The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with our audited financial
statements and the notes related thereto which are included in "Item 8.
Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Certain information contained in the discussion and analysis set forth below
includes forward-looking statements. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of many
factors, including those set forth under "Special Note Regarding Forward-Looking
Statements," and elsewhere in this Annual Report.
31
Overview
We are a blank check company formed under the laws of the State of Delaware on
August 21, 2020, for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or other similar business
combination with one or more businesses (a "Business Combination"). We intend to
effectuate our Business Combination using cash from the proceeds of our initial
public offering (the "Initial Public Offering") of 11,500,000 units (the
"Units," which included the full exercise by the underwriter of its
over-allotment option in the amount of 1,500,000 Units, at $10.00 per Unit) and
the sale of 4,188,889 warrants (the "Private Warrants") at a price of $0.75 per
Private Warrant and 100,833 units (the "Placement Units" and, together with the
Private Warrants, the "Private Securities"), 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 raise capital or to
complete our initial Business Combination will be successful.
Recent Developments
Business Combination Agreement
On December 19, 2021, we entered into the Business Combination Agreement, with
the Seller which provides for the consummation of the following Business
Combination transactions: (a) the Company will form under the laws of the State
of Nevada the New Subsidiary, change its jurisdiction of incorporation to Nevada
by merging with and into the New Subsidiary such that the New Subsidiary will
survive the merger, and change its jurisdiction of incorporation again by
transferring by way of a redomiciliation and domesticating the New Subsidiary as
a Gibraltar public company limited by shares; and (b) immediately following the
effectiveness of the Redomiciliation, the Surviving Company will acquire 100% of
the equity interests in FAHL from the Seller. Upon consummation of the
transactions contemplated by the Business Combination, FAHL will become a wholly
owned subsidiary of the Surviving Company, which will be renamed "Forafric
Global PLC".
Immediately prior to the consummation of the Business Combination, we will
effect the Pre-Closing Merger and the Redomiciliation pursuant to which (i) our
issued and outstanding shares of common stock will, following the Pre-Closing
Merger and pursuant to the Redomiciliation, convert automatically by operation
of law, on a one-for-one basis, into Ordinary Shares; (ii) our issued and
outstanding redeemable warrants will automatically become redeemable warrants to
acquire Ordinary Shares and (iii) each of our issued and outstanding Units that
has not been previously separated into the underlying common stock and
underlying warrant upon the request of the holder thereof, will be cancelled and
will entitle the holder thereof to one Ordinary Share and one redeemable warrant
to acquire one Ordinary Share. No other changes will be made to the terms of any
issued and outstanding warrants as a result of the Pre-Closing Merger and
Redomiciliation.
The total consideration to be paid to the Seller in the Business Combination
will be (i) 15,100,000 Ordinary Shares, subject to reduction to the extent that
the Closing Payment (as defined below) is less than $0, provided that Seller may
be issued up to 1,904,762 additional Ordinary Shares determined based on the
amount of Remaining Cash (as defined in the Business Combination Agreement) at
the Closing; plus (ii) the Closing Payment equal to $20,000,000 minus the
outstanding amount of all Funded Debt (as defined in the Business Combination
Agreement) as of the Closing (other than Permitted Debt); provided that Seller
may receive up to an additional $20,000,000 determined based on the amount of
Remaining Cash (as defined in the Business Combination Agreement) at the
Closing. The Closing Payment shall be funded by remaining funds in the trust
account after giving effect to any Buyer Share Redemptions (as defined in the
Business Combination Agreement) and the proceeds of any potential private
placement financing.
In addition to the foregoing consideration, the Seller shall be entitled to
receive, as additional consideration, and without any action on behalf of the
Company or the Company's stockholders, Earnout Shares, to be issued as follows
during the period from and after the Closing until the end of calendar year 2024
(A) 500,000 Earnout Shares, if, during calendar year 2022, Adjusted EBITDA (as
defined in the Business Combination Agreement) of Forafric Global PLC is equal
to or greater than $27,000,000, (B) 500,000 Earnout Shares, if, during calendar
year 2023, Adjusted EBITDA is equal to or greater than $33,000,000, and (C)
1,000,000 Earnout Shares, if, during calendar year 2024, the Buyer Trading Price
(as defined in the Business Combination Agreement) during the standard market
trading hours of a trading day is greater than or equal to $16.50 for any 20
trading days within any period of 30 consecutive trading days. The Seller will
also be entitled to receive, as additional consideration, and without any action
on behalf of the Company or the Company's stockholders, 20% of any cash proceeds
received by the Company from the exercise of the Company's outstanding warrants.
32
PIPE Subscription Agreement
In connection with the Business Combination, on December 31, 2021, the Company
entered into the PIPE Subscription Agreement with the PIPE Investor pursuant to
which the PIPE Investor will purchase ordinary shares of Forafric Global PLC in
a private placement following the Redomiciliation and prior to the Closing.
Pursuant to the PIPE Subscription Agreement, the PIPE Investor will purchase, at
a purchase price of $10.50 per share, that number of PIPE Shares that will be
equal to the lesser of (i) 4.99% of all issued and outstanding Ordinary Shares,
after taking into account the completion of the Business Combination and all
Ordinary Shares issued pursuant to the FAHL Bonds and other related subscription
agreements, if any, and (ii) 1,904,761 Ordinary Shares; accordingly, the maximum
aggregate amount to be paid by the PIPE Investor for the PIPE Shares is
approximately $20 million. The purpose of the sale of the PIPE Shares is to
raise additional capital for use in connection with the Business Combination.
The PIPE Closing will be contingent upon, and substantially concurrent with, the
Closing.
Convertible Bonds Offering
In connection with the Business Combination, between December 31, 2021 and
January 3, 2022, the Bond Investors subscribed for convertible bonds of FAHL in
an aggregate principal amount of $9.5 million and on January 19, 2022 an
additional bond investment was made in the principal amount of $2.5 million,
both in private offerings, and issued pursuant to a Bond Subscription Deed. The
FAHL Bonds are unsecured obligations of FAHL and are not transferable without
the consent of FAHL. FAHL currently intends to use the proceeds from the sale of
the FAHL Bonds for general working capital and/or capital expenditure
requirements.
Unless earlier converted or redeemed in accordance with the terms of the FAHL
Bonds, the FAHL Bonds will mature and be redeemed on June 15, 2026. Interest
shall accrue on the FAHL Bonds at a rate of 6% per annum and the Bond Investors
are entitled to certain customary information rights.
Pursuant to the current terms of the FAHL Bonds, upon consummation of the
Business Combination, the FAHL Bonds will automatically convert into ordinary
shares of Forafric Global PLC at a price per share that is a 10% discount to the
PIPE Investment, subject to certain adjustments. The number of Ordinary Shares
will be equal to the quotient that results from dividing the aggregate principal
amount of the respective FAHL Bond by $9.45, subject to certain adjustments.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities from inception through December 31, 2021 were
organizational activities and those necessary to prepare for the Initial Public
Offering, described below, and to search for a Business Combination and
activities in connection with the proposed acquisition of FAHL. We do not expect
to generate any operating revenues until after the completion of our initial
Business Combination. We expect to generate non-operating income in the form of
interest income on marketable securities held after the Initial Public Offering.
We expect that we will incur increased expenses as a result of being a public
company (for legal, financial reporting, accounting and auditing compliance), as
well as for due diligence expenses in connection with searching for, and
completing, a Business Combination.
For the year ended December 31, 2021, we had a net loss of $2,670,676, which
consisted of general and administrative expenses of $2,678,514, offset by
interest income of $7,838.
For the period from August 21, 2020 (inception) through December 31, 2020, we
had a net loss of $89,886, which consisted of formation and operating costs.
Liquidity and Capital Resources
On December 15, 2020, we consummated the Initial Public Offering of 11,500,000
Units, which included the full exercise by the underwriters of their
over-allotment option in the amount of 1,500,000 Units, at a price of $10.00 per
Unit, generating gross proceeds of $115,000,000. Simultaneously with the closing
of the Initial Public Offering, we consummated the sale of 4,188,889 Private
Warrants to the Sponsors at a price of $0.75 per Private Warrant and 100,833
Placement Units to the Sponsors at a price of $10.00 per Placement Units,
generating gross proceeds of $4,150,000.
Following the Initial Public Offering, the full exercise of the over-allotment
option, and the sale of the Private Securities, a total of $116,150,000 was
placed in the Trust Account. We incurred $6,541,841 in transaction costs,
including $2,300,000 of underwriting fees, $4,025,000 representing 402,500
shares of common stock issued, which the underwriters are entitled to receive
upon the consummation of a Business Combination (the "equity participation
shares") and $216,841 of other offering costs.
For the year ended December 31, 2021, cash used in operating activities was
$1,622,560. Net loss of $2,670,676 was affected by interest earned on marketable
securities held in the Trust Account of $7,838. Changes in operating assets and
liabilities provided $1,055,954 of cash for operating activities.
33
For the period from August 21, 2020 (inception) through December 31, 2020, cash
used in operating activities was $307,591. Net loss of $89,886 was affected by
changes in operating assets and liabilities, which used $217,705 of cash for
operating activities.
As of December 31, 2021, we had marketable securities held in the Trust Account
of $117,307,838. We intend to use substantially all of the funds held in the
Trust Account, including any amounts representing interest earned on the Trust
Account, which interest shall be net of taxes payable, to complete our Business
Combination. We may withdraw interest from the Trust Account to pay taxes and up
to $100,000 of dissolution expenses, if any. To the extent that our share
capital or debt is used, in whole or in part, as consideration to complete a
Business Combination, the remaining proceeds held in the Trust Account will be
used as working capital to finance the operations of the target business or
businesses, make other acquisitions and pursue our growth strategies.
As of December 31, 2021, we had cash of $29,508. We intend to use the funds held
outside the Trust Account primarily to evaluate target businesses, perform
business due diligence on prospective target businesses, travel to and from the
offices, plants or similar locations of prospective target businesses or their
representatives or owners, review corporate documents and material agreements of
prospective target businesses, structure, negotiate and complete a Business
Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, our Sponsors or an affiliate of our
Sponsors or certain of our officers and directors may, but are not obligated to,
loan us funds as may be required ("Working Capital Loans"). Such Working Capital
Loans would be evidenced by promissory notes. If we complete a Business
Combination, we may repay the notes 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 the
notes, but no proceeds from our Trust Account would be used for such repayment.
On January 11, 2021, we issued an unsecured promissory note (the "Note") to
Globis SPAC LLC that permits us to borrow from time to time up to $1,000,000
from Globis SPAC LLC or its assignees or successors. On various dates throughout
the year ended December 31, 2021, the note was amended to allow borrowings of up
to $5,000,000 and in January 2022, the Note was further amended to increase the
principal amount of the Note to $7,000,000. The Note is non-interest bearing and
payable upon the consummation of a Business Combination. As of December 31,
2021, the total amount outstanding under the Working Capital Loans was
$2,600,000.
We currently do not believe we will need to raise additional funds in order to
meet the expenditures required for operating our business. However, if our
estimate of the costs of undertaking in-depth due diligence and consummating a
Business Combination are less than the actual amount necessary to do so, we may
have insufficient funds available to operate our business prior to our initial
Business Combination. 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.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of December 31, 2021. 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.
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 an
affiliate of Globis SPAC LLC a monthly fee of $10,000 for office space,
secretarial, and administrative support services provided to the Company. We
began incurring these fees on December 15, 2020 and will continue to incur these
fees monthly until the earlier of the completion of a Business Combination and
the Company's liquidation.
The underwriters are entitled to receive 402,500 equity participation shares
upon the consummation of a Business Combination. The equity participation shares
have been placed in escrow until the consummation of a Business Combination. If
a Business Combination is not consummated, the equity participation shares will
be forfeited by the underwriters. The fair value of the equity participation
shares is estimated to be $4,025,000, based upon the offering price of the Units
of $10.00 per Unit.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
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:
34
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 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' equity section of our balance sheets.
We recognize changes in redemption value as they occur and adjust the carrying
value of redeemable common stock to equal the redemption value at the end of
each reporting period. Immediately upon the closing of the Initial Public
Offering, we recognized the accretion from initial book value to redemption
amount value of $3,666,841. Subsequently, we recognized accretion from adjusted
book value to redemption amount value of $1,150,000. The change in the carrying
value of redeemable common stock resulted in charges against additional paid-in
capital and accumulated deficit.
Net Income (Loss) Per Common Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share". Net income (loss) per share of common stock is computed by
dividing net income (loss) by the weighted average number of shares of common
stock outstanding for the period. Accretion associated with the redeemable
shares of common stock is excluded from earnings per share as the redemption
value approximates fair value.
The calculation of diluted income (loss) per share does not consider the effect
of the warrants issued in connection with the (i) Initial Public Offering, and
(ii) the Private Placement since the exercise of the warrants is contingent upon
the occurrence of future events. The warrants are exercisable to purchase
15,789,722 shares of common stock in the aggregate. As of December 31, 2021 and
2020, we did not have any other dilutive securities or other agreements that
could, potentially, be exercised or converted into shares of common stock and
then share in the earnings of the Company. As a result, diluted net loss per
share of common stock is the same as basic net loss per share of common stock
for the periods presented.
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. 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.
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