ITEM 1. BUSINESS
Introduction
We are a blank check company formed under the
laws of the State of Delaware on September 11, 2018. We were 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 businesses or entities, which
we refer to as a “target business.” Our initial business combination and value creation strategy is to identify, acquire and,
after our initial business combination, assist in the growth of a branded fast-moving consumer goods business, which we refer to as a
branded “FMCG” business. Our focus is on the alcoholic and non-alcoholic beverage and wellness sectors of the FMCG market.
In addition, we believe that there is an emerging opportunity within these sectors to target businesses that are focused on hemp-based
branded consumer goods. However, we are not limited to the branded FMCG industry and we may pursue a business combination opportunity
in any business or industry we choose and we may pursue a company with operations or opportunities outside of the United States.
On December 23, 2020, we consummated our IPO of
13,800,000 public units, which included the full exercise of the underwriters’ over-allotment option. Each public unit consists
of one public subunit and one-half of one public warrant, with each whole public warrant entitling the holder thereof to purchase one
share of common stock of the Company, par value $0.0001 per share, for $11.50 per share. Each public subunit consists of one share of
common stock and one-half of one public warrant. The public units were sold at a price of $10.00 per unit, generating gross proceeds to
the Company of $138,000,000.
Simultaneously with the closing of the IPO, we
completed the private placement of an aggregate of 539,000 private units to the Sponsor and EBC (470,000
private units to the Sponsor and 69,000 private units to EBC) at a purchase price of $10.00 per private unit, generating gross proceeds
to the Company of $5,390,000. The private units (and underlying securities) are identical to the public units (and underlying securities)
sold in the IPO, except as otherwise disclosed in our Registration Statements that became effective on December 21, 2020.
If we are unable to consummate an initial business
combination by December 23, 2021, 12 months from the closing of our IPO (or up to June 23, 2022, 18 months from the closing of our IPO,
if we extend the period of time to consummate a business combination), we will redeem 100% of the public subunits for a pro rata portion
of the trust account, equal to the aggregate amount then on deposit in the trust account including interest earned on the funds held in
the trust account and not previously released to us, divided by the number of then outstanding public subunits, subject to applicable
law and as further described herein. Our public stockholders will not be afforded an opportunity to vote on our extension of time to consummate
an initial business combination from 12 months to 18 months described above or redeem their subunits in connection with such extensions.
Our management team consists of seasoned professionals
who have experience spanning the FMCG industry, including beverage, wellness and hemp products, product development, sales, marketing
and distribution, mergers and acquisitions, corporate finance, corporate governance and compliance, legal and regulatory matters and investment
management. See “Item 10 Directors, Executive Officers and Corporate Governance” for additional information about our
directors and executive officers. Our management team will be supported by the investment banking team of Ackrell Capital, an affiliate
of our Chairman. We believe that Ackrell Capital’s industry expertise, transaction experience and relationships may provide us with
a substantial number of attractive potential business combination targets.
While we may pursue a business combination target
in any business, industry or geographical location, we intend to focus our search for businesses in the branded FMCG industry, including
businesses that are focused on hemp-based consumer goods. We will target businesses that are compliant with applicable laws and regulations
within the jurisdictions in which they are located or operate. We will not invest in, or consummate a business combination with, a target
business that we determine has been operating, or whose business plan is to operate, in violation of the U.S. Controlled Substances Act.
The past performance of our management team or
of their affiliates is not a guarantee either (i) that we will be able to identify a suitable candidate for our initial business
combination or (ii) of success with respect to any business combination we may consummate. You should not rely on the historical record
of our management team’s or their affiliates’ performance as indicative of our future performance.
We are an “emerging growth company,”
as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to 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 independent registered public accounting firm attestation requirements
of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports
and proxy statements and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder
approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result,
there may be a less active trading market for our securities and the prices of our securities may be more volatile.
In addition, Section 107 of the JOBS Act
also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption
of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits
of this extended transition period.
We will remain an emerging growth company until
the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public
offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be
a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as
of the prior June 30th and (2) the date on which we have issued more than $1 billion in non-convertible debt securities
during the prior three-year period.
Additionally, we are a “smaller reporting
company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain
reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will
remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our common stock held by
non-affiliates equals or exceeds $250 million as of the prior June 30, or (2) our annual revenues equaled or exceeded $100 million
during such completed fiscal year and the market value of our common stock held by non-affiliates equals or exceeds $700 million
as of the prior June 30.
The Branded Fast-Moving Consumer Goods and
Hemp Industries
The branded fast-moving consumer goods industry
is large and global. It consists of a variety of segments, each with their distinct characteristics. Often, a segment will have a number
of brands or companies that have achieved significant market share, with newcomers frequently entering the market. In order to continue
to experience growth, brands or companies often must enter new markets or introduce new products with novel features or ingredients. Examples
of branded FMCG segments with these characteristics include alcoholic and non-alcoholic beverages and wellness — some of the
largest categories in the branded FMCG industry. One such area of growth is the hemp industry, in which numerous mainstream branded FMCG
companies have made investments in, and acquisitions of, hemp-related companies.
Hemp is cannabis containing no more than 0.3%
tetrahydrocannabinol, or THC, the psychoactive compound responsible for the “high” or euphoric feeling commonly associated
with cannabis consumption. A cannabis plant can yield more than 100 different compounds known as “cannabinoids,” the two most
prevalent of which are typically THC and CBD, which produces a physical effect without the psychoactive effects associated with THC.
In 2018, the U.S. Congress passed the Agriculture
Improvement Act of 2018 (also known as the Farm Bill), which legalized a significant portion of the hemp industry. With the passage of
the Farm Bill, there has been a significant increase in the availability of hemp-derived products, including products containing CBD.
Hemp-derived CBD products are now legally available through mainstream distribution channels and retailers. A wide range of CBD-infused
products, including lotions, serums, balms, tinctures, shampoos, soaps and pet treats, can now be found online and at a variety of retailers,
such as supermarkets, cosmetic stores, beauty salons and pet supply stores. One segment of the hemp sector that continues to have market
uncertainty in the U.S. is the CBD-infused food and beverage market, as the U.S. Food & Drug Administration has asserted that the
sale of such products violates the U.S. Food, Drug, and Cosmetics Act. However, CBD-infused alcoholic and non-alcohol beverages are starting
to be marketed in Europe as the legal framework for hemp in Europe is more permissive than in the United States.
Our management team believes that hemp-based consumer
goods have the potential for mass consumer appeal around the world. Consumers are beginning to use hemp-based products to treat a variety
of medical conditions, including anxiety, insomnia, pain and inflammation. In aggregate, across all state medical hemp laws in the United
States, hemp is legally recognized as a form of therapy or medicine for more than 50 medical conditions. Similar to the alcohol and pharmaceutical
markets, we believe that the total addressable consumer market for hemp-based products comprises a significant portion of the global adult
population and will become an increasingly large and relevant consumer product segment.
Business Strategy
We believe that there are a range of target businesses
that could benefit from our industry knowledge, relationships, capital and public vehicle. Our strategy is to identify and complete our
initial business combination with a target operating in the branded FMCG industry. Our focus will be on the alcoholic and non-alcoholic
beverage and wellness sectors of the FMCG market. In addition, we believe that there is an emerging opportunity within these sectors to
target businesses that are focused on hemp-based branded consumer goods. While we intend to initially focus on potential opportunities
in the United States, the branded FMCG industry is global and we may pursue opportunities internationally. Notwithstanding the foregoing,
we will not invest in, nor consummate a business combination with, a target business that we determine has been operating, or whose business
plan is to operate, in violation of the U.S. Controlled Substances Act.
Our management team is in the process of identifying,
contacting, and evaluating potential target businesses in the pursuit of a possible business combination. In addition, we are communicating
the parameters of our search to our network of relationships and transaction sources to help us identify potential target businesses.
We intend to leverage our team’s collective experience in the branded FMCG and hemp industries and capital markets to successfully
complete a business combination, and then continue to support our target business with our industry relationships, insights and regulatory
knowledge, financial expertise and capital resources.
Competitive Strengths
We believe that our management team is well positioned
to identify attractive target businesses within the branded FMCG industry and to facilitate a successful business combination for the
following reasons:
Track Record and Transaction Flow within
the Branded FMCG Industry.
Our management team has a track record of successfully
identifying and acquiring brands, products and companies within the branded FMCG industry. Shannon Soqui, our Vice Chairman, and Jason
Roth, our Chief Executive Officer, are the current Chief Executive Officer and Chief Strategy Officer, respectively, of Next Frontier
Brands. Next Frontier Brands is an international provider of fast-moving consumer goods, including alcoholic and non-alcoholic beverages
and wellness products. NextFrontierBrand’s strategy is to acquire brands in both mature and emerging product categories within the
beverage and wellness segments of the branded FMCG industry. Our strategy is to identify targets operating in markets similar to those
in which Next Frontier Brands participates.
Extensive Network within the Hemp Industry.
Our management team has an extensive network throughout
the hemp industry, including traditional branded FMCG businesses already addressing this market. Michael K. Ackrell, our Chairman, is
the founder of Ackrell Capital, one of the few registered broker/dealers in the United States providing services to companies participating
in the hemp industry. Ackrell Capital provides M&A advisory and capital raising services to clients in the United States and internationally.
Ackrell Capital is a thought leader in the industry, publishing a variety of industry reports and analyses. Shannon Soqui, our Vice Chairman,
is the co-founder, Chief Executive Officer and Chairman of the board of directors of Next Frontier Brands. Next Frontier Brands is an
international provider of fast-moving consumer goods, including alcoholic and non-alcoholic beverages and hemp-based wellness products.
Prior to co-founding Next Frontier Brands, Mr. Soqui served as the head of U.S. cannabis investment banking at Canaccord Genuity, a leading
global cannabis investment bank. Jason Roth, our Chief Executive Officer, is the co-founder, the Chief Strategy Officer and a member of
the board of directors of Next Frontier Brands. Prior to co-founding Next Frontier Brands, Mr. Roth was the Chief Executive Officer and
Chairman of the board of directors of Mile High Labs International, which we believe was one of the world’s largest processors of
hemp-derived CBD concentrates in 2019. While at Mile High Labs International, Mr. Roth conducted business with numerous leading alcoholic
beverage companies and developed a large network of contacts in the beverage and wellness industries. Our contacts include corporate executives
at public and private FMCG and hemp companies, investment professionals at private equity firms and other financial sponsors and industry
research analysts, as well as lawyers and accountants serving the FMCG and hemp industries — any of whom could be a source of a
lead to a possible target business. Ackrell Capital may receive consulting, success or finder fees in connection with assisting us in
the consummation of our initial business combination.
Significant Prior SPAC Experience.
Our management team possesses a strong understanding
of the SPAC structure and market. Our Chief Operating Officer and President, Stephen Cannon, has served as a member of management for
five SPACs, five of which have completed initial public offerings and four of which have consummated initial business combinations, including
most recently Archimedes Tech SPAC Partners Co., which completed its initial public offering in March 2021, and Twelve Seas Investment
Company, which completed its initial public offering in June 2018 and its business combination in December 2019. Our Chief Financial Officer,
Long Long, has more than a decade of corporate finance experience and has served as the Chief Financial Officer of Archimedes Tech SPAC
Partners Co. and also oversaw the financial filings, daily operations and due diligence of business combination targets for Twelve Seas
Investment Company.
Less Regulatory Risk due to our Industry
Segment Focus.
While we may pursue a business combination target
in any industry or geographical location, we intend to focus our search for businesses in the branded FMCG industry, including businesses
that are focused on alcoholic and non-alcoholic beverages and wellness products. We will target businesses that are compliant with applicable
laws and regulations within the jurisdictions in which they are located or operate. We will not invest in, nor consummate a business combination
with, a target business that we determine has been operating, or whose business plan is to operate, in violation of the U.S. Controlled
Substances Act. Consequently, we believe that this strategy will reduce the legal and regulatory risks faced by our target businesses
and public stockholders after the business combination.
Benefits as a Public Company.
We believe that our structure will make us an
attractive business combination partner to a range of target businesses. A merger with us will offer a target business an alternative
process to a public listing rather than the traditional initial public offering process. We believe that target businesses may favor this
alternative given the challenges of a traditional initial public offering and our ability to offer greater certainty of execution. Once
a proposed business combination is approved by our stockholders and the transaction is consummated, the target business will have effectively
become public. A traditional initial public offering is always subject to the underwriters’ ability to complete the offering, due
to general market conditions, lack of investor interest or otherwise. Once public, we believe that the target business will have greater
access to capital and a public currency to use for potential acquisitions. In addition, having a public currency provides the target business
with an additional means of creating management incentives that may be better aligned with stockholders’ interests than it would
have as a private company. Being public can also augment a company’s profile among potential new customers and vendors and aid in
attracting talented management.
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 stockholder approval of a business combination, which
may delay the consummation of a transaction; and the existence of our outstanding warrants, which may represent a source of future dilution.
Strong Financial Position with Transaction
Flexibility.
With proceeds of approximately $139.4 million
initially held in trust and a public market for our securities, we can offer a target business a variety of financial options to facilitate
a business combination and capital to fund the future growth of its business and strengthen its balance sheet. Because we can consummate
a business combination using cash, debt, our share capital or a combination of the foregoing, we have the flexibility to tailor the form
of the consideration to be paid to the target business to address the needs of the parties.
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. We intend to utilize cash derived from the proceeds of
our IPO and the private placement, our capital stock, debt or a combination of these in effecting a business combination which has not
yet been identified. Accordingly, investors in our securities are investing without first having an opportunity to evaluate the specific
merits or risks of any one or more business combinations. 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.
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 Sponsor, initial stockholders, officers and
directors and their affiliates, including Ackrell Capital. 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 our Sponsor’s 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 our public
filings and know what types of businesses we are targeting. Additionally, Ackrell Capital may be engaged by a target company for M&A
services and make an introduction to us.
Our officers and directors 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 may also engage the services of professional firms or other individuals that
specialize in business acquisitions in which case 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 addition, we may pay consulting, success or finder fees
to our Sponsor, officers, directors, initial stockholders or their affiliates (including Ackrell Capital and its affiliates) in connection
with the consummation of our initial business combination. Our audit committee will review and approve all reimbursements and payments
made to our Sponsor, officers, directors or their respective affiliates, with any interested director abstaining from such review and
approval.
Selection of Target Business and Structuring of a Business Combination
Subject to 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 has virtually unrestricted flexibility in identifying
and selecting a prospective target business. 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:
|
●
|
Clear and Sustainable Competitive Advantages;
|
|
|
|
|
●
|
High Growth Potential and Cash Flow;
|
|
|
|
|
●
|
Experienced Management Teams;
|
|
|
|
|
●
|
Attractive Valuations;
|
|
|
|
|
●
|
Compliant with Laws;
|
|
|
|
|
●
|
Will Benefit from Being a Public Company;
|
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, although we
have no current intention to engage any such third parties.
The time and costs required to select and evaluate
a target business and to structure and complete the business combination cannot presently be ascertained with any degree of certainty.
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.
We may enter into a business combination with
a target business that is affiliated with any of our officers, directors or Sponsor. However, we would only 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, that the business combination is fair to our unaffiliated
stockholders from a financial point of view.
Fair Market Value of Target Business
Nasdaq listing rules require that 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 the taxes payable on the interest earned on the trust account) at the time of the execution of a definitive agreement
for our initial business combination. Notwithstanding the foregoing, if we are not then listed on Nasdaq for whatever reason, we would
no longer be required to meet the foregoing 80% fair market value test.
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.
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, with respect to the satisfaction of such criteria. Additionally, pursuant to Nasdaq rules, any initial business
combination must be approved by a majority of our independent directors.
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
Although this process may entail the simultaneous
acquisitions of several operating businesses and we may seek to effect a business combination with more than one target business, we expect
to complete our business combination with a single business. 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’
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’ 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 associated in senior management or advisory positions with us following a business combination,
it is unlikely that they will 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 could 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.
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 subunits, regardless of whether they vote for or against the proposed business combination or do not vote at
all, 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 subunits 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 all of his, her or its subunits rather than some pro rata portion of his, her or its subunits. The
decision as to whether we will seek stockholder approval of a proposed business combination or will allow stockholders to sell their subunits
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. If we decide to allow
our stockholders to sell their subunits to us in a tender offer, 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 either immediately prior to or
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 either immediately prior to or 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 12 months from the closing of our IPO (or up to 18 months from the closing of our IPO if we extend the period
of time to consummate a business combination) in order to be able to receive a pro rata share of the trust account.
Our Sponsor, initial stockholders, officers and
directors have agreed (1) to vote any shares of common stock owned by them in favor of any proposed business combination, (2) not to convert
any founder shares or subunits in connection with a stockholder vote to approve a proposed initial business combination and (3) not sell
any founder shares or subunits in any tender in connection with a proposed initial business combination.
None
of our officers, directors, Sponsor, initial stockholders or their affiliates had purchased or indicated any intention to purchase units,
subunits or warrants in our IPO or 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, initial stockholders 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, initial
stockholders and their affiliates will not make purchases of units, subunits or warrants 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 subunits, regardless of whether they vote for or against the proposed business
combination or do not vote at all, 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. Alternatively, we may provide
our public stockholders with the opportunity to sell their subunits 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.
Our Sponsor, initial stockholders and our officers
and directors will not have conversion rights with respect to any founder shares or subunits owned by them, directly or indirectly, whether
acquired prior to our IPO or purchased by them in the aftermarket. Additionally, the holders of the representative shares will not have
conversion rights with respect to the representative shares.
Furthermore, public stockholders who redeem or
tender their subunits for their pro rata share of the trust account will continue to have the right to exercise any warrants held by them
which are not included in a subunit, but will automatically forfeit the warrants included in the redeemed subunits. This is different
than other similarly structured blank check companies where a redeeming or tendering stockholder is able to keep any warrants he may still
hold, whether included in a unit or held separately. Common stock alone will not be entitled to receive the redemption amount. Accordingly,
investors may have a disincentive to exercise the redemption rights because they will automatically forfeit, without the receipt of any
additional consideration, the portion of the warrant included in the subunit.
We may require public holders of subunits, whether
they are a record holder or hold their subunits in “street name,” to either (i) tender their certificates to our transfer
agent or (ii) deliver their subunits 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 subunits or delivering them through the DWAC System. The transfer agent will typically
charge the tendering broker the fee and it would be up to the broker whether or not to pass this cost on to the holder. However, this
fee would be incurred regardless of whether or not we require holders seeking to exercise conversion rights. The need to deliver subunits
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 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.
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 subunits 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
our Registration Statements for further information on the risks of failing to comply with these requirements.
Any request to convert such subunits once made,
may be withdrawn at any time up to the vote on the proposed business combination or the expiration of the tender offer. Furthermore, if
a holder of a public subunit delivered his certificate in connection with an election of their conversion and subsequently decides prior
to the applicable date 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 subunits 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 subunits delivered by public holders.
Ability to Extend Time to Complete Business
Combination
If we anticipate that we may not be able to consummate
our initial business combination within 12 months from the closing of our IPO, we may, by resolution of our board if requested by our
Sponsor, extend the period of time to consummate a business combination up to two times, each by an additional three months (for a total
of up to 18 months from the closing of our IPO to complete a business combination), subject to the Sponsor depositing into the trust account
additional funds as set out below. Pursuant to the terms of our amended and restated certificate of incorporation and the trust agreement
entered between us and Continental Stock Transfer & Trust Company on December 23, 2020, in order for the time available for us to
consummate our initial business combination to be extended, our Sponsor or its affiliates or designees must deposit into the trust account
$1,380,000 ($0.10 per public subunit), on or prior to the date of the applicable deadline, for each of the available three month extensions
providing a total possible business combination period of 18 months, for a total payment of $2,760,000 ($0.20 per public subunit). Any
such payments would be made in the form of non-interest bearing loans. If we complete our initial business combination, we will, at the
option of our Sponsor, repay such loaned amounts out of the proceeds of the trust account released to us or convert a portion or all of
the total loan amount into units at a price of $10.00 per unit, which units will be identical to the private units. If we do not complete
a business combination, we will repay such loans only from funds held outside of the trust account. Furthermore, the letter agreement
with our initial stockholders contains a provision pursuant to which our Sponsor has agreed to waive its right to be repaid for such loans
to the extent there is insufficient funds held outside of the trust account in the event that we do not complete a business combination.
Our Sponsor and its affiliates or designees are not obligated to fund the trust account to extend the time for us to complete our initial
business combination.
Liquidation if No Business Combination
Our amended and restated certificate of incorporation
provides that we will have only 12 months from the closing of our IPO (or up to 18 months from the closing of our IPO if we extend the
period of time to consummate a business combination) to complete an initial business combination. If we have not completed an initial
business combination by such date, we will (i) cease all operations except for the purpose of winding up and (ii) as promptly as reasonably
possible but not more than ten business days thereafter, redeem 100% of the outstanding public subunits, at a per-share price, payable
in cash, equal to the aggregate amount then on deposit in the trust account, including any interest not previously released to us but
net of taxes payable, divided by the number of then outstanding public subunits, which redemption will completely extinguish public stockholders’
rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law. Public stockholders
will also forfeit the one-half of a warrant included in the subunits being redeemed. As promptly as reasonably possible following such
redemption, subject to the approval of our remaining stockholders and our board of directors, we will dissolve and liquidate, subject
to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
Our Sponsor, initial stockholders, officers and
directors have agreed that they will not propose any amendment to our amended and restated certificate of incorporation that would affect
our public stockholders’ ability to convert or sell their subunits to us in connection with a business combination as described
herein or affect the substance or timing of our obligation to redeem 100% of our public subunits if we do not complete a business combination
within 12 months from the closing of our IPO (or up to 18 months from the closing of our IPO if we extend the period of time to consummate
a business combination) unless we provide our public stockholders with the opportunity to convert their subunits upon such approval at
a per-subunit 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 subunits. This redemption
right shall apply in the event of the approval of any such amendment, whether proposed by our Sponsor, initial stockholders, executive
officers, directors 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
subunits 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. It is our intention to redeem our public
subunit as soon as reasonably possible following our 12th month (if we have not extended the period of time to consummate a
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.
Furthermore, if the pro rata portion of our trust
account distributed to our public stockholders upon the redemption of 100% of our public subunits 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.
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.
We are required to seek to have all third parties
(including any vendors or other entities we engage after our IPO) 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, UHY LLP, our independent registered
public accounting firm, and the underwriters of the offering, will not execute agreements with us waiving such claims to the monies held
in the trust account. Furthermore, there is no guarantee that other vendors, service providers and prospective target businesses will
execute such agreements. Nor is there any guarantee that, even if they execute such agreements with us, they will not seek recourse against
the trust account. Our Sponsor has agreed that it will be liable to ensure that the proceeds in the trust account are not reduced below
$10.10 per subunit 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, but we cannot assure you that it will be able to satisfy its indemnification obligations if
it is required to do so. We have not asked our Sponsor to reserve for such indemnification obligations, nor have we independently verified
whether our Sponsor has sufficient funds to satisfy its indemnity obligations and believe that our Sponsor’s only assets are securities
of our company. Therefore, we believe it is unlikely that our Sponsor will be able to satisfy its indemnification obligations if it is
required to do so. Additionally, the agreement our Sponsor entered into 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 our IPO against certain liabilities, including liabilities under the
Securities Act. As a result, if we liquidate, the per-subunit distribution from the trust account could be less than $10.10 due to claims
or potential claims of creditors.
We anticipate notifying the trustee of the trust
account to begin liquidating such assets promptly after the 12 month period (or up to the 18 month period if we extend the period of time
to consummate a business combination) from the closing of our IPO and anticipate it will take no more than 10 business days to effectuate
such distribution. The holders of the founder shares and private subunits have waived their rights to participate in any liquidation distribution
from the trust account with respect to such shares and subunits. There will be no distribution from the trust account with respect to
our warrants, 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, our Sponsor has contractually agreed to advance us the funds necessary to complete such
liquidation (currently anticipated to be no more than approximately $15,000) and has contractually 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 our IPO, 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-subunit redemption price would be $10.10. 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, if the
stockholders seek to have us convert or purchase their respective subunits upon a business combination which is actually completed by
us or upon certain amendments to our amended and restated certificate of incorporation prior to consummating an initial business combination.
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 $10.10 per subunit.
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 12 months from the closing of our IPO (or up to 18 months
from the closing of our IPO if we extend the period of time to consummate a 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.
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 us and our financial resources will be relatively limited
when contrasted with those of many of these competitors. While we believe that there may be numerous potential target businesses that
we could acquire with the net proceeds of our IPO, 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 subunits held by our public
stockholders may reduce the resources available to us for a business combination; and
|
|
●
|
our outstanding warrants, 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.
Facilities
We currently maintain our principal executive
offices at 2093 Philadelphia Pike, Claymont, DE 19703. The cost for this space is included in the $10,000 per-month fee that ACVT I, LLC,
an affiliate of our Chairman, charges us for general and administrative services commencing on December 21, 2020 pursuant to a letter
agreement between ACVT I, LLC and us. We consider our current office space adequate for our current operations.
Employees
We have three executive officers. 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 the company is in. Accordingly, once a suitable target business to acquire has been
located, management may 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
full time employees prior to the consummation of a business combination.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to include risk
factors in this Report. However, below is a partial list of material risks, uncertainties and other factors that could have a material
effect on the Company and its operations:
|
●
|
we are a blank check company with no revenue or basis to evaluate our ability
to select a suitable business target;
|
|
●
|
we may not be able to select an appropriate target business or businesses
and complete our initial business combination in the prescribed time frame;
|
|
●
|
our expectations around the performance of a prospective target business
or businesses may not be realized;
|
|
●
|
we may not be successful in retaining or recruiting required officers, key
employees or directors following our initial business combination;
|
|
●
|
our officers and directors may have difficulties allocating their time between
the Company and other businesses and may potentially have conflicts of interest with our business or in approving our initial business
combination;
|
|
●
|
we may not be able to obtain additional financing to complete our initial
business combination or reduce the number of stockholders requesting redemption;
|
|
●
|
we may issue our shares to investors in connection with our initial business
combination at a price that is less than the prevailing market price of our shares at that time;
|
|
●
|
our Sponsor, officers, directors and EBC may have a conflict of interest
in connection with our initial business combination;
|
|
●
|
you may not be given the opportunity to choose the initial business target
or to vote on the initial business combination;
|
|
●
|
trust account funds may not be protected against third party claims or bankruptcy;
|
|
●
|
an active market for our public securities’ may not develop and you
will have limited liquidity and trading;
|
|
●
|
the availability to us of funds from interest income on the trust account
balance may be insufficient to operate our business prior to the business combination; and
|
|
●
|
our financial performance following a business combination with an entity
may be negatively affected by their lack an established record of revenue, cash flows and experienced management.
|
We have identified a material weakness in our internal control
over financial reporting as of December 31, 2020. If we are unable to maintain an effective system of internal control over financial
reporting, we may not be able to accurately report our financial results in a timely manner.
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with GAAP. Our management is likewise required, on a quarterly
basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such
evaluation in those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements
will not be prevented or detected on a timely basis.
As described elsewhere in this Amendment No.1, we identified a material
weakness in our internal control over financial reporting relating to (i) our classification of a portion of public subunits (and including
the underlying common stock) subject to possible redemption in permanent equity rather than temporary equity and (ii) accounting of private
warrants and fair value of shares of representative shares. Specifically, our management has concluded that our control around the interpretation
and accounting for certain complex financial instruments, such as warrants, redeemable public subunits and representative shares, was
not effectively designed or maintained. This material weakness resulted in the restatement of our audited balance sheet as of December
23, 2020 and audited financial statements as of and for the year ended December 31, 2020. Additionally, a misstatement of the warrant
liability, public subunits, representative shares and related accounts and disclosures would result in a material misstatement of the
financial statements that would not be prevented or detected on a timely basis. As a result of this material weakness, our management
concluded that our internal control over financial reporting was not effective as of December 31, 2020.
Effective internal controls are necessary for us to provide reliable
financial reports and prevent fraud. We continue to evaluate steps to remediate the material weakness. These remediation measures may
be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects.
If we identify any new material weaknesses in the future, any such
newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could
result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain compliance
with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements,
investors may lose confidence in our financial reporting and our stock price may decline as a result. We cannot assure you that the measures
we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.
For a complete list of risks relating to our operations, see the section
titled “Risk Factors” contained in our Registration Statements.