were allocated to the Units issued in our IPO and the Private Placement Warrants based on a relative fair value basis, compared to total proceeds received. The underwriting discount was allocated to the Units based on a relative fair value basis, compared to total proceeds received. Upon completion of our IPO, offering costs associated with warrant liabilities were expensed, and presented as non-operating expenses in the statement of operations and offering costs associated with the Class A ordinary shares were applied against Class A ordinary shares classified as temporary equity.
Fair Value of Financial Instruments
The fair value of the Company's assets and liabilities, which qualify as financial instruments under FASB ASC 820, "Fair Value Measurements and Disclosures," approximates the carrying amounts represented in the balance sheet, primarily due to its short-term nature.
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The Company's financial instruments are classified as either Level 1, Level 2 or Level 3. These tiers include:
• Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;
• Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
• Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Warrant Liability
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
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are 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 as a liability at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.
Redeemable Share Classification
The Company's ordinary shares that were sold as part of the Units in our IPO ("public ordinary shares") contain a redemption feature which allows for the redemption of such public shares in connection with a shareholder vote or tender offer in connection with the Company's initial Business Combination. In accordance with ASC 480-10-S99, the Company classifies public ordinary shares subject to redemption outside of permanent equity as the redemption provisions are not solely within the control of the Company. The public ordinary shares sold as part of the Units in our IPO were issued with other freestanding instruments (i.e., Public Warrants) and as such, the initial carrying value of public ordinary shares classified as temporary equity, and the Public Warrants are considered a derivative liability and as such, the fair value of the Public Warrants is bifurcated and presented as a liability. The public ordinary shares are subject to ASC 480-10-S99 and are currently not redeemable as the redemption is contingent upon the occurrence of events mentioned above.
Net Loss Per Share
The Company complies with accounting and disclosure requirements of FASB ASC
Topic 260, "Earnings Per Share." Net loss per share is computed by dividing net
loss by the weighted average number of ordinary shares outstanding during the
period, excluding ordinary shares subject to forfeiture by the Sponsor. Weighted
average shares were reduced for the effect of an aggregate of 487,500 Class B
ordinary shares that are subject to forfeiture if the over-allotment option is
not exercised by the underwriters (see Note 5). At
The Company complies with accounting and disclosure requirements of FASB ASC
Topic 260, "Earnings Per Share." Net loss per share is computed by dividing net
loss by the weighted average number of ordinary shares outstanding during the
period, excluding ordinary shares subject to forfeiture by the Sponsor. Weighted
average shares were reduced for the effect of an aggregate of 487,500 Class B
ordinary shares that are subject to forfeiture if the over-allotment option is
not exercised by the underwriters. At
Recent Accounting Pronouncements
In
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company's financial statements.
JOBS Act
The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an "emerging growth company" and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an "emerging growth company," we choose to rely on such exemptions we may not be required to, among other things, (i) provide an independent registered public accounting firm's attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the report of the independent registered public accounting firm providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO's compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our IPO or until we are no longer an "emerging growth company," whichever is earlier.
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