UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification Number) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class: | Trading Symbol(s) | Name of Each Exchange on Which Registered: | ||
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 22, 2023,
COMPUTE HEALTH ACQUISITION CORP.
Quarterly Report on Form 10-Q
Table of Contents
i
PART I-FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
COMPUTE HEALTH ACQUISITION CORP.
CONDENSED BALANCE SHEETS
| March 31, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Income tax receivable | - | |||||||
| Total current assets | ||||||||
| Investments held in Trust Account | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities, Class A Common Stock Subject to Possible Redemption and Stockholders’ Deficit: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Franchise tax payable | ||||||||
| Due to related party | - | |||||||
| Convertible promissory note – related party | ||||||||
| Promissory notes – related party | ||||||||
| Income tax payable | - | |||||||
| Total current liabilities | ||||||||
| Derivative warrant liabilities | ||||||||
| Deferred legal costs | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 6) | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ | ||||||||
| Class A common stock, $ | ||||||||
| Class B common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total Liabilities, Class A Common Stock Subject to Possible Redemption and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
1
COMPUTE HEALTH ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
| Three Month Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| General and administrative expenses | $ | $ | ||||||
| Franchise tax expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Change in fair value of derivative warrant liabilities | ( | ) | ||||||
| Change in fair value of convertible promissory note – related party | ( | ) | ||||||
| Income from investments held in Trust Account | ||||||||
| Interest earned on bank account | ||||||||
| Loss (income) before income tax | ( | ) | ||||||
| Income tax expense | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| $ | ( | ) | $ | |||||
| $ | ( | ) | $ | |||||
The accompanying notes are an integral part of these condensed financial statements.
2
COMPUTE HEALTH ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
THREE MONTHS ENDED MARCH 31, 2023
| Common Stock | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance - December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Remeasurement of Class A common stock to redemption value | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
THREE MONTHS ENDED MARCH 31, 2022
| Common Stock | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance - March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
3
COMPUTE HEALTH ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
| Three Month Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| Change in deferred legal fees | ||||||||
| Change in fair value of derivative warrant liabilities | ( | ) | ||||||
| Change in fair value of promissory note – related party | ( | ) | ||||||
| Income from investments held in Trust Account | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ||||||
| Franchise tax payable | ( | ) | ||||||
| Income tax receivable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Cash deposited in Trust Account for extension | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from promissory note to related party | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | $ | ( | ) | $ | ( | ) | ||
| Cash - beginning of the period | ||||||||
| Cash - end of the period | $ | $ | ||||||
| Supplemental disclosure of noncash activities: | ||||||||
| Conversion of related party advance to promissory note | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
4
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 - Description of Organization, Business Operations and Liquidity
Compute Health Acquisition Corp. (the “Company” or “Compute Health”) is a blank check company incorporated in Delaware on October 7, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). The Company is an emerging growth company and, as such, the Company is subject to all of the risks associated with emerging growth companies.
As of March 31, 2023, the Company had not commenced any operations. All activity for the period from October 7, 2020 (inception) through March 31, 2023 relates to the Company’s formation and the initial public offering (the “Initial Public Offering”) described below, and, subsequent to the Initial Public Offering, identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates non-operating income in the form of interest income on its investments held in the trust account from the proceeds of its Initial Public Offering. The Company’s fiscal year end is December 31.
The Company’s sponsor is Compute Health
Sponsor LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for the Company’s Initial
Public Offering was declared effective on February 4, 2021. On February 9, 2021, the Company consummated its Initial Public Offering of
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the private placement (“Private Placement”) of
Upon the closing of the Initial Public Offering
and the Private Placement, $
In connection with the Extension Proposal as described
in Trust Account Redemptions and Extension of Combination Period below, stockholders elected to redeem
The Company’s management has broad discretion
with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Private Placement Warrants,
although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There
is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete one or more initial
Business Combinations having an aggregate fair market value of at least
5
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The Company will provide the holders of its Public
Shares (the “Public Stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion
of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means
of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender
offer will be made by the Company, solely in its discretion. The Public Stockholders will be entitled to redeem their Public Shares for
a pro rata portion of the amount then held in the Trust Account ($
The Certificate of Incorporation provides that
a Public Stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert
or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)),
will be restricted from redeeming its shares with respect to more than an aggregate of
Trust Account Redemptions and Extension of Combination Period
On December 2, 2022, the Company held a special
meeting of stockholders (the “Special Meeting”) to approve amendments to the Company’s Certificate of Incorporation
to (i) extend the time for the Company to complete a Business Combination from February 9, 2023, which is 24 months from the date of the
Initial Public Offering, to August 9, 2023, which is 30 months from the date of the Initial Public Offering (the “Extension Proposal”),
and (ii) to remove the limitation that the Company may not redeem public shares to the extent that such redemption would result in the
Company having net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of Exchange Act) of less than $
6
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Both proposals were approved. In connection with
the Extension Proposal, stockholders elected to redeem
On December 5, 2022, the Company filed a Certificate
of Amendment of Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State
of the State of Delaware to (A) to extend the date (the “Termination Date”) by which it must either (a) consummate a merger,
capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination, with one or more businesses,
which we refer to as our initial Business Combination, or (b) (i) cease all operations except for the purpose of winding up if the Company
fails to complete such initial business combination and (ii) redeem all of the shares of Class A common stock of the Company sold in the
Company’s initial public offering that was consummated on February 9, 2021, from February 9, 2023 to August 9, 2023 (the “Extension
Amendment”) and (B) to eliminate from the Certificate of Incorporation the limitation that the Company may not redeem public shares
to the extent that such redemption would result in the Company having net tangible assets (as determined in accordance with Rule 3a51-1(g)(1)
of the Securities Exchange Act of 1934) of less than $
If the Company is unable to complete a Business
Combination within 30 months from the closing of the Initial Public Offering, or August 9, 2023, (the “Combination Period”)
and the Company’s stockholders have not amended the Certificate of Incorporation to extend such Combination Period, the Company
will (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business
days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the
Trust Account including interest earned on the funds held in the Trust Account and not previously released to the Company to pay its taxes
(less up to $
The initial stockholders agreed to waive
their rights to liquidating distributions from the Trust Account with respect to the Founder Shares if the Company fails to complete
a Business Combination within the Combination Period. However, if the initial stockholders acquire Public Shares in or after the
Initial Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such Public
Shares if the Company fails to complete a Business Combination within the Combination Period. The underwriters agreed to waive their
rights to the deferred underwriting commission (see Note 6) held in the Trust Account in the event the Company does not complete a
Business Combination within in the Combination Period and, in such event, such amounts will be included with the other funds held in
the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is
possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will
be only $
7
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Proposed Business Combination
On February 9, 2023, the Company entered into a business combination agreement (the “Business Combination Agreement”) with Compute Health Corp., a Delaware corporation and direct, wholly-owned subsidiary of the Company (“Merger Sub I”), Compute Health LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of the Company (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”), Allurion Technologies Holdings, Inc., a Delaware corporation and direct, wholly-owned subsidiary of Allurion (as defined below) (“Pubco”), and Allurion Technologies, Inc., a Delaware corporation (“Allurion” and, collectively with the Company, the Merger Subs and Pubco, the “Parties”).
Pursuant to the Business Combination Agreement, and upon the terms and subject to the conditions set forth therein, the business combination will be effected in three steps: (a) the Company will merge with and into Pubco (the “CPUH Merger,” the closing of the CPUH Merger, the “CPUH Merger Closing” and the time at which the CPUH Merger becomes effective, the “CPUH Merger Effective Time”), with Pubco surviving (Pubco, in its capacity as the surviving company in the CPUH Merger, the “Surviving Corporation”) and, after giving effect to such merger, becoming the publicly-listed company and the sole owner of each Merger Sub, (b) at least three (3) hours following the consummation of the CPUH Merger, Merger Sub I will merge with and into Allurion (the “Intermediate Merger,” the closing of the Intermediate Merger, the “Intermediate Merger Closing” and the time at which the Intermediate Merger becomes effective, the “Intermediate Merger Effective Time”), with Allurion surviving as the surviving company in the Intermediate Merger (Allurion, in its capacity as the surviving company in the Intermediate Merger, the “Intermediate Surviving Corporation”) and, after giving effect to such merger, becoming a wholly-owned subsidiary of the Surviving Corporation and (c) thereafter, the Intermediate Surviving Corporation will merge with and into Merger Sub II (the “Final Merger,” and the time at which the Final Merger becomes effective, the “Final Merger Effective Time”) (the Final Merger, collectively with the CPUH Merger and the Intermediate Merger, the “Mergers” and, together with the other transactions contemplated by the Business Combination Agreement and the Ancillary Documents (as defined in the Business Combination Agreement), the “Proposed Transactions”), with Merger Sub II surviving as the surviving company in the Final Merger (Merger Sub II, in its capacity as the surviving company of the Final Merger, the “Surviving Subsidiary Company”) and, after giving effect to such merger, remaining a wholly-owned subsidiary of the Surviving Corporation.
Upon closing, the combined company (the “New Company”) will be named Allurion Technologies, Inc. and its common stock (the “ALUR Common Stock”) is expected to be traded on the New York Stock Exchange under the symbol “ALUR”.
In connection with the execution of the Business
Combination Agreement, the Company and Pubco entered into Subscription Agreements with certain accredited investors or qualified institutional
buyers (collectively, the “Subscription Investors”) concurrently with the execution of the Business Combination Agreement
on February 9, 2023. Pursuant to the Subscription Agreements, the Subscription Investors agreed to subscribe for and purchase, and Pubco
agreed to issue and sell, to the Subscription Investors an aggregate of
Upon the closing of the proposed transaction,
it is expected that the New Company will issue, and assume warrants and other equity incentive arrangements representing or underlying,
in the aggregate,
8
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
In connection with the proposed transaction, holders
of the Company’s Class A common stock will have the right to redeem their Class A shares. If holders of the Company’s Class
A common stock elect not to redeem their Class A shares in connection with the proposed transaction, such holders will receive, at the
closing of the proposed transaction, an additional
The proposed transaction has been approved by the boards of directors of each of Compute Health and Allurion. The proposed transaction will require the approval of the stockholders of each of Compute Health and Allurion and is subject to other customary closing conditions, including the receipt of certain regulatory approvals and a registration statement on Form S-4 (the “Registration Statement”) being declared effective by the Securities and Exchange Commission (the “SEC”).
The Business Combination would be consummated in accordance with the terms and subject to the conditions as further described in the Business Combination Agreement and other related supporting agreements as filed with the SEC on a Current Report on Form 8-K on February 9, 2023.
Liquidity and Going Concern
As of March 31, 2023, the Company had approximately
$
The Company’s liquidity needs prior to
the consummation of the Initial Public Offering were satisfied through the payment of $
9
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
However, in connection with the Company’s assessment of going concern considerations in accordance with FASB’s ASC Topic 205-40, “Presentation of Financial Statements - Going Concern,” management has determined that the mandatory liquidation and subsequent dissolution, should the Company be unable to complete a business combination, raises substantial doubt about the Company’s ability to continue as a going concern. The Company has until August 9, 2023 to consummate a Business Combination. It is uncertain that the Company will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after August 9, 2023 or such later date as approved by the Company’s stockholders.
Risks and Uncertainties
Management is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have an effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these condensed financial statements. The condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these financial statements and the specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these financial statements.
On August 16, 2022, the Inflation Reduction Act
of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal
On December 27, 2022, the Treasury Department and Internal Revenue Service (“IRS”) issued a Notice 2023-2 (“Notice”), which provided interim guidance regarding the application of the corporate stock repurchase excise tax until the issuance of proposed regulations. The Notice excluded the distributions complete liquidation of a corporation from the base of the excise tax. The Notice also excludes from the scope of the excise tax any distribution made during the taxable year in which a corporation fully liquidates and dissolves, even if a distribution precedes the formal decision to liquidate.
10
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include normal recurring adjustments, necessary for the fair statement of the balances and results for the periods presented. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected through December 31, 2023.
The accompanying unaudited condensed consolidated financial statements of the Company include its wholly owned subsidiary in connection with the planned merger. All inter-company accounts and transactions are eliminated in consolidation.
The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Annual Report on Form 10-K filed by the Company with the SEC on April 4, 2023.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s condensed financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal
Depository Insurance Corporation coverage limit of $
Use of Estimates
The preparation of condensed financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the condensed financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
11
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had no cash equivalents held outside the Trust Account as of March 31, 2023 and December 31, 2022.
Investments Held in Trust Account
The Company’s portfolio of investments is comprised of U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or investments in money market funds that invest in U.S. government securities and generally have a readily determinable fair value, or a combination thereof. When the Company’s investments held in the Trust Account are comprised of U.S. government securities, the investments are classified as trading securities. When the Company’s investments held in the Trust Account are comprised of money market funds, the investments are recognized at fair value. Trading securities and investments in money market funds are presented on the condensed balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities is included in income from investments held in Trust Account in the accompanying condensed statements of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC Topic 820, “Fair Value Measurements,” equal or approximate the carrying amounts represented in the condensed balance sheets due to their short-term nature.
Fair Value Measurements
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. U.S. 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). These tiers consist of:
| ● | Level 1, defined as observable inputs such as quoted prices 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. |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
Derivative Warrant Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
12
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The warrants issued in connection with the Initial Public Offering (the “Public Warrants”) and the Private Placement Warrants are recognized as derivative liabilities in accordance with ASC 815. Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s condensed statements of operations. The fair value of the Public Warrants issued in connection with the Public Offering and Private Placement Warrants were initially measured at fair value using a Monte Carlo simulation model and subsequently, the fair value of the Private Placement Warrants have been estimated using a Monte Carlo simulation model each measurement date. The fair value of Public Warrants issued in connection with the Initial Public Offering have subsequently been measured based on the listed market price of such warrants. As the transfer of Private Placement Warrants to anyone who is not a permitted transferee would result in the Private Placement Warrants having substantially the same terms as the Public Warrants, the Company determined that the fair value of each Private Placement Warrant is equivalent to that of each Public Warrant. The fair value of the Warrants as of March 31, 2023 and December 31, 2022, is based on observable listed prices for such warrants. The determination of the fair value of the warrant liability may be subject to change as more current information becomes available and accordingly the actual results could differ significantly. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
Convertible Promissory Note - Related Party
The Company has elected the fair value option to account for its Convertible promissory note - related party with its Sponsor as defined and more fully described in Note 5. As a result of applying the fair value option, the Company records each draw at fair value with a gain or loss recognized at issuance, and subsequent changes in fair value are recorded as change in the fair value of its Convertible promissory note - related party on the statements of operations. The fair value is based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s and, if applicable, an independent third-party valuation firm’s own assumption about the assumptions a market participant would use in pricing the asset or liability.
Offering Costs Associated with the Initial Public Offering
Offering costs consisted of legal, accounting, underwriting fees and other costs incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs are allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with warrant liabilities are expensed as incurred and presented as non-operating expenses on the condensed statements of operations. Offering costs associated with the Class A common stock are charged against their carrying value upon the completion of the Initial Public Offering. The Company classifies deferred underwriting commissions are non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
On November 15, 2022, the Company received notification from Goldman Sachs & Co. LLC (“Goldman Sachs”), the underwriters in the Company’s Initial Public Offering, that Goldman Sachs waives any entitlement it may have to the deferred underwriting commissions. As such, the deferred underwriting fee liability has been reversed in the year ended December 31, 2022. The amount allocated to the Public Warrants was recorded as a gain on the accompanying statements of operations and the amount allocated to the Class A common stock was added back as additional paid-in capital.
13
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A common stock
subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.”
Conditionally redeemable Class A common stock (including Class A 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 the Company’s control)
is classified as temporary equity. At all other times, Class A common stock is classified as stockholders’ equity. The Company’s
Class A common stock contains certain redemption rights that are considered to be outside of the Company’s control and subject to
occurrence of uncertain future events. Accordingly, Class A common stock subject to possible redemption is classified as temporary equity,
outside of the stockholders’ equity section of the Company’s condensed balance sheets. Accordingly, as of March 31, 2023 and
December 31, 2022,
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of the Class A common stock subject to possible redemption to equal the redemption value at the end of each reporting period. This method would view the end of the reporting period as if it were also the redemption date for the security. Effective with the closing of the Initial Public Offering, the Company recognized the remeasurement from initial book value to redemption amount, which resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit. Subsequent changes in redemption value are recognized and presented as remeasurement of Class A common stock to redemption value on the accompanying statement of changes in stockholders’ deficit.
Income Taxes
The Company follows the asset and liability method
of accounting for income taxes under FASB ASC Topic 740, “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment
date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. At March
31, 2023 and December 31, 2022, the Company had a full valuation allowance on its deferred tax assets. The Company’s effective tax
rate was (
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
Net (Loss) Income Per Share of Common Stock
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has two classes of shares, which are referred to as Class A common stock and Class B common stock. Income and losses are shared pro rata between the two classes of shares. Net income per common share is calculated by dividing the net income by the weighted average shares of common stock outstanding for the respective period.
The calculation of diluted net (loss) income
per common stock does not consider the effect of the warrants issued in connection with the Initial Public Offering (including
exercise of the over-allotment option) and the Private Placement to purchase an aggregate of
14
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The following table reflects presents a reconciliation of the numerator and denominator used to compute basic and diluted net (loss) income per share for each class of common stock:
| For the Three Months Ended | For the Three Months Ended | |||||||||||||||
| March 31, 2023 | March 31, 2022 | |||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||
| Basic and Diluted net (loss) income per common stock: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net (loss) income | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Denominator: | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | $ | |||||||||
Recent Accounting Pronouncements
The Company’s management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed financial statements.
Note 3 - Initial Public Offering
On February 9, 2021, the Company consummated its
Initial Public Offering of
Each Unit consists of one share of Class A common stock, and one-quarter of one redeemable warrant (each, a “Public Warrant”). Each Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment (see Note 7).
Note 4 - Private Placement Warrants
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the Private Placement of
Each Private Placement Warrant is exercisable
for one whole share of Class A common stock at a price of $
The purchasers of the Private Placement Warrants agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants (except to permitted transferees) until 30 days after the completion of the initial Business Combination.
Note 5 - Related Party Transactions
Founder Shares
On October 16, 2020, the Sponsor purchased
15
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The initial stockholders agreed, subject to limited
exceptions, not to transfer, assign or sell any of the Founder Shares until the earlier to occur of: (A) one year after the completion
of the initial Business Combination and (B) subsequent to the initial Business Combination, (x) if the last reported sale price of the
Class A common stock equals or exceeds $
Related Party Loans
On October 16, 2020, the Sponsor agreed to loan
the Company an aggregate of up to $
In addition, in order to finance transaction costs
in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and
directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). On April 6,
2021, the Company entered into a Loan Note Instrument (the “Loan Note” or “Promissory Note - related party”) with
the Sponsor, pursuant to which, the Sponsor, in its sole and absolute discretion, may loan to the Company up to $
At the Sponsor’s option, at any time
prior to payment in full of the principal balance of the Loan Note, the Sponsor may elect to convert all or any portion of the
unpaid principal balance of the Loan Note into that number of warrants, each whole warrant exercisable for one share of common stock
of the Company (the “Conversion Warrants”), equal to: (x) the portion of the principal amount of the Loan Note being
converted, divided by (y) $
On July 28, 2022, the Company entered into a second
Loan Note Instrument (the “Second Loan Note”) with its Sponsor (“Payee”), pursuant to which, Payee, in its sole
and absolute discretion, may loan to Compute Health up to $
On February 9, 2023, the Company entered into
the Third Loan Note Instrument with the Sponsor, pursuant to which the Sponsor, in its sole and absolute discretion, may loan to the Company
up to $
16
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Due to Related Party
The Company’s Sponsor agreed that if the
Extension Proposal was approved and the Charter Extension became effective, it would make deposits of additional funds (the “Extension
Deposits”) into the Trust Account for the aggregate benefit of Public Shares that are not redeemed by the Public Stockholders in
connection with the Extension Proposal (collectively, the “Remaining Public Shares”) in exchange for one or more non-interest
bearing, unsecured promissory notes issued by the Company to the Sponsor. For each whole month, or portion thereof, that is needed by
the Company to complete an initial Business Combination from the date of the Extension Meeting until the August 9, 2023, the Sponsor will
make Extension Deposits of $
Administrative Services Agreement
Commencing on the date that the Company’s securities
were first listed on the NYSE through the earlier of consummation of the initial Business Combination and the liquidation, the Company
agreed to pay the Sponsor a total of $
The Company’s Sponsor, officers and directors, or any of their respective affiliates, are to be reimbursed for any out-of-pocket expenses incurred in connection with activities on the Company’s behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. The Company’s audit committee reviews on a quarterly basis all payments that were made by the Company to its initial stockholders, officers, directors or their affiliates and determines which expenses and the amount of expenses that will be reimbursed. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on the Company’s behalf.
Note 6 - Commitments and Contingencies
Registration Rights
The holders of Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans, if any (and any shares of Class A common stock issuable upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the Working Capital Loans), were entitled to registration rights pursuant to a registration rights agreement signed upon the consummation of the Initial Public Offering. These holders were entitled to certain demand and “piggyback” registration rights. However, the registration rights agreement provided that the Company would not be required to effect or permit any registration or cause any registration statement to become effective until termination of the applicable lock-up period. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriters a 45-day
option from the date of Initial Public Offering to purchase up to
The underwriters were entitled to an underwriting
discount of $
17
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Deferred Legal Fees
The Company has an agreement to obtain legal advisory
services pursuant to which the Company’s legal counsel has agreed to defer their fees until the closing of the Business Combination.
The deferred fees will become payable to the legal counsel in the event the Company completes a Business Combination. As of March 31,
2023 and December 31, 2022, the amount of these fees is approximately $
Contingent Fee Arrangement
On August 26, 2022, the Company entered arrangement
with Credit Suisse Securities (USA) LLC (“Credit Suisse”) to obtain financial advisory and equity capital market advisory
services and to act as the Company’s placement agent in connection with raising capital with a specific target in its search for
a Business Combination. Credit Suisse would be entitled to a transaction fee of $
On January 28, 2023, the Company and Credit Suisse
agreed to amend the transaction fee in Section 2 of the Arrangement from $
Note 7 - Warrants
As of March 31, 2023 and December 31, 2022, the
Company had
Public Warrants may only be exercised for a whole
number of shares. No fractional Public Warrants will be issued upon separation of the Units and only whole Public Warrants will trade.
The Public Warrants will become exercisable on the later of (a) 30 days after the completion of a Business Combination or (b) 12 months
from the closing of the Initial Public Offering; provided in each case that the Company has an effective registration statement under
the Securities Act covering the shares of Class A common stock issuable upon exercise of the warrants and a current prospectus relating
to them is available and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of
the state of residence of the holder (or holders are permitted to exercise their warrants on a cashless basis under certain circumstances
as a result of (i) the Company’s failure to have an effective registration statement by the 60th business day after the
closing of the initial Business Combination or (ii) a notice of redemption described under “Redemption of warrants when the price
per share of Class A common stock equals or exceeds $
18
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The warrants have an exercise price of $
The Private Placement Warrants are identical to the Public Warrants, except that, so long as they are held by the Sponsor or its permitted transferees, (i) they will not be redeemable by the Company, (ii) they (including the shares of Class A common stock issuable upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by the Sponsor until 30 days after the completion of the initial Business Combination, (iii) they may be exercised by the holders on a cashless basis and (iv) are subject to registration rights.
Redemption of warrants when the price per share of Class A common stock equals or exceeds $18.00:
Once the warrants become exercisable, the Company may redeem the outstanding warrants (except as described herein with respect to the Private Placement Warrants):
| ● | in whole and not in part; |
| ● | at a price of $0.01 per warrant; |
| ● | upon a minimum of 30 days’ prior written notice of redemption; and |
| ● | if, and only if, the last reported sale price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. |
The Company will not redeem the warrants as described above unless an effective registration statement under the Securities Act covering the shares of Class A common stock issuable upon exercise of the warrants is effective and a current prospectus relating to those shares of Class A common stock is available throughout the 30-day redemption period. Any such exercise would not be on a cashless basis and would require the exercising warrant holder to pay the exercise price for each warrant being exercised.
Redemption of warrants when the price per share
of Class A common stock equals or exceeds $
19
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Commencing ninety days after the warrants become exercisable, the Company may redeem the outstanding warrants:
| ● | in whole and not in part; |
| ● | at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares of Class A common stock determined by reference to an agreed table based on the redemption date and the fair market value of the Class A common stock; |
| ● | if, and only if, the last reported sale price of Class A common stock equals or exceeds $10.00 per share on the trading day prior to the date on which the Company sends the notice of redemption to the warrant holders; |
| ● | if, and only if, the Private Placement Warrants are also concurrently exchanged at the same price (equal to a number of shares of Class A common stock) as the outstanding Public Warrants, as described above; and |
| ● | if, and only if, there is an effective registration statement covering the issuance of the shares of Class A common stock (or a security other than the Class A common stock into which the Class A common stock has been converted or exchanged for in the event the Company is not the surviving company in the initial Business Combination) issuable upon exercise of the warrants and a current prospectus relating thereto available throughout the 30-day period after written notice of redemption is given. |
The fair market value of Class A common stock mentioned above shall mean the volume-weighted average price of Class A common stock for the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of warrants. In no event will the warrants be exercisable in connection with this redemption feature for more than 0.361 shares of Class A common stock per warrant (subject to adjustment).
In no event will the Company be required to net cash settle any warrant. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
Note 8 - Class A Common Stock Subject to Possible Redemption
The Company’s Class A common stock feature
certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of future events.
The Company is authorized to issue
20
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The Class A common stock subject to possible redemption reflected on the condensed balance sheets is reconciled on the following table:
| Gross proceeds | $ | |||
| Less: | ||||
| Proceeds allocated to Public Warrants | ( | ) | ||
| Class A common stock issuance costs | ( | ) | ||
| Plus: | ||||
| Remeasurement of carrying value to redemption value | ||||
| Class A common stock subject to possible redemption at December 31, 2021 | $ | |||
| Increase in redemption value of Class A common stock subject to redemption | ||||
| Redemption of | ( | ) | ||
| Class A common stock subject to possible redemption at December 31, 2022 | $ | |||
| Increase in redemption value of Class A common stock subject to redemption | ||||
| Class A common stock subject to possible redemption at March 31, 2023 | $ |
Note 9 - Stockholders’ Deficit
Preferred Stock - The Company is
authorized to issue
Class A Common Stock - The Company
is authorized to issue
Class B Common Stock - The Company
is authorized to issue
Prior to the initial Business Combination, only holders of Class B common stock will have the right to vote on the election of directors. Holders of the Class A common stock will not be entitled to vote on the election of directors during such time. In addition, prior to the initial Business Combination, holders of a majority of the outstanding shares of Class B common stock may remove a member of the board of directors for any reason. These provisions of the certificate of incorporation may only be amended by a resolution passed by the holders of a majority of shares of the Class B common stock. With respect to any other matter submitted to a vote of the stockholders, including any vote in connection with the initial Business Combination, except as required by applicable law or stock exchange rule, holders of the Class A common stock and holders of the Class B common stock will vote together as a single class, with each share entitling the holder to one vote.
The Class B common stock will automatically convert
into Class A common stock at the time of the initial Business Combination, or earlier at the option of the holder, on a one-for-one basis,
subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject to further adjustment
as described herein. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed issued
in excess of the amounts issued in the Initial Public Offering and related to the closing of the initial Business Combination, including
pursuant to a specified future issuance, the ratio at which shares of Class B common stock shall convert into shares of Class A common
stock will be adjusted (unless the holders of a majority of the then-outstanding shares of Class B common stock agree to waive such adjustment
with respect to any such issuance or deemed issuance, including pursuant to a specified future issuance) so that the number of shares
of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted
basis,
21
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 10 - Fair Value Measurements
The following tables presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2022, by level within the fair value hierarchy:
March 31, 2023
| Description | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||
| Assets: | ||||||||||||
| Investments held in Trust Account - Money Market Fund | $ | $ | $ | |||||||||
| Liabilities: | ||||||||||||
| Derivative warrant liabilities - public warrants | $ | $ | $ | |||||||||
| Derivative warrant liabilities - private warrants | $ | $ | $ | |||||||||
| Convertible promissory note - related party – short-term | $ | $ | $ | |||||||||
December 31, 2022
| Description | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||
| Assets: | ||||||||||||
| Investments held in Trust Account - Money Market Fund | $ | $ | $ | |||||||||
| Liabilities: | ||||||||||||
| Derivative warrant liabilities - public warrants | $ | $ | $ | |||||||||
| Derivative warrant liabilities - private warrants | $ | $ | $ | |||||||||
| Convertible promissory note - related party – short term | $ | $ | $ | |||||||||
Transfers to/from Levels 1, 2, and 3 are recognized at the beginning of the reporting period. There were no transfers to/from Levels 1, 2, and 3 during the three months ended March 31, 2023 or 2022.
Level 1 instruments include investments in mutual funds invested in government securities. The Company uses inputs such as actual trade data, benchmark yields, quoted market prices from dealers or brokers, and other similar sources to determine the fair value of its investments.
Level 2 instruments include Private Placement Warrants. The Company uses the same quoted market prices as the Public Warrants to determine their fair value.
The fair value of the Public Warrants as of March 31, 2023 and December 31, 2022, was measured utilizing the Level 1 input of the observable listed trading price for such warrants.
Level 3 instruments are comprised of the Working Capital Loan measured at fair value using a Monte Carlo simulation model. The estimated fair value of the Working Capital Loan is determined using Level 3 inputs. Inherent in a Monte Carlo simulation model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock warrants based on implied volatility from the Company’s traded warrants and from historical volatility of select peer company’s common stock that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.
22
COMPUTE HEALTH ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The following table provides quantitative information regarding Level 3 fair value measurements inputs used to measure the fair value of the underlying conversion feature of the promissory note - related party at each measurement dates:
| March 31, 2023 | December 31, 2022 | |||||||
| Volatility | % | % | ||||||
| Stock price | $ | $ | ||||||
| Expected life of the options to convert | ||||||||
| Risk-free rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Probability of successful Business Combination | % | % | ||||||
The change in the fair value of the Promissory Note - related party measured with Level 3 inputs for the period for the three months ended March 31, 2023, is summarized as follows:
| Fair Value of Promissory Note - related party, December 31, 2022 | $ | |||
| Change in fair value of Promissory Note - related party | ||||
| Fair Value of Promissory Note - related party, March 31, 2023 | $ |
Note 11 - Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date through, the date that the condensed financial statements were available to be issued. Based on this review, the Company did not identify any subsequent events, other than described below, that would have required adjustment or disclosure in the condensed financial statements.
Third Loan Note
In April 2023, the Sponsor deposited an additional
$
Amendment to the Business Combination Agreement
On May 2, 2023,
The Business Combination would be consummated in accordance with the terms and subject to the conditions as further described in the BCA Amendment and other related supporting agreements as filed with the SEC on a Current Report on Form 8-K on May 2, 2023. Other than as expressly modified by the BCA Amendment, the Business Combination Agreement, which was filed as Exhibit 2.1 to the Current Report on Form 8-K filed by the Company with the SEC on February 9, 2023, remains in full force and effect.
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to “we”, “us”, “our” or the “Company” are to Compute Health Acquisition Corp., except where the context requires otherwise. The following discussion should be read in conjunction with our unaudited condensed financial statements and related notes thereto included elsewhere in this report.
Cautionary 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 of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Such statements include, but are not limited to, possible business combinations and the financing thereof, and related matters, as well as all other statements other than statements of historical fact included in this Form 10-Q. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission (“SEC”) filings.
Overview
We are a blank check company incorporated in Delaware on October 7, 2020 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). Our Sponsor is Compute Health Sponsor LLC, a Delaware limited liability company. We intend to complete 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.
The registration statement for our Initial Public Offering became effective on February 4, 2021. On February 9, 2021, we consummated its Initial Public Offering of 86,250,000 Units, including 11,250,000 Over-Allotment Units to cover over-allotments, at $10.00 per Unit, generating gross proceeds of $862.5 million, and incurring offering costs of approximately $48.4 million, of which approximately $30.2 million was for deferred underwriting commissions.
Simultaneously with the closing of the Initial Public Offering, we consummated the Private Placement of 12,833,333 Private Placement Warrants, at a price of $1.50 per Private Placement Warrant to the Sponsor, generating proceeds of approximately $19.3 million.
Upon the closing of the Initial Public Offering and the Private Placement, $862.5 million ($10.00 per Unit) of the net proceeds of the Initial Public Offering and certain of the proceeds of the Private Placement was placed in a Trust Account located in the United States with Continental Stock Transfer & Trust Company acting as trustee, and invested only in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), having a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations, as determined by us, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below.
On December 2, 2022, our stockholders approved amendments to our Certificate of Incorporation extending the time for us to complete a Business Combination from 24 months from the date of the Initial Public Offering to 30 months from the date of the Initial Public Offering. In connection with the extension, stockholders elected to redeem 77,026,806 shares of our common stock, representing approximately 71.45% of the issued and outstanding shares of our common stock and 89.31% of the issued and outstanding shares of our common stock sold in our Initial Public Offering. As a result, there are currently 9,223,194 shares of our Class A common stock outstanding. After the satisfaction of such redemptions, the balance in our Trust Account was approximately $93.0 million, as described further in “Recent Developments – Trust Account Redemptions and Extension of Combination Period.”
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If we are unable to complete a Business Combination within 30 months from the closing of the Initial Public Offering, or August 9, 2023 (which was extended from February 9, 2023 by vote of our stockholders) (the “Combination Period”) and our stockholders have not amended the Certificate of Incorporation to extend such Combination Period, we will (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any); and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and the board of directors, dissolve and liquidate, subject in in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
The issuance of additional shares of our stock in a Business Combination:
| ● | may significantly dilute the equity interest of investors in Initial Public 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 of 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; |
| ● | may adversely affect prevailing market prices for our Units, Class A common stock and/or warrants; and |
| ● | may not result in adjustment to the exercise price of our warrants. |
Similarly, if we issue debt securities or otherwise incur significant debt to bank or other lenders or 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 is payable on demand; |
| ● | our inability to obtain necessary additional financing if the debt contains covenants restricting our ability to obtain such financing while the debt 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; |
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| ● | 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. |
Recent Developments
Trust Account Redemptions and Extension of Combination Period
On December 2, 2022, we held a special meeting of stockholders (the “Special Meeting”) to approve amendments to the our Certificate of Incorporation to (i) extend the time for us to complete a Business Combination from February 9, 2023, which is 24 months from the date of the Initial Public Offering, to August 9, 2023, which is 30 months from the date of the Initial Public Offering (the “Extension Proposal”), and (ii) to remove the limitation that we may not redeem public shares to the extent that such redemption would result in the Company having net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of Exchange Act) of less than $5,000,001. Prior to the Special Meeting, we instructed Continental Stock Transfer & Trust Company, the trustee of the Trust Account, to liquidate the U.S. government treasury obligations or money market funds held in the Trust Account and thereafter to hold all funds in the Trust Account in cash in an interest-bearing demand deposit account until the earlier of consummation of our initial Business Combination or liquidation. In connection with the proposals, as described in the proxy, our Sponsor agreed that if the Extension Proposal was approved and the Charter Extension becomes effective, it will make deposits of additional funds (the “Extension Deposits”) into the Trust Account for the aggregate benefit of Public Shares that are not redeemed by the Public Stockholders in connection with the Extension Proposal (collectively, the “Remaining Public Shares”) in exchange for one or more non-interest bearing, unsecured promissory notes issued by our Company to the Sponsor. For each whole month, or portion thereof, that is needed by us to complete an initial Business Combination from the date of the Extension Meeting until the August 9, 2023, our Sponsor will make Extension Deposits of $0.05 into the Trust Account for each Remaining Public Share, up to a total of $400,000 per month, in exchange for one or more non-interest bearing, unsecured promissory notes issued by us to the Sponsor. In addition, pursuant to the prospectus we stated we will not use any trust proceeds to pay any excise taxes with the redemption of our securities.
Both proposals were approved. In connection with the Extension Proposal, stockholders elected to redeem 77,026,806 shares of our common stock, representing approximately 71.45% of the issued and outstanding shares of our common stock and 89.31% of the issued and outstanding shares of our common stock sold in the Company’s Initial Public Offering. Approximately $776.5 million was withdrawn from the Company’s Trust Account to pay for the redemption.
On December 5, 2022, we filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Delaware to (A) to extend the date (the “Termination Date”) by which we must either (a) consummate a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination, with one or more businesses, which we refer to as our initial Business Combination, or (b) (i) cease all operations except for the purpose of winding up if we fail to complete such initial Business Combination and (ii) redeem all of the shares of Class A common stock of our Company sold in the Initial Public Offering that was consummated on February 9, 2021, from February 9, 2023 to August 9, 2023 (the “Extension Amendment”) and (B) to eliminate from the Certificate of Incorporation the limitation that we may not redeem public shares to the extent that such redemption would result in the Company having net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Securities Exchange Act of 1934) of less than $5,000,001 (the “Redemption Limitation”) in order to allow us to redeem public shares irrespective of whether such redemption would exceed the Redemption Limitation (the “Redemption Limitation Amendment”).
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Allurion Business Combination
On February 9, 2023, we entered into a business combination agreement (the “Business Combination Agreement”) with Compute Health Corp., a Delaware corporation and direct, wholly-owned subsidiary of us (“Merger Sub I”), Compute Health LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of us (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”), Allurion Technologies Holdings, Inc., a Delaware corporation and direct, wholly-owned subsidiary of Allurion (as defined below) (“Pubco”), and Allurion Technologies, Inc., a Delaware corporation (“Allurion” and, collectively with the Company, the Merger Subs and Pubco, the “Parties”).
Pursuant to the Business Combination Agreement, and upon the terms and subject to the conditions set forth therein, the business combination will be effected in three steps: (a) we will merge with and into Pubco (the “CPUH Merger,” the closing of the CPUH Merger, the “CPUH Merger Closing” and the time at which the CPUH Merger becomes effective, the “CPUH Merger Effective Time”), with Pubco surviving (Pubco, in its capacity as the surviving company in the CPUH Merger, the “Surviving Corporation”) and, after giving effect to such merger, becoming the publicly-listed company and the sole owner of each Merger Sub, (b) at least three (3) hours following the consummation of the CPUH Merger, Merger Sub I will merge with and into Allurion (the “Intermediate Merger,” the closing of the Intermediate Merger, the “Intermediate Merger Closing” and the time at which the Intermediate Merger becomes effective, the “Intermediate Merger Effective Time”), with Allurion surviving as the surviving company in the Intermediate Merger (Allurion, in its capacity as the surviving company in the Intermediate Merger, the “Intermediate Surviving Corporation”) and, after giving effect to such merger, becoming a wholly-owned subsidiary of the Surviving Corporation and (c) thereafter, the Intermediate Surviving Corporation will merge with and into Merger Sub II (the “Final Merger,” and the time at which the Final Merger becomes effective, the “Final Merger Effective Time”) (the Final Merger, collectively with the CPUH Merger and the Intermediate Merger, the “Mergers” and, together with the other transactions contemplated by the Business Combination Agreement and the Ancillary Documents (as defined in the Business Combination Agreement), the “Proposed Transactions”), with Merger Sub II surviving as the surviving company in the Final Merger (Merger Sub II, in its capacity as the surviving company of the Final Merger, the “Surviving Subsidiary Company”) and, after giving effect to such merger, remaining a wholly-owned subsidiary of the Surviving Corporation.
In connection with the execution of the Business Combination Agreement, the Company and Pubco entered into Subscription Agreements with certain accredited investors or qualified institutional buyers (collectively, the “Subscription Investors”) concurrently with the execution of the Business Combination Agreement on February 9, 2023. Pursuant to the Subscription Agreements, the Subscription Investors agreed to subscribe for and purchase, and Pubco agreed to issue and sell, to the Subscription Investors an aggregate of 5,386,695 shares of Pubco common stock for a purchase price of $7.04 per share, or an aggregate of approximately $37.9 million, in a private placement.
For more information about the Business Combination Agreement and the proposed Allurion Business Combination, see our Current Report on Form 8-K filed with the SEC on February 9, 2023 and the Allurion Disclosure Statement that we will file with the SEC. Unless specifically stated, this Annual Report does not give effect to the proposed Allurion Business Combination and does not contain the risks associated with the proposed Allurion Business Combination. Such risks and effects relating to the proposed Allurion Business Combination will be included in the Allurion Disclosure Statement.
Results of Operations
Our entire activity since inception through March 31, 2023 related to our formation, the preparation for an Initial Public Offering, and since our Initial Public Offering, our activity has been limited to the search for a prospective initial Business Combination. We will not generate any operating revenues until the closing and completion of our initial Business Combination.
For the three months ended March 31, 2023, we had a net loss of approximately $13.3 million, which consisted of approximately $10.0 million for change in fair value of derivative liabilities, approximately $573,000 for change in fair value of promissory note, $3.5 million of general and administrative expenses and $50,000 of franchise tax expense, partially offset by approximately $1.1 million from income from the investments held in the Trust Account and $900 from interest earned on bank accounts.
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For the three months ended March 31, 2022, we had net income of approximately $12.8 million, which consisted of approximately $13.2 million for change in fair value of derivative liabilities, approximately $42,000 for change in fair value of promissory note, and approximately $70,000 from income from the investments held in the Trust Account, partially offset by approximately $533,000 of general and administrative expenses and $50,000 of franchise tax expense.
Liquidity and Going Concern
As indicated in the accompanying unaudited condensed financial statements, at March 31, 2023, we had approximately $281,000 cash in hand, and working capital of approximately $379,000 (not taking into account tax obligations of approximately $77,000 that may be paid using investment income earned in Trust Account), excluding approximately $3.1 million in related party notes including the convertible notes at fair value ($3.85 million of principal) (See Note 5 to Unaudited Condensed Financial Statements). During the three months ended March 31, 2023 and 2022, no funds were withdrawn from the Trust Account to pay franchise and income taxes.
Our liquidity needs prior to the consummation of the Initial Public Offering were satisfied through the payment of $25,000 from the Sponsor to purchase Founder Shares (as defined in Note 5 to Unaudited Condensed Financial Statements), and borrowings under a Note from the Sponsor of approximately $266,000. The Company repaid the Note in full upon consummation of the Initial Public Offering. Subsequent to the consummation of the Initial Public Offering, our liquidity has been satisfied through the net proceeds from the consummation of the Initial Public Offering and the Private Placement held outside of the Trust Account. In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of our officers and directors may, but are not obligated to, provide us Working Capital Loans (as defined below). As of March 31, 2023 and December 31, 2022, a total principal amount of $2.25 million was drawn under these Working Capital Loans, with $750,000 available for future borrowings at March 31, 2023. Our Sponsor has also agreed to fund the Extension Deposits in exchange for one or more non-interest bearing unsecured promissory notes issued by our Company to the Sponsor. The first extension payment of $400,000 was made on December 31, 2022. During the three months ended March 31, 2023, the Sponsor funded an additional $1.2 million in these deposits and formalized the first extension payment through a Third Loan Note (as defined in Note 5 to Unaudited Condensed Financial Statements). As of March 31, 2023 and December 31, 2022, a total principal amount of $1.6 million and $400,000, respectively, was drawn under the Third Loan Note with $3.15 million available for future borrowings at March 31, 2023. In April 2023, the Sponsor deposited an additional $400,000 in exchange for one or more non-interest bearing, unsecured promissory notes issued by the Company to the Sponsor, and earned additional income on the Trust Account resulting in approximately $97.3 million held in the Trust Account as of the date of this filing. In May 2023, the Company borrowed $500,000 under the Third Loan Note instrument for costs related to the proposed Business Combination.
However, in connection with the Company’s assessment of going concern considerations in accordance with the authoritative guidance in Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) ASC Topic 205-40, “Presentation of Financial Statements - Going Concern,” management has determined that the mandatory liquidation and subsequent dissolution, should the Company be unable to complete a business combination, raises substantial doubt about the Company’s ability to continue as a going concern. The Company has until August 9, 2023, or such later date as may be approved by our stockholders, to consummate a Business Combination. It is uncertain that we will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this date, or an extension is not approved, there will be a mandatory liquidation and subsequent dissolution. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after August 9, 2023, or such later date as may be approved by our stockholders.
Contractual Obligations
Registration Rights
The holders of Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans, if any (and any shares of Class A common stock issuable upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the Working Capital Loans), were entitled to registration rights pursuant to a registration rights agreement signed upon the consummation of the Initial Public Offering. These holders were entitled to certain demand and “piggyback” registration rights. However, the registration rights agreement provided that we would not be required to effect or permit any registration or cause any registration statement to become effective until termination of the applicable lock-up period. We will bear the expenses incurred in connection with the filing of any such registration statements.
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Related Party Loans
On October 16, 2020, our Sponsor agreed to loan us an aggregate of up to $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”). This loan was non-interest bearing and payable upon the closing of the Initial Public Offering. We borrowed approximately $266,000 under the Note and repaid the Note in full upon consummation of the Initial Public Offering.
In addition, in order to finance transaction costs in connection with a 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 (“Working Capital Loans”).
On April 6, 2021, we entered into a Loan Note Instrument (the “Loan Note” or “Convertible Promissory Note - related party”) with our Sponsor, pursuant to which, our Sponsor, in its sole and absolute discretion, may loan to us up to $1,500,000 for costs reasonably related to the consummation of an initial Business Combination. The Loan Note does not bear any interest. The Loan Note is payable on the earliest to occur of (i) the date on which we consummate our initial Business Combination and (ii) the date that the winding up of our Company is effective. The Loan Note is subject to customary events if default, including failure by us to pay the principal amount due pursuant to the Loan Note within five business days of the Maturity Date and certain bankruptcy events of our Company.
At our Sponsor’s option, at any time prior to payment in full of the principal balance of the Loan Note, our Sponsor may elect to convert all or any portion of the unpaid principal balance of the Loan Note into that number of warrants, each whole warrant exercisable for one share of common stock of our Company (the “Conversion Warrants”), equal to: (x) the portion of the principal amount of the Loan Note being converted, divided by (y) $1.50, rounded up to the nearest whole number of warrants. The Conversion Warrants shall be identical to the warrants issued by us to the Sponsor in a private placement upon consummation of our initial public offering. The Conversion Warrants are subject to customary registration rights granted by us to the Sponsor pursuant to the Loan Note. As of March 31, 2023 and December 31, 2022, $1.5 million and $1.5 million was drawn under the Convertible Promissory Note - related party, respectively, presented at the fair value of approximately $755,000 and $182,000 on the accompanying balance sheets, respectively.
On July 28, 2022, we entered into a second Loan Note Instrument (the “Second Loan Note” or “Promissory note - related party) with our Sponsor (“Payee”), pursuant to which, Payee, in its sole and absolute discretion, may loan to our Company up to $1.5 million for costs reasonably related to our consummation of an initial Business Combination. The Second Loan Note does not bear any interest. The Second Loan Note is payable on the earliest to occur of (i) the date on which we consummate the initial business combination and (ii) the date that the winding up of our Company is effective. On July 28, 2022, we borrowed $750,000 under the Second Loan Note. As of March 31, 2023, $750,000 was outstanding under the Second Loan Note and $750,000 is available for future borrowings.
Our Sponsor agreed that if the Extension Proposal was approved and the Charter Extension becomes effective, it would make Extension Deposits into the Trust Account for the aggregate benefit of the Remaining Public Shares in exchange for one or more non-interest bearing, unsecured promissory notes issued by us to our Sponsor. For each whole month, or portion thereof, that is needed by us to complete an initial business combination from the date of the Extension Meeting until the August 9, 2023, our Sponsor will make Extension Deposits of $0.05 into the Trust Account for each Remaining Public Share, up to a total of $400,000 per month, in exchange for one or more non-interest bearing, unsecured promissory notes issued by us to our Sponsor. During the three months ended March 31, 2023, the Sponsor funded an additional $1.2 million in these deposits and formalized the first extension payment through a Third Loan Note. As of March 31, 2023, $3.15 million is available for future borrowings under the Third Loan Instrument.
Deferred Legal Fees
We have an agreement to obtain legal advisory services pursuant to which our legal counsel has agreed to defer their fees until the closing of the Business Combination. The deferred fees will become payable to the legal counsel in the event the Company completes a Business Combination. As of March 31, 2023, the amount of these fees is approximately $7.1 million, included as deferred legal fees on the accompanying consolidated condensed balance sheets included in the financial statements in Part I Item 1 of this Form 10-Q.
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Contingent Fee Arrangement
On August 26, 2022 we entered arrangement with Credit Suisse Securities (USA) LLC (“Credit Suisse”) to obtain financial advisory and equity capital market advisory services and to act as our placement agent in connection with raising capital with a specific target in its search for a Business Combination. Credit Suisse would be entitled to a transaction fee of $8.0 million. Per the arrangement, the $8.0 million transaction fee for these services is contingent upon the closing of a Business Combination and therefore not included as liabilities on the accompanying balance sheets. Under the arrangement, we will also reimburse Credit Suisse for reasonable expenses. As of December 31, 2022, no expenses have been claimed.
On January 28, 2023, our Company and Credit Suisse agreed to amend the transaction fee in Section 2 of the Arrangement from $8.0 million to $2.0 million. As of March 31, 2023, no expenses have been claimed.
Administrative Services Agreement
Commencing on the date that our securities were first listed on the NYSE through the earlier of consummation of the initial Business Combination and the liquidation, we agreed to pay an affiliate of our Sponsor a total of $10,000 per month for administrative and support services. Our Sponsor has waived these fees through March 31, 2023.
Our Sponsor, officers and directors, or any of their respective affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee review on a quarterly basis all payments that were made by us to our initial stockholders, officers, directors or our or their affiliates and will determine which expenses and the amount of expenses that will be reimbursed. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on our behalf.
Critical Accounting Policies and Estimates
This management’s discussion and analysis of our financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these condensed financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our condensed financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to fair value of financial instruments and accrued expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A summary of our significant accounting policies is included in Note 2 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report. Certain of our accounting policies are considered critical, as these policies are the most important to the depiction of our condensed consolidated financial statements and require significant, difficult or complex judgments, often employing the use of estimates about the effects of matters that are inherently uncertain. Such critical policies and estimates are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our 2022 Annual Report on Form 10-K filed with the SEC on April 4, 2023. There have been no significant changes in the application of our critical accounting policies three months ended March 31, 2023.
Recent Accounting Pronouncements
See Note 2 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for a discussion of recent accounting pronouncement.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. 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 condensed financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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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 auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (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 auditor’s report 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 Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our Initial Public Offering or until we are no longer an “emerging growth company,” whichever is earlier.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended March 31, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer has concluded that during the period covered by this report, our disclosure controls and procedures were effective as of March 31, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II-OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks previously disclosed in our Annual Report on Form 10-K filed with the SEC on April 4, 2023. Any of those factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on April 4, 2023. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities
There has been no material change in the planned use of the proceeds from the Initial Public Offering and Private Placement as is described in the Company’s final prospectus related to the Initial Public Offering.
For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Quarterly Report.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished. |
| (1) | Previously filed as an exhibit to our Current Report on Form 8-K filed on February 9, 2021 and incorporated by reference herein. |
| (2) | Previously filed as an exhibit to our Current Report on Form 8-K filed on February 9, 2023 and incorporated by reference herein. |
| † | Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(b)(2). The Registrant agrees to furnish supplementally a copy of all omitted exhibits and schedules to the SEC upon its request. |
| †† | Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Registrant agrees to furnish supplementally a copy of all omitted exhibits and schedules to the SEC upon its request. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| COMPUTE HEALTH ACQUISITION CORP. | ||
| Date: May 22, 2023 | /s/ Joshua Fink | |
| Name: | Joshua Fink | |
| Title: | Co-Chief Executive Officer | |
| (Principal Financial and Accounting Officer) | ||
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