Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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☒
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2019
OR
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number: 001-38302
BIG ROCK PARTNERS ACQUISITION CORP.
(Exact name of registrant as specified in its charter)
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Delaware
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82-2844431
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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2645 N. Federal Highway, Suite 230
Delray Beach, Florida 33483
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (310)
734-2300
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Trading Symbol (s)
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Name of each exchange on which registered
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Units, each consisting of one share of Common Stock, one Right and
one-half of one Warrant
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BRPAU
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The NASDAQ Stock Market LLC
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Common Stock, par value $0.001 per share
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BRPA
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The NASDAQ Stock Market LLC
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Rights, exchangeable into one-tenth of one share of Common
Stock
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BRPAR
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The NASDAQ Stock Market LLC
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Warrants, each whole warrant exercisable for one share of
Common
Stock at an exercise price of $11.50
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BRPAW
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The NASDAQ Stock Market LLC
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or
Section 15(d) of the
Act. Yes
☐ No ☒
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. Yes ☒ No ☐
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). Yes ☒ No ☐
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.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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☒
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Smaller reporting company
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☒
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Emerging
growth company
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☒
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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 Act) Yes ☒ No ☐
The
aggregate market value of the voting and non-voting common stock
outstanding, other than shares held by persons who may be deemed
affiliates of the registrant, computed by reference to the closing
price for the common stock as of the last business day of the
registrant’s most
recently completed second fiscal quarter, as reported on the Nasdaq
Capital Market, was approximately $50.3 million.
The
number of shares outstanding of the registrant’s common stock, as of March 26,
2020, was 2,716,028.
TABLE OF CONTENTS FOR FORM 10-K
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PART I
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2
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Item
1. Business.
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2
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Item
1A Risk Factors
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27
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Item
1B. Unresolved Staff Comments.
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27
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Item
2. Properties.
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27
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Item
3. Legal Proceedings.
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27
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Item
4. Mine Safety Disclosures.
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27
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PART II
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28
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Item
5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities.
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28
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Item
6. Selected Financial Data
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28
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Item
7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
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28
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Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.
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31
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Item
8. Financial Statements and Supplementary Data.
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31
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Item
9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.
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31
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Item
9A. Controls and Procedures.
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32
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Item
9B. Other Information.
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32
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PART III
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33
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Item
10. Directors, Executive Officers and Corporate
Governance
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33
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Item
11. Executive Compensation.
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39
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Item
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
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40
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Item
13. Certain Relationships and Related Transactions, and
Director Independence.
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41
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Item
14. Principal Accounting Fees and Services.
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44
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PART IV
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45
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Item
15. Exhibits, Financial Statement Schedules
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45
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Item
16. Form 10-K Summary.
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46
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1
PART I
Item 1. Business.
This business description should be read in conjunction with our
audited financial statements and accompanying notes thereto
appearing elsewhere in this Annual Report on Form 10-K for the year
ended December 31, 2019 (the “2019 Form 10-K”),
which are incorporated herein by this reference.
References in this 2019 Form 10-K to “we,”
“us” or “our company” refer to Big Rock
Partners Acquisition Corp. References in this 2019 Form 10-K to our
“public shares” are to shares of our common stock sold
as part of the units in our initial public offering (whether they
are purchased in our initial public offering or thereafter in the
open market) and references to “public stockholders”
refer to the holders of our public shares, including our Sponsor
(as defined below), officers and directors to the extent they
purchase public shares, provided that their status as “public
stockholders” shall only exist with respect to such public
shares. References in this 2019 Form 10-K to our
“management” or our “management team” refer
to our officers and directors and references to our
“Sponsor” or our “initial stockholder”
refer to Big Rock Partners Sponsor, LLC, a company affiliated with
our Chairman, President and Chief Executive Officer. References in
this 2019 Form 10-K to our “founder’s shares”
refer to our shares of common stock initially purchased by our
Sponsor in a private sale prior to our initial public offering.
References in this 2019 Form 10-K to our “private placement
units” refer to the units sold in a private placement
simultaneously with the closing of our initial public
offering.
Company Overview
We are
a blank check company formed pursuant to the laws of the State of
Delaware on September 18, 2017 for the purpose of entering into a
merger, stock exchange, asset acquisition, stock purchase,
recapitalization, reorganization or other similar business
combination with one or more businesses or entities. Our efforts in
identifying a prospective target business for our initial business
combination are not limited to a particular industry or geographic
region. We have reviewed, and continue to review, opportunities to
enter into an initial business combination with an operating
business, but we are not able to determine at this time whether we
will complete a business combination with any of the target
businesses that we have reviewed or with any other target business
on favorable terms or at all.
On
November 22, 2017, we consummated the initial public offering (the
“Initial Public
Offering”) of 6,000,000
units (“Units”), each Unit consisting of one share
of common stock, par value $0.001 per share (“Common Stock”), one right entitling the holder
thereof to receive one-tenth (1/10) of one share of Common Stock
upon the consummation of an initial business combination, and
one-half of one warrant (“Warrant”), each whole Warrant exercisable to
purchase one share of Common Stock at an exercise price of $11.50
per share, pursuant to the registration statements on Form S-1
(File Nos. 333-220947 and 333-221659) (the “Registration Statements”). The Units were sold at an
offering price of $10.00 per Unit, generating gross proceeds of
$60,000,000. The underwriters of the Initial Public Offering were
granted an option to purchase an additional 900,000 Units to cover
over-allotments, if any (the “Over-Allotment Units”).
Simultaneously with
the consummation of the Initial Public Company, on November 22,
2017, we completed a private placement (the “Private Placement”) of 250,000 units (“Placement Units”) at a price of $10.00 per Placement
Unit, generating total proceeds of $2,500,000. The securities
issued in the Private Placement were issued in reliance on the
exemption from registration provided by Section 4(a)(2) under the
Securities Act of 1933, as amended, or Regulation D thereunder, as
a sale not involving any public offering.
On
November 28, 2017, the underwriters notified us of their exercise
of the over-allotment option in full and on November 29, 2017,
purchased 900,000 Over-Allotment Units at $10.00 per Unit upon the
closing of the over-allotment option, generating gross proceeds of
$9,000,000. Simultaneously with the sale of the additional Units,
we consummated the sale of an additional 22,500 placement units
(the “Over-Allotment
Placement Units”) at
$10.00 per unit, generating gross proceeds of $225,000. The
securities issued in the Private Placement were issued in reliance
on the exemption from registration provided by Section 4(a)(2)
under the Securities Act of 1933, as amended, or Regulation D
thereunder, as a sale not involving any public
offering.
A total
of $69,000,000 of the net proceeds from the Initial Public Offering
and the Private Placement (including $9,000,000 from the sale of
the Over-Allotment Units and Over-Allotment Placement Units) were
deposited in a trust account established for the benefit of the
Company’s public
stockholders. We incurred costs in the aggregate amount of
$2,172,419 related to Initial Public Offering, including $1,725,000
of underwriting fees and $447,419 of other costs.
Our
Units began trading on November 20, 2017 on the NASDAQ Capital
Market under the symbol “BRPAU.” Commencing on December 1, 2017, the
underlying shares of Common Stock, Warrants and rights began
trading on the NASDAQ Capital Market under the symbols “BRPA,” “BRPAW” and “BRPAR,” respectively.
2
Business Strategy
Our
efforts in identifying a prospective target business for our
initial business combination are not limited to a particular
industry or geographic region. We intend to seek out potential
targets that enjoy proven business models and attractive growth
profiles. We believe our Sponsor’s and management team’s extensive experience in deal
sourcing from private and public sources, as well as their capital
market expertise, provide unique insight when identifying potential
business combination opportunities and creating value.
Acquisition Criteria
Consistent with our
business strategy, we identified the following general criteria and
guidelines that we believe are important in evaluating prospective
target businesses. We intend to use these criteria and guidelines
in evaluating acquisition opportunities, but we may decide to enter
into our initial business combination with a target business that
does not meet any of these criteria and guidelines.
We
intend to seek to acquire companies that we believe:
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have strong
competitive positions, proven business models, consistent
historical financial performance and attractive growth
prospects;
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have limited access
to capital markets due to external factors;
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could benefit from
the substantial expertise, experience and network of our Sponsor
and management team, who could assist with, for example, growth
strategy, operations, and the evaluation and integration of
acquisitions;
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are well positioned
to participate in sector consolidation and would benefit from a
public acquisition currency;
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would avoid the
potentially onerous terms, such as liquidation preferences, that
are often characteristic of late state private growth financing
rounds; and
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offer attractive
risk-adjusted returns.
These
criteria are not intended to be exhaustive. Any evaluation relating
to the merits of a particular initial business combination may be
based, to the extent relevant, on these general guidelines as well
as other considerations, factors, and criteria that our management
may deem relevant.
Competitive Strengths
We
believe we have the following competitive strengths:
Status as a public company
We
believe our structure will make us an attractive business
combination partner to target businesses. As an existing public
company, we offer a target business an alternative to the
traditional initial public offering through a merger or other
business combination. In this situation, the owners of the target
business would exchange their shares of stock in the target
business for shares of our stock or for a combination of shares of
our stock and cash, allowing us to tailor the consideration to the
specific needs of the sellers. We believe target businesses might
find this method a more certain and cost effective method to
becoming a public company than the typical initial public offering.
In a typical initial public offering, there are additional expenses
incurred in marketing, roadshow and public reporting efforts that
will likely not be present to the same extent in connection with a
business combination with us. Furthermore, once the business
combination is consummated, the target business will have
effectively become public, whereas an initial public offering is
always subject to the underwriters’ ability to complete the offering,
as well as general market conditions, that could prevent the
offering from occurring. Once public, we believe the target
business would then have greater access to capital and an
additional means of providing management incentives consistent with
stockholders’ interests
than it would have as a privately-held company. It can offer
further benefits by augmenting a company’s profile among potential new
customers and vendors and aid in attracting talented
employees.
While
we believe that our status as a public company will make us an
attractive business partner, some potential target businesses may
view the inherent limitations in our status as a blank check
company as a deterrent and may prefer to effect a business
combination with a more established entity or with a private
company. These inherent limitations include limitations on our
available financial resources, which may be inferior to those of
other entities pursuing the acquisition of similar target
businesses; the requirement that we seek shareholder approval of a
business combination or conduct a tender offer in relation thereto,
which may delay the consummation of a transaction; and the
existence of our outstanding warrants, which may represent a source
of future dilution.
3
Transaction Flexibility
We
offer a target business a variety of options such as providing the
owners of a target business with shares in a public company and a
public means to sell such shares, providing capital for the
potential growth and expansion of its operations or strengthening
its balance sheet by reducing its debt ratio. Because we are able
to consummate our initial business combination using our cash, debt
or equity securities, or a combination of the foregoing, we have
the flexibility to use the most efficient combination that will
allow us to tailor the consideration to be paid to the target
business to fit its needs and desires. However, since we have no
specific business combination under consideration, we have not
taken any steps to secure third party financing if we are forced to
use a significant portion of such funds for converting or tendering
stockholders and there can be no assurance that it will be
available to us.
Our Management Team
We will
seek to capitalize on the significant investing and operating
experience and contacts of our officers and directors in
consummating an initial business combination. Our Chairman,
President and Chief Executive Officer, Richard Ackerman, has over
35 years of real estate experience with 18 years in senior housing.
Prior to starting Big Rock Partners (“BRP”), an opportunistic real estate
investment firm founded in 2004 that has invested in and managed
over $800 million in assets since its formation, Mr. Ackerman was
Head of the Los Angeles office for Apollo Real Estate Advisors
(“Apollo”), a global private equity firm. Our
Chief Financial Officer, Chief Investment Officer and Corporate
Secretary, Bennett Kim, has over 20 years of real estate experience
and worked with Mr. Ackerman at Apollo. Through BRP, Messrs.
Ackerman and Kim are currently developing $200 million of senior
housing in Florida, which consists of independent living, assisted
living and memory care. Also, our independent directors, Richard
Birdoff, Michael Fong, Stuart Koenig, Albert G. Rex and Troy T.
Taylor, have significant experience in private investments,
ownership and management of businesses of many types, large and
small.
We
believe our Sponsor’s and
management team’s deal
sourcing, investing, and operating expertise, as well as their
network of contacts will position us to generate a number of
acquisition opportunities. For more information regarding our
management team’s
experience, please see Part III, Item 10. Directors, Executive
Officers and Corporate Governance.
Effecting a Business Combination
General
We are
not presently engaged in, and we will not engage in, any
substantive commercial business for an indefinite period of time
following the Initial Public Offering. We intend to utilize cash
derived from the proceeds of the Initial Public Offering and the
sale of the private placement units, our capital stock, debt or a
combination of these in effecting a business combination which has
not yet been identified. A business combination may involve the
acquisition of, or merger with, a company which does not need
substantial additional capital but which desires to establish a
public trading market for its shares, while avoiding what it may
deem to be adverse consequences of undertaking a public offering
itself. These include time delays, significant expense, loss of
voting control and compliance with various federal and state
securities laws. In the alternative, we may seek to consummate a
business combination with a company that may be financially
unstable or in its early stages of development or growth. While we
may seek to effect simultaneous business combinations with more
than one target business, we will probably have the ability, as a
result of our limited resources, to effect only a single business
combination.
We will
have until July 23, 2020, or longer if additional extensions are
approved, to consummate our initial business combination. If we are
unable to consummate our initial business combination within the
applicable time period, we will, as promptly as reasonably possible
but not more than ten business days thereafter, redeem the public
shares for a pro rata portion of the funds held in the trust
account and as promptly as reasonably possible following such
redemption, subject to the approval of our remaining stockholders
and our board of directors, dissolve and liquidate, subject in each
case to our obligations under Delaware law to provide for claims of
creditors and the requirements of other applicable
law.
We Have Not Identified a Target Business
We have
reviewed, and continue to review, opportunities to enter into an
initial business combination with an operating business, but we are
not able to determine at this time whether we will complete a
business combination with any of the target businesses that we have
reviewed or with any other target business on favorable terms or at
all.
Subject
to our officers’ and
directors’ pre-existing
fiduciary duties and the limitation that a target business have a
fair market value of at least 80% of the balance in the trust
account (excluding taxes payable on the income earned on the trust
account) at the time of the execution of a definitive agreement for
our initial business combination, as described below in more
detail, we will have virtually unrestricted flexibility in
identifying and selecting a prospective acquisition candidate.
Except for the general criteria and guidelines set forth above
under the caption “Business Strategy,” we have not established any other
specific attributes or criteria (financial or otherwise) for
prospective target businesses. To the extent we effect a business
combination with a financially unstable company or an entity in its
early stage of development or growth, including entities without
established records of sales or earnings, we may be affected by
numerous risks inherent in the business and operations of
financially unstable and early stage or potential emerging growth
companies. Although our management will endeavor to evaluate the
risks inherent in a particular target business, we cannot assure
you that we will properly ascertain or assess all significant risk
factors.
4
Our Acquisition Process
In
evaluating a prospective target business, we expect to conduct a
thorough due diligence review that will encompass, among other
things, meetings with incumbent management and employees, document
reviews, inspection of facilities, as well as a review of financial
and other information that will be made available to us. We also
expect to utilize our management team’s operational and capital markets
experience.
We are
not prohibited from pursuing an initial business combination with a
company that is affiliated with our Sponsor, officers or directors.
In the event we seek to complete our initial business combination
with a company that is affiliated with our Sponsor, officers or
directors, we, or a committee of independent directors, will obtain
an opinion from an independent investment banking firm, or another
independent entity that commonly renders valuation opinions on the
type of target business we are seeking to acquire, that our initial
business combination is fair to our company from a financial point
of view.
Sources of Target Businesses
We
expect that our principal means of identifying potential target
businesses will be through the extensive contacts and relationships
of our officers and directors. While our officers and directors are
not required to commit any specific amount of time in identifying
or performing due diligence on potential target businesses, our
officers and directors believe that the relationships they have
developed over their careers and their access to their contacts and
resources will generate a number of potential business combination
opportunities that will warrant further investigation. We also
anticipate that target business candidates will be brought to our
attention from various unaffiliated sources, including investment
bankers, venture capital funds, private equity funds, leveraged
buyout funds, management buyout funds and other members of the
financial community. Target businesses may be brought to our
attention by such unaffiliated sources as a result of being
solicited by us through calls or mailings. These sources may also
introduce us to target businesses they think we may be interested
in on an unsolicited basis, since many of these sources will have
read this Report and know what types of businesses we are
targeting. Our officers and directors, as well as their affiliates,
may also bring to our attention target business candidates that
they become aware of through their business contacts as a result of
formal or informal inquiries or discussions they may have, as well
as attending trade shows or conventions. They must present to us
all target business opportunities that have a fair market value of
at least 80% of the assets held in the trust account (excluding
taxes payable on the income accrued in the trust account) at the
time of the agreement to enter into the initial business
combination, subject to any pre-existing fiduciary or contractual
obligations. We have engaged a professional firm that specializes
in business acquisitions, and we may engage other firms or other
individuals in the future, in which event we may pay a
finder’s fee, consulting
fee or other compensation to be determined in an arm’s length negotiation based on the
terms of the transaction. In no event, however, will our Sponsor,
officers, directors or their respective affiliates be paid any
finder’s fee, consulting
fee or other compensation prior to, or for any services they render
in order to effectuate the consummation of an initial business
combination (regardless of the type of transaction that it is)
other than the monthly administrative services fee of up to $10,000
(effective through August 20, 2018), the repayment of any loans
from our Sponsor, officers and directors for working capital
purposes and reimbursement of any out-of-pocket expenses. We are
not restricted from entering into a business combination with a
target business that is affiliated with any of our officers,
directors or Sponsor and may do so if (i) such transaction is
approved by a majority of our disinterested independent directors
and (ii) we obtain an opinion from an independent investment
banking firm, or another independent entity that commonly renders
valuation opinions on the type of target business we are seeking to
acquire, that the business combination is fair to our unaffiliated
stockholders from a financial point of view.
Selection of a Target Business and Structuring of a Business
Combination
Subject
to our officers’ and
directors’ pre-existing
fiduciary duties and the limitations that a target business have a
fair market value of at least 80% of the balance in the trust
account (excluding taxes payable on the income earned on the trust
account) at the time of the execution of a definitive agreement for
our initial business combination, as described below in more
detail, and that we must acquire a controlling interest in the
target business, our management will have virtually unrestricted
flexibility in identifying and selecting a prospective target
business. Except for the general criteria and guidelines set forth
above under the caption “Acquisition Criteria,” we have not established any
specific attributes or criteria (financial or otherwise) for
prospective target businesses. In evaluating a prospective target
business, our management may consider a variety of factors,
including one or more of the following:
●
financial condition
and results of operation;
●
growth
potential;
●
brand recognition
and potential;
5
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experience and
skill of management and availability of additional
personnel;
●
capital
requirements;
●
competitive
position;
●
barriers to
entry;
●
stage of
development of the products, processes or services;
●
existing
distribution and potential for expansion;
●
degree of current
or potential market acceptance of the products, processes or
services
●
proprietary aspects
of products and the extent of intellectual property or other
protection for products or formulas;
●
impact of
regulation on the business;
●
regulatory
environment of the industry;
●
costs associated
with effecting the business combination;
●
industry
leadership, sustainability of market share and attractiveness of
market industries in which a target business participates;
and
●
macro competitive
dynamics in the industry within which the company
competes.
These
criteria are not intended to be exhaustive. Any evaluation relating
to the merits of a particular business combination will be based,
to the extent relevant, on the above factors as well as other
considerations deemed relevant by our management in effecting a
business combination consistent with our business objective. In
evaluating a prospective target business, we will conduct an
extensive due diligence review which will encompass, among other
things, meetings with incumbent management and inspection of
facilities, as well as review of financial and other information
which is made available to us. This due diligence review will be
conducted either by our management or by unaffiliated third parties
we may engage.
The
time and costs required to select and evaluate a target business
and to structure and complete the business combination can only be
estimated at this time. Any costs incurred with respect to the
identification and evaluation of a prospective target business with
which a business combination is not ultimately completed will
result in a loss to us and reduce the amount of capital available
to otherwise complete a business combination.
Fair Market Value of Target Business
The
target business or businesses that we acquire must collectively
have a fair market value equal to at least 80% of the balance of
the funds in the trust account (excluding taxes payable on the
income earned on the trust account) at the time of the execution of
a definitive agreement for our initial business combination,
although we may acquire a target business whose fair market value
significantly exceeds 80% of the trust account
balance.
We
currently anticipate structuring a business combination to acquire
100% of the equity interests or assets of the target business or
businesses. We may, however, structure our initial business
combination where we merge directly with the target business or
where we acquire less than 100% of such interests or assets of the
target business in order to meet certain objectives of the target
management team or stockholders or for other reasons, but we will
only complete such business combination if the post-transaction
company owns or acquires 50% or more of the outstanding voting
securities of the target or otherwise acquires a controlling
interest in the target sufficient for it not to be required to
register as an investment company under the Investment Company Act.
Even if the post-transaction company owns or acquires 50% or more
of the voting securities of the target, our stockholders prior to
the business combination may collectively own a minority interest
in the post-transaction company, depending on valuations ascribed
to the target and us in the business combination transaction. For
example, we could pursue a transaction in which we issue a
substantial number of new shares in exchange for all of the
outstanding capital stock of a target. In this case, we could
acquire a 100% controlling interest in the target; however, as a
result of the issuance of a substantial number of new shares, our
stockholders immediately prior to our initial business combination
could own less than a majority of our outstanding shares subsequent
to our initial business combination. If less than 100% of the
equity interests or assets of a target business or businesses are
owned or acquired by the post-transaction company, the portion of
such business or businesses that is owned or acquired is what will
be valued for purposes of the 80% of trust account balance test. In
order to consummate such an acquisition, we may issue a significant
amount of our debt or equity securities to the sellers of such
businesses and/or seek to raise additional funds through a private
offering of debt or equity securities. Since we have no specific
business combination under consideration, we have not entered into
any such fund raising arrangement and have no current intention of
doing so. The fair market value of the target will be determined by
our board of directors based upon one or more standards generally
accepted by the financial community (such as actual and potential
sales, earnings, cash flow and/or book value). The proxy
solicitation materials or tender offer documents used by us in
connection with any proposed transaction will provide public
stockholders with our analysis of the fair market value of the
target business, as well as the basis for our determinations. If
our board is not able to independently determine that the target
business has a sufficient fair market value, we will obtain an
opinion from an unaffiliated, independent investment banking firm,
or another independent entity that commonly renders valuation
opinions on the type of target business we are seeking to acquire,
with respect to the satisfaction of such criteria.
6
We will
not be required to obtain an opinion from an investment banking
firm as to the fair market value if our board of directors
independently determines that the target business complies with the
80% threshold.
Lack of Business Diversification
We may
seek to effect a business combination with more than one target
business, and there is no required minimum valuation standard for
any target at the time of such acquisition. We expect to complete
only a single business combination, although this process may
entail the simultaneous acquisitions of several operating
businesses. Therefore, at least initially, the prospects for our
success may be entirely dependent upon the future performance of a
single business operation. Unlike other entities which may have the
resources to complete several business combinations of entities
operating in multiple industries or multiple areas of a single
industry, it is probable that we will not have the resources to
diversify our operations or benefit from the possible spreading of
risks or offsetting of losses. By consummating a business
combination with only a single entity, our lack of diversification
may:
●
subject us to
numerous economic, competitive and regulatory developments, any or
all of which may have a substantial adverse impact upon the
particular industry in which we may operate subsequent to a
business combination, and
●
result in our
dependency upon the performance of a single operating business or
the development or market acceptance of a single or limited number
of products, processes or services.
If we
determine to simultaneously acquire several businesses, and such
businesses are owned by different sellers, we will need for each of
such sellers to agree that our purchase of its business is
contingent on the simultaneous closings of the other acquisitions,
which may make it more difficult for us, and delay our ability, to
complete the business combination. With multiple acquisitions, we
could also face additional risks, including additional burdens and
costs with respect to possible multiple negotiations and due
diligence investigations (if there are multiple sellers) and the
additional risks associated with the subsequent assimilation of the
operations and services or products of the acquired companies in a
single operating business.
Limited Ability to Evaluate the Target Business’s
Management
Although we intend
to scrutinize the management of a prospective target business when
evaluating the desirability of effecting a business combination, we
cannot assure you that our assessment of the target
business’s management
will prove to be correct. In addition, we cannot assure you that
the future management will have the necessary skills,
qualifications or abilities to manage a public company.
Furthermore, the future role of our officers and directors, if any,
in the target business following a business combination cannot
presently be stated with any certainty. While it is possible that
some of our key personnel will remain in senior management or
advisory positions with us following a business combination, it is
possible that they will not devote their full time efforts to our
affairs subsequent to a business combination. Moreover, they would
only be able to remain with the company after the consummation of a
business combination if they are able to negotiate employment or
consulting agreements in connection with the business combination.
Such negotiations would take place simultaneously with the
negotiation of the business combination and will likely provide for
them to receive compensation in the form of cash payments and/or
our securities for services they would render to the company after
the consummation of the business combination. While the personal
and financial interests of our key personnel may influence their
motivation in identifying and selecting a target business, their
ability to remain with the company after the consummation of a
business combination will not be the determining factor in our
decision as to whether or not we will proceed with any potential
business combination. Additionally, we cannot assure you that our
officers and directors will have significant experience or
knowledge relating to the operations of the particular target
business.
Following a
business combination, we may seek to recruit additional managers to
supplement the incumbent management of the target business. We
cannot assure you that we will have the ability to recruit
additional managers, or that any such additional managers we do
recruit will have the requisite skills, knowledge or experience
necessary to enhance the incumbent management.
7
Stockholders May Not Have the Ability to Approve an Initial
Business Combination
In
connection with any proposed business combination, we will either
(1) seek stockholder approval of our initial business combination
at a meeting called for such purpose at which stockholders may seek
to convert their shares, regardless of whether they vote for or
against the proposed business combination, into their pro rata
share of the aggregate amount then on deposit in the trust account
(net of taxes payable), or (2) provide our public stockholders with
the opportunity to sell their shares to us by means of a tender
offer (and thereby avoid the need for a stockholder vote) for an
amount equal to their pro rata share of the aggregate amount then
on deposit in the trust account (net of taxes payable), in each
case subject to the limitations described herein. If we determine
to engage in a tender offer, such tender offer will be structured
so that each stockholder may tender any or all of his, her or its
shares rather than some pro rata portion of his, her or its shares.
The decision as to whether we will seek stockholder approval of a
proposed business combination or will allow stockholders to sell
their shares to us in a tender offer will be made by us, solely in
our discretion, and will be based on a variety of factors such as
the timing of the transaction and whether the terms of the
transaction would otherwise require us to seek stockholder
approval. Unlike other blank check companies which require
stockholder votes and conduct proxy solicitations in conjunction
with their initial business combinations and related conversions of
public shares for cash upon consummation of such initial business
combination even when a vote is not required by law, we will have
the flexibility to avoid such stockholder vote and allow our
stockholders to sell their shares pursuant to Rule 13e-4 and
Regulation 14E of the Exchange Act which regulate issuer tender
offers. In that case, we will file tender offer documents with the
SEC which will contain substantially the same financial and other
information about the initial business combination as is required
under the SEC’s proxy
rules. We will consummate our initial business combination only if
we have net tangible assets of at least $5,000,001 upon such
consummation and, if we seek stockholder approval, a majority of
the outstanding shares of common stock voted are voted in favor of
the business combination.
We
chose our net tangible asset threshold of $5,000,001 to ensure that
we would avoid being subject to Rule 419 promulgated under the
Securities Act of 1933, as amended. However, if we seek to
consummate an initial business combination with a target business
that imposes any type of working capital closing condition or
requires us to have a minimum amount of funds available from the
trust account upon consummation of such initial business
combination, we may need to have more than $5,000,001 in net
tangible assets upon consummation and this may force us to seek
third party financing which may not be available on terms
acceptable to us or at all. As a result, we may not be able to
consummate such initial business combination and we may not be able
to locate another suitable target within the applicable time
period, if at all. Public stockholders may therefore have to wait
until July 23, 2020, or longer if additional extensions are
approved, in order to be able to receive a pro rata share of the
trust account.
Our
Sponsor, officers, directors and the Investor (as defined below)
have agreed (1) to vote any shares of common stock owned by them in
favor of any proposed business combination, including the
founder’s shares, (2) not
to convert any shares of common stock in connection with a
stockholder vote to approve a proposed initial business combination
and (3) not sell any shares of common stock in any tender in
connection with a proposed initial business
combination.
None of
our officers, directors, Sponsor or their affiliates has indicated
any intention to purchase units or shares of common stock from
persons in the open market or in private transactions. However, if
we hold a meeting to approve a proposed business combination and a
significant number of stockholders vote, or indicate an intention
to vote, against such proposed business combination, our officers,
directors, Sponsor or their affiliates could make such purchases in
the open market or in private transactions in order to influence
the vote. Notwithstanding the foregoing, our officers, directors,
Sponsor and their affiliates will not make purchases of shares of
common stock if the purchases would violate Section 9(a)(2) or Rule
10b-5 of the Exchange Act, which are rules designed to stop
potential manipulation of a company’s stock.
Conversion Rights
At any
meeting called to approve an initial business combination, public
stockholders may seek to convert their shares, regardless of
whether they vote for or against the proposed business combination,
into their pro rata share of the aggregate amount then on deposit
in the trust account as of two business days prior to the
consummation of the initial business combination, less any taxes
then due but not yet paid (which taxes may be paid only from the
interest earned on the funds in the trust account). Alternatively,
we may provide our public stockholders with the opportunity to sell
their shares of our common stock to us through a tender offer (and
thereby avoid the need for a stockholder vote) for an amount equal
to their pro rata share of the aggregate amount then on deposit in
the trust account, less any taxes then due but not yet
paid.
We may
require public stockholders seeking conversion, whether they are a
record holder or hold their shares in “street name,” to either (i) tender their
certificates to our transfer agent or (ii) deliver their shares to
the transfer agent electronically using Depository Trust
Company’s DWAC
(Deposit/Withdrawal At Custodian) System, at the holder’s option, in each case prior to a
date set forth in the proxy materials sent in connection with the
proposal to approve the business combination.
There
is a nominal cost associated with the above-referenced delivery
process and the act of certificating the shares or delivering them
through the DWAC System. The transfer agent will typically charge
the tendering broker $45.00 and it would be up to the broker
whether to pass this cost on to the holder. However, this fee would
be incurred regardless of whether we require holders seeking to
exercise conversion rights to tender their shares. The need to
deliver shares is a requirement of exercising conversion rights
regardless of the timing of when such delivery must be effectuated.
However, in the event we require stockholders seeking to exercise
conversion rights to deliver their shares prior to the consummation
of the proposed business combination and the proposed business
combination is not consummated, this may result in an increased
cost to stockholders.
8
Any
proxy solicitation materials we furnish to stockholders in
connection with a vote for any proposed business combination will
indicate whether we are requiring stockholders to satisfy such
certification and delivery requirements. Accordingly, a stockholder
would have from the time the stockholder received our proxy
statement up until the vote on the proposal to approve the business
combination to deliver his shares if he wishes to seek to exercise
his conversion rights. This time period varies depending on the
specific facts of each transaction. However, as the delivery
process can be accomplished by the stockholder, whether or not he
is a record holder or his shares are held in “street name,” in a matter of hours by simply
contacting the transfer agent or his broker and requesting delivery
of his shares through the DWAC System, we believe this time period
is sufficient for an average investor. However, we cannot assure
you of this fact. Please see the risk factor titled “In connection with any
stockholder meeting called to approve a proposed initial business
combination, we may require stockholders who wish to convert their
shares in connection with a proposed business combination to comply
with specific requirements for conversion that may make it more
difficult for them to exercise their conversion rights prior to the
deadline for exercising their rights.” for further information on the
risks of failing to comply with these requirements.
The
foregoing is different from the procedures historically used by
some blank check companies. Traditionally, in order to perfect
conversion rights in connection with a blank check
company’s business
combination, the company would distribute proxy materials for the
stockholders’ vote on an
initial business combination, and a holder could simply vote
against a proposed business combination and check a box on the
proxy card indicating such holder was seeking to exercise his
conversion rights. After the business combination was approved, the
company would contact such stockholder to arrange for him to
deliver his certificate to verify ownership. As a result, the
stockholder then had an “option window” after the consummation of the
business combination during which he could monitor the price of the
company’s stock in the
market. If the price rose above the conversion price, he could sell
his shares in the open market before actually delivering his shares
to the company for cancellation. As a result, the conversion
rights, to which stockholders were aware they needed to commit
before the stockholder meeting, would become a “continuing” right surviving past the
consummation of the business combination until the holder delivered
its certificate. The requirement for physical or electronic
delivery prior to the meeting ensures that a holder’s election to convert his shares is
irrevocable once the business combination is approved.
Any
request to convert such shares once made, may be withdrawn at any
time up to the vote on the proposed business combination.
Furthermore, if a holder of a public share of common stock
delivered his certificate in connection with an election of their
conversion and subsequently decides prior to the vote on the
proposed business combination not to elect to exercise such rights,
he may simply request that the transfer agent return the
certificate (physically or electronically).
If the
initial business combination is not approved or completed for any
reason, then our public stockholders who elected to exercise their
conversion rights would not be entitled to convert their shares for
the applicable pro rata share of the trust account as of two
business days prior to the consummation of the initial business
combination. In such case, we will promptly return any shares
delivered by public holders.
Extensions to Complete Business Combination
On
November 17, 2018, we entered into an agreement (the “Agreement”) with the Sponsor and BRAC Lending
Group LLC (the “Investor”). Pursuant to the Agreement, the
Sponsor transferred an aggregate of 1,500,000 founder’s shares to the Investor in exchange
for the agreements set forth below and aggregate cash consideration
of $1.00. Pursuant to the Agreement, the Sponsor agreed to take all
actions reasonably necessary to extend the period of time the
Company has to consummate a business combination up to two times
for an aggregate of up to six months and the Investor agreed to
loan us the funds necessary to obtain the extensions (the
“Extension(s)”). On November 20, 2018, the Company
issued an unsecured promissory note (the “First Note”) in favor of the Investor, in the
original principal amount of $690,000, to provide us the funds
necessary to obtain the first three-month Extension. On November
20, 2018, we issued a press release announcing that we had obtained
the first three-month Extension to complete a business combination
from November 22, 2018 to February 22, 2019. On February 21, 2019,
the Company issued a second unsecured promissory note (the
“Second Note, and
together with the First Note, the “Notes”) in favor of the Investor, in the
original principal amount of $690,000, to provide us the funds
necessary to obtain the second three-month Extension. On February
22, 2019, we issued a press release announcing that we had obtained
the second three-month Extension to complete a business combination
from February 22, 2019 to May 22, 2019.
Pursuant to the
Agreement, the Investor has also agreed to loan the Company all
funds necessary to pay expenses incurred in connection with and in
order to consummate a business combination (the “Business Combination
Expenses”) and such loans
will be added to the Notes. Also, pursuant to the Agreement, the
Sponsor has agreed to be responsible for all liabilities of the
Company as of November 17, 2018, except for liabilities associated
with the possible redemption of shares by the Company’s shareholders, as described in the
Company’s Amended and
Restated Certificate of Incorporation. The Sponsor has also agreed
to loan us the funds necessary to pay the expenses of the Company
other than the Business Combination Expenses through the closing of
a business combination when and as needed in order for the Company
to continue in operation (the “Non-Business Combination Related
Expenses”). Upon
consummation of a business combination, up to $200,000 of the
Non-Business Combination Related Expenses will be repaid by us to
the Sponsor provided that the Company has funds available to it
sufficient to repay such expenses (the “Cap”) as well as to pay for all
stockholder redemptions, all Business Combination Expenses,
repayment of the Notes, and any funds necessary for the working
capital requirements of the Company following closing of the
business combination. Any remaining amounts in excess of the Cap
will be forgiven. If the Company does not consummate a business
combination, all outstanding loans made by the Sponsor to cover the
Non-Business Combination Related Expenses will be
forgiven.
9
The
Founder’s Shares transferred by the Sponsor to the Investor
will remain in escrow in the name of the Investor, subject to the
terms of the Stock Escrow Agreement, dated November 20, 2017, among
us, the Sponsor and Continental Stock Transfer & Trust Company.
Additionally, the Sponsor assigned the registration rights it was
granted, pursuant to the Registration Rights Agreement, dated
November 20, 2017 between us and the Sponsor, with respect to the
Founder’s Shares to the Investor in connection with the
transfer.
On
November 20, 2018 and February 21, 2019, the period of time for us
to consummate a Business Combination was extended for an aggregate
additional six-month period ending on May 22, 2019, and,
accordingly, $1,380,000 was deposited into the Trust Account. The
deposits were funded by the Notes. The Notes are repayable upon the
consummation of a Business Combination. If we fail to consummate a
Business Combination, the outstanding debt under the Notes will be
forgiven, except to the extent of any funds held outside of our
Trust Account after paying all other fees and expenses of the
Company.
On
May 21, 2019, our stockholders approved an amendment to our Amended
and Restated Certificate of Incorporation to extend the period of
time for which we were required to consummate a Business
Combination to August 22, 2019. The number of shares of common
stock presented for redemption in connection with this extension
was 2,119,772. We paid cash in the aggregate amount of $22,099,233,
or approximately $10.43 per share, to the redeeming stockholders.
We agreed to deposit, or cause to be deposited on our behalf, into
the Trust Account $0.02 for each public share outstanding for each
30-day extension period utilized through August 22, 2019. In
connection with this extension, we deposited an aggregate of
$286,814 into the Trust Account, of which $280,000 was
contributed to the Trust Account by a third party and is not
required to be repaid by us. In order to pay for part of the third
extension payment, we issued an unsecured non-interest bearing
promissory note in favor of the Investor, in the original principal
amount of $6,814. The note is payable upon consummation of an
initial business combination. If a business combination is not
completed, this amount will be forgiven except to the extent of any
funds held outside of the Trust Account.
On
August 21, 2019, our stockholders approved an amendment to our
Amended and Restated Certificate of Incorporation to extend the
period of time for which we are required to consummate a Business
Combination from August 22, 2019 to November 22, 2019. The number
of shares of common stock presented for redemption in connection
with this extension was 846,888. We paid cash in the aggregate
amount of $8,891,378, or approximately $10.50 per share, to the
redeeming stockholders. We agreed to deposit, or cause to be
deposited on our behalf, into the Trust Account $0.02 for each
public share outstanding for each 30-day extension period utilized
through November 22, 2019. In connection with this extension, we
deposited an aggregate of $236,000 into the Trust Account to fund
this extension payment, which amount was loaned to us by A/Z
Property Partners, LLC ("A/Z Property") and Investor on a
non-interest basis. The loan is repayable upon consummation of an
initial business combination. If a business combination is not
completed, this amount will be forgiven except to the extent of any
funds held outside of the Trust Account.
On
November 21, 2019, our stockholders approved an amendment to our
Amended and Restated Certificate of Incorporation to extend the
period of time for which we are required to consummate a Business
Combination from November 22, 2019 to March 23, 2020. The number of
shares of common stock presented for redemption in connection with
this extension was 919,091. We paid cash in the aggregate amount of
$9,736,077, or approximately $10.59 per share, to the redeeming
stockholders. We agreed to deposit, or cause to be deposited on our
behalf, into the Trust Account $0.02 for each public share
outstanding for each 30-day extension period utilized through March
23, 2020. In connection with this extension, we deposited an
aggregate of $60,285 into the Trust Account to fund the first
thirty-day extension through December 22, 2019, which amount was
loaned to us on a non-interest basis by A/Z Property and Investor.
In January and February 2020, A/Z Property and Investor loaned us
an additional aggregate amount of $90,428 each on a non-interest
basis to pay for the extension through March 23, 2020. The
foregoing loan amounts are payable upon consummation of an initial
business combination. If a business combination is not completed,
these amounts will be forgiven except to the extent of any funds
held outside of the Trust Account.
On
March 23, 2020, our stockholders approved an amendment to our
Amended and Restated Certificate of Incorporation to extend the
period of time for which we are required to consummate a Business
Combination from March 23, 2020 to July 23, 2020. The number of
shares of common stock presented for redemption in connection with
this extension was 2,433,721. We paid cash in the aggregate amount
of $25,997,965, or approximately $10.68 per share, to the redeeming
stockholders. We agreed to deposit, or cause to be deposited on our
behalf, into the Trust Account $0.02 for each public share
outstanding for each 30-day extension period utilized through July
23, 2020. In connection with this extension, we deposited an
aggregate of $11,611 into the Trust Account to fund the first
thirty-day extension through April 23, 2020, which amounts were
loaned to us by A/Z Property and Investor on a non-interest basis.
The loan is payable upon consummation of an initial business
combination. If a business combination is not completed, this
amount will be forgiven except to the extent of any funds held
outside of the Trust Account.
10
Liquidation if No Business Combination
If we
have not completed an initial business combination by July 23,
2020, or longer if additional extensions are approved, 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 100% of the outstanding public shares, at a
per-share price, payable in cash, equal to the aggregate amount
then on deposit in the trust account, including any interest earned
on the funds held in the trust account net of interest that may be
used by us to pay our franchise and income taxes payable, 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 liquidation distributions, if any),
subject to applicable law, and (iii) as promptly as reasonably
possible following such redemption, subject to the approval of our
remaining stockholders and our board of directors, dissolve and
liquidate, subject (in the case of (ii) and (iii) above) to our
obligations under Delaware law to provide for claims of creditors
and the requirements of other applicable law.
Our
Sponsor, officers and directors have agreed that they will not
propose any amendment to our amended and restated certificate of
incorporation that would restrict our public stockholders from
converting or selling their shares to us in connection with a
business combination or affect the substance or timing of our
obligation to redeem 100% of our public shares if we do not
complete a business combination by July 23, 2020 unless we provide
our public stockholders with the opportunity to convert their
shares of common stock upon such approval at a per-share price,
payable in cash, equal to the aggregate amount then on deposit in
the trust account, including interest not previously released to us
but net of franchise and income taxes payable, divided by the
number of then outstanding public shares. This redemption right
shall apply in the event of the approval of any such amendment,
whether proposed by our Sponsor, any executive officer, director or
director nominee, or any other person.
Under
the Delaware General Corporation Law, stockholders may be held
liable for claims by third parties against a corporation to the
extent of distributions received by them in a dissolution. The pro
rata portion of our trust account distributed to our public
stockholders upon the redemption of 100% of our outstanding public
shares in the event we do not complete our initial business
combination within the required time period may be considered a
liquidation distribution under Delaware law. If the corporation
complies with certain procedures set forth in Section 280 of the
Delaware General Corporation Law intended to ensure that it makes
reasonable provision for all claims against it, including a 60-day
notice period during which any third-party claims can be brought
against the corporation, a 90-day period during which the
corporation may reject any claims brought, and an additional
150-day waiting period before any liquidating distributions are
made to stockholders, any liability of stockholders with respect to
a liquidating distribution is limited to the lesser of such
stockholder’s pro rata
share of the claim or the amount distributed to the stockholder,
and any liability of the stockholder would be barred after the
third anniversary of the dissolution.
Furthermore, if the
pro rata portion of our trust account distributed to our public
stockholders upon the redemption of 100% of our public shares in
the event we do not complete our initial business combination
within the required time period is not considered a liquidation
distribution under Delaware law and such redemption distribution is
deemed to be unlawful, then pursuant to Section 174 of the Delaware
General Corporation Law, the statute of limitations for claims of
creditors could then be six years after the unlawful redemption
distribution, instead of three years, as in the case of a
liquidation distribution. If we are unable to complete a business
combination within the prescribed time frame, 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 100% of the outstanding public shares, at a
per-share price, payable in cash, equal to the aggregate amount
then on deposit in the trust account, including any interest earned
on the funds held in the trust account net of interest that may be
used by us to pay our franchise and income taxes payable, 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 liquidation distributions, if any),
subject to applicable law, and (iii) as promptly as reasonably
possible following such redemption, subject to the approval of our
remaining stockholders and our board of directors, dissolve and
liquidate, subject (in the case of (ii) and (iii) above) to our
obligations under Delaware law to provide for claims of creditors
and the requirements of other applicable law. Accordingly, it is
our intention to redeem our public shares as soon as reasonably
possible following the required time period to complete our initial
business combination, and, therefore, we do not intend to comply
with those procedures. As such, our stockholders could potentially
be liable for any claims to the extent of distributions received by
them (but no more) and any liability of our stockholders may extend
well beyond the third anniversary of such date.
Because
we will not be complying with Section 280 of the Delaware General
Corporation Law, Section 281(b) of the Delaware General Corporation
Law requires us to adopt a plan, based on facts known to us at such
time that will provide for our payment of all existing and pending
claims or claims that may be potentially brought against us within
the subsequent ten years. However, because we are a blank check
company, rather than an operating company, and our operations will
be limited to searching for prospective target businesses to
acquire, the only likely claims to arise would be from our vendors
(such as lawyers, investment bankers, etc.) or prospective target
businesses.
11
We are
required to use our reasonable best efforts to have all third
parties and any prospective target businesses enter into agreements
with us waiving any right, title, interest or claim of any kind
they may have in or to any monies held in the trust account. As a
result, the claims that could be made against us will be limited,
thereby lessening the likelihood that any claim would result in any
liability extending to the trust. We therefore believe that any
necessary provision for creditors will be reduced and should not
have a significant impact on our ability to distribute the funds in
the trust account to our public stockholders. Nevertheless, we
cannot assure you of this fact as there is no guarantee that
vendors, service providers and prospective target businesses will
execute such agreements. If any third party refuses to execute an
agreement waiving such claims to the monies held in the trust
account, our management will perform an analysis of the
alternatives available to it and will only enter into an agreement
with a third party that has not executed a waiver if management
believes that such third party’s engagement would be significantly
more beneficial to us than any alternative. Examples of possible
instances where we may engage a third party that refuses to execute
a waiver include the engagement of a third party consultant whose
particular expertise or skills are believed by management to be
significantly superior to those of other consultants that would
agree to execute a waiver or in cases where management is unable to
find a service provider willing to execute a waiver. Our
underwriters and auditor are the only third parties we are
currently aware of that may not execute a waiver. Nor is there any
guarantee that, even if they execute such agreements with us, they
will not seek recourse against the trust account. A/Z Property, an
entity majority owned by Richard Ackerman, our Chairman, President
and Chief Executive Officer, has agreed that it will be liable to
ensure that the proceeds in the trust account are not reduced below
$10.00 per share by the claims of target businesses or claims of
vendors or other entities that are owed money by us for services
rendered or contracted for or products sold to us. We believe A/Z
Property has sufficient net worth to satisfy its indemnity
obligation should it arise, however we cannot assure you that A/Z
Property will have sufficient liquid assets to satisfy such
obligations if it is required to do so. Additionally, the agreement
entered into by A/Z Property specifically provides for two
exceptions to the indemnity it has given: it will have no liability
(1) as to any claimed amounts owed to a target business or vendor
or other entity who has executed an agreement with us waiving any
right, title, interest or claim of any kind they may have in or to
any monies held in the trust account, or (2) as to any claims for
indemnification by the underwriters of the Initial Public Offering
against certain liabilities, including liabilities under the
Securities Act. As a result, if we liquidate, the per-share
distribution from the trust account could be less than $10.00 due
to claims or potential claims of creditors. We will distribute to
all of our public stockholders, in proportion to their respective
equity interests, an aggregate amount then on deposit in the trust
account, including any interest earned on the funds held in the
trust account net of interest that may be used by us to pay our
franchise and income taxes payable.
We
anticipate notifying the trustee of the trust account to begin
liquidating such assets promptly after such date and anticipate it
will take no more than 10 business days to effect such a
distribution. Our Sponsor has waived its rights to participate in
any liquidation distribution with respect to the
founder’s shares and any
shares, rights or warrants included in the private placement units.
Additionally, any loans made by our officers, directors, Sponsors
or their affiliates for working capital needs will be forgiven and
not repaid if we are unable to complete an initial business
combination. There will be no distribution from the trust account
with respect to our rights or warrants, including the rights or
warrants contained in the private placement units, which will
expire worthless. We will pay the costs of any subsequent
liquidation from our remaining assets outside of the trust account.
If such funds are insufficient, A/Z Property has agreed to pay the
funds necessary to complete such liquidation (currently anticipated
to be no more than approximately $15,000) and has agreed not to
seek repayment for such expenses.
If we
are unable to complete an initial business combination and expend
all of the net proceeds of the Initial Public Offering and the sale
of the private placement units, other than the proceeds deposited
in the trust account, and without taking into account interest, if
any, earned on the trust account, the initial per-share redemption
price would be $10.00. The proceeds deposited in the trust account
could, however, become subject to claims of our creditors that are
in preference to the claims of public stockholders.
Our
public stockholders shall be entitled to receive funds from the
trust account only in the event of our failure to complete a
business combination within the required time period or if the
stockholders seek to have us convert or purchase their respective
shares upon a business combination which is actually completed by
us or upon certain amendments to our amended and restated
certificate of incorporation as described elsewhere herein. In no
other circumstances shall a stockholder have any right or interest
of any kind to or in the trust account.
If we
are forced to file a bankruptcy case or an involuntary bankruptcy
case is filed against us which is not dismissed, the proceeds held
in the trust account could be subject to applicable bankruptcy law,
and may be included in our bankruptcy estate and subject to the
claims of third parties with priority over the claims of our
stockholders. To the extent any bankruptcy claims deplete the trust
account, we cannot assure you we will be able to return to our
public stockholders at least $10.00 per share.
If we
are forced to file a bankruptcy case or an involuntary bankruptcy
case is filed against us which is not dismissed, any distributions
received by stockholders could be viewed under applicable
debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court
could seek to recover all amounts received by our stockholders.
Furthermore, because we intend to distribute the proceeds held in
the trust account to our public stockholders promptly after the
expiration of the time we have to complete an initial business
combination, this may be viewed or interpreted as giving preference
to our public stockholders over any potential creditors with
respect to access to or distributions from our assets. Furthermore,
our board may be viewed as having breached their fiduciary duties
to our creditors and/or may have acted in bad faith, and thereby
exposing itself and our company to claims of punitive damages, by
paying public stockholders from the trust account prior to
addressing the claims of creditors. We cannot assure you that
claims will not be brought against us for these
reasons.
12
Amended and Restated Certificate of Incorporation
Our
amended and restated certificate of incorporation contains certain
requirements and restrictions that will apply to us until the
consummation of our initial business combination. These provisions
cannot be amended without the approval of a majority of our
stockholders. If we seek to amend any provisions of our amended and
restated certificate of incorporation that would restrict our
public stockholders from converting or selling their shares to us
in connection with a business combination or affect the substance
or timing of our obligation to redeem 100% of our public shares if
we do not complete a business combination by July 23, 2020, we will
provide public stockholders with the opportunity to convert their
public shares in connection with any such vote. This redemption
right shall apply in the event of the approval of any such
amendment, whether proposed by our Sponsor, any executive officer,
director or director nominee, or any other person. Our Sponsor,
officers and directors have agreed to waive any conversion rights
with respect to any founder’s shares and any public shares they
may hold in connection with any vote to amend our amended and
restated certificate of incorporation. Specifically, our amended
and restated certificate of incorporation provides, among other
things, that:
●
we shall either (1)
seek stockholder approval of our initial business combination at a
meeting called for such purpose at which stockholders may seek to
convert their shares, regardless of whether they vote for or
against the proposed business combination, into their pro rata
share of the aggregate amount then on deposit in the trust account
(net of taxes payable), or (2) provide our stockholders with the
opportunity to sell their shares to us by means of a tender offer
(and thereby avoid the need for a stockholder vote) for an amount
equal to their pro rata share of the aggregate amount then on
deposit in the trust account (net of taxes payable), in each case
subject to the limitations described herein;
●
we will consummate
our initial business combination only if we have net tangible
assets of at least $5,000,001 upon such consummation and, if we
seek stockholder approval, a majority of the outstanding shares of
common stock voted are voted in favor of the business
combination;
●
if our initial
business combination is not consummated by July 23, 2020, then we
will redeem all of the outstanding public shares and thereafter
liquidate and dissolve our company;
●
we may not
consummate any other business combination, merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or
similar transaction prior to our initial business combination;
and
●
prior to our
initial business combination, we may not issue additional stock
that participates in any manner in the proceeds of the trust
account, or that votes as a class with the common stock sold in
this offering on any matter.
Competition
In
identifying, evaluating and selecting a target business, we may
encounter intense competition from other entities having a business
objective similar to ours. Many of these entities are well
established and have extensive experience identifying and effecting
business combinations directly or through affiliates. Many of these
competitors possess greater technical, human and other resources
than we do and our financial resources will be relatively limited
when contrasted with those of many of these competitors. While we
believe there may be numerous potential target businesses that we
could acquire with the net proceeds of the Initial Public Offering
and the sale of the private placement units, our ability to compete
in acquiring certain sizable target businesses may be limited by
our available financial resources.
The
following also may not be viewed favorably by certain target
businesses:
●
our obligation to
seek stockholder approval of a business combination or engage in a
tender offer may delay the completion of a
transaction;
●
our obligation to
convert or repurchase shares of common stock held by our public
stockholders may reduce the resources available to us for a
business combination; and
●
our outstanding
rights or warrants and unit purchase options, and the potential
future dilution they represent.
Any of
these factors may place us at a competitive disadvantage in
successfully negotiating a business combination. Our management
believes, however, that our status as a public entity and potential
access to the United States public equity markets may give us a
competitive advantage over privately-held entities having a similar
business objective as ours in acquiring a target business with
significant growth potential on favorable terms.
If we
succeed in effecting a business combination, there will be, in all
likelihood, intense competition from competitors of the target
business. We cannot assure you that, subsequent to a business
combination, we will have the resources or ability to compete
effectively.
13
Employees
We have
two executive officers who receive no compensation from the
Company. These individuals are not obligated to devote any specific
number of hours to our matters and intend to devote only as much
time as they deem necessary to our affairs. The amount of time they
will devote in any time period will vary based on whether a target
business has been selected for the business combination and the
stage of the business combination process of the company.
Accordingly, once a suitable target business to acquire has been
located, management will spend more time investigating such target
business and negotiating and processing the business combination
(and consequently spend more time on our affairs) than had been
spent prior to locating a suitable target business. We presently
expect our executive officers to devote such amount of time as they
reasonably believe is necessary to our business. We do not intend
to have any employees prior to the consummation of a business
combination.
Periodic Reporting and Audited Financial Statements
We have
registered our units, common stock, rights and warrants under the
Exchange Act and have reporting obligations, including the
requirement that we file annual, quarterly and current reports with
the SEC. In accordance with the requirements of the Exchange Act,
this 2019 Form 10-K contains financial statements audited and
reported on by our independent registered public
accountants.
We will
provide stockholders with audited financial statements of the
prospective target business as part of any proxy solicitation as
issued by the International Accounting Standards Board materials or
tender offer documents sent to stockholders to assist them in
assessing the target business. These financial statements will need
to be prepared in accordance with or reconciled to United States
generally accepted accounting principles or international financial
reporting standards. We cannot assure you that any particular
target business identified by us as a potential acquisition
candidate will have the necessary financial statements. To the
extent that this requirement cannot be met, we may not be able to
acquire the proposed target business.
If we
are no longer a smaller reporting company or an emerging growth
company, we will be required to have our internal control
procedures audited as required by the Sarbanes-Oxley Act. A target
company may not be in compliance with the provisions of the
Sarbanes-Oxley Act regarding adequacy of their internal controls.
The development of the internal controls of any such entity to
achieve compliance with the Sarbanes-Oxley Act may increase the
time and costs necessary to complete any such
acquisition.
Item 1A Risk Factors
Our business, financial condition, operating results, and cash
flows may be impacted by a number of factors, many of which are
beyond our control, including those set forth below and elsewhere
in this 2019 Form 10-K, the occurrence of any one of which could
have a material adverse effect on our actual results.
We have no operating history and, accordingly, you will not have
any basis on which to evaluate our ability to achieve our business
objective.
We have
no operating results to date. Therefore, our ability to commence
operations is dependent upon obtaining financing through the public
offering of our securities. Since we do not have an operating
history, you will have no basis upon which to evaluate our ability
to achieve our business objective, which is to consummate an
initial business combination. We have not conducted any substantive
discussions and we have no plans, arrangements or understandings
with any prospective acquisition candidates. We will not generate
any revenues until, at the earliest, after the consummation of a
business combination.
If we are unable to consummate a business combination, our public
stockholders may be forced to wait until July 23, 2020, or longer
if additional extensions are approved, before receiving
distributions from the trust account.
We have
until July 23, 2020 in which to complete a business combination. We
have no obligation to return funds to investors prior to such date
unless (i) we consummate a business combination prior thereto or
(ii) we seek to amend our amended and restated certificate of
incorporation prior to consummation of a business combination, and
only then in cases where investors have sought to convert or sell
their shares to us. Only after the expiration of this full time
period will public security holders be entitled to distributions
from the trust account if we are unable to complete a business
combination. Accordingly, investors’ funds may be unavailable to them
until after such date and to liquidate your investment, public
security holders may be forced to sell their public shares or
warrants, potentially at a loss.
14
Our public stockholders may not be afforded an opportunity to vote
on our proposed business combination.
We will
either (1) seek stockholder approval of our initial business
combination at a meeting called for such purpose at which public
stockholders may seek to convert their shares, regardless of
whether they vote for or against the proposed business combination,
into their pro rata share of the aggregate amount then on deposit
in the trust account (net of taxes payable), or (2) provide our
public stockholders with the opportunity to sell their shares to us
by means of a tender offer (and thereby avoid the need for a
stockholder vote) for an amount equal to their pro rata share of
the aggregate amount then on deposit in the trust account (net of
taxes payable), in each case subject to the limitations described
elsewhere in this Report. Accordingly, it is possible that we will
consummate our initial business combination even if holders of a
majority of our public shares do not approve of the business
combination we consummate. The decision as to whether we will seek
stockholder approval of a proposed business combination or will
allow stockholders to sell their shares to us in a tender offer
will be made by us, solely in our discretion, and will be based on
a variety of factors such as the timing of the transaction and
whether the terms of the transaction would otherwise require us to
seek stockholder approval. For instance, Nasdaq rules currently
allow us to engage in a tender offer in lieu of a stockholder
meeting but would still require us to obtain stockholder approval
if we were seeking to issue more than 20% of our outstanding shares
to a target business as consideration in any business combination.
Therefore, if we were structuring a business combination that
required us to issue more than 20% of our outstanding shares, we
would seek stockholder approval of such business combination
instead of conducting a tender offer.
If we determine to change our acquisition criteria or guidelines,
many of the disclosures contained in this Report would be rendered
irrelevant and you would be investing in our company without any
basis on which to evaluate the potential target business we may
acquire.
We
could seek to deviate from the acquisition criteria or guidelines
disclosed in this Report although we have no current intention to
do so. For instance, we currently anticipate acquiring a target
business with a consistent historical financial performance.
However, we are not obligated to do so and may determine to merge
with or acquire a company with no operating history if the terms of
the transaction are determined by us to be favorable to our public
stockholders. In such event, many of the acquisition criteria and
guidelines set forth in this Report would be rendered irrelevant.
We could also seek to amend our amended and restated certificate of
incorporation to provide us with more time to complete an initial
business combination. Accordingly, investors may be making an
investment in our company without any basis on which to evaluate
the potential target business we may acquire.
We may issue shares of our capital stock or debt securities to
complete a business combination, which would reduce the equity
interest of our stockholders and likely cause a change in control
of our ownership.
Our
amended and restated certificate of incorporation authorizes the
issuance of up to 100,000,000 shares of common stock, par value
$0.001 per share, and 1,000,000 shares of preferred stock, par
value $0.001 per share. As of December 31, 2019, there are
92,020,472 authorized but unissued shares of common stock available
for issuance, which amount takes into account shares reserved for
issuance upon exercise of the underwriter’s option, conversion of outstanding
rights (including private placement rights and the rights
underlying the underwriter's option) and warrants (including the
warrants contained in the private placement units and the
underwriter’s option). As
of December 31, 2019, there are no shares of preferred stock issued
and outstanding. Although we have no commitment as of the date of
this 2019 Form 10-K, we may issue a substantial number of
additional shares of common stock or shares of preferred stock, or
a combination of common stock and preferred stock, to complete a
business combination. The issuance of additional shares of common
stock will not reduce the per-share conversion amount in the trust
account. The issuance of additional shares of common stock or
preferred stock:
●
may significantly
reduce the equity interest of investors in the Initial Public
Offering;
●
may subordinate the
rights of holders of shares of common stock if we issue shares of
preferred stock with rights senior to those afforded to our shares
of common stock;
●
may cause a change
in control if a substantial number of shares of common stock are
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;
and
●
may adversely
affect prevailing market prices for our shares of common
stock.
Similarly, if we
issue debt securities, it could result in:
●
default and
foreclosure on our assets if our operating revenues after a
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
security is payable on demand; and
●
our inability to
obtain necessary additional financing if the debt security contains
covenants restricting our ability to obtain such financing while
the debt security is outstanding.
15
If we
incur indebtedness, our lenders will not have a claim on the cash
in the trust account and such indebtedness will not decrease the
per-share conversion amount in the trust account.
If third parties bring claims against us, the proceeds held in
trust could be reduced and the per-share redemption price received
by stockholders may be less than $10.00.
Our
placing of funds in trust may not protect those funds from third
party claims against us. Although we will seek to have all vendors
and service providers we engage and prospective target businesses
we negotiate with execute agreements with us waiving any right,
title, interest or claim of any kind in or to any monies held in
the trust account for the benefit of our public stockholders, they
may not execute such agreements. Furthermore, even if such entities
execute such agreements with us, they may seek recourse against the
trust account. A court may not uphold the validity of such
agreements. Accordingly, the proceeds held in trust could be
subject to claims which could take priority over those of our
public stockholders. If we are unable to complete a business
combination and distribute the proceeds held in trust to our public
stockholders, A/Z Property has agreed (subject to certain
exceptions described elsewhere in this Report) that it will be
liable to ensure that the proceeds in the trust account are not
reduced below $10.00 per share by the claims of target businesses
or claims of vendors or other entities that are owed money by us
for services rendered or contracted for or products sold to us. We
believe A/Z Property has sufficient net worth to satisfy its
indemnity obligation should it arise, however we cannot assure you
that A/Z Property will have sufficient liquid assets to satisfy
obligations if it is required to do so. Additionally, the agreement
entered into by A/Z Property specifically provides for two
exceptions to the indemnity it has given: it will have no liability
(1) as to any claimed amounts owed to a target business or vendor
or other entity who has executed an agreement with us waiving any
right, title, interest or claim of any kind they may have in or to
any monies held in the trust account, or (2) as to any claims for
indemnification by the underwriters of the Initial Public Offering
against certain liabilities, including liabilities under the
Securities Act. Therefore, the per-share distribution from the
trust account may be less than $10.00, plus interest, due to such
claims.
Additionally, if we
are forced to file a bankruptcy case or an involuntary bankruptcy
case is filed against us which is not dismissed, the proceeds held
in the trust account could be subject to applicable bankruptcy law,
and may be included in our bankruptcy estate and subject to the
claims of third parties with priority over the claims of our
stockholders. To the extent any bankruptcy claims deplete the trust
account, we may not be able to return to our public stockholders at
least $10.00 per share. As a result, if any such claims were
successfully made against the trust account, the funds available
for our initial business combination and redemptions could be
reduced to less than $10.00 per public share.
Our stockholders may be held liable for claims by third parties
against us to the extent of distributions received by
them.
Our
amended and restated certificate of incorporation provides that we
will continue in existence until July 23, 2020. If we have not
completed a business combination by such date, 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 100% of the outstanding public shares, at a
per-share price, payable in cash, equal to the aggregate amount
then on deposit in the trust account, including any interest earned
on the funds held in the trust account net of interest that may be
used by us to pay our franchise and income taxes payable, 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 liquidation distributions, if any),
subject to applicable law, and (iii) as promptly as reasonably
possible following such redemption, subject to the approval of our
remaining stockholders and our board of directors, dissolve and
liquidate, subject (in the case of (ii) and (iii) above) to our
obligations under Delaware law to provide for claims of creditors
and the requirements of other applicable law. We cannot assure you
that we will properly assess all claims that may be potentially
brought against us. As such, our stockholders could potentially be
liable for any claims to the extent of distributions received by
them (but no more) and any liability of our stockholders may extend
well beyond the third anniversary of the date of distribution.
Accordingly, we cannot assure you that third parties will not seek
to recover from our stockholders amounts owed to them by
us.
If we
are forced to file a bankruptcy case or an involuntary bankruptcy
case is filed against us which is not dismissed, any distributions
received by stockholders could be viewed under applicable
debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court
could seek to recover all amounts received by our stockholders.
Furthermore, because we intend to distribute the proceeds held in
the trust account to our public stockholders promptly after
expiration of the time we have to complete an initial business
combination, this may be viewed or interpreted as giving preference
to our public stockholders over any potential creditors with
respect to access to or distributions from our assets. Furthermore,
our board may be viewed as having breached their fiduciary duties
to our creditors and/or may have acted in bad faith, and thereby
exposing itself and our company to claims of punitive damages, by
paying public stockholders from the trust account prior to
addressing the claims of creditors. We cannot assure you that
claims will not be brought against us for these
reasons.
16
Our directors may decide not to enforce A/Z Property's
indemnification obligations, resulting in a reduction in the amount
of funds in the trust account available for distribution to our
public stockholders.
In the
event that the proceeds in the trust account are reduced below
$10.00 per public share and A/Z Property asserts that it is unable
to satisfy its obligations or that it has no indemnification
obligations related to a particular claim, our independent
directors would determine whether to take legal action against A/Z
Property to enforce such indemnification obligations. While we
currently expect that our independent directors would take legal
action on our behalf against A/Z Property to enforce such
indemnification obligations to us, it is possible that our
independent directors in exercising their business judgment may
choose not to do so in any particular instance. If our independent
directors choose not to enforce these indemnification obligations,
the amount of funds in the trust account available for distribution
to our public stockholders may be reduced below $10.00 per
share.
If we do not file and maintain a current and effective prospectus
relating to the common stock issuable upon exercise of the
warrants, holders will only be able to exercise such warrants on a
“cashless basis.”
If we
do not file and maintain a current and effective prospectus
relating to the common stock issuable upon exercise of the warrants
at the time that holders wish to exercise such warrants, they will
only be able to exercise them on a “cashless basis” provided that an exemption from
registration is available. As a result, the number of shares of
common stock that holders will receive upon exercise of the
warrants will be fewer than it would have been had such holder
exercised his warrant for cash. Further, if an exemption from
registration is not available, holders would not be able to
exercise on a cashless basis and would only be able to exercise
their warrants for cash if a current and effective prospectus
relating to the common stock issuable upon exercise of the warrants
is available. Under the terms of the warrant agreement, we have
agreed to use our best efforts to meet these conditions and to file
and maintain a current and effective prospectus relating to the
common stock issuable upon exercise of the warrants until the
expiration of the warrants. However, we cannot assure you that we
will be able to do so. If we are unable to do so, the potential
“upside” of the holder’s investment in our company may be
reduced or the warrants may expire worthless.
An investor will only be able to exercise a warrant if the issuance
of shares of common stock upon such exercise has been registered or
qualified or is deemed exempt under the securities laws of the
state of residence of the holder of the warrants.
No
warrants will be exercisable and we will not be obligated to issue
shares of common stock unless the shares of common stock issuable
upon such exercise has been registered or qualified or deemed to be
exempt under the securities laws of the state of residence of the
holder of the warrants. If the shares of common stock issuable upon
exercise of the warrants are not qualified or exempt from
qualification in the jurisdictions in which the holders of the
warrants reside, the warrants may be deprived of any value, the
market for the warrants may be limited and they may expire
worthless if they cannot be sold and may be subject to
redemption.
We may amend the terms of the warrants in a manner that may be
adverse to holders with the approval by the holders of at least 50%
of the then outstanding warrants.
Our
warrants were issued in registered form under the Warrant
Agreement, dated November 20, 2017, between Continental Stock
Transfer & Trust Company, as warrant agent, and us. The warrant
agreement provides that the terms of the warrants may be amended
without the consent of any holder to cure any ambiguity or correct
any defective provision. The warrant agreement requires the
approval by the holders of at least 50% of the then outstanding
warrants (including the warrants contained in the private placement
units) in order to make any change that adversely affects the
interests of the registered holders. Accordingly, we would need
only 1,656,876, or 48.0%, of the public warrants to vote in favor
of a proposed amendment for it to be approved (assuming the holders
of the warrants contained in the private placement units all voted
in favor of the amendment).
We may amend the terms of the rights in a manner that may be
adverse to holders with the approval by the holders of at least 50%
of the then outstanding rights.
Our
rights were issued in registered form under a right agreement
between Continental Stock Transfer & Trust Company, as rights
agent, and us. The right agreement provides that the terms of the
rights may be amended without the consent of any holder to cure any
ambiguity or correct any defective provision. The right agreement
requires the approval by the holders of at least 50% of the then
outstanding rights in order to make any change that adversely
affects the interests of the registered holders. Accordingly, we
would need only 3,313,751, or 48.0%, of the public rights to vote
in favor of a proposed amendment for it to be approved (assuming
the holders of the private rights all voted in favor of the
amendment).
Since we have not yet selected a particular industry or target
business with which to complete a business combination, we are
unable to currently ascertain the merits or risks of the industry
or business in which we may ultimately operate.
We are
not limited to a particular industry and may consummate a business
combination with a company in any industry we choose. Accordingly,
there is no current basis for you to evaluate the possible merits
or risks of the particular industry in which we may ultimately
operate or the target business which we may ultimately acquire. To
the extent we complete a business combination with a financially
unstable company or an entity in its development stage, we may be
affected by numerous risks inherent in the business operations of
those entities. If we complete a business combination with an
entity in an industry characterized by a high level of risk, we may
be affected by the currently unascertainable risks of that
industry. Although our management will endeavor to evaluate the
risks inherent in a particular industry or target business, we
cannot assure you that we will properly ascertain or assess all of
the significant risk factors. We also cannot assure you that an
investment in our units will not ultimately prove to be less
favorable to investors than a direct investment, if an opportunity
were available, in a target business.
17
Our ability to successfully effect a business combination and to be
successful thereafter will be totally dependent upon the efforts of
our key personnel, some of whom may join us following a business
combination. While we intend to closely scrutinize any individuals
we engage after a business combination, we cannot assure you that
our assessment of these individuals will prove to be
correct.
Our
ability to successfully effect a business combination is dependent
upon the efforts of our key personnel. We believe that our success
depends on the continued service of our key personnel, at least
until we have consummated our initial business combination. We
cannot assure you that any of our key personnel will remain with us
for the immediate or foreseeable future. In addition, none of our
officers are required to commit any specified amount of time to our
affairs and, accordingly, our officers may have conflicts of
interest in allocating management time among various business
activities, including identifying potential business combinations
and monitoring the related due diligence. We do not have employment
agreements with, or key-man insurance on the life of, any of our
officers. The unexpected loss of the services of our key personnel
could have a detrimental effect on us.
Additionally, the
role of our key personnel after a business combination cannot
presently be ascertained. Although some of our key personnel may
continue to serve in senior management or advisory positions
following a business combination, it is likely that most, if not
all, of the management of the target business will remain in place.
While we intend to closely scrutinize any individuals we engage
after a business combination, we cannot assure you that our
assessment of these individuals will prove to be correct. These
individuals may be unfamiliar with the requirements of operating a
public company which could cause us to have to expend time and
resources helping them become familiar with such requirements. This
could be expensive and time-consuming and could lead to various
regulatory issues which may adversely affect our
operations.
Our officers and directors may not have significant experience or
knowledge regarding the jurisdiction or industry of the target
business we may seek to acquire.
We are
not limited to a particular industry and may consummate a business
combination with a target business in any geographic location or
industry we choose. We cannot assure you that our officers and
directors will have enough experience or have sufficient knowledge
relating to the jurisdiction of the target or its industry to make
an informed decision regarding a business combination.
Our key personnel may negotiate employment or consulting agreements
with a target business in connection with a particular business
combination. These agreements may provide for them to receive
compensation following a business combination and as a result, may
cause them to have conflicts of interest in determining whether a
particular business combination is the most
advantageous.
Our key
personnel will be able to remain with the company after the
consummation of a business combination only if they are able to
negotiate employment or consulting agreements or other appropriate
arrangements in connection with the business combination. Such
negotiations would take place simultaneously with the negotiation
of the business combination and could provide for such individuals
to receive compensation in the form of cash payments and/or our
securities for services they would render to the company after the
consummation of the business combination. The personal and
financial interests of such individuals may influence their
motivation in identifying and selecting a target
business.
Our officers and directors may allocate their time to other
businesses thereby causing conflicts of interest in their
determination as to how much time to devote to our affairs. This
conflict of interest could have a negative impact on our ability to
consummate a business combination.
Our
officers and directors are not required to commit their full time
to our affairs, which could create a conflict of interest when
allocating their time between our operations and their other
commitments. We presently expect each of our employees to devote
such amount of time as they reasonably believe is necessary to our
business. We do not intend to have any full time employees prior to
the consummation of our initial business combination. All of our
officers and directors are engaged in other business endeavors and
are not obligated to devote any specific number of hours to our
affairs. If our officers’
and directors’ other
business affairs require them to devote more substantial amounts of
time to such affairs, it could limit their ability to devote time
to our affairs and could have a negative impact on our ability to
consummate our initial business combination. We cannot assure you
that these conflicts will be resolved in our favor.
18
Our officers and directors may have a conflict of interest in
determining whether a particular target business is appropriate for
a business combination.
Our
Sponsor, which is affiliated with certain of our officers and
directors, has agreed to waive its right to convert its
founder’s shares and any
other shares purchased in the Initial Public Offering or
thereafter, or to receive distributions from the trust account with
respect to their founder’s shares upon our liquidation if we
are unable to consummate a business combination. Accordingly, the
shares acquired prior to the Initial Public Offering will be
worthless if we do not consummate a business combination.
Additionally, the warrants, including the warrants contained in the
private placement units held by our Sponsor, will expire worthless
if we do not consummate a business combination. The personal and
financial interests of our directors and officers, through their
interests in our Sponsor, may influence their motivation in timely
identifying and selecting a target business and completing a
business combination. Consequently, our directors’ and officers’ discretion in identifying and
selecting a suitable target business may result in a conflict of
interest when determining whether the terms, conditions and timing
of a particular business combination are appropriate and in our
stockholders’ best
interest.
Certain of our officers have, and any of our officers and directors
or their affiliates may in the future have, outside fiduciary and
contractual obligations and, accordingly, may have conflicts of
interest in determining to which entity a particular business
opportunity should be presented.
Certain
of our directors have, and any of our officers and directors or
their affiliates may in the future have, fiduciary and contractual
obligations to other companies. Accordingly, they may participate
in transactions and have obligations that may be in conflict or
competition with the consummation of our initial business
combination. As a result, a potential target business may be
presented by our management team to another entity prior to its
presentation to us and we may not be afforded the opportunity to
engage in a transaction with such target business. For a more
detailed description of the pre-existing fiduciary and contractual
obligations of our management team, and the potential conflicts of
interest that such obligations may present, see the section Part
III, Item 10. Directors, Executive Officers and Corporate
Governance.
Nasdaq may delist our securities from quotation on its exchange
which could limit investors’ ability to make transactions in
our securities and subject us to additional trading
restrictions.
Our
securities are listed on Nasdaq. On
August 9, 2019, we received a notice from the Staff stating that we
were no longer in compliance with Nasdaq Listing Rule 5550(a)(3)
for continued listing due to its failure to maintain a minimum of
300 public holders (the “Rule”). On September 23, 2019
and October 28, 2019, we submitted a plan to regain compliance with
Nasdaq and requested an extension through February 5, 2020. On
October 28, 2019, Nasdaq requested additional information regarding
our compliance plan, to which we responded on November 8, 2019. On
February 11, 2020, we received a notice from the Staff stating
that, based upon our non-compliance with the Rule, the Staff had
determined to delist our common stock from Nasdaq unless we timely
request a hearing before the Nasdaq Hearings Panel (the
“Panel“). We were also notified that as a result of
Nasdaq’s determination to delist our common stock, our
warrants and rights no longer comply with Nasdaq Listing Rule
5560(a), which requires the underlying securities of such
exercisable securities to remain listed on Nasdaq, and our Units no
longer comply with Nasdaq Listing Rule 5225(b)(1)(A), which
requires all component parts of units to meet the requirements for
initial and continued listing, and our units, warrants and rights
are now subject to delisting. We requested a hearing, which request
automatically stayed any further action by the Staff pending the
ultimate conclusion of the hearing process.
On
March 25, 2020, we received formal notice from Nasdaq indicating
that the Panel has granted the Company’s request for
continued listing on Nasdaq. The decision follows the
Company’s hearing before the Panel, which took place on March
19, 2020. The Company’s continued listing is subject to the
Company’s satisfaction of a number of conditions, including,
ultimately, completion of a business combination with an operating
company by no later than August 10, 2020, and the combined
entity’s compliance with all applicable criteria for initial
listing on Nasdaq at the time of the merger.
We
cannot assure you that our securities will continue to be listed on
Nasdaq in the future prior to an initial business combination.
Additionally, in connection with our initial business combination,
it is likely that Nasdaq will require us to file a new initial
listing application and meet its initial listing requirements as
opposed to its more lenient continued listing requirements. We
cannot assure you that we will be able to meet those initial
listing requirements at that time.
19
If
Nasdaq delists our securities from trading on its exchange, we
could face significant material adverse consequences,
including:
●
a limited
availability of market quotations for our securities;
●
reduced liquidity
with respect to our securities;
●
a determination
that our shares of common stock are “penny stock” which will require brokers trading
in our shares of common stock to adhere to more stringent rules,
possibly resulting in a reduced level of trading activity in the
secondary trading market for our shares of common
stock;
●
a limited amount of
news and analyst coverage for our company; and
●
a decreased ability
to issue additional securities or obtain additional financing in
the future.
The
National Securities Markets Improvement Act of 1996, which is a
federal statute, prevents or preempts the states from regulating
the sale of certain securities, which are referred to as
“covered
securities.” Because our
units, common stock, rights and warrants are listed on Nasdaq, our
units, common stock, rights and warrants are covered securities.
Although the states are preempted from regulating the sale of our
securities, the federal statute does allow the states to
investigate companies if there is a suspicion of fraud, and, if
there is a finding of fraudulent activity, then the states can
regulate or bar the sale of covered securities in a particular
case. While we are not aware of a state having used these powers to
prohibit or restrict the sale of securities issued by blank check
companies, certain state securities regulators view blank check
companies unfavorably and might use these powers, or threaten to
use these powers, to hinder the sale of securities of blank check
companies in their states. Further, if we were no longer listed on
Nasdaq, our securities would not be covered securities and we would
be subject to regulation in each state in which we offer our
securities.
We are an “emerging growth company” and we cannot be
certain if the reduced disclosure requirements applicable to
emerging growth companies will make our shares of common stock less
attractive to investors.
We are
an “emerging growth
company,” as defined in
the JOBS Act. We will remain an “emerging growth company” for up to five years. However, if
our non-convertible debt issued within a three year period or
revenues exceeds $1.07 billion, or the market value of our shares
of common stock that are held by non-affiliates exceeds $700
million on the last day of the second fiscal quarter of any given
fiscal year, we would cease to be an emerging growth company as of
the following fiscal year. As an emerging growth company, we are
not required to comply with the auditor attestation requirements of
section 404 of the Sarbanes-Oxley Act, we have reduced disclosure
obligations regarding executive compensation in our periodic
reports and proxy statements and we are exempt from the
requirements of holding a nonbinding advisory vote on executive
compensation and stockholder approval of any golden parachute
payments not previously approved. Additionally, as an emerging
growth company, we have elected to delay the adoption of new or
revised accounting standards that have different effective dates
for public and private companies until those standards apply to
private companies. As such, our financial statements may not be
comparable to companies that comply with public company effective
dates. We cannot predict if investors will find our shares of
common stock less attractive because we may rely on these
provisions. If some investors find our shares of common stock less
attractive as a result, there may be a less active trading market
for our shares and our share price may be more
volatile.
We may only be able to complete one business combination with the
proceeds of the Initial Public Offering and the sale of the private
placement units, which will cause us to be solely dependent on a
single business which may have a limited number of products or
services.
It is
likely we will consummate a business combination with a single
target business, although we have the ability to simultaneously
acquire several target businesses. By consummating a business
combination with only a single entity, our lack of diversification
may subject us to numerous economic, competitive and regulatory
developments. Further, we would not be able to diversify our
operations or benefit from the possible spreading of risks or
offsetting of losses, unlike other entities which may have the
resources to complete several business combinations in different
industries or different areas of a single industry. Accordingly,
the prospects for our success may be:
●
solely dependent
upon the performance of a single business, or
●
dependent upon the
development or market acceptance of a single or limited number of
products, processes or services.
This
lack of diversification may subject us to numerous economic,
competitive and regulatory developments, any or all of which may
have a substantial adverse impact upon the particular industry in
which we may operate subsequent to a business
combination.
Alternatively, if
we determine to simultaneously acquire several businesses, and such
businesses are owned by different sellers, we will need for each of
such sellers to agree that our purchase of its business is
contingent on the simultaneous closings of the other business
combinations, which may make it more difficult for us, and delay
our ability, to complete the business combinations. With multiple
business combinations, we could also face additional risks,
including additional burdens and costs with respect to possible
multiple negotiations and due diligence investigations (if there
are multiple sellers) and the additional risks associated with the
subsequent assimilation of the operations and services or products
of the acquired companies into a single operating business. If we
are unable to adequately address these risks, it could negatively
impact our profitability and results of operations.
20
The ability of our stockholders to exercise their conversion rights
or sell their shares to us in a tender offer may not allow us to
effectuate the most desirable business combination or optimize our
capital structure.
If our
business combination requires us to use substantially all of our
cash to pay the purchase price, because we will not know how many
stockholders may exercise conversion rights or seek to sell their
shares to us in a tender offer, we may either need to reserve part
of the trust account for possible payment upon such conversion, or
we may need to arrange third party financing to help fund our
business combination. In the event that the acquisition involves
the issuance of our stock as consideration, we may be required to
issue a higher percentage of our stock to make up for a shortfall
in funds. Raising additional funds to cover any shortfall may
involve dilutive equity financing or incurring indebtedness at
higher than desirable levels. This may limit our ability to
effectuate the most attractive business combination available to
us.
In connection with any vote to approve a business combination, we
will offer each public stockholder the option to vote in favor of a
proposed business combination and still seek conversion of his, her
or its shares.
In
connection with any vote to approve a business combination, we will
offer each public stockholder (but not our Sponsor, officers or
directors) the right to have his, her or its shares of common stock
converted to cash (subject to the limitations described elsewhere
in this Report) regardless of whether such stockholder votes for or
against such proposed business combination. This ability to seek
conversion while voting in favor of our proposed business
combination may make it more likely that we will consummate a
business combination.
In connection with any stockholder meeting called to approve a
proposed initial business combination, we may require stockholders
who wish to convert their shares in connection with a proposed
business combination to comply with specific requirements for
conversion that may make it more difficult for them to exercise
their conversion rights prior to the deadline for exercising their
rights.
In
connection with any stockholder meeting called to approve a
proposed initial business combination, each public stockholder will
have the right, regardless of whether he is voting for or against
such proposed business combination, to demand that we convert his
shares into a pro rata share of the trust account as of two
business days prior to the consummation of the initial business
combination. We may require public stockholders who wish to convert
their shares in connection with a proposed business combination to
either (i) tender their certificates to our transfer agent or (ii)
deliver their shares to the transfer agent electronically using the
Depository Trust Company’s DWAC (Deposit/Withdrawal At
Custodian) System, at the holders’ option, in each case prior to a
date set forth in the proxy materials sent in connection with the
proposal to approve the business combination. In order to obtain a
physical stock certificate, a stockholder’s broker and/or clearing broker, DTC
and our transfer agent will need to act to facilitate this request.
It is our understanding that stockholders should generally allot at
least two weeks to obtain physical certificates from the transfer
agent. However, because we do not have any control over this
process or over the brokers or DTC, it may take significantly
longer than two weeks to obtain a physical stock certificate. While
we have been advised that it takes a short time to deliver shares
through the DWAC System, we cannot assure you of this fact.
Accordingly, if it takes longer than we anticipate for stockholders
to deliver their shares, stockholders who wish to convert may be
unable to meet the deadline for exercising their conversion rights
and thus may be unable to convert their shares.
If, in connection with any stockholder meeting called to approve a
proposed business combination, we require public stockholders who
wish to convert their shares to comply with specific requirements
for conversion, such converting stockholders may be unable to sell
their securities when they wish to in the event that the proposed
business combination is not approved.
If we
require public stockholders who wish to convert their shares to
either (i) tender their certificates to our transfer agent or (ii)
deliver their shares to the transfer agent electronically using the
Depository Trust Company’s DWAC (Deposit/Withdrawal At
Custodian) System as described above and such proposed business
combination is not consummated, we will promptly return such
certificates to the tendering public stockholders. Accordingly,
investors who attempted to convert their shares in such a
circumstance will be unable to sell their securities after the
failed acquisition until we have returned their securities to them.
The market price for our shares of common stock may decline during
this time and you may not be able to sell your securities when you
wish to, even while other stockholders that did not seek conversion
may be able to sell their securities.
21
Because of our structure, other companies may have a competitive
advantage and we may not be able to consummate an attractive
business combination.
We
expect to encounter intense competition from entities other than
blank check companies having a business objective similar to ours,
including venture capital funds, leveraged buyout funds and
operating businesses competing for acquisitions. Many of these
entities are well established and have extensive experience in
identifying and effecting business combinations directly or through
affiliates. Many of these competitors possess greater technical,
human and other resources than we do and our financial resources
will be relatively limited when contrasted with those of many of
these competitors. While we believe that there are numerous
potential target businesses that we could acquire with the net
proceeds of the Initial Public Offering and the sale of the private
placement units, our ability to compete in acquiring certain
sizable target businesses will be limited by our available
financial resources. This inherent competitive limitation gives
others an advantage in pursuing the acquisition of certain target
businesses. Furthermore, seeking stockholder approval or engaging
in a tender offer in connection with any proposed business
combination may delay the consummation of such a transaction.
Additionally, our outstanding warrants, rights and the unit
purchase option, and the future dilution they potentially
represent, may not be viewed favorably by certain target
businesses. Any of the foregoing may place us at a competitive
disadvantage in successfully negotiating a business
combination.
We may be unable to obtain additional financing, if required, to
complete a business combination or to fund the operations and
growth of the target business, which could compel us to restructure
or abandon a particular business combination.
Although we believe
that the net proceeds of the Initial Public Offering and the sale
of the private placement units will be sufficient to allow us to
consummate a business combination, because we have not yet
identified any prospective target business, we cannot ascertain the
capital requirements for any particular transaction. If the net
proceeds of the Initial Public Offering and the sale of the private
placement units prove to be insufficient, because of either the
size of the business combination, the depletion of the available
net proceeds in search of a target business or the obligation to
convert into cash a significant number of shares from dissenting
stockholders, we will be required to seek additional financing.
Such financing may not be available on acceptable terms, if at all.
To the extent that additional financing proves to be unavailable
when needed to consummate a particular business combination, we
would be compelled to either restructure the transaction or abandon
that particular business combination and seek an alternative target
business candidate. In addition, if we consummate a business
combination, we may require additional financing to fund the
operations or growth of the target business. The failure to secure
additional financing could have a material adverse effect on the
continued development or growth of the target business. None of our
Sponsor, officers, directors or stockholders is required to provide
any financing to us in connection with or after a business
combination.
Our Sponsor and the Investor (as defined above) control a
substantial interest in us and thus may influence certain actions
requiring a stockholder vote.
As of
March 26, 2020, our Sponsor and the Investor own approximately
73.5% of our issued and outstanding shares of common stock. None of
our Sponsor, officers, directors or their affiliates has indicated
any intention to purchase any units or shares of common stock from
persons in the open market or in private transactions. However, our
Sponsor, officers, directors or their affiliates could determine in
the future to make such purchases in the open market or in private
transactions, to the extent permitted by law, in order to influence
the vote or magnitude of the number of stockholders seeking to
tender their shares to us. In connection with any vote for a
proposed business combination, our Sponsor and Investor, as well as
all of our officers and directors, have agreed to vote the shares
of common stock owned by them immediately before the Initial Public
Offering as well as any shares of common stock acquired in the
Initial Public Offering or in the aftermarket in favor of such
proposed business combination.
Our
board of directors is divided into two classes, each of which will
generally serve for a term of two years with only one class of
directors being elected in each year. There may not be an annual
meeting of stockholders to elect new directors prior to the
consummation of a business combination, in which case all of the
current directors will continue in office until at least the
consummation of the business combination. If there is an annual
meeting, as a consequence of our “staggered” board of directors, only a minority
of the board of directors will be considered for election and our
Sponsor, because of its ownership position, will have considerable
influence regarding the outcome. Accordingly, our Sponsor will
continue to exert control at least until the consummation of a
business combination.
Our outstanding rights, warrants and unit purchase options may have
an adverse effect on the market price of our common stock and make
it more difficult to effect a business
combination.
We
issued rights to receive 690,000 shares of common stock and
warrants to purchase 3,450,000 shares of common stock as part of
the units offered in connection with the Initial Public Offering
and rights to receive 27,250 shares of common stock and warrants to
purchase 136,250 shares of common stock in connection with the
Private Placement. We also issued unit purchase options to purchase
600,000 units to EarlyBirdCapital, Inc. (and/or its designees)
which, if exercised, will result in the issuance of 600,000 shares
of common stock, rights to receive 60,000 shares of common stock
and warrants to purchase an additional 300,000 shares of common
stock. We may also issue additional private units, which will be
identical to the private placement units, to our Sponsor, officers
or directors in payment of working capital loans made to us as
described in this 2019 Form 10-K. To the extent we issue shares of
common stock to effect a business combination, the potential for
the issuance of a substantial number of additional shares upon
conversion or exercise of these rights, warrants and unit purchase
options could make us a less attractive acquisition vehicle in the
eyes of a target business. Such securities, when exercised, will
increase the number of issued and outstanding shares of common
stock and reduce the value of the shares issued to complete the
business combination. Accordingly, our rights, warrants and unit
purchase option may make it more difficult to effectuate a business
combination or increase the cost of acquiring the target business.
Additionally, the sale, or even the possibility of sale, of the
shares underlying the warrants, rights, or unit purchase option
could have an adverse effect on the market price for our securities
or on our ability to obtain future financing. If and to the extent
these rights are converted or warrants and options are exercised,
you may experience dilution to your holdings.
22
We may redeem your unexpired warrants prior to their exercise at a
time that is disadvantageous to you, thereby making your warrants
worthless.
We have
the ability to redeem outstanding warrants at any time after they
become exercisable and prior to their expiration, at a price of
$0.01 per warrant, provided that the last reported sales price of
the common stock equals or exceeds $21.00 per share (as adjusted
for stock splits, stock dividends, reorganizations and
recapitalizations) for any 20 trading days within a 30 trading-day
period ending on the third business day prior to proper notice of
such redemption provided that on the date we give notice of
redemption and during the entire period thereafter until the time
we redeem the warrants, we have an effective registration statement
under the Securities Act covering the shares of common stock
issuable upon exercise of the warrants and a current prospectus
relating to them is available. If and when the warrants become
redeemable by us, we may exercise our redemption right even if we
are unable to register or qualify the underlying securities for
sale under all applicable state securities laws. Redemption of the
outstanding warrants could force you (i) to exercise your warrants
and pay the exercise price therefor at a time when it may be
disadvantageous for you to do so, (ii) to sell your warrants at the
then-current market price when you might otherwise wish to hold
your warrants or (iii) to accept the nominal redemption price
which, at the time the outstanding warrants are called for
redemption, is likely to be substantially less than the market
value of your warrants. None of the warrants contained in the
private placement units will be redeemable by us so long as they
are held by the Sponsor or its permitted transferees.
Our management’s ability to require holders of our warrants
to exercise such warrants on a cashless basis will cause holders to
receive fewer shares of common stock upon their exercise of the
warrants than they would have received had they been able to
exercise their warrants for cash.
If we
call our public warrants for redemption after the redemption
criteria described elsewhere in this 2019 Form 10-K have been
satisfied, our management will have the option to require any
holder that wishes to exercise his warrant (including any warrants
held by our Sponsor, officers or directors or their permitted
transferees) to do so on a “cashless basis.” If our management chooses to
require holders to exercise their warrants on a cashless basis, the
number of shares of common stock received by a holder upon exercise
will be fewer than it would have been had such holder exercised his
warrant for cash. This will have the effect of reducing the
potential “upside” of the holder’s investment in our
company.
We have no obligation to net cash settle the rights or
warrants.
In no
event will we have any obligation to net cash settle the rights or
warrants. Furthermore, there are no contractual penalties for
failure to deliver securities to the holders of the rights or
warrants upon consummation of an initial business combination or
exercise of the warrants. Accordingly, you might not receive the
shares of common stock underlying the rights and
warrants.
If our security holders exercise their registration rights, it may
have an adverse effect on the market price of our shares of common
stock and the existence of these rights may make it more difficult
to effect a business combination.
Our
stockholders prior to the Initial Public Offering are entitled to
demand that we register the resale of the founder’s shares at any time commencing
three months prior to the date on which their shares may be
released from escrow. Additionally, the holders of the private
placement units and any private units our Sponsor, officers,
directors, or their affiliates may be issued in payment of working
capital loans made to us are entitled to demand that we register
the resale of the private placement units and any other private
units we issue to them (and the underlying securities) commencing
at any time after we consummate an initial business combination.
The presence of these additional shares of common stock trading in
the public market may have an adverse effect on the market price of
our securities. In addition, the existence of these rights may make
it more difficult to effectuate a business combination or increase
the cost of acquiring the target business, as the stockholders of
the target business may be discouraged from entering into a
business combination with us or will request a higher price for
their securities because of the potential effect the exercise of
such rights may have on the trading market for our shares of common
stock.
If we are deemed to be an investment company, we may be required to
institute burdensome compliance requirements and our activities may
be restricted, which may make it difficult for us to complete a
business combination.
A
company that, among other things, is or holds itself out as being
engaged primarily, or proposes to engage primarily, in the business
of investing, reinvesting, owning, trading or holding certain types
of securities would be deemed an investment company under the
Investment Company Act, as amended, or the Investment Company Act.
Since we will invest the proceeds held in the trust account, it is
possible that we could be deemed an investment company.
Notwithstanding the foregoing, we do not believe that our
anticipated principal activities will subject us to the Investment
Company Act. To this end, the proceeds held in trust may be
invested by the trustee only in United States “government securities” within the meaning of Section
2(a)(16) of 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. By
restricting the investment of the proceeds to these instruments, we
intend to meet the requirements for the exemption provided in Rule
3a-1 promulgated under the Investment Company Act.
23
If we
are nevertheless deemed to be an investment company under the
Investment Company Act, we may be subject to certain restrictions
that may make it more difficult for us to complete a business
combination, including:
●
restrictions on the
nature of our investments; and
●
restrictions on the
issuance of securities.
In
addition, we may have imposed upon us certain burdensome
requirements, including:
●
registration as an
investment company;
●
adoption of a
specific form of corporate structure; and
●
reporting, record
keeping, voting, proxy, compliance policies and procedures and
disclosure requirements and other rules and
regulations.
Compliance
with these additional regulatory burdens would require additional
expense for which we have not allotted.
If we do not conduct an adequate due diligence investigation of a
target business, we may subsequently be required to take
write-downs or write-offs, restructuring, and impairment or other
charges that could have a significant negative effect on our
financial condition, results of operations and our stock price,
which could cause you to lose some or all of your
investment.
We must
conduct a due diligence investigation of the target businesses we
intend to acquire. Intensive due diligence is time consuming and
expensive due to the operations, accounting, finance and legal
professionals who must be involved in the due diligence process.
Even if we conduct extensive due diligence on a target business,
this diligence may not reveal all material issues that may affect a
particular target business, and factors outside the control of the
target business and outside of our control may later arise. If our
diligence fails to identify issues specific to a target business,
industry or the environment in which the target business operates,
we may later be forced to write-down or write-off assets,
restructure our operations, or incur impairment or other charges
that could result in our reporting losses. Even though these
charges may be non-cash items and not have an immediate impact on
our liquidity, the fact that we report charges of this nature could
contribute to negative market perceptions about us or our common
stock. In addition, charges of this nature may cause us to violate
net worth or other covenants to which we may be subject as a result
of assuming pre-existing debt held by a target business or by
virtue of our obtaining debt financing during or subsequent to the
business combination.
The requirement that we complete an initial business combination by
July 23, 2020 may give potential target businesses leverage over us
in negotiating a business combination.
We have
until July 23, 2020 to complete an initial business combination.
Any potential target business with which we enter into negotiations
concerning a business combination will be aware of this
requirement. Consequently, such target business may obtain leverage
over us in negotiating a business combination, knowing that if we
do not complete a business combination with that particular target
business, we may be unable to complete a business combination with
any other target business. This risk will increase as we get closer
to the time limit referenced above.
We may not obtain a fairness opinion with respect to the target
business that we seek to acquire and therefore you may be relying
solely on the judgment of our board of directors in approving a
proposed business combination.
We will
only be required to obtain a fairness opinion with respect to the
target business that we seek to acquire if it is an entity that is
affiliated with any of our officers, directors or Sponsor. In all
other instances, we will have no obligation to obtain an opinion.
Accordingly, investors will be relying solely on the judgment of
our board of directors in approving a proposed business
combination.
Resources could be spent researching acquisitions that are not
consummated, which could materially adversely affect subsequent
attempts to locate and acquire or merge with another
business.
It is
anticipated that the investigation of each specific target business
and the negotiation, drafting, and execution of relevant
agreements, disclosure documents, and other instruments will
require substantial management time and attention and substantial
costs for accountants, attorneys and others. If a decision is made
not to complete a specific business combination, the costs incurred
up to that point for the proposed transaction likely would not be
recoverable. Furthermore, even if an agreement is reached relating
to a specific target business, we may fail to consummate the
business combination for any number of reasons including those
beyond our control. Any such event will result in a loss to us of
the related costs incurred which could materially adversely affect
subsequent attempts to locate and acquire or merge with another
business.
24
Compliance with the Sarbanes-Oxley Act of 2002 will require
substantial financial and management resources and may increase the
time and costs of completing an acquisition.
Section
404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and
report on our system of internal controls beginning with this
Annual Report on Form 10-K. If we fail to maintain the adequacy of
our internal controls, we could be subject to regulatory scrutiny,
civil or criminal penalties and/or stockholder litigation. Any
inability to provide reliable financial reports could harm our
business. Section 404 of the Sarbanes-Oxley Act also requires that
our independent registered public accounting firm report on
management’s evaluation
of our system of internal controls, which requirement we are exempt
from so long as we qualify as an “emerging growth company,” as defined in Section 2(a) of the
Securities Act. A target company may not be in compliance with the
provisions of the Sarbanes-Oxley Act regarding adequacy of their
internal controls. The development of the internal controls of any
such entity to achieve compliance with the Sarbanes-Oxley Act may
increase the time and costs necessary to complete any such
acquisition. Furthermore, any failure to implement required new or
improved controls, or difficulties encountered in the
implementation of adequate controls over our financial processes
and reporting in the future, could harm our operating results or
cause us to fail to meet our reporting obligations. Inferior
internal controls could also cause investors to lose confidence in
our reported financial information, which could have a negative
effect on the trading price of our stock.
If we effect a business combination with a company located outside
of the United States, we would be subject to a variety of
additional risks that may negatively impact our
operations.
We may
effect a business combination with a company located outside of the
United States. If we did, we would be subject to any special
considerations or risks associated with companies operating in the
target business’s home
jurisdiction, including any of the following:
●
rules and
regulations or currency conversion or corporate withholding taxes
on individuals;
●
tariffs and trade
barriers;
●
regulations related
to customs and import/export matters;
●
longer payment
cycles;
●
tax issues, such as
tax law changes and variations in tax laws as compared to the
United States;
●
currency
fluctuations and exchange controls;
●
challenges in
collecting accounts receivable;
●
cultural and
language differences;
●
employment
regulations;
●
crime, strikes,
riots, civil disturbances, terrorist attacks and wars;
and
●
deterioration of
political relations with the United States.
We
cannot assure you that we would be able to adequately address these
additional risks. If we were unable to do so, our operations might
suffer.
If we effect a business combination with a company located outside
of the United States, the laws applicable to such company will
likely govern all of our material agreements and we may not be able
to enforce our legal rights.
If we
effect a business combination with a company located outside of the
United States, the laws of the country in which such company
operates will govern almost all of the material agreements relating
to its operations. We cannot assure you that the target business
will be able to enforce any of its material agreements or that
remedies will be available in this new jurisdiction. The system of
laws and the enforcement of existing laws in such jurisdiction may
not be as certain in implementation and interpretation as in the
United States. The inability to enforce or obtain a remedy under
any of our future agreements could result in a significant loss of
business, business opportunities or capital. Additionally, if we
acquire a company located outside of the United States, it is
likely that substantially all of our assets would be located
outside of the United States and some of our officers and directors
might reside outside of the United States. As a result, it may not
be possible for investors in the United States to enforce their
legal rights, to effect service of process upon our directors or
officers or to enforce judgments of United States courts predicated
upon civil liabilities and criminal penalties of our directors and
officers under federal securities laws.
25
Provisions in our amended and restated certificate of incorporation
and bylaws and Delaware law may inhibit a takeover of us, which
could limit the price investors might be willing to pay in the
future for our common stock and could entrench
management.
Our
amended and restated certificate of incorporation and bylaws
contain provisions that may discourage unsolicited takeover
proposals that stockholders may consider to be in their best
interests. Our board of directors is divided into two classes, each
of which will generally serve for a term of two years with only one
class of directors being elected in each year. As a result, at a
given annual meeting only a minority of the board of directors may
be considered for election. Since our “staggered board” may prevent our stockholders from
replacing a majority of our board of directors at any given annual
meeting, it may entrench management and discourage unsolicited
stockholder proposals that may be in the best interests of
stockholders. Also, our amended and restated certificate of
incorporation provides our board of directors the ability to
designate the terms of and issue new series of preferred stock,
which may inhibit a takeover of us.
We are
also subject to anti-takeover provisions under Delaware law, which
could delay or prevent a change of control. Together these
provisions may make more difficult the removal of management and
may discourage transactions that otherwise could involve payment of
a premium over prevailing market prices for our
securities.
Because we must furnish our stockholders with target business
financial statements prepared in accordance with U.S. generally
accepted accounting principles or international financial reporting
standards, we will not be able to complete a business combination
with prospective target businesses unless their financial
statements are prepared in accordance with such
standards.
The
federal proxy rules require that a proxy statement with respect to
a vote on a business combination meeting certain financial
significance tests include historical and/or pro forma financial
statement disclosure in periodic reports. These financial
statements may be required to be prepared in accordance with, or be
reconciled to, accounting principles generally accepted in the
United States of America, or GAAP, or international financial
reporting standards, or IFRS, depending on the circumstances, and
the historical financial statements may be required to be audited
in accordance with the standards of the Public Company Accounting
Oversight Board (United States), or PCAOB. We will include the same
financial statement disclosure in connection with any tender offer
documents we use, whether or not they are required under the tender
offer rules. Additionally, to the extent we furnish our
stockholders with financial statements prepared in accordance with
IFRS, such financial statements may need to be audited in
accordance with U.S. GAAP at the time of the consummation of the
business combination. These financial statement requirements may
limit the pool of potential target businesses we may
acquire.
Changes in laws or regulations, or a failure to comply with any
laws and regulations, may adversely affect our business,
investments and results of operations.
We are
subject to laws and regulations enacted by national, regional and
local governments. In particular, we will be required to comply
with certain SEC and other legal requirements. Compliance with, and
monitoring of, applicable laws and regulations may be difficult,
time consuming and costly. Those laws and regulations and their
interpretation and application may also change from time to time
and those changes could have a material adverse effect on our
business, investments and results of operations. In addition, a
failure to comply with applicable laws or regulations, as
interpreted and applied, could have a material adverse effect on
our business and results of operations.
There may be tax consequences to our business combinations that may
adversely affect us.
While
we expect to undertake any merger or acquisition so as to minimize
taxes both to the acquired business and/or asset and us, such
business combination might not meet the statutory requirements of a
tax-free reorganization, or the parties might not obtain the
intended tax-free treatment upon a transfer of shares or assets. A
non-qualifying reorganization could result in the imposition of
substantial taxes.
Our amended and restated certificate of incorporation provides,
subject to limited exceptions, that the Court of Chancery of the
State of Delaware will be the sole and exclusive forum for certain
stockholder litigation matters, which could limit our
stockholders’ ability to obtain a favorable judicial forum
for disputes with us or our directors, officers, employees or
stockholders.
Our
amended and restated certificate of incorporation requires, to the
fullest extent permitted by law, that derivative actions brought in
our name, actions against directors, officers and employees for
breach of fiduciary duty and other similar actions may be brought
only in the Court of Chancery in the State of Delaware and, if
brought outside of Delaware, the stockholder bringing the suit will
be deemed to have consented to service of process on such
stockholder’s counsel.
Any person or entity purchasing or otherwise acquiring any interest
in shares of our capital stock shall be deemed to have notice of
and consented to the forum provisions in our amended and restated
certificate of incorporation.
26
This
choice of forum provision may limit a stockholder’s ability to bring a claim in a
judicial forum that it finds favorable for disputes with us or any
of our directors, officers, other employees or stockholders, which
may discourage lawsuits with respect to such claims. Alternatively,
if a court were to find the choice of forum provision contained in
our amended and restated certificate of incorporation to be
inapplicable or unenforceable in an action, we may incur additional
costs associated with resolving such action in other jurisdictions,
which could harm our business, operating results and financial
condition.
Our search for a business combination, and any target business with
which we ultimately consummate a business combination, may be
materially adversely affected by the recent coronavirus (COVID-19)
outbreak.
In
December 2019, a novel strain of coronavirus was reported to have
surfaced in Wuhan, China, which has and is continuing to spread
throughout China and other parts of the world, including the United
States. On January 30, 2020, the World Health Organization declared
the outbreak of the coronavirus disease (COVID-19) a “Public
Health Emergency of International Concern.” On January 31,
2020, U.S. Health and Human Services Secretary Alex M. Azar II
declared a public health emergency for the United States to aid the
U.S. healthcare community in responding to COVID-19. A significant
outbreak of COVID-19 and other infectious diseases could result in
a widespread health crisis that could adversely affect the
economies and financial markets worldwide, and the business of any
potential target business with which we consummate a business
combination could be materially and adversely affected.
Furthermore, we may be unable to complete a business
combination if continued concerns relating to COVID-19 restrict
travel, limit the ability to have meetings with potential investors
or the target company’s personnel, vendors and services
providers are unavailable to negotiate and consummate a transaction
in a timely manner. The extent to which COVID-19 impacts our
search for a business combination will depend on future
developments, which are highly uncertain and cannot be
predicted, including new information which may emerge concerning
the severity of COVID-19 and the actions to contain COVID-19
or treat its impact, among others. If the disruptions posed by
COVID-19 or other matters of global concern continue for an
extensive period of time, our ability to consummate a business
combination, or the operations of a target business with which we
ultimately consummate a business combination, may be materially
adversely affected.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We
currently maintain our principal executive offices at 2645 N.
Federal Hwy, Suite 230, Delray Beach, Florida 33483. The cost for
this space is included in the up to $10,000 per-month aggregate fee
our Sponsor charged us for general and administrative services,
which commenced on the date of the Initial Public Offering pursuant
to a letter agreement between us and our Sponsor. We believe, based
on rents and fees for similar services in the Palm Beach, Florida
area, that the fee charged by our Sponsor was at least as favorable
as we could have obtained from an unaffiliated person. Effective
August 20, 2018, Sponsor agreed to stop charging us the monthly
administrative fee. We consider our current office space, combined
with the other office space otherwise available to our executive
officers, adequate for our current operations.
There
is no material litigation, arbitration or governmental proceeding
currently pending against us or any members of our management
team.
Item 4. Mine Safety Disclosures.
Not
Applicable.
27
PART II
Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Market Information
Our
units, common stock, warrants and rights are each traded on the
NASDAQ Capital Market under the symbols “BRPAU,” “BRPA,” “BRPAW” and “BRPAR,” respectively. Our units commenced
public trading on November 20, 2017, and our common stock, rights
and warrants commenced public trading on December 1,
2017.
Holders
As of
March 26, 2020, we had six holders of record of our common stock,
two holders of record of our units, one holder of record of our
warrants and one holder of record of our rights.
Dividends
We have
not paid any cash dividends on our common stock to date and do not
intend to pay cash dividends prior to the completion of an initial
business combination. The payment of cash dividends in the future
will be dependent upon our revenues and earnings, if any, capital
requirements and general financial condition subsequent to
completion of a business combination. The payment of any dividends
subsequent to a business combination will be within the discretion
of our board of directors at such time. It is the present intention
of our board of directors to retain all earnings, if any, for use
in our business operations and, accordingly, our board of directors
does not anticipate declaring any dividends in the foreseeable
future. On November 20, 2017, we increased the size of the offering
pursuant to Rule 462(b) under the Securities Act, and effectuated a
1.2-for-1 stock dividend of our common stock resulting in an
aggregate of 1,725,000 founder's shares outstanding to maintain the
ownership of our stockholder prior to our Initial Public Offering
at 20% of our issued and outstanding shares of our common stock
upon the consummation of our Initial Public Offering (excluding the
shares of common stock underlying the private placement units and
any units purchased in our Initial Public Offering). Further, if we
incur any indebtedness, our ability to declare dividends may be
limited by restrictive covenants we may agree to in connection
therewith.
Securities Authorized for Issuance Under Equity Compensation
Plans
None.
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
None.
Item 6. Selected Financial Data
This
item in not applicable as we are a smaller reporting
company.
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
You
should read the following discussion in conjunction with our
financial statements and related notes included in this 2019 Form
10-K. This 2019 Form 10-K contains certain forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995 (“PSLRA”), 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”), about our
expectations, beliefs, or intentions regarding our business,
financial condition, results of operations, strategies, or
prospects. You can identify forward-looking statements by the fact
that these statements do not relate strictly to historical or
current matters. Rather, forward-looking statements relate to
anticipated or expected events, activities, trends, or results as
of the date they are made. Because forward-looking statements
relate to matters that have not yet occurred, these statements are
inherently subject to risks and uncertainties that could cause our
actual results to differ materially from any future results
expressed or implied by the forward-looking statements. Many
factors could cause our actual activities or results to differ
materially from the activities and results anticipated in
forward-looking statements. These factors include those contained
in Part I, “Item 1A. Risk Factors” of this 2019 Form
10-K. We do not undertake any obligation to update forward-looking
statements, except as required by law. We intend that all
forward-looking statements be subject to the safe harbor provisions
of PSLRA. These forward-looking statements are only predictions and
reflect our views as of the date they are made with respect to
future events and financial performance.
28
Overview
We
are a blank check company incorporated in Delaware on September 18,
2017 and formed for the purpose of entering into a merger, share
exchange, asset acquisition, stock purchase, recapitalization,
reorganization or other similar business combination with one or
more target businesses or entities (a “Business
Combination”). Our efforts in identifying a prospective
target business for our initial Business Combination are not
limited to a particular industry or geographic region. We intend to
effectuate our Business Combination using cash from the proceeds of
our Initial Public Offering and the sale of Private Placement Units
that occurred simultaneously with the completion of our Initial
Public Offering, our securities, debt or a combination of cash,
securities and debt.
Recent Developments
On March 23, 2020, our stockholders approved an
amendment to our Amended and Restated Certificate of Incorporation
to extend the period of time for which we are required to
consummate a Business Combination from March 23, 2020 to July 23,
2020. The number of shares of common stock presented for redemption
in connection with this extension was 2,433,721. We paid cash in
the aggregate amount of $25,997,965, or approximately $10.68 per
share, to the redeeming stockholders. We agreed to deposit, or
cause to be deposited on our behalf, into the Trust Account $0.02
for each public share outstanding for each 30-day extension period
utilized through July 23, 2020. In connection with this extension, we deposited an
aggregate of $11,611 into the Trust Account to fund the first
thirty-day extension through April 23, 2020, which amounts were
loaned to us by A/Z Property and Investor.
On
August 9, 2019, we received a notice from the Staff stating that we
were no longer in compliance with Nasdaq Listing Rule 5550(a)(3)
for continued listing due to its failure to maintain a minimum of
300 public holders (the “Rule”). We had until September
23, 2019 to provide Nasdaq with a specific plan to achieve and
sustain compliance with the listing requirement. The notice is a
notification of deficiency, not of imminent delisting, and has no
current effect on the listing or trading of our securities on
Nasdaq.
On
September 23, 2019 and October 28, 2019, we submitted a plan to
regain compliance with Nasdaq and requested an extension through
February 5, 2020. On October 28, 2019, Nasdaq requested additional
information regarding our compliance plan, to which we responded on
November 8, 2019. On February 11, 2020, we received a notice from
the Staff stating that, based upon our non-compliance with the
Rule, the Staff had determined to delist our common stock from
Nasdaq unless we timely request a hearing before the Nasdaq
Hearings Panel (the “Panel“). We were also notified
that as a result of Nasdaq’s determination to delist our
common stock, our warrants and rights no longer comply with Nasdaq
Listing Rule 5560(a), which requires the underlying securities of
such exercisable securities to remain listed on Nasdaq, and our
Units no longer comply with Nasdaq Listing Rule 5225(b)(1)(A),
which requires all component parts of units to meet the
requirements for initial and continued listing, and our units,
warrants and rights are now subject to delisting. We requested a
hearing, which request automatically stayed any further action by
the Staff pending the ultimate conclusion of the hearing
process.
On
March 25, 2020, we received formal notice from Nasdaq indicating
that the Panel has granted the Company’s request for
continued listing on Nasdaq. The decision follows the
Company’s hearing before the Panel, which took place on March
19, 2020. The Company’s continued listing is subject to the
Company’s satisfaction of a number of conditions, including,
ultimately, completion of a business combination with an operating
company by no later than August 10, 2020, and the combined
entity’s compliance with all applicable criteria for initial
listing on Nasdaq at the time of the merger.
Results of Operations
Our
entire activity since September 18, 2017 (inception) up to November
20, 2017 was in preparation for our Initial Public Offering. Since
our Initial Public Offering, our activity has been limited to the
search for a prospective initial Business Combination, and we will
not be generating any operating revenues until the closing and
completion of our initial Business Combination. We are incurring
expenses as a result of being a public company (for legal,
financial reporting, accounting and auditing compliance), as well
as for due diligence expenses.
For
the year ended December 31, 2019, we had a net income of $408,427,
which consists of interest income on securities held in the Trust
Account of $1,205,820, offset by operating costs of $713,187 and
provision for income taxes of $84,206.
For
the year ended December 31, 2018, we had a net income of $66,101,
which consists of interest income on marketable securities held in
the Trust Account of $1,088,915, offset by operating costs of
$1,006,503 and provision for income taxes of $16,311.
Liquidity and Capital Resources
As
of December 31, 2019, we had cash and marketable securities held in
the Trust Account of $32,005,205 (including approximately $838,000
of interest income) consisting of money market funds. Interest
income earned on the balance in the Trust Account may be used by us
to pay taxes. To date, we have withdrawn approximately $555,000 of
interest from the Trust Account in order to pay our income and
franchise taxes, of which approximately $513,000 was withdrawn
during the year ended December 31, 2019.
29
For
the year ended December 31, 2019, cash used in operating activities
amounted to $792,731. Net income of $408,427 was the result of
interest earned on securities held in the Trust Account of
$1,205,820, offset by changes in operating assets and liabilities,
which provided $4,662 of cash for operating
activities.
For
the year ended December 31, 2018, cash used in operating activities
amounted to $473,187. Net income of $66,101 was offset by interest
earned on marketable securities held in the Trust Account of
$1,088,915. Changes in operating assets and liabilities provided
$549,627 of cash for operating activities.
We
intend to use substantially all of the net proceeds of the Initial
Public Offering, including the funds held in the Trust Account, to
acquire a target business or businesses and to pay our expenses
relating thereto. To the extent that our capital stock is used, in
whole or in part, as consideration to effect our Business
Combination, the remaining proceeds held in the Trust Account, as
well as any other net proceeds not expended, will be used as
working capital to finance the operations of the target business.
Such working capital funds could be used in a variety of ways
including, but not limited to, continuing or expanding the target
business’ operations, for strategic acquisitions and for
marketing, research and development of existing or new products.
Such funds could also be used to repay any expenses or
finders’ fees which we had incurred prior to the completion
of our Business Combination if the funds available to us outside of
the Trust Account were insufficient to cover such
expenses.
As
of December 31, 2019, A/Z Property has loaned us an aggregate of
$446,283 in order to pay our Non-Business Combination Related
Expenses and extension payments. Upon consummation of a Business
Combination, up to $200,000 of the Non-Business Combination Related
Expenses may repaid by us to the Sponsor provided that we have
funds available to us sufficient to repay such expenses (the
“Cap”) as well as to pay for all stockholder
redemptions, all Business Combination Expenses, repayment of the
Notes, and any funds necessary for our working capital requirements
following closing of the Business Combination. Any remaining
amounts in excess of the Cap will be forgiven. If we do not
consummate a Business Combination, all outstanding loans made by
the Sponsor to cover the Non-Business Combination Related Expenses
will be forgiven.
We
do not believe we will need to raise additional funds in order to
meet expenditures required for operating our business. However, if
our estimate of the costs of identifying a target business,
undertaking in-depth due diligence and negotiating a Business
Combination are less than the actual amounts necessary to do so, we
may have insufficient funds available to operate our business prior
to our Business Combination. In order to fund working capital
deficiencies or finance transaction costs in connection with a
Business Combination, our Sponsor, officers and directors or their
respective affiliates may, but are not obligated to, except as
described above, loan us funds as may be required. If we complete a
Business Combination, we may repay such loaned amounts out of the
proceeds of the Trust Account released to us. In the event that a
Business Combination does not close, we may use a portion of the
working capital held outside the Trust Account to repay such loaned
amounts but no proceeds from our Trust Account would be used for
such repayment. Up to $1,500,000 of such loans may be convertible
into units, at a price of $10.00 per unit at the option of the
lender. The units would be identical to the Private Placement
Units.
Moreover,
we may need to obtain additional financing either to complete our
Business Combination or because we become obligated to redeem a
significant number of our public shares upon completion of our
Business Combination, in which case we may issue additional
securities or incur debt in connection with such Business
Combination. Subject to compliance with applicable securities laws,
we would only complete such financing simultaneously with the
completion of our Business Combination. If we are unable to
complete our Business Combination because we do not have sufficient
funds available to us, we will be forced to cease operations and
liquidate the Trust Account. In addition, following our Business
Combination, if cash on hand is insufficient, we may need to obtain
additional financing in order to meet our obligations.
Off-balance sheet financing arrangements
We
did not have any off-balance sheet arrangements as of December 31,
2019.
Contractual obligations
We
do not have any long-term debt, capital lease obligations,
operating lease obligations or long-term liabilities other than an
agreement to pay our Sponsor a monthly fee of $10,000 for office
space, utilities and administrative support provided to us. We
began incurring these fees on November 20, 2017. Effective August
20, 2018, Sponsor agreed to stop charging us the monthly
administrative fee.
30
We
have engaged EarlyBirdCapital as an advisor in connection with a
Business Combination to assist us in holding meetings with its
stockholders to discuss a potential Business Combination and the
target business’ attributes, introduce us to potential
investors that are interested in purchasing securities, assist us
in obtaining stockholder approval for the Business Combination and
assist us with our press releases and public filings in connection
with a Business Combination. We will pay EarlyBirdCapital a cash
fee for such services upon the consummation of a Business
Combination in an amount equal to 4.0% of the gross proceeds of the
Initial Public Offering (exclusive of any applicable finders’
fees which might become payable). If a Business Combination is not
consummated for any reason, no fee will be due or
payable.
Critical Accounting Policies
The
preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the
United States of America (“GAAP”) requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and
expenses during the periods reported. Actual results could
materially differ from those estimates. We have identified the
following critical accounting policies:
Common Stock subject to possible redemption
We
account for our common stock subject to possible conversion in
accordance with the guidance in Accounting Standards Codification
(“ASC”) Topic 480 “Distinguishing Liabilities
from Equity.” Common stock subject to mandatory redemption
(if any) is classified as a liability instrument and is measured at
fair value. Conditionally redeemable common stock (including common
stock that features redemption rights that are either within the
control of the holder or subject to redemption upon the occurrence
of uncertain events not solely within our control) is classified as
temporary equity. At all other times, common stock is classified as
stockholders’ equity. Our common stock features certain
redemption rights that are considered to be outside of our control
and subject to occurrence of uncertain future events. Accordingly,
common stock subject to possible redemption is presented as
temporary equity, outside of the stockholders’ equity section
of our balance sheet.
Net loss per common share
We
apply the two-class method in calculating earnings per share.
Common stock subject to possible redemption which is not currently
redeemable and is not redeemable at fair value, has been excluded
from the calculation of basic net loss per common share since such
shares, if redeemed, only participate in their pro rata share of
the Trust Account earnings. Our net income is adjusted for the
portion of income that is attributable to common stock subject to
possible redemption, as these shares only participate in the
earnings of the Trust Account and not our income or
losses.
Recent accounting pronouncements
Management
does not believe that any other recently issued, but not yet
effective, accounting pronouncements, if currently adopted, would
have a material effect on our financial statements.
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.
This
item is not applicable as we are a smaller reporting
company.
Item 8. Financial Statements and Supplementary
Data.
Our
Financial Statements and the Notes thereto, together with the
report thereon of our independent registered public accounting firm
are filed as part of this report, beginning on page
F-1.
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
None.
31
Item 9A. 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 year ended
December 31, 2019, 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 have
concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this
report.
Management’s Annual Report on Internal Controls Over
Financial Reporting
As
required by the SEC rules and regulations for the implementation of
Section 404 of the Sarbanes-Oxley Act, our management is
responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control over
financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of our financial statements for external reporting
purposes in accordance with GAAP. Our internal control over
financial reporting includes those policies and procedures
that:
(1)
pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of our company,
(2)
provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America, and that our receipts and expenditures are being made only
in accordance with authorizations of our management and directors,
and
(3)
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect errors or misstatements in our
financial statements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or
that the degree or compliance with the policies or procedures may
deteriorate. Management assessed the effectiveness of our internal
control over financial reporting at December 31, 2019. In making
these assessments, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control — Integrated Framework (2013).
Based on our assessments and those criteria, management determined
that we maintained effective internal control over financial
reporting as of December 31, 2019.
Changes in Internal Control over Financial Reporting
During
the most recently completed fiscal quarter, there has been no
change in our internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
Item 9B. Other Information.
None.
32
PART III
Item 10. Directors, Executive Officers and Corporate
Governance
As of
the date of this Report, our directors and officers are as set
forth in the table below. There are no family relationships between
any of our directors or senior management. There are no
arrangements or understandings with major shareholders, customers,
suppliers or others, pursuant to which any person referred to above
was selected as a director or member of senior management. The
Company is not aware of any agreements or arrangements between any
director and any person or entity other than the Company relating
to the compensation or other payments in connection with such
director’s candidacy or
service as a director of the Company.
|
Name
|
|
Age
|
Position
|
|
Richard
Ackerman
|
|
61
|
Chairman,
President and Chief Executive Officer
|
|
Bennett
Kim
|
|
47
|
Chief
Financial Officer, Chief Investment Officer and
Director
|
|
Richard
Birdoff
|
|
61
|
Director
|
|
Michael
Fong
|
|
75
|
Director
|
|
Stuart
F. Koenig
|
|
67
|
Director
|
|
Albert
G. Rex
|
|
65
|
Director
|
|
Troy T.
Taylor
|
|
62
|
Director
|
Richard Ackerman, our
Chairman, President and Chief Executive Officer since September 18,
2017, formed BRP in 2004. BRP is an opportunistic real estate
investment firm that has invested in and managed over $800 million
in assets since its formation. In 2012, BRP began to focus on
senior housing development as there was a distinct supply
– demand imbalance and
fragmentation in senior housing developers, and formed Big Rock
Senior Housing, a national leader in developing and managing new
Class A senior housing communities of $50 million and more. Class A
housing communities consist of prestigious buildings with high
quality standard finishes, state of the art systems, exceptional
accessibility and a defined market presence competing for premier
senior housing users with rents above average for the area. Mr.
Ackerman serves as the Senior Managing Principal of BRP and Big
Rock Senior Housing. Prior to BRP, from 2001 to 2004, Mr. Ackerman
served as the Head of the Los Angeles office of Apollo, overseeing
all investments on the U.S. West Coast and Japan for the global
private equity firm. In August 1999, Mr. Ackerman was appointed by
Apollo as the Chief Executive Officer of Atlantic Gulf Communities
Corporation (an Apollo portfolio company) in order to restructure
the company and served in that capacity until April 2001. This
publicly traded development and asset management company's primary
operations included the development and sale of home sites and land
tracts and the construction and sale of oceanfront condominiums.
From September 1996 to August 1999, Mr. Ackerman was President and
co-founder of Crocker Realty Trust, a private REIT (an Apollo
portfolio company) specializing in the ownership and development of
office space in the southeastern United States. Prior to 1996, he
was president and co-founder of Crocker Realty Investors, a
publicly traded REIT and a portfolio company of the first Apollo
Real Estate Investment Fund. The company specialized in the
ownership and development of office space until its sale to
Highwoods Properties, Inc. In addition to the foregoing business
experience, Mr. Ackerman served as Chief Executive Officer and a
director of ALDA Office Properties, Inc. (“ALDA”) during 2011. ALDA was formed in
2011 to acquire, own and operate office properties in select
markets primarily in Northern and Southern California. In 2011,
ALDA filed a registration statement for its initial public
offering, which offering was subsequently abandoned due to market
conditions. Mr. Ackerman is also a former Director of Summerville
Senior Living, Inc., which is one of the largest assisted living
companies in the nation. Mr. Ackerman graduated with a B.A. from
Tulane University and a J.D. from the Tulane School of
Law.
We
believe Mr. Ackerman is well-qualified to serve as a member of our
board due to his broad and deep expertise in senior housing,
development and operations of both senior housing and real
estate.
Bennett Kim, our Chief
Financial Officer and a director since February 7, 2020 and Chief
Investment Officer and Corporate Secretary since September 18,
2017, has served as the Managing Principal of Big Rock Senior
Housing since January 2016. Mr. Kim was the Chief Investment
Officer at BRP from May 2006 to July 2014 and was responsible for
acquisitions, development, asset management, and dispositions. From
July 2014 to December 2015, Mr. Kim served as the Head of
Acquisitions for Carefree Communities, the fifth largest national
owner and operator of manufactured housing communities and RV parks
with 103 communities and 28,000 sites. From January 2001 to May
2006, Mr. Kim served as a Vice President at Apollo and was
responsible for new investments and investment management including
the development of a $400 million mixed-use project that consists
of two hotels, two condominium towers, retail, office and
structured parking. Mr. Kim also formulated work-out strategies for
one of the largest assisted living companies in the nation while at
Apollo. Between 1999 to 2000, Mr. Kim was an Assistant Vice
President at Oaktree Capital Management, where he evaluated and
executed investments in the U.S. and Japan for funds then totaling
$1.7 billion of equity. Previously, Mr. Kim worked as an Associate
at Merrill Lynch Real Estate Investment Banking, where he evaluated
financing alternatives for public and private real estate
companies. Mr. Kim also worked as a Senior Analyst at Walt Disney
Imagineering and as an Analyst at Disney Development Company. Mr.
Kim graduated with an M.B.A. from Harvard Business School and a
B.A. in Economics from UCLA.
33
Richard J. Birdoff, who
has served as one of our directors since November 20, 2017, has
served as President of RD Management and Realty Investors
Development Corp. (“RD
Management”), a privately
held retail real estate developer and manager, since January 2015.
Mr. Birdoff is responsible for all aspects of the day-to-day
operations of the company including development, construction,
acquisitions, sales and dispositions. Mr. Birdoff joined RD
Management in 1991 as a principal and Executive Vice President and
since 1994, he has developed in excess of 10,000,000 sq. ft. of
shopping centers. Mr. Birdoff previously served on the Board of
Directors of Crocker Realty Investors, a Florida based publicly
held real estate investment trust. Mr. Birdoff has been engaged in
the real estate business for more than 30 years. He received an
undergraduate degree from Emory College in 1980 and his Juris
Doctorate degree in 1983 from Emory University Law School.
Following his graduation, Mr. Birdoff worked for IRT Properties in
Atlanta, Georgia. Thereafter, in 1984, he joined Bertram Associates
of Union, New Jersey where Mr. Birdoff served as associate counsel.
Bertram Associates, at the time was one of New Jersey’s largest residential developers.
Mr. Birdoff then transitioned to be a principal in the real estate
development industry with Bertram Associates focusing on site
acquisition, construction and sales of residential
homes.
We
believe Mr. Birdoff is well-qualified to serve as a member of our
board due to his extensive real estate experience.
Michael Fong, who has
served as one of our directors since November 20, 2017, serves as
the Chairman and Chief Executive Officer of JF International Ltd.
(“JF
International”), a
private equity firm he founded since 2003. JF International invests
and manages a diversified portfolio of worldwide investments in
real estate and operating companies. In 2015, JF International
joined with BRP to invest in the luxury senior housing sector. From
1994 to 2003, Mr. Fong was the Managing Director of The ALJ Group
which is based in Jeddah, Kingdom of Saudi Arabia and is one of the
largest privately held business enterprises in the Middle East. Mr.
Fong also previously served from 1990 to 1994 as the President of
Jaymont Properties, Inc., a real estate development and management
company with a substantial portfolio of premier office and mixed
used properties located in the central business district of major
cities such as New York, Boston, San Francisco, Orlando, Chicago,
and Miami. From 1979 to 1990, Mr. Fong was President of Intercap
Investments, Inc, a commercial developer of real estate central
business district projects in Miami and Coral Gables. From 1998 to
1999, Mr. Fong was the President of the Coral Gables, FL Chamber of
Commerce and served on its Board of Directors for several years.
Prior to 1979, Mr. Fong was President of Interfin Investments,
Inc., an investment banking firm based in Lincoln, Nebraska and New
York. From 1975 to 1979, Mr. Fong was a Vice President and also
served as Assistant to the President of DuPont Walston, Inc., a
major retail brokerage and investment banking firm with over 200
branches across the United States. Mr. Fong began his business
career in 1971 with EDS, a firm founded by H. Ross Perot, and was
sent to New York when Mr. Perot made an investment in DuPont Glore
Forgan when EDS was awarded a major data processing contract for
redesigning a new system for the brokerage business.
We
believe Mr. Fong is well-qualified to serve as a member of our
board due to his expertise in real estate and finance.
Stuart Koenig, who has
served as one of our directors since November 20, 2017, has over
forty years of diversified experience in the real estate,
investment banking and financial services industries. His
experience includes every aspect of commercial and residential real
estate including acquisition, financing, leasing, property
management and disposition. Mr. Koenig most recently served as a
Senior Partner in the real estate division of Ares Management, LP
(“Ares”), a global alternative asset
manager with over $100 billion of assets under management, from
2013 to 2016. Mr. Koenig served as Chair of the Investment
Committees of the real estate funds of Ares, which collectively had
$8 billion under management. From 1995 to 2013, Mr. Koenig served
as the Global Chief Financial Officer, Chief Administrative Officer
and Senior Partner of AREA Property Partners (“AREA”), a global real estate investment
and asset management firm that raised and invested approximately
$14 billion of client equity in more than 600 transactions across
all sectors of real estate. Mr. Koenig oversaw the financing and
administrative activities for AREA and was also responsible for its
reporting, human resources, compliance, legal and structuring
activities. Mr. Koenig helped negotiate and execute the sale of
AREA to Ares Management in 2013. Prior to AREA, Mr. Koenig worked
in various positions in investment bank including Goldman Sachs
& Co. (1986-1994) and EF Hutton Inc. (1981-1986). From
1997-2014, Mr. Koenig served as the lead independent director and
member of the compensation committee of Emeritus Corporation (NYSE:
ESC) one of the largest publicly traded owners and operators of
assisted living facilities in the country and helped oversee the
sale of the company to Brookdale Senior Living (NYSE: BKD) in 2014.
Mr. Koenig currently serves as Trustee for the Binghamton
University Endowment Fund and is Chair of its Investment Committee
and also provides consulting services for the U.S. investment
activity of Profimex, an Israel based real estate investment firm.
Mr. Koenig has a B.A. from Binghamton University and an MBA from
Baruch College of the City University of N.Y.
We
believe Mr. Koenig is well-qualified to serve as a member of our
board due to his extensive and deep expertise in real estate,
finance, acquisition and investment management.
Albert G. Rex, who has
served as one of our directors since November 20, 2017, has served
as the Managing Director of Walker & Dunlop, a commercial real
estate finance company, since May 2012. In this role, Mr. Rex has
been involved in over 1500 loans totaling more than $15 billion in
transactions. Mr. Rex has over 40 years of experience in the
financing and equity aspects of commercial real estate development
throughout the U.S. with a focus on the Southeast region. Mr. Rex
spent the majority of his career as a Managing Partner with Carey
Kramer, a company he helped found in 1983 and ultimately owned
solely from 2001 until it merged with Collateral Real Estate
Capital in 2005. Collateral later merged with Laureate Capital, LLC
in 2007, to form Grandbridge Real Estate Capital, LLC, a
wholly-owned subsidiary of BB&T. Mr. Rex is a graduate of
University of Florida with a degree in Finance and Real Estate and
serves on their Real Estate Advisory Board. He is an active member
of the Mortgage Bankers Association (MBA), Urban Land Institute
(ULI), International Council of Shopping Centers (ICSC), and
National Association of Industrial and Office Properties (NAIOP),
where he has served as President of the South Florida
Chapter.
34
We
believe Mr. Rex is well-qualified to serve as a member of our board
due to his experience in finance and capital markets.
Troy T. Taylor, who has
served as one of our directors since November 20, 2017, has served
as President of Algon Group, an advisory firm he founded, since
2002. Algon Group is a specialized financial firm providing
sophisticated financial advisory services to stakeholders with
complex, challenging, and financially distressed situations. Mr.
Taylor has 25 years of experience including investment banking,
restructuring (both in Chapter 11 and out-of-court) and senior
management. Mr. Taylor has served as the Chief Restructuring
Officer, Chief Executive Officer or Lead Financial Advisor in a
broad range of industries including manufacturing, distribution,
hospitality, real estate and retail. He has also served as a member
of the Board of Directors of several public and private companies,
including Keystone Consolidated Industries, Inc., Barjan, Inc., and
1-800-AutoTow, Inc. He currently serves as Vice Chairman of
Hyperion Bank located in Philadelphia. Before 2002, Mr. Taylor
served in various capacities with GMA Partners, Inc., KPMG Peat
Marwick, LLP, Morgan Keegan & Company, Inc., Oppenheimer &
Co., Inc. and Thomson McKinnon Securities, Inc. Mr. Taylor received
his B.S. in Economics and his MBA from The Wharton School,
University of Pennsylvania.
We
believe Mr. Taylor is well-qualified to serve as a member of our
board due to his experience in accounting, finance, capital markets
and investment management.
Employees
As of
the date hereof, the Company has no employees except
its two executive officers
who receive no compensation from the Company. These individuals are
not obligated to devote any specific number of hours to our matters
but they intend to devote as much of their time as they deem
necessary to our affairs until we have completed our initial
business combination. The amount of time they will devote in any
time period will vary based on whether a target business has been
selected for our initial business combination and the stage of the
business combination process we are in. We do not intend to have
any full time employees prior to the consummation of our initial
business combination.
Committees of the Board of Directors
Our
board of directors has three standing committees: an audit
committee, a nominating committee and a compensation committee. The
rules of NASDAQ and Rule 10A-3 of the Exchange Act as required by
the rules of the NASDAQ, require that the audit committee and the
compensation committee of a listed company be comprised solely of
independent directors.
Audit Committee
Our
audit committee of the board of directors consists of Messrs. Fong,
Rex and Taylor (Chair), each of whom is an independent director
under Nasdaq’s listing
standards. The audit committee’s duties, which are specified in our
Audit Committee Charter, include:
●
reviewing and
discussing with management and the independent auditor the annual
audited financial statements, and recommending to the board whether
the audited financial statements should be included in our Form
10-K;
●
discussing with
management and the independent auditor significant financial
reporting issues and judgments made in connection with the
preparation of our financial statements;
●
discussing with
management major risk assessment and risk management
policies;
●
monitoring the
independence of the independent auditor;
●
verifying the
rotation of the lead (or coordinating) audit partner having primary
responsibility for the audit and the audit partner responsible for
reviewing the audit as required by law;
●
reviewing and
approving all related-party transactions;
●
inquiring and
discussing with management our compliance with applicable laws and
regulations;
●
pre-approving all
audit services and permitted non-audit services to be performed by
our independent auditor, including the fees and terms of the
services to be performed;
●
appointing or
replacing the independent auditor;
35
●
determining the
compensation and oversight of the work of the independent auditor
(including resolution of disagreements between management and the
independent auditor regarding financial reporting) for the purpose
of preparing or issuing an audit report or related
work;
●
establishing
procedures for the receipt, retention and treatment of complaints
received by us regarding accounting, internal accounting controls
or reports which raise material issues regarding our financial
statements or accounting policies; and
●
approving
reimbursement of expenses incurred by our management team in
identifying potential target businesses.
The
audit committee has been at all times be composed exclusively of
“independent
directors” who are
“financially
literate” as defined
under Nasdaq’s listing
standards. Nasdaq’s
standards define “financially literate” as being able to read and
understand fundamental financial statements, including a
company’s balance sheet,
income statement and cash flow statement.
In
addition, we must certify to Nasdaq that the committee has, and
will continue to have, at least one member who has past employment
experience in finance or accounting, requisite professional
certification in accounting, or other comparable experience or
background that results in the individual’s financial sophistication. The
board of directors has determined that Mr. Taylor qualifies as an
“audit committee
financial expert,” as
defined under rules and regulations of the SEC.
Nominating Committee
Our
nominating committee of our board of directors consists of Messrs.
Fong, Koenig, Rex (Chair), each of whom is an independent director
under Nasdaq’s listing
standards. The nominating committee is responsible for overseeing
the selection of persons to be nominated to serve on our board of
directors. The nominating committee considers persons identified by
its members, management, stockholders, investment bankers and
others.
Guidelines for Selecting Director Nominees
The
guidelines for selecting nominees, which are specified in the
Nominating Committee Charter, generally provide that persons to be
nominated:
●
should have
demonstrated notable or significant achievements in business,
education or public service;
●
should possess the
requisite intelligence, education and experience to make a
significant contribution to the board of directors and bring a
range of skills, diverse perspectives and backgrounds to its
deliberations; and
●
should have the
highest ethical standards, a strong sense of professionalism and
intense dedication to serving the interests of the
stockholders.
The
Nominating Committee considers a number of qualifications relating
to management and leadership experience, background and integrity
and professionalism in evaluating a person’s candidacy for membership on the
board of directors. The nominating committee may require certain
skills or attributes, such as financial or accounting experience,
to meet specific board needs that arise from time to time and will
also consider the overall experience and makeup of its members to
obtain a broad and diverse mix of board members. The nominating
committee does not distinguish among nominees recommended by
stockholders and other persons.
Compensation Committee
Our
compensation committee of the board of directors consists of
Messrs. Birdoff, Koenig (Chair) and Taylor, each of whom is an
independent director under Nasdaq’s listing standards. The
compensation committee’s
duties, which are specified in our Compensation Committee Charter,
include, but are not limited to:
●
reviewing and
approving on an annual basis the corporate goals and objectives
relevant to our Chief Executive Officer’s compensation, evaluating our Chief
Executive Officer’s
performance in light of such goals and objectives and determining
and approving the remuneration (if any) of our Chief Executive
Officer based on such evaluation;
●
reviewing and
approving the compensation of all of our other executive
officers;
●
reviewing our
executive compensation policies and plans;
●
implementing and
administering our incentive compensation equity-based remuneration
plans;
●
assisting
management in complying with our proxy statement and annual report
disclosure requirements;
36
●
approving all
special perquisites, special cash payments and other special
compensation and benefit arrangements for our executive officers
and employees;
●
if required,
producing a report on executive compensation to be included in our
annual proxy statement; and
●
reviewing,
evaluating and recommending changes, if appropriate, to the
remuneration for directors.
Code of Ethics
We have
adopted a code of ethics that applies to all of our executive
officers, directors and employees. The code of ethics codifies the
business and ethical principles that govern all aspects of our
business.
Limitation on Liability and Indemnification of Officers and
Directors
Our
amended and restated certificate of incorporation provides that,
subject to certain limitations, we shall indemnify our directors
and officers against all expenses, including legal fees, and
against all judgments, fines and amounts paid in settlement and
reasonably incurred in connection with legal, administrative or
investigative proceedings. Such indemnity only applies if the
person acted honestly and in good faith with a view to our best
interests and, in the case of criminal proceedings, the person had
no reasonable cause to believe that his or her conduct was
unlawful. The decision of the directors as to whether the person
acted honestly and in good faith and with a view to our best
interests and as to whether the person had no reasonable cause to
believe that his conduct was unlawful and is, in the absence of
fraud, sufficient for the purposes of the amended and restated
certificate of incorporation, unless a question of law is involved.
The termination of any proceedings by any judgment, order,
settlement, conviction or the entering of a nolle prosequi does
not, by itself, create a presumption that the person did not act
honestly and in good faith and with a view to our best interests or
that the person had reasonable cause to believe that his conduct
was unlawful.
We have
entered into agreements with our officers and directors to provide
contractual indemnification in addition to the indemnification
provided for in our amended and restated certificate of
incorporation. Our amended and restated certificate of
incorporation also will permit us to purchase and maintain
insurance on behalf of any officer or director who at the request
of the Company is or was serving as a director or officer of, or in
any other capacity is or was acting for, another company or a
partnership, joint venture, trust or other enterprise, against any
liability asserted against the person and incurred by the person in
that capacity, whether or not the company has or would have had the
power to indemnify the person against the liability as provided in
our amended and restated certificate of incorporation. We have
purchased a policy of directors’ and officers’ liability insurance that insures
our officers and directors against the cost of defense, settlement
or payment of a judgment in some circumstances and insures us
against our obligations to indemnify our officers and
directors.
These
provisions may discourage shareholders from bringing a lawsuit
against our directors for breach of their fiduciary duty. These
provisions also may have the effect of reducing the likelihood of
derivative litigation against officers and directors, even though
such an action, if successful, might otherwise benefit us and our
shareholders. Furthermore, a shareholder’s investment may be adversely
affected to the extent we pay the costs of settlement and damage
awards against officers and directors pursuant to these
indemnification provisions.
We
believe that these provisions, the insurance and the indemnity
agreements are necessary to attract and retain talented and
experienced officers and directors.
Insofar
as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, we have been informed that in
the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore
unenforceable.
Conflicts of Interest
Below
are potential conflicts of interest:
●
None of our
officers and directors is required to commit their full time to our
affairs and, accordingly, they may have conflicts of interest in
allocating their time among various business
activities.
●
In the course of
their other business activities, our Sponsor, officers and
directors may become aware of investment and business opportunities
which may be appropriate for presentation to our company as well as
the other entities with which they are affiliated. Our officers and
directors may have conflicts of interest in determining to which
entity a particular business opportunity should be presented but
barring such a conflict, must present target business opportunities
that have a fair market value of at least 80% of the assets held in
the trust account (excluding taxes payable on the income earned in
the trust account) at the time of the agreement to enter into the
initial business combination, subject to any pre-existing fiduciary
or contractual obligations.
37
●
Unless we
consummate our initial business combination, our officers,
directors and Sponsor will not receive reimbursement for any
out-of-pocket expenses incurred by them to the extent that such
expenses exceed the amount of available proceeds not deposited in
the trust account.
●
The
founder’s shares
beneficially owned by our officers and directors will be released
from escrow only if a business combination is successfully
completed, and the private placement units including the underlying
shares of common stock, rights and warrants, purchased by our
Sponsor will be worthless if a business combination is not
consummated. Additionally, our officers and directors will not
receive liquidation distributions with respect to any of their
founder’s shares. For the
foregoing reasons, our board may have a conflict of interest in
determining whether a particular target business is appropriate to
effect a business combination with.
In
general, officers and directors of a corporation incorporated under
the laws of the State of Delaware are required to present business
opportunities to a corporation if:
●
the corporation
could financially undertake the opportunity;
●
the opportunity is
within the corporation’s
line of business; and
●
it would not be
fair to the corporation and its stockholders for the opportunity
not to be brought to the attention of the corporation.
Accordingly, as a
result of multiple business affiliations, our officers and
directors may have similar legal obligations relating to presenting
business opportunities meeting the above-listed criteria to
multiple entities. In addition, conflicts of interest may arise
when our board evaluates a particular business opportunity with
respect to the above-listed criteria. We cannot assure you that any
of the above mentioned conflicts will be resolved in our
favor.
In
order to minimize potential conflicts of interest which may arise
from multiple corporate affiliations, each of our officers and
directors has contractually agreed, pursuant to a written agreement
with us, until the earliest of our execution of a definitive
agreement for a business combination, our liquidation, or such time
as he or she ceases to be an officer or director, to present to our
company for our consideration, prior to presentation to any other
entity, any suitable business opportunity that may reasonably be
required to be presented to us, subject to any pre-existing
fiduciary or contractual obligations he or she might have.
Accordingly, our amended and restated certificate of incorporation
will provide that the doctrine of corporate opportunity will not
apply with respect to any of our executive officers or directors in
circumstances where the application of the doctrine would conflict
with any fiduciary duties or contractual obligations they may
have.
Below
is a table summarizing the entities to which our executive officers
and directors currently have fiduciary duties or
obligations:
|
Individual
|
|
Entity
|
|
Entity’s Business
|
|
Affiliation
|
|
Richard
Ackerman
|
|
None
|
|
-
|
|
-
|
|
Bennett
Kim
|
|
Sun Bay
Senior Club
|
|
Adult
Day Program
|
|
Chief
Executive Officer
|
|
Richard
Birdoff
|
|
RD
Management and Realty Investors
Development
Corp.
|
|
Retail
Real Estate Developer and Manager
|
|
Principal
and Executive Vice President
|
|
Michael
Fong
|
|
JF
International Ltd.
|
|
Private
Equity
|
|
Chairman
and Chief Executive Officer
|
|
Stuart
Koenig
|
|
None
|
|
-
|
|
-
|
|
Albert
G. Rex
|
|
Walker
& Dunlop
|
|
Commercial
Real Estate Finance
|
|
Managing
Director
|
|
Troy T.
Taylor
|
|
Algon
Group
|
|
Financial
Advisory Services
|
|
President
|
|
|
|
Hyperion
Bank
|
|
Financial
Institution
|
|
Vice
Chairman
|
In
addition, our executive officers and directors have agreed not to
participate in the formation of, or become an officer or director
of, any other special purpose acquisition company with a class of
securities registered under the Exchange Act until we have entered
into a definitive agreement regarding our initial business
combination or we have failed to complete our initial business
combination by July 23, 2020.
38
If we
submit our initial business combination to our public stockholders
for a vote, our Sponsor, as well as all of our officers and
directors have agreed to vote any shares held by them in favor of
our initial business combination. If they purchase shares of common
stock in the open market, however, they would be entitled to
participate in any liquidation distribution in respect of such
shares but have agreed not to convert or sell such shares to us in
connection with the consummation of an initial business
combination.
All
ongoing and future transactions between us and any of our officers
and directors or their respective affiliates will be on terms
believed by us to be no less favorable to us than are available
from unaffiliated third parties. Such transactions will require
prior approval by a majority of our uninterested “independent” directors or the members of our
board who do not have an interest in the transaction, in either
case who had access, at our expense, to our attorneys or
independent legal counsel. We will not enter into any such
transaction unless our disinterested “independent” directors determine that the terms
of such transaction are no less favorable to us than those that
would be available to us with respect to such a transaction from
unaffiliated third parties.
Item 11. Executive Compensation.
From
November 20, 2017 through August 20, 2018, we paid our Sponsor an
aggregate fee of up to $10,000 per month for providing us with
office space and certain office and secretarial services. Effective
August 20, 2018, Sponsor agreed to stop charging us the monthly
administrative fee. However, this arrangement was solely for our
benefit and was not intended to provide our executive officers or
directors compensation in lieu of a salary.
Other
than the administrative fee of up to $10,000 per month and the
repayment of any loans made by our Sponsor and our Chief Executive
Officer to us, no compensation or fees of any kind, including
finder’s, consulting fees
and other similar fees, will be paid to our Sponsor, members of our
management team or their respective affiliates, for services
rendered prior to or in connection with the consummation of our
initial business combination (regardless of the type of transaction
that it is). However, they will receive repayment of any loans from
our Sponsor, officers and directors for working capital purposes
and reimbursement for any out-of-pocket expenses incurred by them
in connection with activities on our behalf, such as identifying
potential target businesses, performing business due diligence on
suitable target businesses and business combinations as well as
traveling to and from the offices, plants or similar locations of
prospective target businesses to examine their operations. There is
no limit on the amount of out-of-pocket expenses reimbursable by
us.
After
our initial business combination, members of our management team
who remain with us may be paid consulting, management or other fees
from the combined company with any and all amounts being fully
disclosed to stockholders, to the extent then known, in the proxy
solicitation materials furnished to our stockholders. It is
unlikely the amount of such compensation will be known at the time
of a stockholder meeting held to consider an initial business
combination, as it will be up to the directors of the
post-combination business to determine executive and director
compensation. In this event, such compensation will be publicly
disclosed at the time of its determination in a Current Report on
Form 8-K, as required by the SEC.
Grants of Plan-Based Awards and Outstanding Equity Awards at Fiscal
Year-End
We do
not have any equity incentive plans under which to grant
awards.
Employment Agreements
We do
not currently have any written employment agreements with any of
our directors and officers.
Retirement/Resignation Plans
We do
not currently have any plans or arrangements in place regarding the
payment to any of our executive officers following such
person’s retirement or
resignation.
Director Compensation
We have
not paid our directors fees in the past for attending board
meetings. In the future, we may adopt a policy of paying
independent directors a fee for their attendance at board and
committee meetings. We reimburse each director for reasonable
travel expenses related to such director’s attendance at board of directors
and committee meetings.
39
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
The
following table sets forth information regarding the beneficial
ownership of our shares of common stock as of March 27, 2020
by:
●
each person known
by us to be the beneficial owner of more than 5% of our outstanding
shares of common stock;
●
each of our
officers, directors and director nominees; and
●
all of our
officers, directors and director nominees as a group.
Unless
otherwise indicated, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of
common stock beneficially owned by them. The following table does
not reflect record of beneficial ownership of the rights or
warrants included in the units offered by this prospectus or the
private placement units as these rights and warrants are not
convertible or exercisable, respectively, within 60 days of the
date of this prospectus.
|
Name and Address
of Beneficial Owner(1)
|
Amount and
Nature of Beneficial Ownership
|
Approximate
Percentage of Outstanding Shares of Common Stock (2)
|
|
Richard
Ackerman
|
497,500(3)(4)
|
18.32%
|
|
Bennett
Kim
|
-
|
-
|
|
Richard
Birdoff
|
-
|
-
|
|
Michael
Fong(5)
|
-
|
-
|
|
Stuart
Koenig(5)
|
-
|
-
|
|
Albert G.
Rex(5)
|
-
|
-
|
|
Troy T.
Taylor(5)
|
-
|
-
|
|
All directors and
executive officers as a group (8 individuals)
|
497,500(3)
|
18.32%
|
|
5%
Holders
|
|
|
|
Big Rock Partners
Sponsor, LLC
|
497,500(3)(4)
|
18.32%
|
|
Polar Asset
Management Partners Inc.(6)
|
517,500
|
19.05%
|
|
BRAC Lending Group
LLC(7)
|
1,500,000
|
55.28%
|
|
HGC Investment
Management Inc.(8)
|
480,678
|
17.70%
|
|
Magnetar Financial
, LLC (9)
|
465,000
|
17.12%
|
|
OxFORD Asset
Management LLP (10)
|
431,062
|
15.87%
|
|
The K2 Principal
Fund, L.P.(11)
|
433,091
|
15.96%
|
__________
(1)
Unless otherwise
indicated, the business address of each of the individuals is 2645
N. Federal Highway, Suite 230, Delray Beach, Florida
33483.
(2)
Based on 2,716,028
shares of the Company’s Common Stock outstanding as of March
26, 2020.
(3)
Richard Ackerman is
the Company's President, Chairman and Chief Executive Officer and
the managing member of Big Rock Partners Sponsor, LLC (the
"Sponsor") and has the sole voting and dispositive power of the
securities held by the Sponsor. Accordingly. Mr. Ackerman may be
deemed to have beneficial ownership of such shares.
(4)
Represents shares
held by Big Rock Partners Sponsor, LLC, our Sponsor, of which Mr.
Ackerman is the managing member and has sole voting and investment
power with respect to such shares. Ms. Wittman and Messrs. Fong,
Koenig, Rex and Taylor hold economic interests in Big Rock Partners
Sponsor, LLC and pecuniary interests in the securities held by Big
Rock Partners Sponsor, LLC. Each of Ms. Wittman and Messrs. Fong,
Koenig, Rex and Taylor disclaims beneficial ownership of such
securities, except to the extent of his or her pecuniary
interests.
(5)
Does not include
shares held by Big Rock Partners Sponsor, LLC. This individual is a
member of Big Rock Partners Sponsor, LLC as described in footnote
4.
(6)
Information was
obtained from a Schedule 13G/A filed on March 10, 2020 with the
SEC. Polar Asset Management Partners Inc. serves as the investment
advisor to Polar Multi-Strategy MasterFund ("PMSMF") and certain
managed accounts (together with PMSMF, the “Polar
Vehicles”), with respect to the shares directly held by the
Polar Vehicles. The address for Polar Asset Management Partners
Inc. is 401 Bay Street, Suite 1900, PO Box 19, Toronto, Ontario M5H
2Y4, Canada.
40
(7)
Information was
obtained from a Schedule 13D filed on November 26, 2018 with the
United States Securities and Exchange Commission (the
“SEC”). Each of David M. Nussbaum and Steven Levine is
a managing member of BRAC Lending Group LLC. See Part II
–Item 7 Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Recent
Developments for additional information on the Agreement between
the Company, the Sponsor and BRAC Lending Group LLC.
(8)
Information was
obtained from a Schedule 13G filed on February 13, 2019 with the
SEC. HGC Investment Management Inc. (“HGC”) serves as
the investment manager to HGC Arbitrage Fund LP (the
“Fund”) with respect to the shares held by HGC on
behalf of the Fund. The address of the business office of HGC is
366 Adelaide, Suite 601, Toronto, Ontario M5V 1R9,
Canada.
(9)
Information was
obtained from a Schedule 13G/A filed on February 13, 2020 with the
SEC. Magnetar Financial LLC serves as the investment adviser to the
certain managed funds ("Magnetar Funds"), and as such, Magnetar
Financial exercises voting and investment power over the common
Shares held for the Magnetar Funds’ accounts. The address of
the principal business office of Magnetar Financial is 1603
Orrington Avenue, 13th Floor, Evanston, Illinois
60201.
(10)
Information was
obtained from a Schedule 13G/A filed on February 13, 2020 with the
SEC. OxFORD Asset Management LLP (“OxFORD”) serves as
investment adviser to OxAM Quant Fund Limited, a Cayman Islands
exempted company (“OxAM”). In such capacity, OxFORD may
be deemed to exercise the voting and dispositive power over the
Shares held for the account of the OxAM The address of the
principal business office of OxFORD is OxAM House, 6 George Street,
Oxford, United Kingdom, OX1 2BW.
(11)
Information was
obtained from a Schedule 13G filed on February 13, 2020 with the
SEC. Mr. Daniel Gosselin exercises ultimate voting and investment
powers over shares held by The K2 Principal Fund, L.P. (the
“Fund“), Shawn Kimel Investments, Inc., an Ontario
corporation (“SKI“), K2 Genpar 2017 Inc., an Ontario
corporation and the General Partner to the Fund (“Genpar
2017“), and K2 & Associates Investment Management Inc.,
an Ontario corporation (“K2 & Associates“)
(collectively "K2"). The address of the principal business office
of K2 is 2 Bloor St West, Suite 801, Toronto, Ontario, M4W
3E2.
Item 13. Certain Relationships and Related Transactions, and
Director Independence.
In
order to meet our working capital needs following the consummation
of the Initial Public Offering, our Sponsor, officers and directors
may, but are not obligated to, loan us funds, from time to time or
at any time, in whatever amount they deem reasonable in their sole
discretion. Each loan would be evidenced by a promissory note. The
notes would either be paid upon consummation of our initial
business combination, without interest, or, at the holder’s
discretion, up to $1,500,000 of the notes may be converted into
private units at a price of $10.00 per unit. The units would be
identical to the private placement units (which, for example, would
result in the holders being issued 165,000 shares of common stock
if $1,500,000 of notes were so converted since the 150,000 rights
included in such units would result in the issuance of 15,000
shares upon the closing of our business combination, as well as
75,000 warrants to purchase 75,000 shares). If we do not complete a
business combination, the loans will be forgiven. There were no
outstanding Working Capital Loans at December 31, 2019 and
2018.
The
holder of our founder’s shares issued and outstanding on the
date of the Initial Public Offering, as well as the holders of the
private placement units and any warrants our Sponsor, officers,
directors or their affiliates may be issued in payment of working
capital loans made to us (and all underlying securities), are
entitled to registration rights pursuant to the Registration Rights
Agreement among the Company and our Sponsor. The holders of a
majority of these securities are entitled to make up to three
demands that we register such securities. The holders of the
majority of the founder’s shares can elect to exercise these
registration rights at any time commencing three months prior to
the date on which these shares of common stock are to be released
from escrow. The holders of a majority of the private placement
units or private units issued in payment of working capital loans
made to us (or underlying securities) can elect to exercise these
registration rights at any time after we consummate a business
combination. In addition, the holders have certain
“piggy-back” registration rights with respect to
registration statements filed subsequent to our consummation of a
business combination. We will bear the expenses incurred in
connection with the filing of any such registration
statements
Also,
A/Z Property, an entity majority owned by Richard Ackerman, our
Chairman, President and Chief Executive Officer, has agreed that it
will be liable to ensure that the proceeds in the trust account are
not reduced below $10.00 per share by the claims of target
businesses or claims of vendors or other entities that are owed
money by us for services rendered or contracted for or products
sold to us. We believe A/Z Property has sufficient net worth to
satisfy its indemnity obligation should it arise, however we cannot
assure you that A/Z Property will have sufficient liquid assets to
satisfy such obligations if it is required to do so. Additionally,
the agreement entered into by A/Z Property specifically provides
for two exceptions to the indemnity it has given: it will have no
liability (1) as to any claimed amounts owed to a target business
or vendor or other entity who has executed an agreement with us
waiving any right, title, interest or claim of any kind they may
have in or to any monies held in the trust account, or (2) as to
any claims for indemnification by the underwriters of the Initial
Public Offering against certain liabilities, including liabilities
under the Securities Act.
41
Our
Sponsor, which is affiliated with our officers and directors,
agreed that, commencing on November 20, 2017 through the earlier of
our consummation of our initial business combination or our
liquidation, it would make available to us certain general and
administrative services, including office space, utilities and
administrative support, as we may require from time to time. We
agreed to pay our Sponsor an aggregate of up to $10,000 per month
for these services. For the year ended December 31, 2018, the
Company incurred $75,000 in fees for these services. Effective
August 20, 2018, the Sponsor agreed to stop charging us the monthly
administrative fee.
Other
than the administrative fee of up to $10,000 per month, no
compensation or fees of any kind, including finder’s,
consulting fees and other similar fees, will be paid to our
Sponsor, members of our management team or their respective
affiliates, for services rendered prior to or in connection with
the consummation of our initial business combination (regardless of
the type of transaction that it is). However, such individuals will
receive the repayment of any loans from our Sponsor, officers and
directors for working capital purposes and reimbursement for any
out-of-pocket expenses incurred by them in connection with
activities on our behalf, such as identifying potential target
businesses, performing business due diligence on suitable target
businesses and business combinations as well as traveling to and
from the offices, plants or similar locations of prospective target
businesses to examine their operations. There is no limit on the
amount of out-of-pocket expenses reimbursable by us.
On
November 17, 2018, the Company entered into an Agreement with the
Sponsor and the Investor. Pursuant to the Agreement, the Sponsor
transferred an aggregate of 1,500,000 Founders Shares to the
Investor in exchange for the agreements set forth below and
aggregate cash consideration of $1.00.
Pursuant to the
Agreement, the Sponsor agreed to extend the period of time the
Company has to consummate a Business Combination up to two times
for an aggregate of up to six months and the Investor agreed to
loan the Company the funds necessary to obtain the extensions (the
“Extensions”). On November 20, 2018 and February 21,
2019, the Company issued unsecured promissory notes (the
“Initial Notes”) in favor of the Investor, in the
original principal amount of $690,000 each (or an aggregate of
$1,380,000), to provide the Company the funds necessary to obtain
an aggregate of six-month Extensions. Pursuant to the Agreement,
the Investor has also agreed to loan the Company all funds
necessary to pay expenses incurred in connection with and in order
to consummate a Business Combination (the “Business
Combination Expenses”) and such loans will be added to the
Notes.
In
connection with the stockholders’ approval of the extended
date of August 22, 2019, the Company issued another unsecured
promissory note (the “Second Note”) in favor of the
Investor in order to pay for part of the third extension payment in
the original principal amount of $6,814.
On
December 31, 2019, the Company issued an unsecured promissory note
(the “Third Note” and, together with the Initial Notes
and the Second Note, the “Extension Notes”) in favor of
the Investor in the aggregate principal amount of $178,952 in order
to pay for part of the extension payments. Through December 31,
2019, the Investor loaned the Company an aggregate amount of
$118,667 under the Third Note to pay for part of the extension
payment in connection with the Extension to November 22,
2019.
In
November 2019, in connection with the stockholders’ approval
of the extended date of March 23, 2020, the Investor loaned the
Company an additional $30,142 under the Third Note to pay for part
of the extension through December 22, 2019. In January and February
2020, the Investor loaned the Company an additional $60,285 to pay
for part of the extension through March 23, 2020.
In
March 2020, in connection with the stockholders’ approval of
the Extended Date of July 23, 2020, A/Z Property loaned the Company
an additional $11,611 under
the Third Note to pay for part of the extension through April 23,
2020.
If the
Company does not consummate a Business Combination, all outstanding
loans under the Extension Notes will be forgiven, except to the
extent of any funds held outside of the Trust Account after paying
all other fees and expenses of the Company incurred prior to the
date of such failure to consummate a Business
Combination.
As of
December 31, 2019, the outstanding balance under the Extension
Notes amounted to an aggregate of $1,535,623.
42
The
Sponsor has agreed to be responsible for all liabilities of the
Company effective November 17, 2018, except for liabilities
associated with the possible redemption of shares by the
Company’s shareholders, as described in the Company’s
Amended and Restated Certificate of Incorporation. The Sponsor has
also agreed to loan the Company the funds necessary to pay the
expenses of the Company other than the Business Combination
Expenses through the closing of a Business Combination when and as
needed in order for the Company to continue in operation (the
“Non-Business Combination Related Expenses”). Upon
consummation of a Business Combination, up to $200,000 of the
Non-Business Combination Related Expenses will be repaid by the
Company to the Sponsor provided that the Company has funds
available to it sufficient to repay such expenses (the
“Cap”) as well as to pay for all stockholder
redemptions, all Business Combination Expenses, repayment of the
Extension Notes, and any funds necessary for the working capital
requirements of the Company following closing of the Business
Combination. Any remaining amounts in excess of the Cap will be
forgiven. On December 31, 2019, the Company issued an unsecured
promissory note to the Sponsor in the original principal amount of
$446,283 to pay for Non-Business Combination Related Expenses. Of
the amount loaned to the Company, $117,333 was used in order to pay
for part of the extension payments in connection with the Extension
to November 22, 2019. If the Company does not consummate a Business
Combination, all outstanding loans made by the Sponsor to cover the
Non-Business Combination Related Expenses will be forgiven, except
as set forth above.
In
November 2019, in connection with the stockholders’ approval
of the extended date of March 23, 2020, A/Z Property loaned the
Company an additional $30,143 to pay for part of the extension
through December 2019. In January and February 2020, A/Z Property
loaned the Company an aggregate additional amount of $60,285 to pay
for part of the extension through March 23, 2020.
In
March 2020, in connection with the stockholders’ approval of
the Extended Date of July 23, 2020, A/Z Property loaned the Company
an additional $11,611 under the Second Note to pay for part of the
extension through April 23, 2020.
As of
December 31, 2019, the outstanding balance under promissory note
amounted to $416,141.
After
our initial business combination, members of our management team
who remain with us may be paid consulting, management or other fees
from the combined company with any and all amounts being fully
disclosed to stockholders, to the extent then known, in the proxy
solicitation materials furnished to our stockholders. It is
unlikely the amount of such compensation will be known at the time
of a stockholder meeting held to consider an initial business
combination, as it will be up to the directors of the
post-combination business to determine executive and director
compensation. In this event, such compensation will be publicly
disclosed at the time of its determination in a Current Report on
Form 8-K, as required by the SEC.
All
ongoing and future transactions between us and any of our officers
and directors or their respective affiliates will be on terms
believed by us to be no less favorable to us than are available
from unaffiliated third parties. Such transactions will require
prior approval by a majority of our uninterested “independent” directors or the members of our
board who do not have an interest in the transaction, in either
case who had access, at our expense, to our attorneys or
independent legal counsel. We will not enter into any such
transaction unless our disinterested “independent” directors determine that the terms
of such transaction are no less favorable to us than those that
would be available to us with respect to such a transaction from
unaffiliated third parties.
Related Party Policy
Our
Code of Ethics requires us to avoid, wherever possible, all related
party transactions that could result in actual or potential
conflicts of interests, except under guidelines approved by the
board of directors (or the audit committee). Related-party
transactions are defined as transactions in which (1) the aggregate
amount involved will or may be expected to exceed $120,000 in any
calendar year, (2) we or any of our subsidiaries is a participant,
and (3) any (a) executive officer, director or nominee for election
as a director, (b) greater than 5% beneficial owner of our shares
of common stock, or (c) immediate family member, of the persons
referred to in clauses (a) and (b), has or will have a direct or
indirect material interest (other than solely as a result of being
a director or a less than 10% beneficial owner of another entity).
A conflict of interest situation can arise when a person takes
actions or has interests that may make it difficult to perform his
or her work objectively and effectively. Conflicts of interest may
also arise if a person, or a member of his or her family, receives
improper personal benefits as a result of his or her
position.
Our
audit committee, pursuant to its written charter, will be
responsible for reviewing and approving related-party transactions
to the extent we enter into such transactions. The audit committee
will consider all relevant factors when determining whether to
approve a related party transaction, including whether the related
party transaction is on terms no less favorable to us than terms
generally available from an unaffiliated third-party under the same
or similar circumstances and the extent of the related
party’s interest in the
transaction. No director may participate in the approval of any
transaction in which he is a related party, but that director is
required to provide the audit committee with all material
information concerning the transaction. We also require each of our
directors and executive officers to complete a
directors’ and
officers’ questionnaire
that elicits information about related party
transactions.
These
procedures are intended to determine whether any such related party
transaction impairs the independence of a director or presents a
conflict of interest on the part of a director, employee or
officer.
43
To
further minimize conflicts of interest, we have agreed not to
consummate an initial business combination with an entity that is
affiliated with any of our Sponsor, officers or directors including
(i) an entity that is either a portfolio company of, or has
otherwise received a material financial investment from, any
private equity fund or investment company (or an affiliate thereof)
that is affiliated with any of the foregoing, (ii) an entity in
which any of the foregoing or their affiliates are currently
passive investors, (iii) an entity in which any of the foregoing or
their affiliates are currently officers or directors, or (iv) an
entity in which any of the foregoing or their affiliates are
currently invested through an investment vehicle controlled by
them, unless we have obtained an opinion from an independent
investment banking firm, or another independent entity that
commonly renders valuation opinions on the type of target business
we are seeking to acquire, and the approval of a majority of our
disinterested independent directors that the business combination
is fair to our unaffiliated stockholders from a financial point of
view.
Director Independence
Messrs.
Birdoff, Fong, Koenig, Rex and Taylor are each considered an
“independent
director” under the
Nasdaq listing rules, which is defined generally as a person other
than an officer or employee of the company or its subsidiaries or
any other individual having a relationship, which, in the opinion
of the company’s board of
directors would interfere with the director’s exercise of independent judgment
in carrying out the responsibilities of a director.
Our
independent directors have regularly scheduled meetings at which
only independent directors are present.
Item 14. Principal Accounting Fees and
Services.
The
following is a summary of fees paid or to be paid to Marcum LLP, or
Marcum, for services rendered.
Audit Fees. Audit
fees consist of fees billed for professional services rendered for
the audit of our year-end financial statements and services that
are normally provided by Marcum in connection with regulatory
filings. The aggregate fees billed by Marcum for professional
services rendered for the audit of our annual financial statements,
review of the financial information included in our Form 10-K and
other required filings with the SEC for the year ended December 31,
2019 and 2018 totaled approximately $49,000 and $53,000,
respectively. The above amounts include interim procedures, audit
fees, and consent issued for registration statements and comfort
letters.
Audit-Related
Fees.
Audit-related services consist of fees billed for assurance
and related services that are reasonably related to performance of
the audit or review of our financial statements and are not
reported under “Audit Fees.” These services include
attest services that are not required by statute or regulation and
consultations concerning financial accounting and reporting
standards. We paid did not pay Marcum for consultations concerning
financial accounting and reporting standards for the year ended
December 31, 2019 and 2018.
Tax Fees. We did not pay Marcum for tax planning
and tax advice for the year ended December 31, 2019 and
2018.
All Other Fees. We
did not pay Marcum for other services for the year ended December
31, 2019 and 2018.
Pre-Approval Policy
Since
the formation of our audit committee upon the consummation of our
Initial Public Offering, and on a going-forward basis, the audit
committee has and will pre-approve all auditing services and
permitted non-audit services to be performed for us by our
auditors, including the fees and terms thereof (subject to the de
minimis exceptions for non-audit services described in the Exchange
Act which are approved by the audit committee prior to the
completion of the audit). The audit committee pre-approved all
auditing services provided by Marcum set forth above for 2019 and
2018.
44
PART IV
Item 15. Exhibits, Financial
Statement Schedules
(a)
The
following documents are filed as part of this Form
10-K:
(1)
Financial
Statements:
|
|
Page
|
|
Report of Independent Registered Public Accounting
Firm
|
F-2
|
|
Balance Sheets
|
F-3
|
|
Statements of Operations
|
F-4
|
|
Statements of Changes in Stockholders’ Equity
|
F-5
|
|
Statements of Cash Flows
|
F-6
|
|
Notes to Financial Statements
|
F-7 to F-19
|
(2)
Financial
Statement Schedules:
None.
(3)
Exhibits
The following exhibits are filed as part of, or incorporated by
reference into, this Form 10-K.
|
Exhibit
No.
|
|
Description
|
|
|
Amended
and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to the Company’s Form 8-K, File No.
001-38302, filed on November 22, 2017).
|
|
|
|
Amendment
to Amended and Restated Certificate of Incorporation (incorporated
by reference to Exhibit 3.1 to the Company’s Form 8-K, File
No. 001-38302, filed on May 22, 2019).
|
|
|
|
Amendment
to Amended and Restated Certificate of Incorporation (incorporated
by reference to Exhibit 3.1 to the Company’s Form 8-K, File
No. 001-38302, filed on August 23, 2019).
|
|
|
|
Amendment
to Amended and Restated Certificate of Incorporation (incorporated
by reference to Exhibit 3.1 to the Company’s Form 8-K, File
No. 001-38302, filed on November 22, 2019).
|
|
|
|
Amended
and Restated Bylaws (incorporated by reference to Exhibit 3.2 to
the Company’s Form 8-K, File No. 001-38302, filed on November
22, 2017).
|
|
|
|
Specimen
Unit Certificate (incorporated by reference to Exhibit 4.1 to the
Company’s Form S-1/A, File No. 333 220947, filed on
November 14, 2017).
|
|
|
|
Specimen
Common Stock Certificate (incorporated by reference to Exhibit 4.2
to the Company’s Form S-1/A, File No. 333-220947, filed on
November 14, 2017).
|
|
|
|
Specimen
Right Certificate (incorporated by reference to Exhibit 4.3 to the
Company’s Form S-1/A, File No. 333 220947, filed on
November 14, 2017).
|
|
|
|
Specimen
Warrant Certificate (incorporated by reference to Exhibit 4.4 to
the Company’s Form S-1/A, File No. 333 220947, filed on
November 14, 2017).
|
|
|
|
Right
Agreement, dated November 20, 2017, between the Company and
Continental Stock Transfer & Trust Company (incorporated by
reference to Exhibit 4.1 to the Company’s Form 8-K, File No.
001-38302, filed on November 22, 2017).
|
|
|
|
Warrant
Agreement, dated November 20, 2017, between Continental Stock
Transfer & Trust Company and the Company (incorporated by
reference to Exhibit 4.2 to the Company’s Form 8-K, File No.
001-38302, filed on November 22, 2017).
|
|
|
|
Form of
Unit Purchase Option, dated November 20, 2017, with
EarlyBirdCapital, Inc. and its designees (incorporated by reference
to Exhibit 4.3 to the Company’s Form 8-K, File No. 001-38302,
filed on November 22, 2017).
|
|
|
|
Description
of Registrant's Securities.
|
|
|
|
Letter
Agreement, dated November 20, 2017, by and between the Company and
Big Rock Partners Sponsor, LLC (incorporated by reference to
Exhibit 10.4 to the Company’s Form 8-K, File No. 001-38302,
filed on November 22, 2017).
|
|
|
|
Form of
Letter, dated November 20, 2017, Agreement by and between the
Company and its officers and directors. (incorporated by reference
to Exhibit 10.6 to the Company’s Form 8-K, File No.
001-38302, filed on November 22, 2017).
|
|
|
|
Letter
Agreement, dated November 20, 2017, by and between the Company and
A/Z Property Partners, LLC (incorporated by reference to Exhibit
10.5 to the Company’s Form 8-K, File No. 001-38302, filed on
November 22, 2017).
|
45
|
|
Investment
Management Trust Account Agreement, dated November 20, 2017,
between Continental Stock Transfer & Trust Company and the
Company (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K, File No. 001-38302, filed on November 22,
2017).
|
|
|
|
Stock
Escrow Agreement, dated November 20, 2017, between the Company, Big
Rock Partners Sponsor, LLC and Continental Stock Transfer &
Trust Company (incorporated by reference to Exhibit 10.2 to the
Company’s Form 8-K, File No. 001-38302, filed on November 22,
2017).
|
|
|
|
Registration
Rights Agreement among the Company and Big Rock Partners Sponsor,
LLC (incorporated by reference to Exhibit 10.3 to the
Company’s Form 8-K, File No. 001-38302, filed on November 22,
2017).
|
|
|
|
Administrative
Services Agreement, dated November 20, 2017, between the Company
and Big Rock Partners Sponsor, LLC (incorporated by reference to
Exhibit 10.7 to the Company’s Form 8-K, File No. 001-38302,
filed on November 22, 2017).
|
|
|
|
Securities
Subscription Agreement, dated September 26, 2017, between the
Registrant and Big Rock Partners Sponsor, LLC (incorporated by
reference to Exhibit 10.6 to the Company’s Form S-1/A, File
No. 333-220947, filed on November 14, 2017).
|
|
|
|
Securities
Subscription Agreement, dated November 20, 2017, between the
Company and Big Rock Partners Sponsor, LLC (incorporated by
reference to Exhibit 10.9 to the Company’s Form 8-K, File No.
001-38302, filed on November 22, 2017).
|
|
|
|
Promissory
Note, dated as of September 26, 2017, in favor of Richard Ackerman
(incorporated by reference to Exhibit 10.7 to the Company’s
Form S-1/A, File No. 333-220947, filed on November 14,
2017).
|
|
|
|
Promissory
Note, dated as of September 26, 2017, in favor of Big Rock Partners
Sponsor, LLC (incorporated by reference to Exhibit 10.8 to the
Company’s Form S-1/A, File No. 333-220947, filed on November
14, 2017).
|
|
|
|
Form of
Indemnification Agreement, dated November 20, 2017, with the
Company’s officers and directors (incorporated by reference
to Exhibit 10.8 to the Company’s Form 8-K, File No.
001-38302, filed on November 22, 2017).
|
|
|
|
Agreement,
dated November 17, 2018, among the Company, Big Rock Partners
Sponsor, LLC and BRAC Lending Group LLC (incorporated by reference
to Exhibit 10.1 to the Company’s Form 8-K, File No.
001-38302, filed on November 20, 2018).
|
|
|
|
Stock
Escrow Agent Letter, dated November 17, 2018 (incorporated by
reference to Exhibit 10.2 to the Company’s Form 8-K, File No.
001-38302, filed on November 20, 2018).
|
|
|
|
Registration
Rights Assignment Agreement, dated November 17, 2018 (incorporated
by reference to Exhibit 10.3 to the Company’s Form 8-K, File
No. 001-38302, filed on November 20, 2018).
|
|
|
|
Insider
Letter, dated November 17, 2018 (incorporated by reference to
Exhibit 10.4 to the Company’s Form 8-K, File No. 001-38302,
filed on November 20, 2018).
|
|
|
|
Promissory
Note in favor of BRAC Lending Group LLC, dated November 20, 2018
(incorporated by reference to Exhibit 10.5 to the Company’s
Form 8-K, File No. 001-38302, filed on November 20,
2018).
|
|
|
|
Promissory
Note in favor of BRAC Lending Group LLC , dated February 21, 2019
(incorporated by reference to Exhibit 10.1 to the Company’s
Form 8-K, File No. 001-38302, filed on February 22,
2019).
|
|
|
|
Promissory
Note in favor of A/Z Property Partners, LLC, dated December 31,
2019.
|
|
|
31.1*
|
|
Certification
of the Chief Executive Officer required by Rule 13a-14(a) or Rule
15d-14(a).
|
|
31.2*
|
|
Certification
of the Chief Financial Officer required by Rule 13a-14(a) or Rule
15d-14(a).
|
|
32.1**
|
|
Certification
of the Chief Executive Officer required by Rule 13a-14(b) or Rule
15d-14(b) and 18 U.S.C. 1350.
|
|
32.2**
|
|
Certification
of the Chief Financial Officer required by Rule 13a-14(b) or Rule
15d-14(b) and 18 U.S.C. 1350.
|
|
101.INS
|
|
XBRL
Instance Document*.
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document*.
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document*.
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document*.
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document*.
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document*.
|
|
*
|
|
Filed
herewith
|
|
**
|
|
Furnished herewith
|
Item 16. Form 10-K
Summary.
Registrants may
voluntarily include a summary of information required by Form 10-K
under this Item 16. The Company has elected not to include such
summary information.
46
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.
|
|
BIG ROCK PARTNERS ACQUISITION CORP.
|
|
|
|
|
|
|
March
30, 2020
|
By:
|
/s/ Richard Ackerman
|
|
|
|
Richard
Ackerman
Chairman,
President and Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ Richard Ackerman
|
|
Chairman,
President and Chief Executive Officer (Principal Executive
Officer)
|
|
March
30, 2020
|
|
Richard
Ackerman
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Bennett Kim
|
|
Chief
Financial Officer, Chief Investment Officer and Director (Principal
Financial and Accounting Officer)
|
|
March
30, 2020
|
|
Bennett Kim
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Richard Birdoff
|
|
Director
|
|
March
30, 2020
|
|
Richard
Birdoff
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Michael Fong
|
|
Director
|
|
March
30, 2020
|
|
Michael
Fong
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Stuart F. Koenig
|
|
Director
|
|
March
30, 2020
|
|
Stuart
F. Koenig
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Albert G. Rex
|
|
Director
|
|
March
30, 2020
|
|
Albert
G. Rex
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Troy Taylor
|
|
Director
|
|
March
30, 2020
|
|
Troy T.
Taylor
|
|
|
|
|
47
.
BIG ROCK PARTNERS ACQUISITION CORP.
INDEX TO FINANCIAL STATEMENTS
F.
F-1
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the
Shareholders and Board of Directors
of Big
Rock Partners Acquisition Corp.
Opinion on the Financial Statements
We have
audited the accompanying balance sheets of Big Rock Partners
Acquisition Corp. (the “Company”) as of December 31,
2019 and 2018, the related statements of operations, changes in
stockholders’ equity and cash flows for each of the two years
in the period ended December 31, 2019, and the related notes
(collectively referred to as the “financial
statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Company as of December 31, 2019 and 2018, and the results of
its operations and its cash flows for each of the two years in the
period ended December 31, 2019, in conformity with accounting
principles generally accepted in the United States of
America.
Basis for Opinion
These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (the "PCAOB") and are required to
be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of
internal control over financial reporting, but not for the purpose
of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express
no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/ Marcum LLP
Marcum
LLP
We have
served as the Company’s auditor since 2017.
New
York, NY
March
30, 2020
F-2
BIG ROCK PARTNERS ACQUISITION CORP.
BALANCE SHEETS
|
|
December 31,
2019
|
December 31,
2018
|
|
|
|
|
|
ASSETS
|
|
|
|
Current
Assets
|
|
|
|
Cash
|
$6
|
$11,079
|
|
Prepaid income
taxes
|
69,483
|
—
|
|
Prepaid expenses
and other current assets
|
—
|
19,114
|
|
Total Current
Assets
|
69,489
|
30,193
|
|
|
|
|
|
Cash and marketable
securities held in Trust Account
|
32,005,205
|
70,765,966
|
|
Total
Assets
|
$32,074,694
|
$70,796,159
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current
liabilities
|
|
|
|
Accounts payable
and accrued expenses
|
$622,441
|
$551,099
|
|
Income taxes
payable
|
—
|
16,311
|
|
Total Current
Liabilities
|
622,441
|
567,410
|
|
|
|
|
|
Promissory note
– related party
|
416,141
|
—
|
|
Promissory notes
payable
|
1,535,623
|
690,000
|
|
Total
Liabilities
|
2,574,205
|
1,257,410
|
|
|
|
|
|
Commitments
and Contingencies (Note 7)
|
|
|
|
|
|
|
|
Common stock
subject to possible redemption, 2,305,335 and 6,310,461 shares at
redemption value as of December 31, 2019 and 2018,
respectively
|
24,500,488
|
64,538,743
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
Preferred stock,
$0.001 par value; 1,000,000 authorized; none issued and
outstanding
|
—
|
—
|
|
Common stock,
$0.001 par value; 100,000,000 shares authorized; 2,844,414 and
2,725,039 shares issued and outstanding (excluding 2,305,335 and
6,310,461 shares subject to possible redemption) as of December 31,
2019 and 2018, respectively
|
2,844
|
2,725
|
|
Additional paid-in
capital
|
4,627,662
|
5,036,213
|
|
Retained
earnings/(Accumulated deficit)
|
369,495
|
(38,932)
|
|
Total
Stockholders’ Equity
|
5,000,001
|
5,000,006
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$32,074,694
|
$70,796,159
|
The
accompanying notes are an integral part of the financial
statements.
F-3
BIG ROCK PARTNERS ACQUISITION
CORP.
STATEMENTS OF OPERATIONS
|
|
Year Ended
December 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Operating
expenses
|
$713,187
|
$1,006,503
|
|
Loss
from operations
|
(713,187)
|
(1,006,503)
|
|
|
|
|
|
Other
income:
|
|
|
|
Interest
income
|
1,205,820
|
1,088,915
|
|
|
|
|
|
Income before
provision for income taxes
|
492,633
|
82,412
|
|
Provision for
income taxes
|
(84,206)
|
(16,311)
|
|
Net
income
|
$408,427
|
$66,101
|
|
|
|
|
|
Weighted average
shares outstanding, basic and diluted (1)
|
2,783,021
|
2,614,505
|
|
|
|
|
|
Basic
and diluted net loss per common share (2)
|
$(0.11)
|
$(0.29)
|
|
(1)
|
Excludes
an aggregate of up to 2,305,335 and 6,310,461 shares subject to
possible redemption at December 31, 2019 and 2018,
respectively.
|
|
(2)
|
Net
loss per common share - basic and diluted excludes income
attributable to common stock subject to possible redemption of
$703,894 and $814,965 for the years ended December 31, 2019 and
2018, respectively (see Note 2).
|
The
accompanying notes are an integral part of the financial
statements.
F-4
BIG ROCK PARTNERS ACQUISITION CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
|
|
Common
Stock
|
Additional
Paid-in
|
Retained
Earnings/ (Accumulated
|
Total
Stockholders’
|
|
|
|
Shares
|
Amount
|
Capital
|
Deficit)
|
Equity
|
|
Balance
– January 1, 2018
|
2,590,985
|
$2,591
|
$5,102,443
|
$(105,033)
|
$5,000,001
|
|
|
|
|
|
|
|
|
Change in value of
common stock subject to possible redemption
|
134,054
|
134
|
(66,230)
|
—
|
(66,096)
|
|
|
|
|
|
|
|
|
Net
income
|
—
|
—
|
—
|
66,101
|
66,101
|
|
|
|
|
|
|
|
|
Balance
– December 31, 2018
|
2,725,039
|
2,725
|
5,036,213
|
(38,932)
|
5,000,006
|
|
|
|
|
|
|
|
|
Change in value of
common stock subject to possible redemption
|
119,375
|
119
|
(688,551)
|
—
|
(688,432)
|
|
|
|
|
|
|
|
|
Capital
contribution to Trust Account to extend the date by which the
Company is required to consummate a Business
Combination
|
—
|
—
|
280,000
|
—
|
280,000
|
|
|
|
|
|
|
|
|
Net
income
|
—
|
—
|
—
|
408,427
|
408,427
|
|
|
|
|
|
|
|
|
Balance
– December 31, 2019
|
2,844,414
|
$2,844
|
$4,627,662
|
$369,495
|
$5,000,001
|
The
accompanying notes are an integral part of the financial
statements.
F-5
BIG ROCK PARTNERS ACQUISITION CORP.
STATEMENTS OF CASH FLOWS
|
|
Year Ended
December 31,
|
|
|
|
2019
|
2018
|
|
Cash
Flows from Operating Activities:
|
|
|
|
Net
income
|
$408,427
|
$66,101
|
|
Adjustments to
reconcile net income to net cash used in operating
activities:
|
|
|
|
Interest earned on
cash and marketable securities held in Trust Account
|
(1,205,820)
|
(1,088,915)
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Prepaid expenses
and other current assets
|
19,114
|
67,888
|
|
Prepaid incomes
taxes
|
(69,483)
|
—
|
|
Accounts payable
and accrued expenses
|
71,342
|
465,428
|
|
Income taxes
payable
|
(16,311)
|
16,311
|
|
Net
cash used in operating activities
|
(792,731)
|
(473,187)
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
Cash withdrawn from
Trust Account to pay redeeming stockholders
|
40,726,687
|
—
|
|
Cash withdrawn from
Trust Account to pay franchise and income taxes
|
512,993
|
42,392
|
|
Investment of cash
in Trust Account
|
(993,099)
|
(690,000)
|
|
Net
cash provided by investing activities
|
40,246,581
|
647,392
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
Proceeds from
promissory notes
|
845,623
|
690,000
|
|
Proceeds from
promissory note – related party
|
481,141
|
—
|
|
Repayment of
promissory note – related party
|
(65,000)
|
—
|
|
Redemption of
common stock
|
(40,726,687)
|
—
|
|
Payment of offering
costs
|
—
|
(7,500)
|
|
Net
cash (used in) provided by financing activities
|
(39,464,923)
|
682,500
|
|
|
|
|
|
Net
Change in Cash
|
(11,073)
|
(438,295)
|
|
Cash –
Beginning
|
11,079
|
449,374
|
|
Cash
– Ending
|
$6
|
$11,079
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
Cash paid for
income taxes
|
$170,000
|
$—
|
|
|
|
|
|
Non-Cash
Investing and Financing activities:
|
|
|
|
Change in value of
common stock subject to possible redemption
|
$688,432
|
$66,096
|
|
Capital
contribution to Trust Account
|
$280,000
|
$—
|
The
accompanying notes are an integral part of the financial
statements.
F-6
BIG ROCK PARTNERS ACQUISITION CORP.
NOTES TO FINANCIAL
STATEMENTS
DECEMBER 31, 2019
1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Big
Rock Partners Acquisition Corp. (the “Company”) is a
blank check company incorporated in Delaware on September 18, 2017.
The Company was formed for the purpose of acquiring, through a
merger, share exchange, asset acquisition, stock purchase,
reorganization, recapitalization, or other similar business
transaction, one or more operating businesses or entities (a
“Business Combination”). The Company is not limited to
a particular industry or geographic region for purposes of
consummating a Business Combination.
All
activity through December 31, 2019 relates to the Company’s
formation, its initial public offering (“Initial Public
Offering”), which is described below, and the search for a
target business with which to complete a Business
Combination.
The
registration statement for the Company’s Initial Public
Offering was declared effective on November 20, 2017. On November
22, 2017, the Company consummated the Initial Public Offering of
6,000,000 units (the “Units” and, with respect to the
common stock included in the Units being offered, the “Public
Shares”), generating gross proceeds of $60,000,000, which is
described in Note 3. Each Unit consists of one share of common
stock, one right (“Public Right”) and one-half of one
warrant (“Public Warrant”). Each Public Right will
convert into one-tenth (1/10) of one share of common stock upon
consummation of a Business Combination. Each whole Public Warrant
entitles the holder to purchase one share of common stock at an
exercise price of $11.50 per whole share.
Simultaneously with
the Initial Public Offering, the Company consummated the sale of
250,000 units (the “Private Placement Units”) at a
price of $10.00 per Unit in a private placement to Big Rock
Partners Sponsor, LLC (the “Sponsor”), generating gross
proceeds of $2,500,000, which is described in Note 4.
Following the
closing of the Initial Public Offering, $60,000,000 ($10.00 per
Unit) from the net proceeds of the sale of the Units in the Initial
Public Offering and the Private Placement Units was placed in a
trust account (the “Trust Account”) which may be
invested in U.S. government securities, within the meaning set
forth in Section 2(a)(16) of the Investment Company Act of 1940, as
amended (the “Investment Company Act”), with a maturity
of 180 days or less or in any open-ended investment company that
holds itself out as a money market fund selected by the Company
meeting the conditions of Rule 2a-7 of the Investment Company Act,
as determined by the Company, until the earlier of: (i) the
consummation of a Business Combination or (ii) the distribution of
the Trust Account, as described below.
On
November 29, 2017, in connection with the underwriters’
exercise of their over-allotment option in full, the Company
consummated the sale of an additional 900,000 Units, and the sale
of an additional 22,500 Private Placement Units at $10.00 per unit,
generating total gross proceeds of $9,225,000. A total of
$9,000,000 of the net proceeds were deposited in the Trust Account,
bringing the aggregate proceeds held in the Trust Account to
$69,000,000.
At the
closing of the Initial Public Offering, the Company issued
EarlyBirdCapital, Inc. ("EarlyBirdCapital") and its designees
120,000 shares of common stock (the “Representative
Shares”). On November 29, 2017, the Company issued an
additional 18,000 Representative Shares for no consideration (see
Note 8).
Transaction costs
amounted to $2,172,419, consisting of $1,725,000 of underwriting
fees and $447,419 of Initial Public Offering
costs.
The
Company’s management has broad discretion with respect to the
specific application of the net proceeds of the Initial Public
Offering and Private Placement Units, although substantially all of
the net proceeds are intended to be applied generally toward
consummating a Business Combination. The Company’s initial
Business Combination must be with one or more target businesses
that together have a fair market value equal to at least 80% of the
balance in the Trust Account (excluding taxes payable on income
earned on the Trust Account) at the time of the signing an
agreement to enter into a Business Combination. The Company will
only complete a Business Combination if the post-Business
Combination company owns or acquires 50% or more of the outstanding
voting securities of the target or otherwise acquires a controlling
interest in the target sufficient for it not to be required to
register as an investment company under the Investment Company Act.
There is no assurance that the Company will be able to successfully
effect a Business Combination.
F-7
The
Company will provide its stockholders with the opportunity to
redeem all or a portion of their shares included in the Units sold
in the Initial Public Offering (the “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 stockholders will be
entitled to redeem their shares for a pro rata portion of the
amount then on deposit in the Trust Account ($10.00 per share, plus
any pro rata interest earned on the funds held in the Trust Account
and not previously released to the Company to pay its franchise and
income tax obligations). There will be no redemption rights upon
the completion of a Business Combination with respect to the
Company’s warrants.
The
Company will proceed with a Business Combination if the Company has
net tangible assets of at least $5,000,001 upon such consummation
of a Business Combination and, if the Company seeks stockholder
approval, a majority of the outstanding shares voted are voted in
favor of the Business Combination. If a stockholder vote is not
required by law and the Company does not decide to hold a
stockholder vote for business or other legal reasons, the Company
will, pursuant to its Amended and Restated Certificate of
Incorporation, conduct the redemptions pursuant to the tender offer
rules of the Securities and Exchange Commission (the
“SEC”), and file tender offer documents with the SEC
prior to completing a Business Combination. If, however, a
stockholder approval of the transaction is required by law, or the
Company decides to obtain stockholder approval for business or
other legal reasons, the Company will offer to redeem shares in
conjunction with a proxy solicitation pursuant to the proxy rules
and not pursuant to the tender offer rules. If the Company seeks
stockholder approval in connection with a Business Combination, the
Company’s Sponsor, officers and directors (the “Initial
Stockholders”) have agreed (a) to vote their Founder’s
Shares (as defined in Note 5), Placement Shares (as defined in Note
4) and any Public Shares held by them in favor of approving a
Business Combination and (b) not to convert any Founder’s
Shares, Placement Shares and any Public Shares held by them in
connection with a stockholder vote to approve a Business
Combination or sell any such shares to the Company in a tender
offer in connection with a Business Combination. Additionally, each
public stockholder may elect to redeem their Public Shares
irrespective of whether they vote for or against the proposed
transaction.
The
Company initially had until November 22, 2018 to complete a
Business Combination. However, if the Company anticipated that it
could not be able to consummate a Business Combination by November
22, 2018, the Company could extend the period of time to consummate
a Business Combination up to two times, each by an additional three
months. Pursuant to the terms of the Company's Amended and Restated
Certificate of Incorporation and the trust agreement entered into
between the Company and Continental Stock Transfer & Trust
Company on November 20, 2017, in order to extend the time available
for the Company to consummate a Business Combination, the Sponsor
or its affiliates or designees must deposit into the Trust Account
$690,000 ($0.10 per share) for each three month extension, up to an
aggregate of $1,380,000, or $0.20 per share, if the Company extends
for the full six months, on or prior to the date of the applicable
deadline.
On
November 20, 2018, the period of time for the Company to consummate
a Business Combination was extended for an additional three-month
period ending on February 22, 2019, and, accordingly, $690,000 was
deposited into the Trust Account. On February 21, 2019, the Company
further extended the time required to consummate a Business
Combination to May 22, 2019 and deposited an additional $690,000
into the Trust Account. The deposits were funded by non-interest
bearing unsecured promissory notes from BRAC Lending Group LLC, an
affiliate of the underwriter (the “Investor”) (see Note
6). The notes are repayable upon the consummation of a Business
Combination (see Note 6).
On May
21, 2019, the Company’s stockholders approved an amendment to
its Amended and Restated Certificate of Incorporation to extend the
period of time for which the Company was required to consummate a
Business Combination to August 22, 2019. The number of shares of
common stock presented for redemption in connection with the
extension was 2,119,772. The Company paid cash in the aggregate
amount of $22,099,233, or approximately $10.43 per share, to
redeeming stockholders. The Company agreed to deposit, or cause to
be deposited on its behalf, into the Trust Account $0.02 for each
public share outstanding for each 30-day extension period utilized
through August 22, 2019. In connection with this extension, the
Company deposited an aggregate of $286,814 into the Trust
Account, of which $280,000 was contributed to the Trust
Account by a third party and is not required to be repaid by the
Company. Accordingly, the Company has recorded this amount as a
credit to additional paid in capital in the accompanying statements
of stockholders’ equity. In order to pay for part of the
third extension payment, the Company issued an unsecured promissory
note (the “Note”) in favor of the Investor, in the
original principal amount of $6,814 (see Note 6).
On
August 21, 2019, the Company stockholders approved an amendment to
the Company’s Amended and Restated Certificate of
Incorporation to extend the period of time for which the Company is
required to consummate a Business Combination (the
“Extension”) from August 22, 2019 to November 22, 2019.
The number of shares of common stock presented for redemption in
connection with the Extension was 846,888. The Company paid cash in
the aggregate amount of $8,891,378, or approximately $10.50 per
share, to redeeming stockholders. The Company agreed to deposit, or
cause to be deposited on its behalf, into the Trust Account $0.02
for each public share outstanding for each 30-day extension period
utilized through the Extension. In connection with this extension,
the Company deposited an aggregate of $236,000 into the Trust
Account to fund this extension payment, which amount was loaned to
the Company by AZ Property Partners and Investor (see Note
6).
On
November 21, 2019, the Company's stockholders approved an amendment
to the Company's Amended and Restated Certificate of Incorporation
to extend the period of time for which the Company is required to
consummate a Business Combination (the “Second
Extension”) from November 22, 2019 to March 23, 2020. The
number of shares of common stock presented for redemption in
connection with the Second Extension was 919,091. The Company paid
cash in the aggregate amount of $9,736,077, or approximately $10.59
per share, to redeeming stockholders. The Company agreed to
deposit, or cause to be deposited on its behalf, into the Trust
Account $0.02 for each public share outstanding for each 30-day
extension period utilized through the Second Extension. In
connection with this extension, the Company deposited an aggregate
of $60,285 into the Trust Account to fund the first thirty-day
extension through December 22, 2019, which amount was loaned to the
Company by AZ Property Partners and Investor (see Note 6). In
January and February 2020, AZ Property Partners and Investor loaned
the Company an additional aggregate amount of $90,428 each to pay
for the extension through March 23, 2020.
F-8
On March 23, 2020, the Company's stockholders
approved an amendment to the Amended and Restated Certificate of
Incorporation to extend the period of time for which the Company is
required to consummate a Business Combination (the “Third
Extension”) from March 23, 2020 to July 23, 2020 (the
“Extended Date”). The
number of shares of common stock presented for redemption in
connection with the Third Extension was 2,433,721. The Company paid
cash in the aggregate amount of $25,997,965, or approximately
$10.68 per share, to redeeming stockholders. The Company agreed to
deposit, or cause to be deposited on its behalf, into the Trust
Account $0.02 for each public share outstanding for each 30-day
extension period utilized through the Third Extension. In
connection with this extension, the
Company deposited an aggregate of $11,611 into the Trust Account to
fund the first thirty-day extension through April 23, 2020, which
amount was loaned to the Company by AZ Property Partners and
Investor.
If the
Company is unable to complete a Business Combination by the
Extended Date, the Company will (i) cease all operations except for
the purpose of winding up, (ii) as promptly as reasonably possible
but no more than ten business days thereafter, redeem 100% of the
outstanding 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 (net of taxes payable), 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 liquidation
distributions, if any), subject to applicable law, and (iii) as
promptly as reasonably possible following such redemption, subject
to the approval of the remaining stockholders and the
Company’s board of directors, proceed to commence a voluntary
liquidation and thereby a formal dissolution of the Company,
subject in each case to its obligations to provide for claims of
creditors and the requirements of applicable law. In the event of
such distribution, it is possible that the per share value of the
assets remaining available for distribution (including Trust
Account assets) will be less than the $10.00 per Unit in the
Initial Public Offering.
The
Initial Stockholders have agreed to (i) waive their redemption
rights with respect to Founder Shares, Placement Shares and any
Public Shares they may acquire during or after the Initial Public
Offering in connection with the consummation of a Business
Combination, (ii) to waive their rights to liquidating
distributions from the Trust Account with respect to their
Founder’s Shares and Placement Shares if the Company fails to
consummate a Business Combination by the Extended Date and (iii)
not to propose an amendment to the Company’s Amended and
Restated Certificate of Incorporation that would affect the
substance or timing of the Company’s obligation to redeem
100% of its Public Shares if the Company does not complete a
Business Combination, unless the Company provides the public
stockholders with the opportunity to redeem their Public Shares in
conjunction with any such amendment. However, the Initial
Stockholders will be entitled to liquidating distributions with
respect to any Public Shares acquired if the Company fails to
consummate a Business Combination or liquidates by Extended
Date.
In
order to protect the amounts held in the Trust Account, A/Z
Property Partners, LLC (“AZ Property Partners”), an
entity majority owned and controlled by Richard Ackerman, the
Company’s Chairman, President and Chief Executive Officer,
has agreed that it will be liable to ensure that the proceeds in
the Trust Account are not reduced below $10.00 per share by the
claims of target businesses or claims of vendors or other entities
that are owed money by the Company for services rendered or
contracted for or products sold to the Company. Additionally, the
agreement entered into by AZ Property Partners specifically
provides for two exceptions to the indemnity it has given: it will
have no liability (1) as to any claimed amounts owed to a target
business or vendor or other entity who has executed an agreement
with the Company waiving any right, title, interest or claim of any
kind they may have in or to any monies held in the Trust Account,
or (2) as to any claims for indemnification by the underwriters
against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the “Securities
Act”). The Company will seek to reduce the possibility that
AZ Property Partners will have to indemnify the Trust Account due
to claims of creditors by endeavoring to have all vendors, service
providers, prospective target businesses or other entities with
which the Company does business, execute agreements with the
Company waiving any right, title, interest or claim of any kind in
or to monies held in the Trust Account.
NASDAQ Notifications
On
January 7, 2019, the Company received a notice from the staff of
the Listing Qualifications Department of Nasdaq (the
“Staff”) stating that the Company was no longer in
compliance with Nasdaq Listing Rule 5620(a) for continued listing
due to its failure to hold an annual meeting of stockholders within
twelve months of the end of the Company’s fiscal year ended
December 31, 2017. The Company submitted a plan of compliance with
Nasdaq and Nasdaq granted the Company an extension until May 22,
2019 to regain compliance with the rule by holding an annual
meeting of stockholders. The Company held its annual meeting of
stockholders on May 21, 2019 and, accordingly, the Staff determined
that the Company is currently in compliance with Nasdaq Listing
Rule 5620(a) for continued listing and the matter was
closed.
F-9
On
August 9, 2019, the Company received a notice from the Staff
stating that the Company was no longer in compliance with Nasdaq
Listing Rule 5550(a)(3) for continued listing due to its failure to
maintain a minimum of 300 public holders (the “Rule”).
The Company had until September 23, 2019 to provide Nasdaq with a
specific plan to achieve and sustain compliance with the listing
requirement. The notice is a notification of deficiency, not of
imminent delisting, and had no current effect on the listing or
trading of the Company's securities on Nasdaq.
On
September 23, 2019 and October 28, 2019, the Company submitted a
plan to regain compliance with Nasdaq and requested an extension
through February 5, 2020. On October 28, 2019, Nasdaq requested
additional information regarding the Company's compliance plan, to
which the Company responded on November 8, 2019. On February 11,
2020, the Company received a notice from the Staff stating that,
based upon the Company’s non-compliance with the Rule, the
Staff had determined to delist the Company’s common stock
from Nasdaq unless the Company timely requests a hearing before the
Nasdaq Hearings Panel (the “Panel“). The Company was
also notified that as a result of Nasdaq’s determination to
delist the Company’s common stock, the Company’s
warrants and rights no longer comply with Nasdaq Listing Rule
5560(a), which requires the underlying securities of such
exercisable securities to remain listed on Nasdaq, and the
Company’s Units no longer comply with Nasdaq Listing Rule
5225(b)(1)(A), which requires all component parts of units to meet
the requirements for initial and continued listing, and the
Company’s units, warrants and rights are now subject to
delisting. The Company requested a
hearing, which request automatically stayed any further action by
the Staff pending the ultimate conclusion of the hearing
process.
On
March 25, 2020, we received formal notice from Nasdaq indicating
that the Panel has granted the Company’s request for
continued listing on Nasdaq. The decision follows the
Company’s hearing before the Panel, which took place on March
19, 2020. The Company’s continued listing is subject to the
Company’s satisfaction of a number of conditions, including,
ultimately, completion of a business combination with an operating
company by no later than August 10, 2020, and the combined
entity’s compliance with all applicable criteria for initial
listing on Nasdaq at the time of the merger.
Liquidity
As of
December 31, 2019, the Company had $6 in its operating bank
account, $32,005,205 in cash and marketable securities held in the
Trust Account to be used for a Business Combination or to
repurchase or convert stock in connection therewith and a working
capital deficit of $582,385, which excludes franchise taxes payable
of $40,050, of which such amounts will be paid from interest earned
on the Trust Account and prepaid income taxes, which have been paid
from amounts in the Trust Account. As of December 31, 2019,
approximately $838,000 of the amount on deposit in the Trust
Account represented interest income, which is available to pay the
Company’s tax obligations. To date, the Company has withdrawn
approximately $555,000 of interest from the Trust Account in order
to pay the Company’s franchise and income taxes, of which
approximately $513,000 was withdrawn during the year ended December
31, 2019.
On
November 17, 2018, the Company entered into an agreement (the
“Agreement”) with the Sponsor and the Investor,
pursuant to which the Sponsor agreed to be responsible for all
liabilities of the Company as of November 17, 2018 and to loan the
Company the funds necessary to pay the expenses of the Company
other than Business Combination expenses through the closing of a
Business Combination when and as needed. If a Business Combination
is not consummated, all outstanding loans made by the Sponsor will
be forgiven (see Note 6). In addition, the Investor agreed to loan
the Company all funds necessary to pay expenses incurred in
connection with and in order to consummate a business combination
(the “Business Combination Expenses”) and such loans
will be added to the Notes (as defined in Note 6). If the Company
does not consummate a Business Combination, all outstanding loans
under the Notes will be forgiven, except to the extent of any funds
held outside of the Trust Account after paying all other fees and
expenses of the Company incurred prior to the date of such failure
to consummate a Business Combination (see Note 6).
The
Company may raise additional capital through loans or additional
investments from the Sponsor or its stockholders, officers,
directors, or third parties. Other than as described above, the
Company’s officers and directors and the Sponsor may, but are
not obligated to, loan the Company funds, from time to time, in
whatever amount they deem reasonable in their sole discretion, to
meet the Company’s working capital needs.
The
Company does not believe it will need to raise additional funds in
order to meet expenditures required for operating its business.
Neither the Sponsor, nor any of the stockholders, officers or
directors, or third parties are under any obligation to advance
funds to, or invest in, the Company, except as discussed above.
Accordingly, the Company may not be able to obtain additional
financing. If the Company is unable to raise additional capital, it
may be required to take additional measures to conserve liquidity,
which could include, but not necessarily be limited to suspending
the pursuit of a potential transaction. The Company cannot provide
any assurance that new financing will be available to it on
commercially acceptable terms, if at all. Even if the Company can
obtain sufficient financing or raise additional capital, it only
has until July 23, 2020 to consummate a Business Combination. There
is no assurance that the Company will be able to do so prior to
July 23, 2020.
F-10
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The
accompanying financial statements are presented in conformity with
accounting principles generally accepted in the United States of
America (“GAAP”) and pursuant to the rules and
regulations of the SEC.
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 auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act, 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 a 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 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, will 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 financial
statements with another public company which is neither an emerging
growth company nor an emerging growth company which has opted out
of using the extended transition period difficult or impossible
because of the potential differences in accounting standards
used.
Use of estimates
The
preparation of financial statements in conformity with GAAP
requires 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 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 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 the Company’s
estimates.
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 did not have any cash equivalents as of
December 31, 2019 and 2018.
Cash and marketable securities held in Trust Account
At
December 31, 2019 and 2018, the assets held in the Trust Account
were held in money market funds, which are invested in U.S.
Treasury securities. During the years ended December 31, 2019 and
2018, the Company withdrew $512,993 and $42,392, respectively, of
interest income to pay its franchise and income tax
obligations.
Common stock subject to possible redemption
The
Company accounts for its common stock subject to possible
redemption in accordance with the guidance in Accounting Standards
Codification (“ASC”) Topic 480 “Distinguishing
Liabilities from Equity.” Common stock subject to mandatory
redemption is classified as a liability instrument and is measured
at fair value. Conditionally redeemable common stock (including
common stock that features redemption rights that are either within
the control of the holder or subject to redemption upon the
occurrence of uncertain events not solely within the
Company’s control) is classified as temporary equity. At all
other times, common stock is classified as stockholders’
equity. The Company’s common stock features certain
redemption rights that are considered to be outside of the
Company’s control and subject to occurrence of uncertain
future events. Accordingly, common stock subject to possible
redemption is presented at redemption value as temporary equity,
outside of the stockholders’ equity section of the
Company’s balance sheet.
F-11
Income taxes
The
Company complies with the accounting and reporting requirements of
ASC Topic 740 “Income Taxes,” which requires an asset
and liability approach to financial accounting and reporting for
income taxes. Deferred income tax assets and liabilities are
computed for differences between the financial statement and tax
bases of assets and liabilities that will result in future taxable
or deductible amounts, based on enacted tax laws and rates
applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to
be realized.
ASC
Topic 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. As of
December 31, 2019 and 2018, there were no unrecognized tax benefits
and no amounts accrued for interest and penalties. 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 may be subject to potential examination by federal, state
and city taxing authorities in the areas of income taxes. These
potential examinations may include questioning the timing and
amount of deductions, the nexus of income among various tax
jurisdictions and compliance with federal, state and city tax laws.
The Company’s management does not expect that the total
amount of unrecognized tax benefits will materially change over the
next twelve months.
Net loss per common share
Net
loss per common share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding for the
period. The Company applies the two-class method in calculating
earnings per share. Shares of common stock subject to possible
redemption at December 31, 2019 and 2018, which are not currently
redeemable and are not redeemable at fair value, have been excluded
from the calculation of basic net loss per common share since such
shares, if redeemed, only participate in their pro rata share of
the Trust Account earnings. The Company has not considered the
effect of (1) warrants sold in the Initial Public Offering and
private placement to purchase 3,586,250 shares of common stock, (2)
rights sold in the Initial Public Offering and private placement
that convert into 717,250 shares of common stock and (3) 600,000
shares of common stock, warrants to purchase 300,000 shares of
common stock and rights that convert into 60,000 shares of common
stock in the unit purchase option sold to the underwriter, in the
calculation of diluted loss per share, since the exercise of the
warrants, the conversion of the rights into shares of common stock
and the exercise of the unit purchase option are contingent upon
the occurrence of future events. As a result, diluted loss per
common share is the same as basic income per common share for the
periods presented.
Reconciliation of net loss per common share
The
Company’s net income is adjusted for the portion of income
that is attributable to common stock subject to possible
redemption, as these shares only participate in the earnings of the
Trust Account and not the income or losses of the Company.
Accordingly, basic and diluted loss per share is calculated as
follows:
|
|
Year
Ended December 31,
|
|
|
|
2019
|
2018
|
|
Net
income
|
$408,427
|
$66,101
|
|
Less: Income
attributable to common stock subject to possible
redemption
|
(703,894)
|
(814,965)
|
|
Adjusted net
loss
|
$(295,467)
|
$(748,864)
|
|
|
|
|
|
Weighted average
shares outstanding, basic and diluted
|
2,783,021
|
2,614,505
|
|
|
|
|
|
Basic and diluted
net loss per common share
|
$(0.11)
|
$(0.29)
|
Concentration of credit risk
Financial
instruments that potentially subject the Company to concentration
of credit risk consist of a cash account in a financial institution
which, at times may exceed the Federal depository insurance
coverage of $250,000. The Company has not experienced losses on
this account and management believes the Company is not exposed to
significant risks on such account.
F-12
Fair value of financial instruments
The
fair value of the Company’s assets and liabilities, which
qualify as financial instruments under ASC Topic 820, “Fair
Value Measurement,” approximates the carrying amounts
represented in the accompanying balance sheets, primarily due to
their short-term nature.
Recently issued accounting standards
Management does not
believe that any recently issued, but not yet effective, accounting
pronouncements, if currently adopted, would have a material effect
on the Company’s financial statements.
3. INITIAL PUBLIC OFFERING
Pursuant to the
Initial Public Offering, the Company sold 6,900,000 Units at a
purchase price of $10.00 per Unit, which includes the full exercise
by the underwriters of their over-allotment option of 900,000 Units
at $10.00 per Unit. Each Unit consists of one share of common
stock, one Public Right and one Public Warrant. Each Public Right
will convert into one-tenth (1/10) of one share of common stock
upon consummation of a Business Combination (see Note 8). Each
whole Public Warrant entitles the holder to purchase one share of
common stock at an exercise price of $11.50 per whole share (see
Note 8).
4. PRIVATE PLACEMENT
Simultaneously with
the Initial Public Offering, the Sponsor purchased 250,000 Private
Placement Units, at $10.00 per Private Placement Unit, for an
aggregate purchase price of $2,500,000. On November 29, 2017, the
Company consummated the sale of an additional 22,500 Private
Placement Units at a price of $10.00 per unit, which were purchased
by the Sponsor, generating gross proceeds of $225,000. Each Private
Placement Unit consists of one share of common stock
(“Placement Share”), one right (“Placement
Right”) and one-half of one warrant (each, a “Placement
Warrant”), each whole Placement Warrant exercisable to
purchase one share of common stock at an exercise price of $11.50.
The proceeds from the Private Placement Units were added to the
proceeds from the Initial Public Offering held in the Trust
Account. If the Company does not complete a Business Combination
within the Combination Period, the proceeds from the sale of the
Private Placement Units will be used to fund the redemption of the
Public Shares (subject to the requirements of applicable law), and
the Placement Rights and the Placement Warrants will expire
worthless.
The
Private Placement Units are identical to the Units sold in the
Initial Public Offering except that the Placement Warrants (i) are
not redeemable by the Company and (ii) may be exercised for cash or
on a cashless basis, so long as they are held by the initial
purchaser or any of its permitted transferees. In addition, the
Private Placement Units and their component securities may not be
transferable, assignable or salable until after the consummation of
a Business Combination, subject to certain limited exceptions. If
the Placement Warrants are held by someone other than the initial
purchasers or their permitted transferees, the Placement Warrants
will be redeemable by the Company and exercisable by such holders
on the same basis as the Public Warrants.
5. RELATED PARTY TRANSACTIONS
Founder Shares
In
September 2017, the Company issued an aggregate of 1,437,500 shares
of common stock to the Sponsor (the “Founder Shares”)
for an aggregate purchase price of $25,000. On November 20, 2017,
the Company effectuated a 1.2-for-1 stock dividend of its common
stock resulting in an aggregate of 1,725,000 Founder Shares
outstanding. The Founder Shares included an aggregate of up to
225,000 shares subject to forfeiture by the Sponsor to the extent
that the underwriters’ over-allotment was not exercised in
full or in part, so that the Initial Stockholders would own 20% of
the Company’s issued and outstanding shares after the Initial
Public Offering (assuming the Initial Stockholders did not purchase
any Public Shares in the Initial Public Offering and excluding the
Private Placement Units and the Representative Shares (as defined
in Note 8)). As a result of the underwriters’ election to
fully exercise their over-allotment option, 225,000 Founder Shares
are no longer subject to forfeiture.
The
Initial Stockholders have agreed not to transfer, assign or sell
any of the Founder’s Shares until the earlier of (i) one year
after the date of the consummation of a Business Combination, or
(ii) with respect to 50% of the Founder Shares, the date on which
the closing price of the Company’s common stock equals or
exceeds $12.50 per share (as adjusted for stock splits, stock
dividends, reorganizations and recapitalizations) for any 20
trading days within any 30-trading day period commencing after a
Business Combination, or earlier, in each case, if subsequent to a Business Combination, the Company
consummates a subsequent liquidation, merger, stock exchange,
reorganization or other similar transaction which results in all of
the Company’s stockholders having the right to exchange their
common stock for cash, securities or other
property.
F-13
Administrative Services Agreement
The
Company entered into an agreement whereby, commencing on November
20, 2017 through the earlier of the consummation of a Business
Combination or the Company’s liquidation, the Company would
pay the Sponsor a monthly fee of $10,000 for office space,
utilities and administrative support. For the year ended December
31, 2018, the Company incurred $75,000 in fees for these services.
Effective August 20, 2018, the Sponsor agreed to stop charging the
Company the monthly administrative fee.
Related Party Loans
On
September 26, 2017, the Company issued to the Sponsor and its Chief
Executive Officer, unsecured promissory notes pursuant to which the
Company could borrow up to an aggregate amount of $150,000 and
$25,000, respectively (the “Promissory Notes”). The
Promissory Notes were non-interest bearing and payable on the
earlier to occur of (i) December 31, 2018, or (ii) the consummation
of the Initial Public Offering. The Promissory Notes were repaid on
November 24, 2017.
In
order to finance transaction costs in connection with a Business
Combination, the Sponsor, an affiliate of the Sponsor, or the
Company’s officers and directors may, but are not obligated
to, loan the Company funds from time to time or at any time, as may
be required (“Working Capital Loans”). Each Working
Capital Loan would be evidenced by a promissory note. The Working
Capital Loans would either be paid upon consummation of a Business
Combination, without interest, or, at the holder’s
discretion, up to $1,500,000 of the Working Capital Loans may be
converted into units at a price of $10.00 per unit. The units would
be identical to the Private Placement Units. In the event that a
Business Combination does not close, the loans will be forgiven.
There were no outstanding Working Capital Loans at December 31,
2019 and 2018.
6. INVESTOR AGREEMENT AND PROMISSORY NOTES
On
November 17, 2018, the Company entered into an Agreement with the
Sponsor and the Investor. Pursuant to the Agreement, the Sponsor
transferred an aggregate of 1,500,000 Founders Shares to the
Investor in exchange for the agreements set forth below and
aggregate cash consideration of $1.00.
Pursuant to the
Agreement, the Sponsor agreed to extend the period of time the
Company has to consummate a Business Combination up to two times
for an aggregate of up to six months and the Investor agreed to
loan the Company the funds necessary to obtain the extensions (the
“Extensions”). On November 20, 2018 and February 21,
2019, the Company issued unsecured promissory notes (the
“Initial Notes”) in favor of the Investor, in the
original principal amount of $690,000 each (or an aggregate of
$1,380,000), to provide the Company the funds necessary to obtain
an aggregate of six-month Extensions. Pursuant to the Agreement,
the Investor has also agreed to loan the Company all funds
necessary to pay expenses incurred in connection with and in order
to consummate a Business Combination (the “Business
Combination Expenses”) and such loans will be added to the
Notes.
In
connection with the stockholders’ approval of the extended
date of August 22, 2019, the Company issued another unsecured
promissory note (the “Second Note”) in favor of the
Investor in order to pay for part of the third extension payment in
the original principal amount of $6,814.
On
December 31, 2019, the Company issued an unsecured promissory note
(the “Third Note” and, together with the Initial Notes
and the Second Note, the “Extension Notes”) in favor of
the Investor in the aggregate principal amount of $178,952 in order
to pay for part of the extension payments. Through December 31,
2019, the Investor loaned the Company an aggregate amount of
$118,667 under the Third Note to pay for part of the extension
payment in connection with the Extension to November 22,
2019.
In
November 2019, in connection with the stockholders’ approval
of the extended date of March 23, 2020, the Investor loaned the
Company an additional $30,142 under the Third Note to pay for part
of the extension through December 22, 2019. In January and February
2020, the Investor loaned the Company an additional $60,285 to pay
for part of the extension through March 23, 2020.
In
March 2020, in connection with the stockholders’ approval of
the Extended Date of July 23, 2020, AZ Property Partners loaned the
Company an additional $11,611 under the Third Note to pay for
part of the extension through April 23, 2020.
If the
Company does not consummate a Business Combination, all outstanding
loans under the Extension Notes will be forgiven, except to the
extent of any funds held outside of the Trust Account after paying
all other fees and expenses of the Company incurred prior to the
date of such failure to consummate a Business
Combination.
As of
December 31, 2019, the outstanding balance under the Extension
Notes amounted to an aggregate of $1,535,623.
F-14
The
Sponsor has agreed to be responsible for all liabilities of the
Company effective November 17, 2018, except for liabilities
associated with the possible redemption of shares by the
Company’s shareholders, as described in the Company’s
Amended and Restated Certificate of Incorporation. The Sponsor has
also agreed to loan the Company the funds necessary to pay the
expenses of the Company other than the Business Combination
Expenses through the closing of a Business Combination when and as
needed in order for the Company to continue in operation (the
“Non-Business Combination Related Expenses”). Upon
consummation of a Business Combination, up to $200,000 of the
Non-Business Combination Related Expenses will be repaid by the
Company to the Sponsor provided that the Company has funds
available to it sufficient to repay such expenses (the
“Cap”) as well as to pay for all stockholder
redemptions, all Business Combination Expenses, repayment of the
Extension Notes, and any funds necessary for the working capital
requirements of the Company following closing of the Business
Combination. Any remaining amounts in excess of the Cap will be
forgiven. On December 31, 2019, the Company issued an unsecured
promissory note to the Sponsor in the original principal amount of
$446,283 to pay for Non-Business Combination Related Expenses. Of
the amount loaned to the Company, $117,333 was used in order to pay
for part of the extension payments in connection with the Extension
to November 22, 2019. If the Company does not consummate a Business
Combination, all outstanding loans made by the Sponsor to cover the
Non-Business Combination Related Expenses will be forgiven, except
as set forth above.
In
November 2019, in connection with the stockholders’ approval
of the extended date of March 23, 2020, AZ Property Partners loaned
the Company an additional $30,143 to pay for part of the extension
through December 2019. In January and February 2020, AZ Property
Partners loaned the Company an aggregate additional amount of
$60,285 to pay for part of the extension through March 23,
2020.
In
March 2020, in connection with the stockholders’ approval of
the Extended Date of July 23, 2020, AZ Property Partners loaned the
Company an additional $11,611 under the Second Note to pay for part
of the extension through April 23, 2020.
As of
December 31, 2019, the outstanding balance under promissory note
amounted to $416,141.
7. COMMITMENTS AND CONTINGENCIES
Registration Rights
Pursuant to a
registration rights agreement entered into on November 20, 2017,
the holders of the Company’s common stock prior to the
Initial Public Offering (the “Founder Shares”), Private
Placement Units (and their underlying securities), the shares
issued to EarlyBirdCapital at the closing of the Initial Public
Offering (the “Representative Shares”) and any Units
that may be issued upon conversion of the working capital loans
(and their underlying securities) are entitled to registration
rights. The holders of a majority of these securities are entitled
to make up to three demands, excluding short form demands, that the
Company register such securities. The holders of the majority of
the Founder’s Shares can elect to exercise these registration
rights at any time commencing three months prior to the date on
which these shares of common stock are to be released from escrow.
The holders of a majority of the Private Placement Units or Units
issued to the Sponsor, officers, directors or their affiliates in
payment of working capital loans made to the Company (in each case,
including the underlying securities) can elect to exercise these
registration rights at any time after the Company consummates a
Business Combination. In addition, the holders will have certain
“piggy-back” registration rights with respect to
registration statements filed subsequent to the completion of a
Business Combination and rights to require the Company to register
for resale such securities pursuant to Rule 415 under the
Securities Act of 1933, as amended (the “Securities
Act”). Notwithstanding anything to the contrary,
EarlyBirdCapital and its designees may participate in a
“piggy-back” registration during the seven-year period
beginning on the effective date of the registration statement.
However, the registration rights agreement will provide that the
Company will not permit any registration statement filed under the
Securities Act 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.
Business Combination Marketing Agreement
The
Company has engaged EarlyBirdCapital as an advisor in connection
with a Business Combination to assist the Company in holding
meetings with its stockholders to discuss a potential Business
Combination and the target business’ attributes, introduce
the Company to potential investors that are interested in
purchasing securities, assist the Company in obtaining stockholder
approval for the Business Combination and assist the Company with
its press releases and public filings in connection with a Business
Combination. The Company will pay EarlyBirdCapital a cash fee for
such services upon the consummation of a Business Combination in an
amount equal to 4.0% of the gross proceeds of the Initial Public
Offering (exclusive of any applicable finders’ fees which
might become payable). If a Business Combination is not consummated
for any reason, no fee will be due or payable.
8. STOCKHOLDERS’ EQUITY
Preferred Stock
— The Company is authorized to issue 1,000,000 shares of
preferred stock with a par value of $0.001 per share with such
designation, rights and preferences as may be determined from time
to time by the Company’s Board of Directors. At December 31,
2019 and 2018, there were no shares of preferred stock issued or
outstanding.
F-15
Common Stock —
The Company is authorized to issue 100,000,000 shares of common
stock with a par value of $0.001 per share. Holders of the
Company’s common stock are entitled to one vote for each
share. At December 31, 2019 and 2018, there were 2,844,414 and
2,725,039 shares of common stock issued and outstanding,
respectively (excluding 2,305,335 and 6,310,461 shares of common
stock subject to possible redemption, respectively).
Rights — Each
holder of a right will receive one-tenth (1/10) of one share of
common stock upon consummation of a Business Combination, even if
the holder of such right redeemed all shares held by it in
connection with a Business Combination. No fractional shares will
be issued upon conversion of the rights. No additional
consideration will be required to be paid by a holder of rights in
order to receive its additional shares upon consummation of a
Business Combination, as the consideration related thereto has been
included in the Unit purchase price paid for by investors in the
Initial Public Offering. If the Company enters into a definitive
agreement for a Business Combination in which the Company will not
be the surviving entity, the definitive agreement will provide for
the holders of rights to receive the same per share consideration
the holders of the common stock will receive in the transaction on
an as-converted into common stock basis and each holder of a right
will be required to affirmatively convert its rights in order to
receive 1/10 share underlying each right (without paying additional
consideration). The shares issuable upon conversion of the rights
will be freely tradable (except to the extent held by affiliates of
the Company).
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 rights will not receive any of such funds
with respect to their rights, nor will they receive any
distribution from the Company’s assets held outside of the
Trust Account with respect to such rights, and the rights will
expire worthless. Further, there are no contractual penalties for
failure to deliver securities to the holders of the rights upon
consummation of a Business Combination. Additionally, in no event
will the Company be required to net cash settle the rights.
Accordingly, holders of the rights might not receive the shares of
common stock underlying the rights.
Warrants —
Public Warrants may only be exercised for a whole number of shares.
No fractional shares will be issued upon exercise of the Public
Warrants. The Public Warrants will become exercisable on the later
of the completion of a Business Combination and November 22, 2018;
provided in that the Company has an effective registration
statement under the Securities Act covering the shares of common
stock issuable upon exercise of the Public Warrants and a current
prospectus relating to them is available. The Company has agreed
that as soon as practicable, the Company will use its best efforts
to file with the SEC a registration statement for the registration,
under the Securities Act, of the shares of common stock issuable
upon exercise of the Public Warrants. The Company will use its best
efforts to cause the same to become effective and to maintain the
effectiveness of such registration statement, and a current
prospectus relating thereto, until the expiration of the Public
Warrants in accordance with the provisions of the warrant
agreement. Notwithstanding the foregoing, if a registration
statement covering the shares of common stock issuable upon
exercise of the Public Warrants is not effective 90 days following
the consummation of Business Combination, warrant holders may,
until such time as there is an effective registration statement and
during any period when the Company shall have failed to maintain an
effective registration statement, exercise warrants on a cashless
basis pursuant to the exemption provided by Section 3(a)(9) of the
Securities Act, provided that such exemption is available. If that
exemption, or another exemption, is not available, holders will not
be able to exercise their warrants on a cashless basis. The Public
Warrants will expire five years after the completion of a Business
Combination or earlier upon redemption or liquidation.
The
Company may redeem the Public Warrants:
●
in whole and not in
part;
●
at a price of $0.01
per warrant;
●
at any time during
the exercise period;
●
upon a minimum of
30 days’ prior written notice of redemption; and
●
if, and only if,
the last sale price of the Company’s common stock equals or
exceeds $21.00 per share for any 20 trading days within a
30-trading day period ending on the third business day prior to the
date on which the Company sends the notice of redemption to the
warrant holders.
●
If, and only if,
there is a current registration statement in effect with respect to
the shares of common stock underlying such warrants.
If the
Company calls the Public Warrants for redemption, management will
have the option to require all holders that wish to exercise the
Public Warrants to do so on a “cashless basis,” as
described in the warrant agreement.
F-16
The
exercise price and number of shares of common stock issuable upon
exercise of the warrants may be adjusted in certain circumstances
including in the event of a stock dividend, or recapitalization,
reorganization, merger or consolidation. However, the warrants will
not be adjusted for issuance of common stock at a price below its
exercise price. Additionally, in no event will the Company be
required to net cash settle the warrants. 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.
Representative Shares
At the
closing of the Initial Public Offering, the Company issued
EarlyBirdCapital and its designees 120,000 Representative Shares.
On November 29, 2017, the Company issued an additional 18,000
Representative Shares for no consideration. The Company accounted
for the Representative Shares as an expense of the Initial Public
Offering resulting in a charge directly to stockholders’
equity. The Company determined the fair value of Representative
Shares to be $1,380,000 based upon the offering price of the Units
of $10.00 per Unit. The underwriter has agreed not to transfer,
assign or sell any such shares until the completion of a Business
Combination. In addition, the underwriter and its designees have
agreed (i) to waive their redemption rights with respect to such
shares in connection with the completion of a Business Combination
and (ii) to waive their rights to liquidating distributions from
the Trust Account with respect to such shares if the Company fails
to complete a Business Combination within the Combination
Period.
Unit Purchase Option
On
November 22, 2017, the Company sold to EarlyBirdCapital, for $100,
an option to purchase up to 600,000 Units exercisable at $10.00 per
Unit (or an aggregate exercise price of $6,000,000) commencing on
the later of November 20, 2018 or the consummation of a Business
Combination. The unit purchase option may be exercised for cash or
on a cashless basis, at the holder’s option, and expires five
years from November 20, 2017. The Units issuable upon exercise of
this option are identical to those offered in the Initial Public
Offering. The Company accounted for the unit purchase option,
inclusive of the receipt of $100 cash payment, as an expense of the
Initial Public Offering resulting in a charge directly to
stockholders’ equity. The Company estimated the fair value of
this unit purchase option to be $2,042,889 (or $3.40 per Unit)
using the Black-Scholes option-pricing model. The fair value of the
unit purchase option granted to the underwriters was estimated as
of the date of grant using the following assumptions: (1) expected
volatility of 35%, (2) risk-free interest rate of 2.05% and (3)
expected life of five years. The option and such units purchased
pursuant to the option, as well as the common stock underlying such
units, the rights included in such units, the common stock that is
issuable for the rights included in such units, the warrants
included in such units, and the shares underlying such warrants,
have been deemed compensation by FINRA and are therefore subject to
a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA’s
NASDAQ Conduct Rules. Additionally, the option may not be sold,
transferred, assigned, pledged or hypothecated for a one-year
period (including the foregoing 180-day period) following the date
of Initial Public Offering except to any underwriter and selected
dealer participating in the Initial Public Offering and their bona
fide officers or partners. The option grants to holders demand and
“piggy back” rights for periods of five and seven
years, respectively, from the effective date of the registration
statement with respect to the registration under the Securities Act
of the securities directly and indirectly issuable upon exercise of
the option. The Company will bear all fees and expenses attendant
to registering the securities, other than underwriting commissions
which will be paid for by the holders themselves. The exercise
price and number of units issuable upon exercise of the option may
be adjusted in certain circumstances including in the event of a
stock dividend, or the Company’s recapitalization,
reorganization, merger or consolidation. However, the option will
not be adjusted for issuances of common stock at a price below its
exercise price.
9. INCOME TAX
The
Company’s net deferred tax assets are as
follows:
|
|
December 31,
2019
|
December 31,
2018
|
|
|
|
|
|
Deferred tax
assets
|
|
|
|
Net operating loss
carryforward
|
$—
|
$21,062
|
|
Total deferred tax
assets
|
—
|
21,062
|
|
Valuation
allowance
|
—
|
(21,062)
|
|
Deferred tax
assets, net of allowance
|
$—
|
$—
|
The
income tax provision consists of the following:
F-17
|
|
December 31,
2019
|
December 31,
2018
|
|
|
|
|
|
Federal
|
|
|
|
Current
|
$102,332
|
$16,311
|
|
Deferred
|
2,936
|
995
|
|
|
|
|
|
State
|
|
|
|
Current
|
$—
|
$—
|
|
Deferred
|
—
|
—
|
|
Change in valuation
allowance
|
(21,062)
|
(995)
|
|
Income tax
provision
|
$84,206
|
$16,311
|
As
of December 31, 2019, the Company did not have any U.S. federal and
state net operating loss carryovers (“NOLs”) available
to offset future taxable income.
In
assessing the realization of the deferred tax assets, management
considers whether it is more likely than not that some portion of
all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which temporary
differences representing net future deductible amounts become
deductible. Management considers the scheduled reversal of deferred
tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. After consideration of all of
the information available, management determined that a valuation
allowance was not required. For the years ended December 31, 2019
and 2018, the change in the valuation allowance was $21,062 and
$995.
A
reconciliation of the federal income tax rate to the
Company’s effective tax rate at December 31, 2019 and 2018 is
as follows:
|
|
December 31,
2019
|
December 31,
2018
|
|
|
|
|
|
Statutory federal
income tax rate
|
21.0%
|
21.0%
|
|
State taxes, net of
federal tax benefit
|
0.0%
|
0.0%
|
|
True
ups
|
0.4%
|
0.0%
|
|
Valuation
allowance
|
(4.3)%
|
(1.2)%
|
|
Income tax
provision
|
17.1%
|
19.8%
|
The
Company files income tax returns in the U.S. federal jurisdiction.
The Company’s tax returns since inception remain open and
subject to examination. The Company considers Florida to be a
significant state tax jurisdiction.
10. FAIR VALUE MEASUREMENTS
The
Company follows the guidance in ASC 820 for its financial assets
and liabilities that are re-measured and reported at fair value at
each reporting period, and non-financial assets and liabilities
that are re-measured and reported at fair value at least
annually.
The
fair value of the Company’s financial assets and liabilities
reflects management’s estimate of amounts that the Company
would have received in connection with the sale of the assets or
paid in connection with the transfer of the liabilities in an
orderly transaction between market participants at the measurement
date. In connection with measuring the fair value of its assets and
liabilities, the Company seeks to maximize the use of observable
inputs (market data obtained from independent sources) and to
minimize the use of unobservable inputs (internal assumptions about
how market participants would price assets and liabilities). The
following fair value hierarchy is used to classify assets and
liabilities based on the observable inputs and unobservable inputs
used in order to value the assets and liabilities:
|
Level 1:
|
Quoted
prices in active markets for identical assets or liabilities. An
active market for an asset or liability is a market in which
transactions for the asset or liability occur with sufficient
frequency and volume to provide pricing information on an ongoing
basis.
|
|
|
|
|
Level 2:
|
Observable
inputs other than Level 1 inputs. Examples of Level 2 inputs
include quoted prices in active markets for similar assets or
liabilities and quoted prices for identical assets or liabilities
in markets that are not active.
|
|
|
|
|
Level 3:
|
Unobservable
inputs based on our assessment of the assumptions that market
participants would use in pricing the asset or
liability.
|
F-18
The
following table presents information about the Company’s
assets that are measured at fair value on a recurring basis at
December 31, 2019 and 2018, and indicates the fair value hierarchy
of the valuation inputs the Company utilized to determine such fair
value:
|
Description
|
Level
|
December 31,
2019
|
December 31,
2018
|
|
Assets:
|
|
|
|
|
Marketable
securities held in Trust Account
|
1
|
$32,005,205
|
$70,765,966
|
11. SUBSEQUENT EVENTS
The
Company evaluates events and transactions that occur after the
balance sheet date up to the date that the financial statements
were issued. Other than as described in the notes to these
financial statements, the Company did not identify any events or
transactions that would have required adjustment or disclosure in
the financial statements.
F-19