References in this report to "we," "us" or the "Company" refer to HL
Acquisitions Corp. References to our "management" or our "management team" refer
to our officers and directors, and references to the "Sponsor" refer to
Metropolitan Capital Partners V, LLC, a company affiliated with our Chief
Executive Officer. 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
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 on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of 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 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 Annual Report on Form 10-K filed with the SEC.
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.
Recent Developments
On December 17, 2019, we entered into Sale and Purchase Agreement ("Agreement")
with Chi, and Sila Energy Holding Limited, the sole shareholder of Chi
("Seller"), which is affiliated with Ajay Khandelwal, one of our directors.
Pursuant to the Agreement, Seller will sell to us all of the outstanding equity
interests of Chi in exchange for our ordinary shares and warrants (the "Chi
Business Combination").
Under the Agreement, in exchange for all of the outstanding equity interests of
Chi, Seller will receive: (i) 775,000 ordinary shares ("Purchase Shares"), (ii)
three-year warrants to purchase 3,000,000 ordinary shares at an exercise price
of $10.33 per share ("Class I Warrants") and (iii) three-year warrants to
purchase 4,000,000 ordinary shares at an exercise price of $15.00 per share
("Class II Warrants").
Additionally, HL Acquisitions Holdings LLC and Metropolitan Capital Partners V,
LLC (the "Founders") will enter into an agreement ("Founder Agreement") to
forfeit 200,000 ordinary shares in exchange for the issuance of Class I Warrants
to purchase 600,000 ordinary shares. The Founders will also agree to forfeit up
to an aggregate of up to 579,364 ordinary shares, with the number of shares to
be forfeited to be determined based on the amount of cash remaining in our Trust
Account after deducting all amounts to be paid to shareholders exercising their
conversion rights and after adding all amounts raised by or on our behalf in
private financings (with half of the shares forfeited by the Founders to be
cancelled and the other half of such shares to be transferred to the Seller).
EarlyBirdCapital has agreed to enter into an amendment ("UPO Amendment") on
behalf of itself and the other holders of our unit purchase options issued in
our Initial Public Offering to exchange the unit purchase options for 50,000
ordinary shares at the closing of the Chi Business Combination (the "Closing").
Upon the approval of the holders of our currently outstanding warrants, we will
enter into a warrant amendment agreement pursuant to which each outstanding
warrant will represent the right to receive 0.1 of an ordinary share on the
closing date, rather than being exercisable to purchase one ordinary share (the
"Warrant Amendment").
The Chi Business Combination will be consummated subject to the deliverables and
provisions as further described in the Agreement.
On January 2, 2020, our shareholders approved an amendment to our Amended and
Restated Memorandum and Articles of Association (the "Charter") to extend the
period of time for which we are required to consummate a Business Combination to
March 2, 2020. The number of ordinary shares presented for redemption in
connection with the extension was 275,984. We paid cash in the aggregate amount
of $2,851,457, or approximately $10.33 per share, to redeeming stockholders. We
deposited $0.03 for each Public Share that was not converted in connection with
the extension, or an aggregate of $313,441, into the Trust Account. We now have
until March 2, 2020 to consummate a Business Combination.
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Overview
We are a blank check company incorporated in the British Virgin Islands on
February 23, 2018 and formed for the purpose of acquiring, engaging in a share
exchange, share reconstruction and amalgamation, purchasing all or substantially
all of the assets of, entering into contractual arrangements, 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 of the Initial Public Offering and the sale of the Private Placement
Warrants, our capital stock, debt or a combination of cash, stock and debt.
We have neither engaged in any operations nor generated any revenues to date.
All activity through December 31, 2019 relates to our formation, our Initial
Public Offering, which was consummated on July 2, 2018, searching for a Business
Combination candidate and activities in connection with the proposed acquisition
of Chi.
Results of Operations
Our only activities from February 23, 2018 (inception) to December 31, 2019 were
organizational activities, those necessary to consummate the Initial Public
Offering, described below, and our search for a Business Combination candidate.
We do not expect to generate any operating revenues until after the completion
of our Business Combination. We generate non-operating income in the form of
interest income on marketable securities held after the Initial Public Offering.
We incur 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 three months ended December 31, 2019, we had a net loss of $74,553,
which consists of operating costs of $330,775, offset by interest income on
marketable securities held in the Trust Account of $256,222.
For the six months ended December 31, 2019, we had net income of $119,619, which
consists of interest income on marketable securities held in the Trust Account
of $555,741 and an unrealized gain on marketable securities held in the Trust
Account of $12,454, offset by operating costs of $448,579.
For the three months ended December 31, 2018, we had net income of $215,576,
which consists of interest income on marketable securities held in the Trust
Account of $296,155 and an unrealized gain on marketable securities held in the
Trust Account of $18,969, offset by operating costs of $99,548.
For the six months ended December 31, 2018, we had net income of $376,689, which
consists of interest income on marketable securities held in the Trust Account
of $579,570 and an unrealized gain on marketable securities held in the Trust
Account of $7,178, offset by operating costs of $210,059.
Liquidity and Capital Resources
On July 2, 2018, we consummated the Initial Public Offering of 5,500,000 Units,
which includes a partial exercise by the underwriters of their over-allotment
option in the amount of 500,000 Units, at a price of $10.00 per Unit, generating
gross proceeds of $55,000,000. Simultaneously with the closing of the Initial
Public Offering, we consummated the sale of 2,375,000 Private Placement Warrants
to certain of our initial shareholders at a price of $1.00 per warrant,
generating gross proceeds of $2,375,000.
Following the Initial Public Offering and the sale of the Private Placement
Warrants, a total of $55,000,000 was placed in the Trust Account. We incurred
$1,879,265 in Initial Public Offering related costs, including $1,375,000 of
underwriting fees and $504,265 of other costs.
For the six months ended December 31, 2019, cash used in operating activities
amounted to $340,467. Net income of $119,619 was offset by interest earned on
marketable securities held in the Trust Account of $555,741 and an unrealized
gain on marketable securities held in our Trust Account of $12,454. Changes in
operating assets and liabilities provided $108,109 of cash for operating
activities.
For the six months ended December 31, 2018, cash used in operating activities
amounted to $271,957. Net income of $376,689 was offset by interest earned on
marketable securities held in the Trust Account of $579,570 and an unrealized
gain on marketable securities held in our Trust Account of $7,178. Changes in
operating assets and liabilities used $61,898 of cash for operating activities.
As of December 31, 2019, we had marketable securities held in the Trust Account
of $56,839,953. 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 taxes payable) to complete our initial Business Combination. We
may withdraw interest from the Trust Account to pay franchise and income taxes.
To the extent that our equity or debt is used, in whole or in part, as
consideration to complete our initial 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.
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In order to fund working capital deficiencies or finance transaction costs in
connection with an 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 our initial Business
Combination, we would repay such loaned amounts. 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 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. During the six months ended December 31, 2019, we issued convertible
promissory notes to our Chief Executive Officer, pursuant to which we borrowed
an aggregate amount of $493,280.
On December 31, 2019, we issued an unsecured promissory note to our Chief
Executive Officer, pursuant to which we borrowed an aggregate of $156,720.
On January 29, 2020, our Chief Executive Officer made a $175,000 loan to us
which was evidenced by two promissory notes in an aggregate principal amount of
$175,000 (the "Notes"). The Notes are non-interest bearing and payable upon the
consummation of a Business Combination. Upon consummation of a Business
Combination, approximately $18,000 of the principal balance of the Notes may be
converted, at the holder's option, into warrants at a price of $1.00 per
warrant, with the balance of the Notes being payable in cash. The terms of the
warrants will be identical to the warrants issued by us in the Initial Public
Offering, except the warrants will be non-redeemable and may be exercised on a
cashless basis, in each case so long as they continue to be held by the initial
holder or its permitted transferees. If a Business Combination is not
consummated, the Notes will not be repaid by us and all amounts owed thereunder
by us will be forgiven except to the extent that we have funds available to us
outside of the Trust Account.
As of December 31, 2019, we had cash of $325,714 held outside of the Trust
Account and working capital of $113,668. Until the consummation of a Business
Combination, we will be using the funds not held in the Trust Account for
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. Our Sponsor, officers, directors or their affiliates are not under
any obligation to advance us funds, or to invest in us. Accordingly, we may not
be able to obtain additional financing. If we are unable to raise additional
capital, we may be required to take additional measures to conserve liquidity,
which could include, but not necessarily be limited to, curtailing operations,
suspending the pursuit of a potential transaction, and reducing overhead
expenses. We cannot provide any assurance that new 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, 2019. 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 other than an agreement to pay Metropolitan
Capital Partners II, LP, an affiliate of the Company's Chief Executive Officer a
monthly fee of $10,000 for office space, utilities and administrative and
bookkeeping services to the Company. We began incurring these fees on June 27,
2018 and will continue to incur these fees monthly until the earlier of the
completion of the business combination and the Company's liquidation.
We have engaged EarlyBirdCapital, Inc. ("EarlyBirdCapital") as an advisor in
connection with a Business Combination to assist us in holding meetings with our
shareholders to discuss a potential Business Combination and the target
business' attributes, introduce us to potential investors that are interested in
purchasing securities, assist us in obtaining shareholder approval for the
Business Combination and assist us with our press releases and public filings in
connection with a Business Combination. We will pay EarlyBirdCapital a cash fee
for such services upon the consummation of a Business Combination in an amount
equal to $2,200,000. In addition to the forgoing fee, we will pay
EarlyBirdCapital a cash fee equal to one percent (1.0%) of the total
consideration payable in a proposed Business Combination if EarlyBirdCapital
introduces us to a target business with which we complete a Business
Combination.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with 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:
Ordinary shares subject to possible redemption
We account for our ordinary shares subject to possible conversion in accordance
with the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Ordinary shares subject to mandatory
redemption are classified as a liability instrument and are measured at fair
value. Conditionally redeemable ordinary shares (including ordinary shares that
feature 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) are classified as temporary equity. At all other times, ordinary
shares are classified as shareholders' equity. Our ordinary shares feature
certain redemption rights that are considered to be outside of our control and
subject to occurrence of uncertain future events. Accordingly, ordinary shares
subject to possible redemption are presented at redemption value as temporary
equity, outside of the shareholders' equity section of our balance sheet.
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Net loss per ordinary share
We apply the two-class method in calculating earnings per share. Ordinary shares
subject to possible redemption which are not currently redeemable and are not
redeemable at fair value, have been excluded from the calculation of basic net
loss per ordinary share since such shares, if redeemed, only participate in
their pro rata share of the Trust Account earnings. Our net income is adjusted
for the portion of income that is attributable to ordinary shares subject to
redemption, as these shares only participate in the earnings of the Trust
Account and not our income or losses.
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
our financial statements.
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