Business Context and Reporting Period
Filing mismatch: The supplied filing is for Experience Investment Corp., not Strata Critical Medical, Inc. It is a Form 10-K for the fiscal year ended December 31, 2020, filed March 10, 2021.
Experience Investment Corp. was a special purpose acquisition company formed to complete a business combination, with an intended focus on travel and leisure businesses. It had no operating revenues or operating business as of December 31, 2020.
On December 14, 2020, the company entered into a merger agreement with BLADE Urban Air Mobility, Inc. The proposed transaction contemplated approximately $356.25 million of merger consideration at a $10.00 reference price, subject to transaction conditions, stockholder approvals and redemptions.
Financial Performance and Position
| Metric | Year ended December 31, 2020 | Comparable period |
|---|---|---|
| Operating revenue | None | None |
| Net income | $127.7 million? No; $127,718 | $784,778 for the period from May 24, 2019 through December 31, 2019 |
| Interest income | $1,016,670 | $1,261,596 |
| Operating costs | $678,487 | $268,206 |
| Income tax provision | $210,465 | $208,612 |
| Cash used in operating activities | $794,467 | $256,512 |
| Trust account securities | $276,943,339 | $276,261,596 |
| Cash outside trust account | $846,068 | $1,305,608 |
| Total liabilities | $10,015,791 | $9,996,306 |
| Deferred underwriting fee | $9,625,000 | $9,625,000 |
| Stockholders’ equity | $5,000,009 | $5,000,008 |
The filing does not provide meaningful operating margins because the company had no operating revenue. Net income primarily reflected interest earned on trust-account investments. Non-redeemable common stock had a basic and diluted net loss per share of $0.05 in 2020 versus $0.01 in the 2019 inception period.
The company reported no long-term debt, capital lease obligations, operating lease obligations or other long-term liabilities. It had working capital of approximately $915,185 at December 31, 2020, although the filing states that available cash and working capital were insufficient to complete planned activities without additional financing.
Material Changes Versus the Prior Comparable Period
- Operating costs increased to $678,487 from $268,206, while interest income declined to $1,016,670 from $1,261,596.
- Net income decreased to $127,718 from $784,778, reflecting higher operating expenses and lower trust-account interest income.
- Cash outside the trust account declined by $459,540 to $846,068, primarily due to operating cash use.
- Trust-account securities increased modestly to $276.9 million from $276.3 million after withdrawals of $334,927 of interest to pay franchise and income taxes.
- Class A shares subject to possible redemption increased in redemption value to $262.8 million from $262.7 million.
- The company formed a wholly owned merger subsidiary and signed the Blade merger agreement in December 2020.
Guidance, Outlook, Risks and Unusual Items
Management expected to continue incurring costs to identify, evaluate and complete the initial business combination. No operating-revenue or earnings guidance was provided.
The company had until September 17, 2021 to complete a business combination. If unsuccessful, it was required to cease operations, redeem public shares using the trust account, and liquidate; public warrants would expire worthless. The stated trust-account balance implied approximately $10.06 per public share at December 31, 2020, but the filing cautions that creditors’ claims and other factors could reduce the actual distribution.
The independent auditor issued an unmodified opinion but included a going-concern explanatory paragraph. The company stated that it would need additional capital through sponsor, shareholder, officer, director or third-party loans or investments to complete a business combination, and none of those parties was obligated to provide funding.
A consulting agreement related to the Blade transaction provided for total fees of $1.1 million. The company paid and expensed $110,000 in 2020; the remaining $990,000 was contingent on successfully completing the Blade transaction and was not recorded in the financial statements.
- Completion of the Blade merger was subject to customary closing conditions, regulatory matters and stockholder approvals.
- Public stockholders could redeem shares in connection with the business combination, potentially reducing cash available for the transaction.
- The sponsor, officers and directors held founder shares representing approximately 20% of common stock and agreed to vote founder shares in favor of a proposed business combination.
- Potential conflicts existed because management and the sponsor were affiliated with KSL Capital Partners and had obligations to other entities.
- COVID-19 could impair the company’s ability to identify, negotiate or complete a transaction, although the specific financial impact was not determinable.
- The trust account could be exposed to third-party creditor claims despite contractual waivers, and the sponsor’s indemnification capacity had not been independently verified.
- Internal control over financial reporting was assessed as effective; no auditor attestation was required because the company was an emerging growth company.
Most Important Facts to Verify
- Confirm that this filing corresponds to the requested company; the filing identifies the registrant as Experience Investment Corp., not Strata Critical Medical, Inc.
- Verify the subsequent status and final terms of the proposed Blade merger, including closing, redemptions, financing and any changes to merger consideration.
- Review the going-concern disclosure and determine whether additional sponsor or third-party financing was obtained before the September 17, 2021 deadline.
- Reconcile the trust-account balance, deferred underwriting fee and actual per-share redemption amount.
- Assess the dilution from 6,875,000 founder shares, 9,166,667 public warrants, 5,000,000 private placement warrants and any additional securities issued in the transaction.
- Review the contingent $990,000 consulting fee and any other transaction-related obligations arising after December 31, 2020.
- Evaluate potential creditor claims against the trust account and the sponsor’s ability to satisfy its indemnification obligations.