The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with our audited
consolidated 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" and elsewhere in this Annual Report on
Form 10-K.
5
Overview
We are a blank check company formed under the laws of the State of Delaware on
February 13, 2019 for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or other similar Business
Combination with one or more businesses. We intend to effectuate our Business
Combination using cash from the proceeds of the Initial Public Offering and the
sale of the Private Units, our capital stock, debt or a combination of cash,
stock and debt.
Recent Developments
On November 16, 2020, we entered into a Merger Agreement with ParentCo, Merger
Sub LLC, Merger Sub Corp and PCT, pursuant to which we will acquire PCT for
consideration of a combination of shares in ParentCo and assumption of
indebtedness.
Pursuant to the Merger Agreement, (i) Merger Sub Corp will merge with and into
the Company (the "RH Merger"), with the Company surviving the RH Merger as a
wholly owned subsidiary of ParentCo (the "ROCH Surviving Company");
(ii) simultaneously with the RH Merger, Merger Sub LLC will merge with and into
PCT (the "PCT Merger"), with PCT surviving the PCT Merger as a wholly-owned
subsidiary of ParentCo (the "PCT Surviving Company"); and (iii) following the
PCT Merger, ParentCo will contribute to the PCT Surviving Company the proceeds
of the PIPE Placement (as defined in the Merger Agreement). ROCH Surviving
Company will acquire, and ParentCo will contribute to ROCH Surviving Company
(the "ParentCo Contribution") all units of the PCT Surviving Company directly
held by ParentCo after the PCT Merger, such that, following the ParentCo
Contribution, the PCT Surviving Company will be a wholly-owned subsidiary of the
ROCH Surviving Company (together with the RH Merger, the PCT Merger and the
other transactions related thereto, the "Proposed Transactions").
The aggregate consideration payable to the PCT Securityholders for the Proposed
Transactions (the "PCT Merger Consideration") consists of ParentCo Common Shares
(as defined in the Merger Agreement) issued on the closing date (the "Share
Consideration"), up to 4,000,000 additional ParentCo Common Shares upon the
achievement of certain targets (the "Earnout Shares") and the assumption of all
indebtedness related to (a) the Limited Offering Memorandum, dated September 23,
2020 (in connection with the bond offering by Southern Ohio Port Authority to
PureCycle: Ohio LLC) and (b) the convertible senior notes and certain other
indebtedness used to fund the construction of an industrial process facility in
Ironton, Ohio (collectively, the "Construction Indebtedness") of PCT as of the
closing date (the "Assumed Indebtedness").
The Company has called a special meeting of stockholders to be held on March 16,
2021 to approve the Business Combination and related matters. If approved, the
Proposed Transactions are expected to be consummated in the first quarter of
2021, subject to customary representations and warranties, covenants, closing
conditions and other deliverables and provisions as further described in the
Merger Agreement.
Results of Operations
We have neither engaged in any operations (other than searching for a Business
Combination after our Initial Public Offering) nor generated any revenues to
date. Our only activities from February 13, 2019 (inception) through
December 31, 2020 were organizational activities, those necessary to prepare for
the Initial Public Offering, identifying a target for our Business Combination,
and activities in connection with the proposed acquisition of PCT. We do not
expect to generate any operating revenues until after the completion of our
Business Combination. We expect to 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 year ended December 31, 2020, we had a net loss of $1,062,553, which
consisted of operating costs of $1,097,684 offset by interest income on
marketable securities held in the Trust Account of $35,131.
For the period from February 13, 2019 (inception) through December 31, 2019, we
had a net loss of $1,594, which consisted of formation and operating costs.
6
Liquidity and Capital Resources
Until the consummation of the Initial Public Offering, our only source of
liquidity was an initial purchase of common stock by the Sponsor and loans from
our Sponsor.
On May 7, 2020, we consummated the Initial Public Offering of 7,500,000 Units at
a price of $10.00 per Unit, generating gross proceeds of $75,000,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 262,500 Private Units at a price of $10.00 per Private Unit in a
private placement to our stockholders, generating gross proceeds of $2,625,000.
On May 26, 2020, in connection with the underwriters' election to partially
exercise their over-allotment option, we consummated the sale of an additional
150,000 Units and the sale of an additional 3,000 Private Units, generating
total gross proceeds of $1,530,000.
Following the Initial Public Offering, the partial exercise of the
over-allotment option by the underwriters and the sale of the Private Units, a
total of $76,500,000 was placed in the Trust Account and we had $647,863 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
$4,678,313 in transaction costs, including $1,530,000 of underwriting fees,
$2,677,500 of deferred underwriting fees and $470,813 of other offering costs.
For the year ended December 31, 2020, cash used in operating activities was
$478,577, which consisted of our net loss of $1,062,553 and interest earned on
marketable securities held in the Trust Account of $35,131. Changes in operating
assets and liabilities provided $619,107 of cash from operating activities.
For the period from February 13, 2019 (inception) through December 31, 2019,
cash used in operating activities was $30, which consisted of our net loss of
$1,594 and changes in operating assets and liabilities provided $1,564 of cash
from operating activities.
As of December 31, 2020, we had marketable securities held in the Trust Account
of $76,535,131 (including approximately $35,000 of interest income). Interest
income on the balance in the Trust Account may be used by us to pay taxes.
During the year ended December 31, 2020, we did not withdraw any of the interest
earned on the Trust Account. We intend to use substantially all of the funds
held in the Trust Account, including any amounts representing interest earned on
the Trust Account to complete our Business Combination. 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, 2020, we had $200,580 of cash held outside of 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, and 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 Initial Stockholders, or certain of
the Company's officers and directors or their affiliates 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. Except for the foregoing, the
terms of such loans, 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.
As of December 31, 2020, we had $200,580 in our operating bank accounts,
$76,535,131 in marketable securities held in the Trust Account to be used for a
Business Combination or to repurchase or redeem stock in connection therewith
and working capital deficit of $263,641, which excludes franchise taxes payable
of $156,450, of which such amount will be paid from interest earned on the Trust
Account. As of December 31, 2020, approximately $35,000 of the amount on deposit
in the Trust Account represented interest income, which is available to pay our
tax obligations.
7
On November 2, 2020 and February 22, 2021, the Sponsor committed to provide us
an aggregate of $850,000 in loans in order to finance transaction costs in
connection with a Business Combination. As of March 8, 2021, these amounts have
not yet been funded by the Sponsor.
We may raise additional capital through loans or additional investments from the
Sponsor or our stockholders, officers, directors, or third parties. Our officers
and directors and the Sponsor may, but are not obligated to (except as described
above), loan us funds, from time to time, in whatever amount they deem
reasonable in their sole discretion, to meet our working capital needs. Based on
the foregoing, we believe we will have sufficient cash to meet our needs through
the earlier of consummation of a Business Combination or November 7, 2021, the
deadline to complete a Business Combination pursuant to our Amended and Restated
Certificate of Incorporation (unless otherwise amended by stockholders).
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2020.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than as described below.
The underwriters are entitled to a deferred fee of 3.50% of the gross proceeds
of the Initial Offering, or $2,677,500. The deferred fee will be paid in cash
upon the closing of a Business Combination from the amounts held in the Trust
Account, subject to the terms of the underwriting agreement.
On February 27, 2020, we entered into an investor relations agreement, pursuant
to which, in exchange for investor relations services, we paid the service
provider a one-time fee of $10,000. Upon the closing of a Business Combination,
we will pay the service provider a fee of $50,000 and following the Business
Combination, we will pay a fee of $10,000 per month for a period of six months.
Critical Accounting Policies
The preparation of consolidated 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:
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 is classified as a liability instrument and 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, common stock subject to
possible redemption is presented at redemption value as temporary equity,
outside of the stockholders' equity section of our consolidated balance sheets.
Net Income (Loss) per Common Share
We apply the two-class method in calculating earnings per share. Net income per
common share, basic and diluted for redeemable common stock is calculated by
dividing the interest income earned on the Trust Account, net of applicable
taxes, if any, by the weighted average number of shares of redeemable common
stock outstanding for the period. Net loss per common share, basic and diluted
for non-redeemable common stock is calculated by dividing net income less income
attributable to redeemable common stock, by the weighted average number of
shares of non-redeemable common stock outstanding for the period presented.
8
Recent Accounting Pronouncements
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our consolidated financial statements.
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