PART
III
ITEM
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
and Executive Officers
Our
current directors and executive officers are as follows:
|
Name
|
|
Age
|
|
Position
|
|
Peter
Lee
|
|
43
|
|
President,
Chief Financial Officer, Secretary and Director
|
|
Richard
Sellers
|
|
49
|
|
Executive
Vice President of Mergers & Acquisitions
|
|
Mitchell
Baruchowitz
|
|
45
|
|
Non-Executive
Chairman of the Board
|
|
Jeffrey
Monat
|
|
41
|
|
Director
|
|
Andres
Nannetti
|
|
42
|
|
Director
|
Peter
Lee has served as our President since August 2019 and our Chief Financial Officer, Secretary and a member of our
board of directors since September 2019. Mr. Lee has spent more than 20 years as an investment professional in both public
markets and private equity. Since April 2018, Mr. Lee has been an independent investor and consultant for hedge funds. From
2011 to April 2018, he co-founded and was a Managing Partner at Sentinel Rock Capital, LLC, a long/short equity oriented
hedge fund. Prior to this, from 2009 to 2011, he was an Analyst and a Partner at Spring Point Capital, a long/short equity oriented
hedge fund. From 2007 to 2009, he was the sector head for financial services and retail industries at Blackstone Kailix, the long/short
equity hedge fund business of The Blackstone Group. From 2005 to 2007, he was an analyst at Tiger Management evaluating public
investments. Mr. Lee joined Tiger Management out of business school. Earlier, Mr. Lee focused on growth private equity
investing in financial services and financial technology companies as a senior associate at J.H Whitney & Company from 2000
to 2002 and an associate at Capital Z Partners from 1999 to 2000. Mr. Lee began his career in 1997 as an analyst at Morgan
Stanley Capital Partners, the private equity investment fund of Morgan Stanley. Mr. Lee received a B.S. in Business Administration
from the University of California at Berkeley Haas School of Business and an MBA from Stanford Graduate School of Business. We
believe Mr. Lee is well-qualified to serve as a member of the board of directors due to his business experience, including his
consulting experience and business contacts and relationships.
Richard
Sellers has served as our Executive Vice President of Mergers & Acquisitions since September 2019. Mr. Sellers
has been involved in the cannabis industry for over 20 years. Since January 2018, Mr. Sellers has served as the Vice President
of US Operations for Origin House (CSE: OH), a multinational, publicly traded company with cannabis assets throughout North America’s
cannabis market. In addition to his duties in operations at Origin House, he has been instrumental in identifying, evaluating,
negotiating, closing and transitioning multiple mergers and acquisitions. Previously, in January 2015, Mr. Sellers founded
Alta Supply, California’s first formal cannabis distribution company. In March 2016, he also founded KAYA Manufacturing,
one of the first California state licensed cannabis manufacturing companies. Kaya’s facility produces several cannabis products
including gourmet cannabis chocolate, gummies, premium vaporizers, and mouth sprays. Alta Supply and Kaya were acquired by Origin
House March 2018. From January 2010 to June 2019, Mr. Sellers was with Bhang Inc. (CSE: BHNG), a publicly traded company
he co-founded and served as its Senior Vice President of Business Development. Bhang has become one of the most widely distributed
cannabis brands in the world.
Mitchell
Baruchowitz has been a member of the board of directors since August 2019 and our non-executive Chairman of
the Board since September 2019. Mr. Baruchowitz has approximately 20 years of experience in the legal and finance fields.
He also has nine years of experience in the legal cannabis industry. Through his leadership of Merida Capital Partners and his
expertise in the diverse licensing regimes governing each state, Mr. Baruchowitz has been involved in over 100 cannabis transactions
with a notional value over $1 billion. Mr. Baruchowitz has served as the Managing Member of Merida Advisors, LLC and
the Managing Partner of Merida Capital Partners since September 2016. From April 2005 to March 2007, he served as the Associate
General Counsel and Chief Compliance Officer of MarketAxess, a publicly traded financial technology company. He was also the General
Counsel of investment banking boutique Pali Capital from October 2007 to May 2010. From May 2010 to October 2013, he served as
the General Counsel of ACGM, Inc. In March 2013, he cofounded Theraplant, LLC, where he architected the highest scoring application
in Connecticut’s highly selective licensing process. From October 2013 to October 2016, he served as the Head of Investment
Banking of CAVU Securities. In 2014, he cofounded Leafline Labs, LLC, which was one of only two Minnesota companies to win a license
to cultivate and dispense cannabis in extracted form. He formerly sat on the Board of Leafline Labs as well. In 2015, Mr. Baruchowitz
co-founded a Nevada cultivator that also holds interests in two dispensary licenses. In 2016, he founded Merida Capital Partners
and Grow West MD, a cultivator licensed in Maryland. He currently sits on the Boards of New Frontier Data, Simplifya, Mainstem,
Steep Hill Labs and Manna Molecular Sciences. Mr. Baruchowitz received a B.A. in History from Brandeis University and a JD
from Boston University School of Law. He is a member of the New York and Massachusetts Bars and held FINRA 7, 24,
63 and 79 licenses. We believe Mr. Baruchowitz is well qualified to serve on the board of directors due to his public and private
company experience and experience in the cannabis industry.
Jeffrey
Monat has been a member of the board of directors since August 2019. He has been investing in cannabis companies
since 2013, having made investments in cultivation and ancillary businesses. He has been with Merida since 2018 and is a partner
in all three of its funds, where he serves in a primary analytical role for the funds’ investments. Since 2018, Mr. Monat
has served as Chairman of the Board of Steep Hill Labs. From 2000 to 2002, he was with Goldman Sachs, where he advised clients
on M&A transactions, financial valuation, and corporate governance issues. He worked in the Goldman Sachs Principal Strategies
Group from 2002 to 2003, analyzing public-market opportunities for the firm’s proprietary investment fund. From 2003
to 2010, he was an investment analyst at Rockbay Capital, where he helped grow the firm to $1 billion in assets under management.
From 2010 to 2012, he was with FrontPoint Rockbay, an event-driven hedge fund in New York where he evaluated prospective
investments and helped build the firm’s investment analysis infrastructure. Mr. Monat also served as a Senior Analyst
at Seven Locks Capital, a long/short equity hedge fund from 2012 to 2016 and was a Senior Analyst at Sage Rock Capital, an event-driven hedge
fund based in New York from 2016 to 2018. Mr. Monat is treasurer and trustee of the Social Smarts Foundation, Inc., an after
school program that helps children with special needs improve social skills. Mr. Monat received a B.S. in Economics from
The Wharton School of the University of Pennsylvania. We believe Mr. Monat is well qualified to serve on the board of directors
due to his investment advisory experience and experience in the cannabis industry.
Andres
Nannetti has been a member of the board of directors since September 2019. Mr. Nannetti brings over twenty years
of domestic and international business leadership and experience as both a CEO of companies and private equity principal investor.
Since August 2018, Mr. Nannetti has served as Executive Chairman of Natuera Sarl, a Luxembourg-based global cannabis
contract development and manufacturing organization with its initial production operations in Colombia. Natuera is a 50/50 Joint
Venture between the Cronos Group, a publicly traded Toronto based leading global cannabinoid company whose main investor is Altria
and Monaco Investments, and an affiliate of Agroidea SAS, Colombia’s leading agricultural services provider with over 30
years of research, development and production operations. Since 2005, Mr. Nannetti has also served as Managing Director of
Leawood Investments, a privately held holding company whose direct and affiliated holdings include cannabis cultivation and manufacturing
of derivative products, real estate development, fresh cut flower growing, and agricultural services companies in Colombia, and
retail operations in the US. From 1999 to 2002, Mr. Nannetti was Co-founder and CEO of Rovia Inc., a Boston-based digital
rights management software provider that was subsequently acquired by Enchoice. Mr. Nannetti began his career in 1998 at
JP Morgan in the Latin America M&A and Morgan Capital Private Equity Groups. Mr. Nannetti received a BS in Economics
from the Massachusetts Institute of Technology and an MBA from Stanford Graduate School of Business. We believe Mr. Nannetti
is well qualified to serve on the board of directors due to his extensive private equity investment and operational experience
as well as his experience in the cannabis industry.
Our
board of directors is divided into three classes with only one class of directors being elected in each year and each class serving
a three-year term. The term of office of the first class of directors, consisting of Andres Nannetti, will expire at our
first annual meeting of stockholders. The term of office of the second class of directors, consisting of Mitchell Baruchowitz,
will expire at the second annual meeting. The term of office of the third class of directors, consisting of Jeffrey Monat and
Peter Lee, will expire at the third annual meeting. In accordance with Nasdaq corporate governance requirements, we are not required
to hold an annual meeting until one year after our first fiscal year end following our listing on Nasdaq. It is unlikely that
there will be an annual meeting of stockholders to elect new directors prior to the consummation of a business combination, in
which case all of the current directors will continue in office until at least the consummation of the business combination.
Director
Independence
Nasdaq
rules require that a majority of the board of directors of a company listed on Nasdaq must be composed of “independent directors.”
An “independent director” is defined generally as a person other than an officer or employee of the company or its
subsidiaries or any other individual having a relationship, which, in the opinion of the company’s board of directors, would
interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. We have
determined that Mitchell Baruchowitz, Jeffrey Monat and Andres Nannetti are independent directors under the Nasdaq listing
rules. Our independent directors hold regularly scheduled meetings at which only independent directors are present.
Any
affiliated transactions will be on terms no less favorable to us than could be obtained from independent parties. Our board of
directors will review and approve all affiliated transactions with any interested director abstaining from such review and approval.
Committees
of the Board of Directors
We
have three standing committees: an audit committee, a nominating committee, and a compensation committee. Each such committee
is composed of solely independent directors.
Audit
Committee
Effective
November 4, 2019, we established an audit committee of the board of directors, in accordance with Section 3(a)(58)(A) of the Exchange
Act, which consists of Mitchell Baruchowitz, Jeffrey Monat and Andres Nannetti, each of whom is an independent director under
Nasdaq’s listing standards. The audit committee’s duties, which are specified in our Audit Committee Charter, include,
but are not limited to:
|
|
●
|
reviewing
and discussing with management and the independent auditor the annual audited financial statements, and recommending to the
board whether the audited financial statements should be included in our Form 10-K;
|
|
|
●
|
discussing
with management and the independent auditor significant financial reporting issues and judgments made in connection with the
preparation of our financial statements;
|
|
|
●
|
discussing
with management major risk assessment and risk management policies;
|
|
|
●
|
monitoring
the independence of the independent auditor;
|
|
|
●
|
verifying
the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner
responsible for reviewing the audit as required by law;
|
|
|
●
|
reviewing
and approving all related-party transactions;
|
|
|
●
|
inquiring
and discussing with management our compliance with applicable laws and regulations;
|
|
|
●
|
pre-approving
all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms
of the services to be performed;
|
|
|
●
|
appointing
or replacing the independent auditor;
|
|
|
●
|
determining
the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management
and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related
work;
|
|
|
●
|
establishing
procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting
controls or reports which raise material issues regarding our financial statements or accounting policies; and
|
|
|
●
|
approving
reimbursement of expenses incurred by our management team in identifying potential target businesses.
|
During
the fiscal year ended December 31, 2019, Merida’s audit committee held one meeting. Each of Merida’s audit committee
members attended all of the meetings of the audit committee in fiscal year 2019.
Financial
Experts on Audit Committee
The
audit committee will at all times be composed exclusively of “independent directors” who are “financially literate”
as defined under Nasdaq’s listing standards. Nasdaq listing standards define “financially literate” as
being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement
and cash flow statement. In addition, we must certify to Nasdaq that the committee has, and will continue to have, at least one
member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other
comparable experience or background that results in the individual’s financial sophistication. The board of directors has
determined that Mr. Baruchowitz qualifies as an “audit committee financial expert,” as defined under rules and
regulations of the SEC.
Nominating
Committee
Effective
November 4, 2019, we established a nominating committee of the board of directors, which consists of Mitchell Baruchowitz, Andres
Nannetti and Jeffrey Monat, each of whom is an independent director under Nasdaq’s listing standards. The nominating committee
is responsible for overseeing the selection of persons to be nominated to serve on our board of directors. The nominating committee
considers persons identified by its members, management, shareholders, investment bankers and others.
During
the fiscal year ended December 31, 2019, Merida’s nominating committee did not hold any meetings.
Guidelines
for Selecting Director Nominees
The
guidelines for selecting nominees, which are specified in the Nominating Committee Charter, generally provide that persons to
be nominated:
|
|
●
|
should
have demonstrated notable or significant achievements in business, education or public service;
|
|
|
●
|
should
possess the requisite intelligence, education and experience to make a significant contribution to the board of directors
and bring a range of skills, diverse perspectives and backgrounds to its deliberations; and
|
|
|
●
|
should
have the highest ethical standards, a strong sense of professionalism and intense dedication to serving the interests
of the shareholders.
|
The
Nominating Committee will consider a number of qualifications relating to management and leadership experience, background and
integrity and professionalism in evaluating a person’s candidacy for membership on the board of directors. The nominating
committee may require certain skills or attributes, such as financial or accounting experience, to meet specific board needs that
arise from time to time and will also consider the overall experience and makeup of its members to obtain a broad and diverse
mix of board members. The nominating committee does not distinguish among nominees recommended by stockholders and other persons.
There
have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.
Compensation
Committee
Effective
November 4, 2019, we established a compensation committee of the board of directors, which consists of Mitchell Baruchowitz, Andres
Nannetti and Jeffrey Monat, each of whom is an independent director under Nasdaq’s listing standards. The compensation committee’s
duties, which are specified in our Compensation Committee Charter, include, but are not limited to:
|
|
●
|
reviewing
and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s compensation,
evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving
the remuneration (if any) of our Chief Executive Officer based on such evaluation;
|
|
|
●
|
reviewing
and approving the compensation of all of our other executive officers;
|
|
|
●
|
reviewing
our executive compensation policies and plans;
|
|
|
●
|
implementing
and administering our incentive compensation equity-based remuneration plans;
|
|
|
●
|
assisting
management in complying with our proxy statement and annual report disclosure requirements;
|
|
|
●
|
approving
all special perquisites, special cash payments and other special compensation and benefit arrangements for our executive
officers and employees;
|
|
|
●
|
if
required, producing a report on executive compensation to be included in our annual proxy statement; and
|
|
|
●
|
reviewing,
evaluating, and recommending changes, if appropriate, to the remuneration for directors.
|
Notwithstanding
the foregoing, as indicated below, other than the $5,000 per month administrative fee, no compensation of any kind, including
finders, consulting or other similar fees, will be paid to any of our existing stockholders, including our directors, or any of
their respective affiliates, prior to, or for any services they render in order to effectuate, the consummation of a business
combination. Accordingly, it is likely that prior to the consummation of an initial business combination, the compensation committee
will only be responsible for the review and recommendation of any compensation arrangements to be entered into in connection with
such initial business combination.
During
the fiscal year ended December 31, 2019, Merida’s compensation committee did not hold any meetings.
Code
of Ethics
Effective
November 4, 2019, we adopted a code of ethics that applies to all of our executive officers, directors, and employees. The code
of ethics codifies the business and ethical principles that govern all aspects of our business. We will provide, without charge,
upon request, copies of our code of ethics. Requests for copies of our code of ethics should be sent in writing to 641 Lexington
Avenue, 18th Floor, New York, NY 10022.
ITEM
11. EXECUTIVE COMPENSATION
Executive
Compensation
No
executive officer has received any cash compensation for services rendered to us. Commencing on the date of this prospectus through
the acquisition of a target business, we will pay Merida Manager III LLC, an affiliate of our Sponsor, an aggregate fee of $5,000
per month for providing us with office space and certain office and secretarial services. However, this arrangement is solely
for our benefit and is not intended to provide our officers or directors compensation in lieu of a salary.
Other
than the $5,000 per month administrative fee, the payment of consulting, success or finder fees to our Sponsor, officers, directors,
initial stockholders or their affiliates in connection with the consummation of our initial business combination and the repayment
of the up to $150,000 of loans that may be made by our Sponsor to us, no compensation or fees of any kind, including
finder’s, consulting fees and other similar fees, will be paid to our Sponsor, initial stockholders, special advisors, members
of our management team or their respective affiliates, for services rendered prior to or in connection with the consummation of
our initial business combination (regardless of the type of transaction that it is). However, they will receive reimbursement
for any out-of-pocket expenses incurred by them in connection with activities on our behalf, such as identifying potential
target businesses, performing business due diligence on suitable target businesses and business combinations as well as traveling
to and from the offices, plants or similar locations of prospective target businesses to examine their operations. There is no
limit on the amount of out-of-pocket expenses reimbursable by us.
After
our initial business combination, members of our management team who remain with us may be paid consulting, management or other
fees from the combined company with any and all amounts being fully disclosed to stockholders, to the extent then known, in the
proxy solicitation materials furnished to our stockholders. However, the amount of such compensation may not be known at the time
of the stockholder meeting held to consider our initial business combination, as it will be up to the directors of the post-combination business
to determine executive and director compensation. In this event, such compensation will be publicly disclosed at the time of its
determination in a Current Report on Form 8-K or a periodic report, as required by the SEC.
Since
our formation, we have not granted any stock options or stock appreciation rights or any other awards under long-term incentive
plans to any of our executive officers or directors.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The
following table sets forth information regarding the beneficial ownership of our common stock by:
|
|
●
|
each
person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;
|
|
|
●
|
each
of our officers and directors; and
|
|
|
●
|
all
of our officers and directors as a group.
|
Unless
otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all
shares of common stock beneficially owned by them. The following table does not reflect record of beneficial ownership of the
warrants included in the units offered in the IPO or the Private Units as the warrants are not exercisable within 60 days of the
date hereof.
|
|
|
Amount and
|
|
|
Approximate
|
|
|
|
|
Nature of
|
|
|
Percentage of
|
|
|
|
|
Beneficial
|
|
|
Outstanding
|
|
|
Name and Address of Beneficial Owner(1)
|
|
Ownership
|
|
|
Shares
|
|
|
Peter Lee(2)
|
|
|
3,318,262
|
|
|
|
19.99
|
%
|
|
Richard Sellers
|
|
|
0
|
|
|
|
0.0
|
%
|
|
Mitchell Baruchowitz(2)
|
|
|
3,318,262
|
|
|
|
19.99
|
%
|
|
Jeffrey Monat(2)
|
|
|
3,318,262
|
|
|
|
19.99
|
%
|
|
Andres Nannetti(2)
|
|
|
3,318,262
|
|
|
|
19.99
|
%
|
|
Merida Holdings, LLC
|
|
|
3,318,262
|
|
|
|
19.99
|
%
|
|
All directors and executive officers as a group (seven individuals)
|
|
|
3,318,262
|
|
|
|
19.99
|
%
|
|
Linden Advisors(3)
|
|
|
1,195,100
|
|
|
|
7.2
|
%
|
|
*
|
Less
than 1%.
|
|
(1)
|
Unless
otherwise indicated, the business address of each of the individuals is 135 E. 57th St., 18th Floor, New York, NY 10022.
|
|
(2)
|
Represents
securities held by Merida Holdings, LLC, of which each of Messrs. Lee, Baruchowitz, Monat and Nannetti is a managing member.
Each individual has one vote, and the approval of three of the four managing members is required for approval of an action
of the entity. Under the so-called “rule of three”, if voting and dispositive decisions regarding an entity’s
securities are made by three or more individuals, and a voting or dispositive decision requires the approval of a majority
of those individuals, then none of the individuals is deemed a beneficial owner of the entity’s securities. Based on
the foregoing, no individual of the committee exercises voting or dipositive control over any of the securities held by such
entity, even those in which he directly owns a pecuniary interest. Accordingly, none of them will be deemed to have or share
beneficial ownership of such shares.
|
|
(3)
|
Represents
shares beneficially held by Linden Advisors and Siu Min (Joe) Wong. This amount consists of 1,085,053 shares held
by Linden Capital and 110,047 shares held by separately managed accounts. Based on information contained in a Schedule 13G
filed with the Securities and Exchange Commission on January 14, 2020.
|
All
of the founders’ shares outstanding prior to the IPO have been placed in escrow with Continental Stock Transfer & Trust
Company, as escrow agent, until (i) with respect to 50% of such shares, the earlier of one year after the date of the consummation
of our initial business combination and the date on which the closing price of our common stock equals or exceeds $12.50 per share
(as adjusted for share splits, share dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading
day period commencing after our initial business combination and (ii) with respect to the remaining 50% of such shares, one year
after the date of the consummation of our initial business combination, or earlier if, subsequent to our initial business combination,
we consummate a liquidation, merger, stock exchange or other similar transaction which results in all of our stockholders having
the right to exchange their shares of common stock for cash, securities or other property.
During
the escrow period, the holders of these shares will not be able to sell or transfer their securities except for transfers, assignments
or sales (i) among our initial stockholders or to our initial stockholders’ members, officers, directors, consultants or
their affiliates, (ii) to a holder’s stockholders or members upon its liquidation, (iii) by bona fide gift to a member of
the holder’s immediate family or to a trust, the beneficiary of which is the holder or a member of the holder’s immediate
family, for estate planning purposes, (iv) by virtue of the laws of descent and distribution upon death, (v) pursuant to a qualified
domestic relations order, (vi) to us for no value for cancellation in connection with the consummation of our initial business
combination, or (vii) in connection with the consummation of a business combination at prices no greater than the price at which
the shares were originally purchased, in each case (except for clause (vi) or with our prior consent) where the transferee agrees
to the terms of the escrow agreement and to be bound by these transfer restrictions, but will retain all other rights as our stockholders,
including, without limitation, the right to vote their shares of common stock and the right to receive cash dividends, if declared.
If dividends are declared and payable in shares of common stock, such dividends will also be placed in escrow. If we are unable
to effect a business combination and liquidate, there will be no liquidation distribution with respect to the founders’
shares.
Our
executive officers and our Sponsor are our “promoters,” as that term is defined under the federal securities laws.
Equity
Compensation Plans
As
of December 31, 2019, we had no compensation plans (including individual compensation arrangements) under which equity securities
of the registrant were authorized for issuance.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
For
a complete discussion regarding certain relationships and related transactions, see the section titled “Certain Transactions”
contained in our prospectus dated November 4, 2019, incorporated by reference herein.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The
following is a summary of fees paid or to be paid to Marcum LLP, or Marcum, for services rendered.
Audit
Fees. Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements
and services that are normally provided by Marcum in connection with regulatory filings. The aggregate fees billed by Marcum for
professional services rendered for the audit of our annual financial statements, review of the financial information included
in our Forms 10-Q for the respective periods and other required filings with the SEC for the period from June 20, 2019 (inception)
through December 31, 2019 totaled $112,345. The above amounts include interim procedures and audit fees, as well as attendance
at audit committee meetings.
Audit-Related
Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance
of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include
attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting
standards. We did not pay Marcum for consultations concerning financial accounting and reporting standards for the period from
June 20, 2019 (inception) through December 31, 2019.
Tax
Fees. We did not pay Marcum for tax planning and tax advice for the period from June 20, 2019 (inception) through December
31, 2019.
All
Other Fees. We did not pay Marcum for other services for the period from June 20, 2019 (inception) through December 31, 2019.
Pre-Approval
Policy
Our
audit committee was formed upon the consummation of our IPO. As a result, the audit committee did not pre-approve all of the foregoing
services, although any services rendered prior to the formation of our audit committee were approved by our board of directors.
Since the formation of our audit committee, and on a going-forward basis, the audit committee has and will pre-approve all auditing
services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject
to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior
to the completion of the audit).
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2019
NOTE
1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Merida
Merger Corp. I (the “Company”) was incorporated in Delaware on June 20, 2019. The Company was formed for the purpose
of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business
combination with one or more businesses or entities (the “Business Combination”).
Although
the Company is not limited to a particular industry or sector for purposes of consummating a Business Combination, the Company
intends to focus its search on companies in the cannabis industry. The Company is an early stage and emerging growth company and,
as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As
of December 31, 2019, the Company had not commenced any operations. All activity for the period from June 20, 2019 (inception)
through December 31, 2019 relates to the Company’s formation, the IPO (“IPO”), which is described below, and
identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the
completion of a Business Combination, at the earliest. The Company generates non-operating income in the form of interest income
from the proceeds derived from the IPO.
The
registration statements for the Company’s IPO were declared effective on November 4, 2019. On November 7, 2019, the Company
consummated the IPO of 12,000,000 units (the “Units” and, with respect to the shares of common stock included in the
Units sold, the “Public Shares”), generating gross proceeds of $120,000,000, which is described in Note 3.
Simultaneously
with the closing of the IPO, the Company consummated the sale of 3,750,000 warrants (the “Private Warrants”) at a
price of $1.00 per Private Warrant in a private placement to Merida Holdings, LLC and EarlyBirdCapital, Inc. (“EarlyBirdCapital”),
generating gross proceeds of $3,750,000, which is described in Note 4.
Following
the closing of the IPO on November 7, 2019, an amount of $120,000,000 ($10.00 per Unit) from the net proceeds of the sale of the
Units in the IPO and the sale of the Private Warrants was placed in a trust account (the “Trust Account”) and invested
in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity
of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the
Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of:
(i) the completion of a Business Combination or (ii) the distribution of the Trust Account to the Company’s stockholders,
as described below.
On
November 12, 2019, the underwriters notified the Company of their intention to partially exercise their over-allotment option
on November 13, 2019. As such, on November 13, 2019 the Company consummated the sale of an additional 1,001,552 Units, at $10.00
per Unit, and the sale of an additional 200,311 Private Warrants, at $1.00 per Private Warrant, generating total gross proceeds
of $10,215,831. A total of $10,015,520 of the net proceeds was deposited into the Trust Account, bringing the aggregate proceeds
held in the Trust Account to $130,015,520.
MERIDA
MERGER CORP. I
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2019
Transaction
costs amounted to $3,412,939 consisting of $2,600,311 of underwriting fees and $812,628 of other offering costs. In addition,
as of December 31, 2019, there was $362,570 of cash held outside of the Trust Account and available for working capital purposes.
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the IPO and the
sale of the Private Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating
a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. The
Company must complete a Business Combination having an aggregate fair market value of at least 80% of the assets held in the Trust
Account (as defined below) (excluding taxes payable on income earned on the Trust Account) at the time of the agreement to enter
into an initial Business Combination. The Company will only complete a 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 1940, as amended
(the “Investment Company Act”). Upon the closing of the IPO, management has agreed that an amount equal to at least
$10.00 per Unit sold in the IPO, including the proceeds from the sale of the Private Warrants, will be held in a trust account
(“Trust Account”), located in the United States and invested only in U.S. government securities, within the meaning
set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 180 days or less or in any open-ended investment
company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment
Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution
of the Trust Account, as described below.
The
Company will provide its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity
to redeem all or a portion of their Public Shares upon the completion of a Business Combination in connection with a stockholder
meeting called to approve the Business Combination. The public stockholders will be entitled to redeem their Public Shares for
a pro rata portion of the amount then in the Trust Account (initially $10.00 per Public Share, plus any pro rata interest earned
on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations and up to $250,000
per 12-month period for working capital needs). There will be no redemption rights upon the completion of a Business Combination
with respect to the Company’s warrants. The Company will proceed with a Business Combination if the Company has net tangible
assets of at least $5,000,001 upon such consummation of a Business Combination and a majority of the shares voted are voted in
favor of the Business Combination. The Company will, pursuant to its Amended and Restated Certificate of Incorporation (the “Amended
and Restated Certificate of Incorporation”), offer to redeem shares in conjunction with a proxy solicitation pursuant to
the proxy rules. The Company’s Sponsor and EarlyBirdCapital have agreed to vote their Founder Shares (as defined in Note
5) and any Public Shares purchased during or after the IPO in favor of approving a Business Combination and not to convert any
shares in connection with a stockholder vote to approve a Business Combination. Additionally, each public stockholder may elect
to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction or don’t vote at
all.
MERIDA
MERGER CORP. I
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2019
The
Sponsor has agreed (a) to waive its redemption rights with respect to the Founder Shares and any Public Shares held by it in connection
with the completion of a Business Combination, (b) to waive its rights to liquidating distributions from the Trust Account with
respect to the Founder Shares if the Company fails to consummate a Business Combination, and (c) not to propose an amendment to
the Amended and Restated Certificate of Incorporation that would affect a public stockholders’ ability to convert their
shares in connection with a Business Combination or affect the substance or timing of the Company’s obligation to redeem
100% of its Public Shares if the Company does not complete a Business Combination, unless the Company provides the public stockholders
with the opportunity to redeem their Public Shares in conjunction with any such amendment.
The
Company will have until November 7, 2021 to consummate a Business Combination (the “Combination Period”). If the Company
is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations except for
the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the
Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including
interest earned on the funds held in the Trust Account and not previously released to the Company, divided by the number of then
outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including
the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably
possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s
board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide
for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions
with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination
within the Combination Period.
In
order to protect the amounts held in the Trust Account, Merida Manager III LLC, the general partner of the Sponsor, has agreed
to be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company,
or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount
of funds in the Trust Account to below $10.00 per Public Share, except as to any claims by a third party who executed a valid
and enforceable agreement with the Company waiving any right, title, interest or claim of any kind they may have in or to any
monies held in the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of IPO against
certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover,
in the event that an executed waiver is deemed to be unenforceable against a third party, Merida Manager III LLC will not be responsible
to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that Merida Manager
III LLC will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers
(except the Company’s independent registered public accounting firm), prospective target businesses or other entities with
which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in
or to monies held in the Trust Account.
MERIDA
MERGER CORP. I
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2019
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation
The
accompanying financial statements are presented in conformity with accounting principles generally accepted in the United States
of America (“GAAP”) and pursuant to the rules and regulations of the SEC.
Emerging
growth company
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart
Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to,
not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of
the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements,
and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval
of any golden parachute payments not previously approved.
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial
accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared
effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised
financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and
comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The
Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and
it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the
new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s
financial statements with another public company which is neither an emerging growth company nor an emerging growth company which
has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting
standards used.
Use
of estimates
The
preparation of the financial statements in conformity with GAAP requires the Company’s management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect
of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered
in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual
results could differ significantly from those estimates.
MERIDA
MERGER CORP. I
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2019
Cash
and cash equivalents
The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
The Company did not have any cash equivalents as of December 31, 2019.
Marketable
securities held in Trust Account
At
December 31, 2019, the assets held in the Trust Account were substantially held in U.S. Treasury Bills.
Common
stock subject to possible redemption
The
Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification
(“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption
is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common
stock that features redemption rights that is either within the control of the holder or subject to redemption upon the occurrence
of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common
stock is classified as stockholders’ equity. The Company’s common stock features certain redemption rights that are
considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, common
stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’
equity section of the Company’s balance sheet.
Income
taxes
The
Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred
tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial
statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized.
ASC
740 prescribes a recognition threshold and a measurement attribute for the financial statements recognition and measurement of
tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more
likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties
related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for
interest and penalties as of December 31, 2019. The Company is currently not aware of any issues under review that could result
in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by
major taxing authorities since inception.
MERIDA
MERGER CORP. I
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2019
Net
loss per common share
Net
loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period.
The Company applies the two-class method in calculating earnings per share. Shares of common stock subject to possible redemption
at December 31, 2019, which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation
of basic loss per share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings.
The Company has not considered the effect of warrants to purchase 10,451,087 shares of common stock that were sold in the IPO
and the private placement in the calculation of diluted loss per share, since the exercise of the warrants is contingent upon
the occurrence of future events. As a result, diluted loss per share is the same as basic loss per share for the period presented.
Reconciliation
of net loss per common share
The
Company’s net income is adjusted for the portion of income that is attributable to common stock subject to possible redemption,
as these shares only participate in the earnings of the Trust Account and not the income and losses of the Company. Accordingly,
basic and diluted loss per common share is calculated as follows:
|
|
|
For the
Period from
June 20,
2019
(inception)
through
|
|
|
|
December 31,
2019
|
|
Net income
|
|
$
|
101,502
|
|
|
Less: Income attributable to shares subject to redemption
|
|
|
(175,486
|
)
|
|
Adjusted net loss
|
|
$
|
(73,984
|
)
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
3,305,465
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.02
|
)
|
MERIDA
MERGER CORP. I
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2019
Concentration
of credit risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution,
which, at times may exceed the Federal Depository Insurance Coverage of $250,000. At December 31, 2019, the Company has not experienced
losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Fair
value of financial instruments
The
fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair
Value Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying balance sheet, primarily
due to their short-term nature.
Recently
issued accounting standards
Management
does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have
a material effect on the Company’s financial statements.
NOTE
3. INITIAL PUBLIC OFFERING
Pursuant
to the IPO, the Company sold 13,001,552 Units at a price of $10.00 per Unit, inclusive of 1,001,552 Units sold to the underwriters
on November 13, 2019 upon the underwriters’ election to partially exercise their over-allotment option. Each Unit consists
of one share of common stock and one-half of one warrant (“Public Warrant”). Each whole Public Warrant entitles the
holder to purchase one share of common stock at a price of $11.50 per share, subject to adjustment (see Note 7).
NOTE
4. PRIVATE PLACEMENT
Simultaneously
with the closing of the IPO, Merida Holdings, LLC and EarlyBirdCapital purchased an aggregate of 3,750,000 Private Warrants at
a price of $1.00 per Private Warrant for an aggregate purchase price of $3,750,000, in a private placement that occurred simultaneously
with the closing of the IPO. On November 13, 2019, in connection with the underwriters’ election to partially exercise their
over-allotment option, the Company sold an additional aggregate of 200,311 Private Warrants to Merida Holdings, LLC and EarlyBirdCapital,
at a price of $1.00 per Private Warrant, generating gross proceeds of $200,311. Each whole Private Warrant is exercisable to purchase
one share of common stock at an exercise price of $11.50 per share. The proceeds from the Private Warrants were added to the proceeds
from the IPO held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period,
the proceeds from the sale of the Private Warrants will be used to fund the redemption of the Public Shares (subject to the requirements
of applicable law), and the Private Warrants and all underlying securities will expire worthless.
MERIDA
MERGER CORP. I
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2019
NOTE
5. RELATED PARTY TRANSACTION
Founder
Shares
In
August 2019, the Sponsor purchased 2,875,000 shares (the “Founder Shares”) of the Company’s common stock for
an aggregate price of $25,000. On November 4, 2019, the Company effected a stock dividend of 0.2 shares for each share outstanding,
resulting in an aggregate of 3,450,000 Founder Shares being held by the Sponsor. All share and per-share amounts have been retroactively
restated to reflect the stock dividend. The Founder Shares included an aggregate of up to 199,612 shares that were subject to
forfeiture by the Sponsor following the underwriter’s election to partially exercise its over-allotment option. The underwriters’
remaining over-allotment option expired unexercised and, as a result, 199,612 Founder Shares were forfeited and 250,388 Founder
Shares are no longer subject to forfeiture, resulting in an aggregate of 3,250,388 Founder Share shares outstanding as of December
31, 2019.
The
Sponsor has agreed, subject to certain limited exceptions, not to transfer, assign or sell any of the Founder Shares until, with
respect to 50% of the Founder Shares, the earlier of one year after the consummation of a Business Combination and the date on
which the closing price of the common stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends,
reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period commencing after a Business
Combination and, with respect to the remaining 50% of the Founder Shares, until the one year after the consummation of a Business
Combination, or earlier, in either case, if, subsequent to a Business Combination, the Company completes a liquidation, merger,
stock exchange or other similar transaction which results in all of the Company’s stockholders having the right to exchange
their shares of common stock for cash, securities or other property.
Advances
— Related Party
The
Sponsor advanced the Company an aggregate of $162,500 to cover expenses related to the IPO. The advances were non-interest bearing
and due on demand. Outstanding advances amounting to $162,500 were repaid on November 14, 2019.
In
anticipation of the underwriters’ election to fully exercise their over-allotment option, the Sponsor advanced the Company
an additional $41,458 to cover the purchase of the additional Private Warrants. At December 31, 2019, advances of $16,458 were
outstanding and due on demand.
Promissory
Note — Related Party
On
August 6, 2019, the Company issued an unsecured promissory note to the Sponsor (the “Promissory Note”), pursuant to
which the Company borrowed an aggregate principal amount of $100,569 under the Promissory Note. The Promissory Note was non-interest
bearing and payable on the earlier of (i) June 30, 2020, (ii) the consummation of the IPO or (iii) the date on which the Company
determined not to proceed with the IPO. As of December 31, 2019, the Company repaid $100,230 of amounts owed under the Promissory
Note and $339 remained outstanding under the Promissory Note at December 31, 2019.
MERIDA
MERGER CORP. I
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2019
Related
Party Loans
In
addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor, or certain of the Company’s
officers and directors or their affiliates may, but are not obligated to, loan the Company funds as may be required (“Working
Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out
of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of
funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of
proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be
used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been
determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation
of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans
may be converted into warrants of the post Business Combination entity at a price of $1.00 per warrant. The warrants would be
identical to the Private Warrants.
Administrative
Support Agreement
The
Company entered into an agreement on November 4, 2019, as amended on November 26, 2019, whereby, commencing on November 4, 2019
through the earlier of the Company’s consummation of a Business Combination and its liquidation, the Company will pay Merida
Manager III LLC a total of $5,000 per month for office space, utilities and secretarial and administrative support. For the period
from June 20, 2019 (inception) through December 31, 2019, the Company incurred $5,000 in fees for these services, of which such
fees are included in accrued expenses in the accompanying balance sheet as of December 31, 2019.
NOTE
6. COMMITMENTS
Registration
Rights
Pursuant
to a registration rights agreement entered into on November 4, 2019, the holders of the Founder Shares, Representative Shares,
Private Warrants, and any warrants that may be issued in payment of Working Capital Loans (and all underlying securities) are
entitled to registration rights. The holders of the majority of these securities are entitled to make up to two demands that the
Company register such securities. The holders of the majority of the Founder Shares can elect to exercise these registration rights
at any time commencing three months prior to the date on which the Founder Shares are to be released from escrow. The holders
of a majority of the Representative Shares, Private Warrants or warrants issued in payment of Working Capital Loans made to the
Company (or underlying securities) can elect to exercise these registration rights at any time commencing after the Company consummates
a Business Combination. Notwithstanding anything to the contrary, EarlyBirdCapital may only make a demand on one occasion and
only during the five-year period beginning on the effective date of the IPO. In addition, the holders have certain “piggy-back”
registration rights with respect to registration statements filed subsequent to the consummation of a Business Combination; provided,
however, that EarlyBirdCapital may participate in a “piggy-back” registration only during the seven-year period beginning
on the effective date of the IPO. The Company will bear the expenses incurred in connection with the filing of any such registration
statements.
MERIDA
MERGER CORP. I
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2019
Underwriting
Agreement
The
Company granted the underwriters a 45-day to purchase up to 1,800,000 additional Units to cover over-allotments, if any, at the
IPO price less the underwriting discounts and commissions. On November 13, 2019, the underwriters partially exercised their over-allotment
option to purchase an additional 1,001,552 Units at $10.00 per Unit, leaving 798,448 Units available for a purchase price of $10.00
per Unit.
Business
Combination Marketing Agreement
The
Company has engaged EarlyBirdCapital as an advisor in connection with a Business Combination to assist the Company in holding
meetings with its stockholders to discuss the potential Business Combination and the target business’ attributes, introduce
the Company to potential investors that are interested in purchasing the Company’s securities in connection with a Business
Combination, assist the Company in obtaining stockholder approval for the Business Combination and assist the Company with its
press releases and public filings in connection with the Business Combination. The Company will pay EarlyBirdCapital a cash fee
for such services upon the consummation of a Business Combination in an amount equal to 3.5% of the gross proceeds of IPO, or
an aggregate of $4,550,543 (exclusive of any applicable finders’ fees which might become payable); provided that up to 30%
of the fee may be allocated at the Company’s sole discretion to other FINRA members that assist the Company in identifying
and consummating a Business Combination.
NOTE
7. STOCKHOLDERS’ EQUITY
Preferred
Stock — The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share
with such designation, rights and preferences as may be determined from time to time by the Company’s board of directors.
At December 31, 2019, there were no shares of preferred stock issued or outstanding.
Common
Stock — The Company is authorized to issue 50,000,000 shares of common stock with a par value of $0.0001 per share.
At December 31, 2019, there were 3,821,463 shares of common stock issued and outstanding, excluding 12,550,477 shares of common
stock subject to possible redemption.
Warrants
— Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise
of the Public Warrants. The Public Warrants will become exercisable on the later of (a) 30 days after the completion of a Business
Combination or (b) 12 months from the closing of the IPO. No warrants will be exercisable for cash unless the Company has an effective
and current registration statement covering the shares of common stock issuable upon exercise of the warrants and a current prospectus
relating to such shares of common stock. Notwithstanding the foregoing, if a registration statement covering the shares of common
stock issuable upon exercise of the public warrants is not effective within a specified period following the consummation of a
Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period
when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant
to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available. If that exemption,
or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis. The Public Warrants
will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
MERIDA
MERGER CORP. I
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2019
Once
the warrants become exercisable, the Company may redeem the Public Warrants:
|
|
●
|
in whole and not in part;
|
|
|
●
|
at a price of $0.01 per warrant;
|
|
|
●
|
upon not less than 30 days’ prior written notice
of redemption;
|
|
|
●
|
if, and only if, the reported last sale price of the
Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period commencing
after the warrants become exercisable and ending on the third business day prior to the notice of redemption to the warrant holders;
and
|
|
|
●
|
If, and only if, there is a current registration statement
in effect with respect to the shares of common stock underlying the warrants.
|
If
the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise
the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.
The
Private Warrants are identical to the Public Warrants underlying the Units sold in the IPO, except that the Private Warrants and
the shares of common stock issuable upon the exercise of the Private Warrants will not be transferable, assignable or salable
until after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants
will be exercisable for cash or on a cashless basis, at the holder’s option, and be non-redeemable so long as they are held
by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers
or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the
same basis as the Public Warrants.
The
exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances
including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants
will not be adjusted for issuance of common stock at a price below its exercise price. Additionally, in no event will the Company
be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination
Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds
with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust
Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
MERIDA
MERGER CORP. I
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2019
In
addition, if (x) the Company issues additional shares of common stock or equity-linked securities for capital raising purposes
in connection with the closing of an initial Business Combination at an issue price or effective issue price of less than $9.20
per share of common stock (with such issue price or effective issue price to be determined in good faith by the Company’s
board of directors, and in the case of any such issuance to the Sponsor, initial stockholders or their affiliates, without taking
into account any Founder’s Shares held by them prior to such issuance), (y) the aggregate gross proceeds from such issuances
represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of an initial Business Combination
on the date of the consummation of an initial Business Combination (net of redemptions), and (z) the volume weighted average trading
price of the common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummated
an initial Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the
warrants will be adjusted (to the nearest cent) to be equal to 115% of the greater of (i) the Market Value or (ii) the price at
which the Company issues the additional shares of common stock or equity-linked securities.
Representative
Shares
In
August 2019, the Company issued to EarlyBirdCapital and its designees the 120,000 Representative Shares (as adjusted for the stock
dividend described above). The Company accounted for the Representative Shares as an offering cost of the IPO, with a corresponding
credit to stockholder’s equity. The Company estimated the fair value of Representative Shares to be $910 based upon the
price of the Founder Shares issued to the Sponsor. The holders of the Representative Shares have agreed not to transfer, assign
or sell any such shares until the completion of a Business Combination. In addition, the holders have agreed (i) to waive their
redemption rights with respect to such shares in connection with the completion of a Business Combination and (ii) to waive their
rights to liquidating distributions from the Trust Account with respect to such shares if the Company fails to complete a Business
Combination within the Combination Period.
The
Representative Shares have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately
following the effective date of the registration statement related to the IPO pursuant to Rule 5110(g)(1) of FINRA’s NASD
Conduct Rules. Pursuant to FINRA Rule 5110(g)(1), these securities will not be the subject of any hedging, short sale, derivative,
put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days
immediately following the effective date of the registration statements related to the IPO, nor may they be sold, transferred,
assigned, pledged or hypothecated for a period of 180 days immediately following the effective date of the registration statements
related to the IPO except to any underwriter and selected dealer participating in the IPO and their bona fide officers or partners.
MERIDA
MERGER CORP. I
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2019
NOTE
8. INCOME TAX
The
Company’s net deferred tax asset at December 31, 2019 is as follows:
|
Deferred tax liability
|
|
|
|
Unrealized gain on securities
|
|
$
|
(48
|
)
|
|
Total deferred tax liability
|
|
|
(48
|
)
|
|
Valuation allowance
|
|
|
—
|
|
|
Deferred tax liability, net of allowance
|
|
$
|
(48
|
)
|
The
income tax provision for the year ended December 31, 2019 consists of the following:
|
Federal
|
|
|
|
Current
|
|
$
|
26,934
|
|
|
Deferred
|
|
|
48
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
Deferred
|
|
|
—
|
|
|
Change in valuation allowance
|
|
|
—
|
|
|
Income tax provision
|
|
$
|
26,982
|
|
As
of December 31, 2019, the Company did not have any U.S. federal and state net operating loss carryovers (“NOLs”) available
to offset future taxable income.
In
assessing the realization of the deferred tax assets, management considers whether it is more likely than not that some portion
of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which temporary differences representing net future deductible amounts
become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and
tax planning strategies in making this assessment. After consideration of all of the information available, management believes
that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established
a full valuation allowance.
A
reconciliation of the federal income tax rate to the Company’s effective tax rate at December 31, 2019 is as follows:
|
Statutory federal income tax rate
|
|
|
21.0
|
%
|
|
State taxes, net of federal tax benefit
|
|
|
0.0
|
%
|
|
Income tax provision
|
|
|
21.0
|
%
|
The
Company files income tax returns in the U.S. federal jurisdiction in various state and local jurisdictions and is subject to examination
by the various taxing authorities. The Company’s tax returns since inception remain open and subject to examination.
MERIDA
MERGER CORP. I
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2019
NOTE
9. FAIR VALUE MEASUREMENTS
The
Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value
at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The
fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company
would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an
orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets
and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and
to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).
The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable
inputs used in order to value the assets and liabilities:
|
|
Level 1:
|
Quoted
prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which
transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing
basis.
|
|
|
|
|
|
|
Level 2:
|
Observable
inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or
liabilities and quoted prices for identical assets or liabilities in markets that are not active.
|
|
|
|
|
|
|
Level 3:
|
Unobservable
inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
|
The
following table presents information about the Company’s assets that are measured at fair value on a recurring basis at
December 31, 2019, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair
value:
|
Description
|
|
Level
|
|
December 31,
2019
|
|
Assets:
|
|
|
|
|
|
Marketable securities held in Trust Account
|
|
|
1
|
|
|
$
|
130,311,535
|
|
NOTE
10. SUBSEQUENT EVENTS
The
Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial
statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment
or disclosure in the financial statements.
F-20