References to the "Company," "DTRT Health Acquisition Corp.," "our," "us" or
"we" refer to DTRT Health Acquisition Corp. The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the unaudited interim condensed financial statements
and the notes thereto contained elsewhere in this report. Certain information
contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
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 (the
"Securities Act"), 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. For information identifying important
factors that could cause actual results to differ materially from those
anticipated in the forward-looking statements, please refer to the Risk Factors
section of the Company's Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission (the "SEC") on April 1, 2022, as supplemented
by the Company's Quarterly Reports on Form 10-Q for the period ended March 30,
2022 and June 30, 2022, filed with the SEC on May 13, 2022 and August 12, 2022,
respectively. The Company's securities filings can be accessed on the EDGAR
section of the SEC's website at www.sec.gov. Except as expressly required by
applicable securities law, the Company disclaims any intention or obligation to
update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
Overview
We are a blank check company incorporated in Delaware on April 19, 2021. We were
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"). We are an emerging growth
company and, as such, we are subject to all of the risks associated with
emerging growth companies.
Our sponsor is DTRT Health Sponsor LLC, a Delaware limited liability company
(the "Sponsor"). The registration statement for our initial public offering (the
"Initial Public Offering") was declared effective on September 1, 2021. On
September 7, 2021, we consummated the Initial Public Offering of 23,000,000
units (the "Units" and, with respect to the Class A common stock included in the
Units being offered, the "Public Shares"), which includes the exercise in full
of the underwriters' option to purchase 3,000,000 Units, at $10.00 per Unit,
generating gross proceeds of $230,000,000, and incurring offering costs of
approximately $13,300,000, of which approximately $8,100,000 was for deferred
underwriting commissions and approximately $71,000 was for offering costs
allocated to derivative warrant liabilities.
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 11,200,000 warrants (each, a
"Private Placement Warrant" and collectively, the "Private Placement Warrants")
at a price of $1.00 per Private Placement Warrant to the Sponsor, generating
proceeds of $11,200,000.
Upon the closing of the Initial Public Offering and the Private Placement,
$234,600,000 ($10.20 per Unit) of the net proceeds of the sale of the Units in
the Initial Public Offering and of the Private Placement Warrants were placed in
a trust account (the "Trust Account") and invested only in U.S. government
treasury bills with a maturity of 185 days or less or in money market funds
investing solely in U.S. Treasuries and meeting certain conditions under Rule
2a-7 under the Investment Company Act, 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.
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Proposed Business Combination
On September 28, 2022, we entered into an agreement and plan of merger by and
among the Company, Grizzly New Pubco, Inc. ("New Pubco"), a wholly owned
subsidiary of the Company, Grizzly Merger Sub, Inc., a wholly owned subsidiary
of New Pubco ("Grizzly Merger Sub"), Consumer Direct Holdings, Inc., a Montana
corporation ("CDH") and the Pre-Closing Holder Representative (as defined
therein) (as it may be amended and/or restated from time to time, the "Merger
Agreement"). The Merger Agreement has been unanimously approved by the Company's
and CDH's board of directors and adopted by CDH's shareholders. If the Merger
Agreement is approved by the Company's stockholders and the transactions
contemplated by the Merger Agreement are consummated, the CDH shareholders will
form a Delaware corporation ("Newco") and contribute all of the issued and
outstanding shares of CDH common stock to Newco in exchange for shares of Newco
common stock. Grizzly Merger Sub will merge with and into the Company, the
Company's stockholders will receive shares of New Pubco common stock in exchange
for their shares of the Company's common stock and New Pubco private placement
warrants in exchange for their Private Placement Warrants, and the Company will
be the surviving entity in the merger as a wholly owned subsidiary of New Pubco
(the "First Merger"), and immediately following the First Merger, the Company
will convert into an limited liability company (the "Conversion"). Following the
First Merger and the Conversion, Newco will merge with and into New Pubco, with
New Pubco surviving the merger (the "Second Merger" and together with the First
Merger and all other transactions contemplated by the Merger Agreement, the
"Proposed Business Combination"). In connection with the consummation of the
Proposed Business Combination, New Pubco will be renamed "Consumer Direct Care
Network, Inc." ("CDCN"). The board of directors of the post-closing public
entity, CDCN, will be comprised of a total of seven (7) directors, five (5) of
whom will be nominated by the pre-closing shareholders of CDH and two (2) of
whom will be nominated by the Sponsor.
In connection with the First Merger and without any further action on the part
of any party, each share of Class A common stock and Class B common stock of the
Company will be converted into one share of common stock of New Pubco, and each
private placement warrant and public warrant will be converted into one private
placement warrant of New Pubco and one public warrant of New Pubco,
respectively, each exercisable for one share of New Pubco common stock.
Under the Merger Agreement, in connection with the Second Merger, the Company
has agreed to indirectly acquire all of the outstanding equity interests of CDH
for approximately $527 million in aggregate consideration, subject to specified
adjustments, which will be paid at the effective time of the Proposed Business
Combination. Such consideration will be paid in cash and shares of common stock
of New Pubco, calculated based on the per share merger consideration value
formula as set forth in the Merger Agreement and, in the case of the shares of
common stock of New Pubco, calculated based on a price of $10.20 per share (the
"Closing Price"). The cash consideration is expected to be $118.35 million, less
certain advisor expenses, and the remainder of the aggregate consideration will
be paid in shares of common stock of New Pubco. The stock consideration is
subject to the following adjustments: (i) an increase for CDH's cash on hand as
of closing; (ii) a decrease for CDH's indebtedness as of Closing; (iii) a
decrease for certain advisor expenses; (iv) an increase or decrease for CDH's
working capital as compared to a working capital target; (v) an increase or
decrease for the amount by which CDH's transaction expenses are less than (or
greater than) $7 million; and (vi) an increase for credited expenses paid by
CDH.
The parties to the Merger Agreement have made customary representations,
warranties and covenants in the Merger Agreement, including, among others,
covenants with respect to the conduct of CDH, the Company, Grizzly Merger Sub
and New Pubco prior to the closing of the Proposed Business Combination.
The closing of the Proposed Business Combination is subject to certain customary
conditions, including, among other things: (i) approval by the Company's
stockholders of the proposals being presented at the special meeting, (ii) the
expiration or termination of the waiting period (or any extension thereof)
applicable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (iii)
the absence of a material adverse regulatory event by a governmental entity that
enjoins, prohibits or makes illegal the consummation of the Proposed Business
Combination, (iv) the Company obtaining financing satisfactory to CDH,
(v) certain contracts of CDH and its subsidiaries that have been agreed to
between the parties being in full force and effect and (vi) the approval of
listing of the shares of New Pubco common stock on one of the Nasdaq market
tiers.
The Merger Agreement may be terminated by the Company or CDH under certain
circumstances.
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Registration Rights Agreement
At the closing of the Proposed Business Combination, New Pubco, the Company, the
Sponsor, certain members of the Sponsor (the "Sponsor Members") and the holders
of CDH capital stock (the "CDH shareholders" and together with the Sponsor and
the Sponsor Members, the "Holders") will enter into a registration rights
agreement (the "Registration Rights Agreement"). Pursuant to the terms of the
Registration Rights Agreement, New Pubco will be obligated to file a
registration statement to register the resale of certain securities of the New
Pubco held by such Holders. In addition, such Holders may make a written demand
to New Pubco for an underwritten offering at any time after the three hundred
seventy-fifth (375th) day following the consummation of the Proposed Business
Combination (or such earlier time in the event that the demand is with respect
to greater than 65% of the registrable securities and New Pubco has obtained the
prior written consent of the Sponsor). The Registration Rights Agreement will
also provide such Holders with "piggy-back" registration rights, subject to
certain requirements and customary conditions.
Liquidity and Going Concern
As of September 30, 2022, we had approximately $70,000 in our operating bank
account and a working capital of approximately $37,000.
Our liquidity needs prior to the consummation of the Initial Public Offering
were satisfied through the payment of $25,000 from our Sponsor to purchase
Class B common stock, par value $0.0001 per share (the "Founder Shares") and a
loan from our Sponsor of $300,000 under a promissory note (the "Note") dated
May 11, 2021. We borrowed $300,000 under the Note since its execution on May 11,
2021, and fully repaid this amount on September 7, 2021. Subsequent to the
consummation of the Initial Public Offering, our liquidity will be satisfied
through the net proceeds from the consummation of the Initial Public Offering
and Private Placement held outside of the Trust Account. In addition, in order
to finance transaction costs in connection with a Business Combination, our
Sponsor or an affiliate of the Sponsor, or certain of our officers and directors
may, but are not obligated to, loan us funds as may be required (the "Working
Capital Loans"). As of September 30, 2022, there were no amounts outstanding
under any Working Capital Loans.
In connection with our assessment of going concern considerations in accordance
with FASB ASC Topic 205-40, "Presentation of Financial Statements-Going
Concern," we have determined that the mandatory liquidation date and subsequent
dissolution raise substantial doubt about our ability to continue as a going
concern. If we are unable to complete a Business Combination by December 7, 2022
(unless such period is extended as described herein), then we will cease all
operations except for the purpose of liquidating. Over this time period, we have
used, and will be using, these funds for paying existing accounts payable,
identifying and evaluating prospective initial Business Combination candidates,
performing due diligence on prospective target businesses, paying for travel
expenditures, selecting the target business to merge with or acquire, and
structuring, negotiating and consummating the Business Combination. The
unaudited condensed financial statements do not include any adjustment that
might be necessary if we are unable to continue as a going concern.
Results of Operations
Our entire activity since inception up to September 30, 2022, was in preparation
for our Initial Public Offering, and since our Initial Public Offering, our
search for a prospective target Business Combination. We will not generate any
operating revenues until the closing and completion of our initial Business
Combination, at the earliest.
For the three months ended September 30, 2022, we had a net loss of
approximately $2.2 million, which consisted approximately $2.7 million change in
fair value of derivative warrant liabilities, approximately $210,000 of general
and administrative expenses, $5,000 related party general and administrative
expense, approximately $256,000 of income tax expense, and approximately $50,000
of franchise tax expense, partially offset by approximately $1 million of
interest income from investments held in the Trust Account.
For the three months ended September 30, 2021, we had a net loss of
approximately $4.7 million which consisted of approximately $4.3 million loss
upon issuance of Private Placement Warrants, approximately $336,000 change in
fair value of derivative warrant liabilities, approximately $41,000 offering
costs associated with derivative warrant liabilities, approximately $34,000 of
general and administrative expenses and approximately $49,000 of franchise tax
expense, offset by approximately $5,000 of interest income from investments held
in the Trust Account and checking account.
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For the nine months ended September 30, 2022, we had a net income of
approximately $2.5 million, which consisted of approximately $2.3 million change
in fair value of derivative warrant liabilities and $1.2 million of interest
income from investments held in the Trust Account, partially offset by
approximately $663,000 of general and administrative expenses, $15,000 related
party general and administrative expenses, approximately $256,000 of income tax
expense, and approximately $148,000 of franchise tax expense.
For the period from April 19, 2021 (inception) through September 30, 2021, we
had a net loss of approximately $4.75 million, which consisted of approximately
$4.3 million loss upon issuance of Private Placement warrants, approximately
$336,000 change in fair value of derivative warrant liabilities, approximately
$41,000 offering costs associated with derivative warrant liabilities,
approximately $38,000 of general and administrative expenses and approximately
$89,000 of franchise tax expense, offset by approximately $5,000 of interest
income from investments held in the Trust Account and the checking account.
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 and warrants that may be issued upon conversion of Working Capital
Loans) were entitled to registration rights pursuant to a registration rights
agreement signed upon the consummation of the Initial Public Offering. The
holders of these securities were entitled to make up to three demands, excluding
short form demands, that we register such securities. In addition, the holders
have certain "piggy-back" registration rights with respect to registration
statements filed subsequent to the completion of the initial Business
Combination. We will bear the expenses incurred in connection with the filing of
any such registration statements.
Underwriting Agreement
We granted the underwriters a 45-day option from the date of the final
prospectus relating to the Initial Public Offering to purchase up to 3,000,000
additional Units to cover over-allotments, if any, at the Initial Public
Offering price, less underwriting discounts and commissions. The underwriters
fully exercised the over-allotment on September 7, 2021.
The underwriters were entitled to an underwriting discount of $0.20 per Unit, or
$4,600,000 in the aggregate, paid upon the closing of the Initial Public
Offering. In addition, the underwriters were entitled to a deferred fee of $0.35
per Unit, or approximately $8,100,000 in the aggregate. The deferred fees will
become payable to the underwriters from the amounts held in the Trust Account
solely in the event that we complete a Business Combination, subject to the
terms of the underwriting agreement.
Critical Accounting Policies
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. A summary of our significant accounting policies is
included in Note 2 to our unaudited condensed 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 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 policies are summarized in the Management's
Discussion and Analysis of Financial Condition and Results of Operations section
in our 2021 Annual Report on Form 10-K filed with the SEC on April 1, 2022.
There have been no significant changes in the application of our critical
accounting policies during the three and nine months ended September 30, 2022.
Recent Accounting Pronouncements
See Note 2 to the unaudited condensed financial statements included in Part I,
Item 1 of this Quarterly Report for a discussion of recent accounting
pronouncements.
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Off-Balance Sheet Arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
JOBS Act
The JOBS Act contains provisions that, among other things, relax certain
reporting requirements for qualifying public companies. We qualify as an
"emerging growth company" and under the JOBS Act are allowed to comply with new
or revised accounting pronouncements based on the effective date for private
(not publicly traded) companies. We are electing to delay the adoption of new or
revised accounting standards, and as a result, we may not comply with new or
revised accounting standards on the relevant dates on which adoption of such
standards is required for non-emerging growth companies. As a result, the
unaudited condensed financial statements may not be comparable to companies that
comply with new or revised accounting pronouncements as of public company
effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company," we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404, (ii) provide
all of the compensation disclosure that may be required of non-emerging growth
public companies under the Dodd-Frank Wall Street Reform and Consumer Protection
Act, (iii) comply with any requirement that may be adopted by the PCAOB
regarding mandatory audit firm rotation or a supplement to the 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 CEO'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.
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