Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report,
including, without limitation, statements in this section regarding our
financial position, business strategy and the plans and objectives of management
for future operations, are forward-looking statements. When used in this Report,
words such as "anticipate," "believe," "estimate," "expect," "intend" and
similar expressions, as they relate to us or our management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of our management, as well as assumptions made by, and information
currently available to, our management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of certain
factors detailed in our filings with the SEC. All subsequent written or oral
forward-looking statements attributable to us or persons acting on our behalf
are qualified in their entirety by this paragraph.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the financial statements and the
notes thereto contained elsewhere in this Report.
Overview
We are a blank check company formed under the laws of the State of Delaware on
August 5, 2020 for the purpose of entering into an initial business combination
with one or more businesses or entities. We intend to effectuate our initial
business combination using cash from the proceeds of our IPO and the sale of the
private placement warrants, our capital stock, debt or a combination of cash,
stock and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete an initial
business combination will be successful.
Heritage Business Combination
On December 9, 2022, the Company entered into the Heritage Business Combination
Agreement with Heritage, Pubco, the Merger Subs, our sponsor and the Holder
Representative, pursuant to which, subject to the terms and conditions set forth
therein, at the Heritage Closing (i) SPAC Merger Sub will merge with and into
the Company, with the Company continuing as the surviving entity, (ii) Heritage
Merger Sub will merge with and into Heritage, with Heritage continuing as the
surviving entity; and (iii) as a result of the Mergers, the Company and Heritage
each will become wholly owned subsidiaries of Pubco, and Pubco will become a
publicly traded company.
The aggregate merger consideration to be paid pursuant to the Heritage Business
Combination Agreement to Heritage Securityholders will be an amount equal to
$77,500,000, subject to adjustments for Heritage's closing debt and certain
transaction bonuses, if any.
The Heritage Transactions will be consummated subject to the deliverables and
provisions as further described in the Heritage Business Combination Agreement.
For more information on the Heritage Business Combination Agreement, please see
"Item 1. Business."
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from August 5, 2020 (inception) through December 31, 2022
were organizational activities, those necessary to prepare for our IPO,
described below, and identifying a target company for an initial business
combination. We do not expect to generate any operating revenues until after the
completion of our initial business combination. We generate non-operating income
in the form of interest income on marketable securities held in the trust
account. We incur expenses as a result of being a public company (for legal,
financial reporting, accounting and auditing compliance), as well as for due
diligence and transaction expenses.
For the year ended December 31, 2022, we had net income of $3,250,075, which
consists of the change in fair value of warrant liability of $2,112,646, change
in fair value of convertible promissory note - related party of $ 2,772,360, and
interest earned on marketable securities held in the trust account of $676,877,
offset by provision for income taxes of $73,932 and operational costs related to
potential business combinations of $2,237,876.
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For the year ended December 31, 2021, we had net income of $2,100,223 which
consists of the change in fair value of warrant liabilities of $3,912,915,
change in fair value of convertible promissory note - related party of $303,460
and interest earned on marketable securities held in the trust account of
$64,088, and unrealized gain on marketable securities held in the trust account
of $1,371, offset by operational costs related to potential business
combinations that were pursued of $2,181,611.
Liquidity and Capital Resources
On November 17, 2020, we consummated our IPO of 11,000,000 units, at $10.00 per
unit, generating gross proceeds of $110,000,000. Simultaneously with the closing
of our IPO, we consummated the sale of 4,800,000 private placement warrants at a
price of $1.00 per private placement warrant in the private placement to our
sponsor and EarlyBirdCapital, generating gross proceeds of $4,800,000.
On November 19, 2020, in connection with the underwriters' partial exercise of
their Over-Allotment Option, we consummated the sale of an additional 1,618,600
units at a price of $10.00 per unit, generating total gross proceeds of
$16,186,000. In addition, we also consummated the sale of an additional 485,580
private placement warrants at $1.00 per private placement warrant, generating
total gross proceeds of $485,580.
Following our IPO, the partial exercise of the Over-Allotment Option, and the
sale of the private placement warrants, $111,100,000 was placed in the trust
account on November 18, 2020 and $16,347,860 was placed in the trust account on
November 20, 2020, respectively, for a total of $127,447,860. We incurred
$2,880,354 in IPO-related costs, including $2,523,720 of underwriting fees and
$356,634 of other costs.
For the year ended December 31, 2022, cash used in operating activities was
$1,334,539. Net income of $3,250,075 was affected by the change in fair value of
warrant liability of $2,112,646, change in fair value of convertible promissory
note - related party of $2,772,360 and interest earned on marketable securities
held in the trust account of $676,877. Changes in operating assets and
liabilities provided $977,269 of cash for operating activities.
For the year ended December 31, 2021, cash used in operating activities was
$744,981. Net income of $2,100,223 was affected by the change in fair value of
warrant liabilities of $3,912,915, change in fair value of convertible
promissory note - related party of $303,460, interest earned on marketable
securities held in the trust account of $64,088, and an unrealized gain on
marketable securities held in our trust account of $1,371. Changes in operating
assets and liabilities provided $1,436,630 of cash for operating activities.
As of December 31, 2022, the trust account had $44,696,624 (including
approximately $398,454 of accrued interest income). Interest income on the
balance in the trust account may be used by us to pay taxes. In connection with
the extension on May 12, 2022, stockholders holding 5,586,910 shares of the
Company's redeemable common stock exercised their right to redeem such shares
for a pro rata portion of the funds in the trust account at a redemption price
of approximately $10.30 per share. In connection with the extension on August
15, 2022, stockholders holding 2,818,237 shares of the Company's redeemable
common stock exercised their right to redeem such shares for a pro rata portion
of the funds in the trust account at a redemption price of approximately $10.37
per share. In connection with the special meeting of stockholders to approve an
extension on February 8, 2023, stockholders holding 1,213,453 shares of the
Company's redeemable common stock exercised their right to redeem such shares
for a pro rata portion of the funds in the trust account at a redemption price
of approximately $10.60 per share. Through December 31, 2022, we have withdrawn
$358,711 of interest earned on the trust account to pay our taxes.
We intend to use substantially all of the funds held in the trust account to
acquire a target business and to pay our expenses relating thereto upon
consummation of our initial business combination. To the extent that our capital
stock is used in whole or in part as consideration to effect an initial business
combination, the remaining funds held in the trust account 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 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 operating expenses or finders' fees that we had
incurred prior to the completion of our initial business combination if the
funds available to us outside of the trust account were insufficient to cover
such expenses.
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As of December 31, 2022, we had cash of $2,369 held outside the trust account.
We intend to use the funds held outside the trust account for closing the
Heritage Business Combination, identifying and evaluating prospective
acquisition candidates, performing business due diligence on prospective target
businesses, traveling to and from the offices, plants or similar locations of
prospective target businesses, reviewing corporate documents and material
agreements of prospective target businesses, selecting the target business to
acquire and structuring, negotiating and consummating the initial business
combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with an initial business combination, our sponsor or certain of our
officers and directors or their affiliates may, but are not obligated to, loan
us funds as may be required. If we complete our initial business combination, we
would repay such loaned amounts. In the event that our initial 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 warrants, at a price of $1.00 per warrant, at the option
of the lender. Such warrants would be identical to the private placement
warrants. On November 9, 2021, we issued the Sponsor Note in the principal
amount of $1,261,860 to our sponsor in connection with an extension of the date
by which we have to consummate an initial business combination. On February 17,
2022, May 17, 2022, August 17, 2022, and December 31, 2022, we amended and
restated the Sponsor Note to increase the principal amount thereunder from
$1,261,860 to $4,323,720. The Sponsor Note bears no interest and is due and
payable upon the earlier to occur of (i) the date on which we consummate our
initial business combination and (ii) the liquidation of the Company on or
before August 17, 2023 or such later liquidation date as may be approved by the
Company's stockholders. At the election of our sponsor, up to $1,500,000 of the
unpaid principal amount of the Sponsor Note may be converted into warrants of
the Company, each warrant exercisable for one share of common stock upon the
consummation of our initial business combination, equal to: (x) the portion of
the principal amount of the Sponsor Note being converted, divided by (y) $1.00,
rounded up to the nearest whole number of warrants.
We expect that we will need to raise additional capital through loans or
additional investments from our sponsor, stockholders, officers, directors, or
third parties. Our officers, directors and sponsor 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, to meet our working capital needs.
Accordingly, we may not be able to obtain additional financing. If we are unable
to raise additional capital, we may be required to take additional measures to
conserve liquidity, which could include, but not necessarily be limited to,
curtailing operations, suspending the pursuit of a potential transaction, and
reducing overhead expenses. We cannot provide any assurance that new financing
will be available to us on commercially acceptable terms, if at all.
In connection with our assessment of going concern considerations in accordance
with FASB's ASU 2014-15, "Disclosures of Uncertainties about an Entity's Ability
to Continue as a Going Concern," we have until August 17, 2023 to consummate an
initial business combination. It is uncertain that we will be able to consummate
a business combination by this time. If a business combination is not
consummated by this date and an extension has not been requested by our sponsor
and approved by our stockholders, there will be a mandatory liquidation and
subsequent dissolution of the Company. Management has determined that the
liquidity condition and the mandatory liquidation and potential subsequent
dissolution raises substantial doubt about our ability to continue as a going
concern. No adjustments have been made to the carrying amounts of assets or
liabilities should we be required to liquidate after August 17, 2023. We intend
to complete a business combination before the mandatory liquidation date.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities that would be considered
off-balance sheet arrangements as of December 31, 2022. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements,
established any special purpose entities, guaranteed any debt or commitments of
other entities, or purchased any non-financial assets.
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Contractual Obligations
We have agreed, commencing on November 12, 2020 through the earlier of our
consummation of an initial business combination and our liquidation, to pay an
affiliate of our management a total of $10,000 per month for office space,
utilities and secretarial support. For the year ended December 31, 2022, the
Company incurred and accrued $120,000 in fees for these services and those fees
are included in accounts payable and accrued expenses in the accompanying
balance sheets. For the year ended December 31, 2021, the Company incurred
$120,000 in fees for these services, of which $20,000 is included in accounts
payable and accrued expenses in the accompanying balance sheets.
We granted the underwriters a 45-day option from the date of our IPO to purchase
up to 1,650,000 additional units to cover over-allotments, if any, at the IPO
price less the underwriting discounts and commissions. On November 19, 2020, the
underwriters partially exercised their Over-Allotment Option to purchase an
additional 1,618,600 units at $10.00 per unit and forfeited the remaining
Over-Allotment Option.
We have engaged EarlyBirdCapital as an advisor in connection with an initial
business combination to assist us in holding meetings with stockholders to
discuss the potential initial business combination and the target business'
attributes, introduce us to potential investors that are interested in
purchasing our securities in connection with an initial business combination,
assist us in obtaining stockholder approval for the initial business combination
and assist us with our press releases and public filings in connection with the
initial business combination. We will pay EarlyBirdCapital a cash fee for such
services upon the consummation of an initial business combination in an amount
equal to 3.5% of the gross proceeds of our IPO, or $4,416,510 (exclusive of any
applicable finders' fees which might become payable); provided that up to 30% of
the fee may be allocated at our sole discretion to other FINRA members that
assist us in identifying and consummating an initial business combination.
Additionally, we will pay EarlyBirdCapital a cash fee equal to 1.0% of the total
consideration payable in an initial business combination if EarlyBirdCapital
introduces us to the target business with which we complete an initial business
combination.
We have engaged various law firms to provide legal due diligence services and
business combination services related to potential target companies. All fees
and expenses related to the various engagements will be deferred and are to be
paid fully upon the closing of any business combination. The law firms will not
be entitled to any contingent fees or expense reimbursement if we do not
consummate an initial business combination within our deadline. Deferred fees of
$654,062 and $1,009,868 related to these legal services have been accrued as of
December 31, 2022 and 2021, respectively.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with 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:
Warrant Liabilities
The Company accounts for the private placement warrants in accordance with the
guidance contained in ASC 815-40-15-7D and 7F under which the private placement
warrants do not meet the criteria for equity treatment and must be recorded as
liabilities. Accordingly, the Company classifies the private placement warrants
as liabilities at their fair value and adjusts the private placement warrants to
fair value at each reporting period. This liability is subject to re-measurement
at each balance sheet date until exercised, and any change in fair value is
recognized in our statements of operations. The private placement warrants for
periods where no observable traded price was available are valued using a
binomial lattice simulation model.
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Sponsor Note
We account for the Sponsor Note under ASC 815, Derivatives and Hedging ("ASC
815"). Under 815-15-25, the election can be at the inception of a financial
instrument to account for the instrument under the fair value option under ASC
825. We have made such election for the Sponsor Note. Using the fair value
option, the Sponsor Note is required to be recorded at its initial fair value on
the date of issuance, and each balance sheet date thereafter. Changes in the
estimated fair value of the note are recognized as non-cash change in the fair
value of the Sponsor Note in the statements of operations. The fair value of the
option to convert the Sponsor Note into private placement warrants was valued by
utilizing a binomial lattice model incorporating the Cox-Ross-Rubenstein
methodology.
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible redemption in accordance
with the guidance in ASC Topic 480 "Distinguishing Liabilities from Equity."
Common stock subject to mandatory redemption is classified as a liability
instrument and measured at fair value. Conditionally redeemable common stock
(including common stock that features redemption rights that are either within
the control of the holder or subject to redemption upon the occurrence of
uncertain events not solely within our control) is classified as temporary
equity. At all other times, common stock is classified as stockholders' equity.
Our common stock features certain redemption rights that are considered to be
outside of our control and subject to occurrence of uncertain future events.
Accordingly, common stock subject to possible redemption is presented at
redemption value as temporary equity, outside of the stockholders' deficit
section of our balance sheets.
Net Income per Common Share
Net income per common share is computed by dividing net income by the weighted
average number of common shares outstanding for the period. Accretion associated
with the redeemable shares of common stock is excluded from net income per share
common as the redemption value approximates fair value.
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, "Debt-Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in
Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity" ("ASU 2020-06"), which simplifies
accounting for convertible instruments by removing major separation models
required under current GAAP. ASU 2020-06 removes certain settlement conditions
that are required for equity contracts to qualify for the derivative scope
exception, and it also simplifies the diluted earnings per share calculation in
certain areas. ASU 2020-06 is effective for fiscal years beginning after
December 15, 2023, including interim periods within those fiscal years, with
early adoption permitted. The Company assessed the potential impact of ASU
2020-06 and determined that it would not have a material impact on the financial
statements as presented.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our financial statements.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial business
combination may be adversely affected by various factors that could cause
economic uncertainty and volatility in the financial markets, many of which are
beyond our control. Our business could be impacted by, among other things,
downturns in the financial markets or in economic conditions, increases in oil
prices, inflation, increases in interest rates, supply chain disruptions,
declines in consumer confidence and spending, the ongoing effects of the
COVID-19 pandemic, including resurgences and the emergence of new variants, and
geopolitical instability, such as the military conflict in Ukraine. We cannot at
this time fully predict the likelihood of one or more of the above events, their
duration or magnitude or the extent to which they may negatively impact our
business and our ability to complete an initial business combination.
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