(EDGAR Online via COMTEX) -- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
We are a blank check company incorporated on April 26, 2017 in Delaware and formed for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more target businesses. We intend to effectuate our initial business combination using cash from the proceeds of the initial public offering and the private placement of the private placement warrants, our capital stock, debt or a combination of cash, stock and debt.
The issuance of additional shares of our stock in a business combination:
? may significantly dilute the equity interest of investors in this offering, which dilution would increase if the anti-dilution provisions in the Class B common stock resulted in the issuance of Class A shares on a greater than one-to-one basis upon conversion of the Class B common stock;
? may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock;
? could cause a change in control if a substantial number of shares of our common stock is 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 stock ownership or voting rights of a person seeking to obtain control of us; and
? may adversely affect prevailing market prices for our Class A common stock and/or warrants.
Similarly, if we issue debt securities, 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 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, our ability to pay expenses, make capital expenditures and acquisitions, and fund 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;
? limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, and execution of our strategy; and
? other purposes and other disadvantages compared to our competitors who have less 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 an initial business combination will be successful.
On November 1, 2018, we entered into the Transaction Agreement with OSW Holdings and the other parties thereto. We amended the Transaction Agreement on January 7, 2019. Pursuant to the Transaction Agreement, among other things, OSW Holdings will, directly or indirectly, acquire our company and the "One Spa World" business of Steiner Leisure Limited. OneSpaWorld is a pre-eminent global operator of health and wellness centers onboard cruise ships and a leading operator of health and wellness centers at destination resorts worldwide. Its highly-trained and experienced staff offer guests a comprehensive suite of premium health, fitness, beauty and wellness services and products. Consummation of the transactions contemplated by the Transaction Agreement is subject to customary conditions of the respective parties, and conditions customary to special purpose acquisition companies, including the approval of our stockholders.
The Transaction Agreement and related agreements are described above under the heading "Item 1, Business - Initial Business Combination."
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from inception to December 31, 2018 were organizational activities, preparing for the initial public offering, identifying a target company for a business combination, negotiating the Transaction Agreement, and preparing for the Transaction. We do not expect to generate any operating revenues until after the completion of the Transaction or an alternative business combination. We expect to generate non-operating income in the form of interest income on cash and 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). We have incurred due diligence expenses in connection with our evaluation of OneSpaWorld, and, in the event the Transaction is not consummated, will incur due diligence expenses in connection with completing an alternative business combination.
For the year ended December 31, 2018, we had a net income of $397,028, which consists of operating costs of $4,690,718 and a $1,017,089 provision for income taxes, offset by an unrealized gain on marketable securities held in our Trust Account of $448,765 and interest income on marketable securities held in the Trust Account of $5,656,070.
For the period from April 26, 2017 (inception) through December 31, 2017, we had net income of $336,347, which consists of operating costs of $139,916 and a $89,409 provision for income taxes, offset by an unrealized gain on marketable securities held in our Trust Account of $564,438 and interest income on marketable securities held in the Trust Account of $1,234.
Liquidity and Capital Resources
On October 27, 2017, we consummated the initial public offering of 30,000,000 Units at a price of $10.00 per Unit, generating gross proceeds of $300,000,000. Simultaneously with the closing of the initial public offering, the Company consummated the sale of 8,000,000 warrants at a price of $1.00 per warrant ("Placement Warrants") in a private placement to Haymaker Sponsor, LLC (the "Sponsor") generating gross proceeds of $8,000,000.
Following the closing of the initial public offering on October 27, 2017, an amount of $300,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the initial public offering and the Placement Warrants was placed in a trust account ("Trust Account") which may be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the "Investment Company Act"), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the consummation of the initial business combination or (ii) the distribution of the Trust Account, as described below, except that interest earned on the Trust Account can be released to the Company to pay its tax obligations.
On November 1, 2017, in connection with the underwriters' exercise of their over-allotment option in part, we consummated the sale of an additional 3,000,000 Units at a price of $10.00 per Unit, generating total gross proceeds of $30,000,000 that were deposited into the Trust Account.
Transaction costs amounted to $18,834,367, consisting of $6,000,000 of underwriting fees, $12,150,000 of deferred underwriting fees and $684,367 of initial public offering costs. In addition, $1,596,997 of cash was held outside of the Trust Account and was available for working capital purposes
As of December 31, 2018, we had cash and marketable securities held in the Trust Account of $336,670,506 (including $5,656,070 of interest income and $448,765 of unrealized gains) consisting of U.S. treasury bills with a maturity of 180 days or less. Interest income on the Trust Account may be used by us to pay franchise and income taxes. Through December 31, 2018, we did not withdraw any funds from the interest earned on the Trust Account.
For the year ended December 31, 2018, cash used in operating activities was $902,436, consisting primarily of $5,707,807 in operating costs, netted with the changes in operating assets and liabilities of $4,805,370 of cash from operating activities. The interest and unrealized gains totaling $6,104,835 earned on cash and marketable securities held in the Trust Account are not available for operations, except for the payment of income and franchise taxes.
For the period April 26, 2017 (inception) through December 31, 2017, cash used in operating activities was $216,812, consisting primarily of $139,916 in operating costs, plus changes in operating assets and liabilities that used $12,513 of cash from operating activities. The interest and unrealized gains totaling $565,672 earned on cash and marketable securities held in the Trust Account are not available for operations, except for the payment of income and franchise taxes.
We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less deferred underwriting commissions) to complete our business combination. We may withdraw interest to pay franchise and income taxes. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our 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 December 31, 2018, we had cash of $221,384 held outside the Trust Account. If we do not complete the Transaction, 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, and structure, negotiate and complete a business combination.
In order to finance transaction costs in connection with the initial business combination, the Sponsor, the Company's officers and directors or their affiliates may, but are not obligated to, loan the Company funds from time to time or at any time, as may be required ("Working Capital Loans"). Each Working Capital Loan would be evidenced by a promissory note. The Working Capital Loans would either be paid upon consummation of the initial business combination, without interest, or, at the holder's discretion, up to $1,500,000 of the Working Capital Loans may be converted into warrants that would be identical to Placement Warrants, including as to exercise price, exercisability and exercise period.
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business through the consummation of the Transaction. However, in the event the Transaction is not consummated, we will likely have insufficient funds available to operate our business prior to an alternative business combination. Moreover, in the event the Transaction is not consummated, we may need to obtain additional financing either to complete an alternative business combination or because we become obligated to redeem a significant number of our public shares upon completion of an alternative business combination, in which case we may issue additional securities or incur debt in connection with such alternative business combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of an alternative business combination. If we are unable to complete an alternative 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. We cannot provide any assurance that additional financing will be available to us on commercially acceptable terms, if at all. These conditions raise substantial doubt about our ability to continue as a going concern.
Off-balance sheet financing arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of December 31, 2018. 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.
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 $10,000 for office space, utilities and administrative support provided to the Company. We began incurring these fees on October 27, 2017 and will continue to incur these fees monthly until the earlier of the completion of the initial business combination and the Company's liquidation.
The underwriters are entitled to underwriting commissions of 5.5%, of which 2.0% ($6,000,000) was paid at the closing of the initial public offering, and 3.5% ($10,500,000) was deferred. The deferred underwriter compensation will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a business combination, subject to the terms of the underwriting agreement. The underwriters are not entitled to any interest accrued on the Deferred Underwriter Compensation. In addition, the underwriters were entitled to additional underwriting commissions of 5.5% ($1,650,000) that was deferred upon on the exercise of the over-allotment option of $30,000,000.
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. The Company has identified the following critical accounting policy:
Common Stock subject to possible redemption
We account for our common stock subject to possible conversion in accordance with the guidance in Accounting Standards Codification ("ASC") Topic 480 "Distinguishing Liabilities from Equity." 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, the common stock subject to possible redemption is presented as temporary equity at redemption value, outside of the stockholders' equity section of our balance sheet.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company's financial statements.
Mar 06, 2019
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