ITEM
1. FINANCIAL STATEMENTS
LEGACY
ACQUISITION CORP.
CONDENSED
BALANCE SHEETS
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|
March 31,
2020
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December 31,
2019
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ASSETS
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(unaudited)
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Current assets –
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|
|
|
|
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Cash
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$
|
569,000
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|
|
$
|
568,000
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|
Prepaid expenses and other assets
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|
|
79,000
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|
|
|
26,000
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|
Total current assets
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|
|
648,000
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|
|
|
594,000
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|
|
|
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|
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Non-current assets –
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Cash and investments held in Trust Account
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305,937,000
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|
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302,529,000
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Total assets
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|
$
|
306,585,000
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|
|
$
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303,123,000
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities –
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Accounts payable
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$
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385,000
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$
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358,000
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|
Accrued expenses
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2,076,000
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|
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|
1,859,000
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|
Accrued franchise and income taxes
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204,000
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|
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|
8,000
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|
Due to related party
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4,696,000
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|
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1,958,000
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Total current liabilities
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7,361,000
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4,183,000
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Other liabilities –
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Deferred underwriting compensation
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10,500,000
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|
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10,500,000
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Total liabilities
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17,861,000
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14,683,000
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Common stock subject to possible redemption; 28,372,422 and 28,344,013 shares, respectively, at March 31, 2020 and December 31, 2019 (at approximately $10.00 per share)
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283,724,000
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283,440,000
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Commitments and contingencies
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Stockholders’ equity:
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Preferred stock, $0.0001 par value; 1,000,000 shares authorized, none issued or outstanding
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-
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-
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Class A Common stock, $0.0001 par value, 100,000,000 authorized, shares, 30,000,000 shares issued, (694,820 shares of which have been redeemed), at March 31, 2020 and December 31, 2019, 932,758 and 961,167 shares, outstanding (excluding 28,372,422 and 28,344,013 shares, respectively, subject to possible redemption at March 31, 2020 and December 31, 2019)
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-
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-
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Class F Common stock, $0.0001 par value, 10,000,000 authorized shares, 7,500,000 shares issued and outstanding
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1,000
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1,000
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Additional paid-in-capital
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563,000
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847,000
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Retained earnings
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4,436,000
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4,152,000
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Total stockholders’ equity
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5,000,000
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|
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5,000,000
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Total liabilities and stockholders’ equity
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$
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306,585,000
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$
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303,123,000
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|
See
accompanying notes to condensed financial statements
LEGACY
ACQUISITION CORP.
CONDENSED
STATEMENTS OF OPERATIONS
(unaudited)
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Three months ended
March 31,
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2020
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2019
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Revenues
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$
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-
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$
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-
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General and administrative expenses
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442,000
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262,000
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Loss from operations
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(442,000
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)
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(262,000
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)
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Interest income on Trust Account
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936,000
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1,761,000
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Interest expense on related party loan
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(24,000
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)
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Income before income taxes
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470,000
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1,499,000
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Provision for income taxes
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(186,000
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)
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(360,000
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)
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Net income
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$
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284,000
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$
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1,139,000
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Two Class Method for Per Share Information:
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Weighted average class A common shares outstanding – basic and diluted
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29,305,000
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30,000,000
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Net income per class A common share – basic and diluted
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$
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0.02
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$
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0.04
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Weighted average class F common shares outstanding – basic and diluted
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7,500,000
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7,500,000
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Net income (loss) per class F common share – basic and diluted
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$
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(0.06
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)
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$
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(0.03
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)
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See
accompanying notes to condensed financial statements
LEGACY
ACQUISITION CORP.
CONDENSED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For
the three months ended March 31, 2020 and 2019
(unaudited)
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Common Stock
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Class A
Shares
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Amount
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Class F
Shares
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Amount
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Additional
Paid-in
Capital
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Retained
Earnings
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Stockholders’
Equity
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Three months ended March 31, 2020:
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Balances, December 31, 2019
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961,167
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$
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-
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7,500,000
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$
|
1,000
|
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$
|
847,000
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$
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4,152,000
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$
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5,000,000
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Change in Class A common stock subject to possible redemption
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(28,409
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)
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-
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-
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|
-
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(284,000
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)
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|
-
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(284,000
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)
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Net income, three months ended March 31, 2020
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-
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-
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-
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|
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-
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-
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284,000
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284,000
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Balances, March 31, 2020 (unaudited)
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932,758
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$
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-
|
|
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7,500,000
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|
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$
|
1,000
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|
|
$
|
563,000
|
|
|
$
|
4,436,000
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|
|
$
|
5,000,000
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|
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Three months ended March 31, 2019:
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Balances, December 31, 2018
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1,083,859
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$
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-
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7,500,000
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$
|
1,000
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|
$
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2,234,000
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$
|
2,765,000
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$
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5,000,000
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Change in Class A common stock subject to possible redemption
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(113,881
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)
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|
|
-
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|
|
|
-
|
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|
-
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(1,139,000
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)
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|
-
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|
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(1,139,000
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)
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Net income, three months ended March 31, 2019
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|
-
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|
-
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-
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|
|
-
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-
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1,139,000
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1,139,000
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|
Balances, March 31, 2019 (unaudited)
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969,978
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$
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-
|
|
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7,500,000
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|
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$
|
1,000
|
|
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$
|
1,095,000
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$
|
3,904,000
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$
|
5,000,000
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|
See
accompanying notes to condensed financial statements
LEGACY
ACQUISITION CORP.
CONDENSED
STATEMENTS OF CASH FLOWS
(unaudited)
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Three months ended
March 31,
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2020
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2019
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|
|
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|
|
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Net income
|
|
$
|
284,000
|
|
|
$
|
1,139,000
|
|
Adjustments to reconcile net income to net cash used in operating activities:
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Interest income earned on Trust Account
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(936,000
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)
|
|
|
(1,761,000
|
)
|
Changes in operating assets and liabilities:
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|
|
|
|
|
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Increase in accounts payable and accrued expenses
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|
243,000
|
|
|
|
30,000
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|
Increase in accrued franchise and income taxes
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|
196,000
|
|
|
|
230,000
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|
Increase in prepaid expenses, rounding and other
|
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(52,000
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)
|
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|
(34,000
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)
|
Net cash used in operating activities
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|
(265,000
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)
|
|
|
(396,000
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)
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|
|
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Cash flows from investing activities -
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|
|
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Deposit a portion of related party loans in Trust Account
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(2,637,000
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)
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|
-
|
|
Withdrawal from Trust Account for taxes and working capital
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|
|
165,000
|
|
|
|
1,445,000
|
|
Net cash provided by investing activities
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|
|
(2,472,000
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)
|
|
|
1,445,000
|
|
|
|
|
|
|
|
|
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|
Cash flows from financing activities – Proceeds from related party loans
|
|
|
2,738,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
1,000
|
|
|
|
1,049,000
|
|
Cash at beginning of period
|
|
|
568,000
|
|
|
|
1,180,000
|
|
Cash at end of period
|
|
$
|
569,000
|
|
|
$
|
2,229,000
|
|
|
|
|
|
|
|
|
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|
Supplemental disclosure of non-cash financing activities:
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|
|
|
|
|
|
|
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Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
265,000
|
|
Change in value of common stock subject to possible redemption
|
|
$
|
284,000
|
|
|
$
|
1,139,000
|
|
See
accompanying notes to condensed financial statements
LEGACY
ACQUISITION CORP.
Notes to Condensed Financial Statements
(unaudited)
NOTE
1 – DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Organization
and General:
Legacy
Acquisition Corp. (the “Company”) was incorporated in Delaware on March 15, 2016. The Company was formed for the purpose
of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination
with one or more businesses. The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities
Act of 1933, as amended, or the “Securities Act,” as modified by the Jumpstart Our Business Startups Act of 2012 (the
“JOBS Act”).
At
March 31, 2020, the Company had not commenced any operations. All activity for the period from March 15, 2016 (inception) through
March 31, 2020 relates to the Company’s formation and the initial public offering (“Public Offering”) described
below, and subsequent to the Public Offering, searching for a potential business combination. The Company will not generate any
operating revenues until after completion of an initial business combination, at the earliest. The Company generates non-operating
income in the form of interest income from the proceeds derived from the Public Offering. All dollar amounts are rounded to the
nearest thousand dollars.
Sponsor
and Financing:
The
Company’s sponsor is Legacy Acquisition Sponsor I LLC, a Delaware limited liability company (the “Sponsor”).
The registration statement for the Company’s Public Offering (as described in Note 4) was declared effective by the United
States Securities and Exchange Commission (the “SEC”) on November 16, 2017. The Company intends to finance a business
combination with the net proceeds from a $300,000,000 Public Offering (Note 4) and a $8,750,000 private placement (Note 5). Upon
the closing of the Public Offering and the private placement, $300,000,000 is held in the Trust Account with Continental Stock
Transfer and Trust Company (the “Trustee”) acting as the trustee (the “Trust Account”) (as discussed below).
See Notes 2 and 6 below regarding approximately $7,108,000 of stockholder redemptions (694,820 shares) paid from the Trust Account
in October 2019 in connection with the Extension Amendment, defined below, that extends the date to complete a business combination
as described therein.
The
Trust Account:
Funds
from the Public Offering have been placed in the Trust Account. The Trust Account will be invested only in U.S. government treasury
bills with a maturity of one hundred and eighty (185) days or less or in money market funds meeting certain conditions under Rule
2a-7 under the Investment Company Act of 1940 which invest only in direct U.S. government obligations. Funds will remain in the
Trust Account until the earlier of (i) the consummation of a business combination or (ii) the distribution of the Trust Account
as described below. The remaining proceeds outside the Trust Account may be used to pay for business, legal and accounting due
diligence on prospective business combinations and continuing general and administrative expenses.
The
Company’s amended and restated certificate of incorporation provides that, other than the withdrawal of interest to pay
taxes and up to $750,000 per year for working capital purposes, if any, none of the funds held in trust may be released until
the earlier of: (i) the completion of an initial business combination; or (ii) the redemption of any public shares properly tendered
in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation to modify
the substance and timing or the Company’s obligation to redeem 100% of its public shares if the Company does not complete
its initial business combination by the Extended Date or (iii) the redemption of 100% of the shares of Class A common stock included
in the Units sold in the Public Offering if the Company is unable to complete a business combination by the Extended Date (subject
to the requirements of law). See Note 2 below regarding the Extension Amendment that extends the date to complete a business combination
and certain stockholder redemptions paid from the Trust Account as described therein. The Company may continue to withdraw from
the Trust Account amounts necessary for taxes, and for working capital of up to $750,000 annually (on a pro rata basis), during
the period of the Extension Amendment discussed in Note 2.
Business
Combination:
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the Public Offering,
although substantially all of the net proceeds of the Public Offering are intended to be generally applied toward consummating
a business combination with (or acquisition of) a Target Business. As used herein, “Target Business” means one or
more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (less
any deferred underwriting commissions and taxes payable on interest earned) at the time of the signing of a definitive agreement
in connection with a business combination. Furthermore, there is no assurance that the Company will be able to successfully effect
a business combination within 24 months from the closing of the Public Offering, as extended in the Extension Amendment that is
further discussed in Note 2 below, if at all.
The
Company, after signing a definitive agreement for an initial business combination, will either (i) seek stockholder approval of
the business combination at a meeting called for such purpose in connection with which stockholders holding Class A common stock
may seek to redeem their shares, regardless of whether they vote for or against the business combination, for cash equal to 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, including interest but less taxes payable and up to $750,000 per year which may be, and has
been, released for working capital purposes, or (ii) provide stockholders holding Class A common stock with the opportunity to
sell their shares to the Company by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount
in cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior
to commencement of the tender offer, including interest but less taxes payable and up to $750,000 per year which may have been
released for working capital. The decision as to whether the Company will seek stockholder approval of an initial business combination
or will allow stockholders to sell their shares in a tender offer will be made by the Company, solely in its 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 the Company to seek stockholder approval unless a vote is required by New York Stock Exchange (“NYSE”) rules.
If the Company seeks stockholder approval, it will complete its business combination only if a majority of the outstanding shares
of common stock voted are voted in favor of the business combination. However, in no event will the Company redeem its public
shares of Class A common stock in an amount that would cause its net tangible assets to be less than $5,000,001 upon consummation
of a business combination. In such case, the Company would not proceed with the redemption of its public shares of Class A common
stock and the related business combination, and instead may search for an alternate business combination.
If
the Company holds a stockholder vote or there is a tender offer for shares in connection with a business combination, a public
stockholder will have the right to redeem its Class A common stock for an amount in cash equal to such stockholder’s 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, including interest but less taxes payable and up to $750,000 per year which may have been released
to the Company to fund working capital requirements. As a result, such shares of Class A common stock are recorded at redemption
amount and classified as temporary equity in the accompanying balance sheet, in accordance with FASB ASC 480, “Distinguishing
Liabilities from Equity.”
The
Company only had 24 months from the closing date of the Public Offering to complete its initial business combination. However,
as discussed further in Note 2 below, on October 22, 2019, the stockholders of the Company approved the extension of time to complete
a business combination from November 21, 2019 to December 21, 2019 and thereafter at the Company’s option or upon the Sellers
request up to five times initially to January 21, 2020 and thereafter by up to four additional 30-day periods ending on May 20,
2020. The Company has currently exercised all five extension options, (i) from December 21, 2019 to January 21, 2020, (ii) from
January 21, 2020 to February 20, 2020, (iii) from February 20, 2020 to March 21, 2020, (iv) from March 21, 2020 to April 20, 2020
and (v) from April 20, 2020 to May 20, 2020 (the “Extended Date”). Subsequent to March 31, 2020, on April 21, 2020,
the Company filed a definitive proxy on Schedule 14A related to a further extension of the Extended Date to November 20, 2020
(the “Second Extension”). The Company intends to hold the special meeting for the Second Extension and, if approved,
effect a further extension of the Extended Date to November 20, 2020 only if the business combination (as discussed in Note 2
below) is not consummated by the Extended Date. If the Company does not complete a business combination by the Extended Date (as
may be further extended by the Second Extension, if approved), it shall (i) cease all operations except for the purposes of winding
up; (ii) as promptly as reasonably possible, but not more than ten business days thereafter, redeem the public shares of Class
A common stock for a per share pro rata portion of the Trust Account, including interest, but less taxes payable and up to $750,000
per year which may be, and has been, released for working capital (less up to $50,000 of such net interest to pay dissolution
expenses) and (iii) as promptly as possible following such redemption, dissolve and liquidate the balance of the Company’s
net assets to its remaining stockholders, as part of its plan of dissolution and liquidation. The initial stockholder has entered
into a letter agreement with the Company, pursuant to which it has waived its right to participate in any redemption with respect
to its initial shares; however, if the initial stockholder or any of the Company’s officers, directors or affiliates acquire
shares of Class A common stock after the Public Offering, they will be entitled to a pro rata share of the Trust Account, with
respect to such public shares, upon the Company’s redemption or liquidation in the event the Company does not complete a
business combination within the required time period.
In
the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution
(including Trust Account assets) will be less than the initial public offering price per Unit in the Public Offering.
Going
Concern
In
connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard
Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s
Ability to Continue as a Going Concern”, management has determined that the working capital deficit and the mandatory liquidation
and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments
have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after May 20, 2020.
NOTE
2 – SHARE EXCHANGE AGREEMENT FOR BUSINESS COMBINATION, WARRANT AMENDMENTS AND SECOND EXTENSION AMENDMENT
On
December 2, 2019, the Company entered into an Amended and Restated Share Exchange Agreement, as amended by that First Amendment
to the Amended and Restated Share Exchange Agreement, dated March 13, 2020 (the “Share Exchange Agreement”), that
amends and restates the Share Exchange Agreement dated as of August 23, 2019, as amended by that First Amendment to Share Exchange
Agreement dated as of September 27, 2019, with Blue Valor Limited (“Blue Valor” or the “Seller”), a company
incorporated in Hong Kong and an indirect, wholly owned subsidiary of Blue Focus Intelligent Communications Group (“BlueFocus”).
Pursuant to the Share Exchange Agreement, the Company will purchase all of the issued and outstanding shares of a wholly-owned
holding company organized in the Cayman Islands (the “Blue Impact target”), that, at closing, will hold the Blue Impact
business, a digital-first, intelligent and integrated global advertising and marketing services company (the “Blue Impact
business”). The transactions contemplated by the Share Exchange are referred to as the “Business Combination.”
Following the closing of the Business Combination (the “Closing”), the Company will change its legal name from Legacy
Acquisition Corp. to Blue Impact Inc. (“Blue Impact”).
Pursuant
to the Share Exchange Agreement, at the Closing, the Seller will receive 27,000,000 shares of Class A common stock of the Company
(the “Closing Payment Shares”), subject to adjustment as set forth below, and the Company expects to (a) assume approximately
$40 million of net debt related to the Blue Impact business, (b) assume $48 million of deferred acquisition purchase price obligations,
and (c) pay up to approximately $90 million related to the acquisition of 100% of Madhouse Inc., a Cayman Islands exempted company,
a company that makes up part of the Blue Impact business (“Madhouse”).
To
facilitate the Business Combination, the Sponsor will transfer 3,500,000 outstanding Founder Shares (as defined herein) back to
the Company prior to the Closing (which shares will then be cancelled and cease to be outstanding) for the right to potentially
receive Deferred Shares (as described below) and the Seller has agreed to reduce the number of Closing Payment Shares from 30,000,000
shares (as originally provided in the Share Exchange Agreement) to 27,000,000 shares. The Sponsor may receive up to 2,000,000
Deferred Shares pursuant to the Sponsor Earn Back provisions and Seller will earn back all 3,000,000 of its deferred shares pursuant
to the Seller Earn Back provisions.
The
Closing Payment Shares will be subject to adjustment following Closing based on the extent to which, as of the Closing Date, (a) the
net debt of the Blue Impact business, (b) the deferred acquisition purchase price obligations for the Blue Impact business
(excluding Madhouse) and (c) the amount of the purchase price to acquire 100% of Madhouse, are each finally determined to
be greater or less than the targets for such amounts specified in the Share Exchange Agreement. The determinations as of the Closing
Date of the foregoing amounts and any related adjustments will be mutually agreed to by the Seller and a committee of independent
directors of Blue Impact with any disagreements being resolved by a nationally recognized independent public accounting firm jointly
selected by the Seller and Blue Impact.
Post-Closing
up to $222 million also may be payable to the Seller after the 2022 audit is complete in the form of an incentive-based earn-out
tied to average profit growth of the Madhouse business over the three-year period ending December 31, 2022. The earn-out will
be payable at Blue Impact’s option in cash, stock or a combination thereof if Blue Impact’s common stock share price
at the time of payment is at least $10 per share. If not, then dependent upon Blue Impact’s then-available cash, the earn-out
will be payable in cash or subordinated notes. Seller has partially and irrevocably assigned a portion of any earn-out payment
to fund a long-term incentive plan to be established for the benefit of designated individuals employed by or associated with
the Blue Impact business.
For
more information about the transactions contemplated by the Share Exchange Agreement, please see the Current Report on Form 8-K
filed with the SEC on March 13, 2020 and the Definitive Proxy Statement filed on March 31, 2020.
In
connection with the Business Combination, we are also seeking amendments to our public warrants (the “Public Warrant Amendments”)
and private placement warrants (the “Private Warrant Amendments,” together with the Public Warrant Amendments the
“Warrant Amendments”). We have outstanding 30,000,000 public warrants and 17,500,000 private placement warrants each
entitling the holder to acquire 0.5 of a share of our Class A common stock, par value $0.0001 per share (the “Class A common
stock”) at an exercise price of $5.75. The Warrant Amendments would involve all our outstanding public warrants and private
placement warrants being cancelled at the Closing or as soon as practicable thereafter in exchange for either (i) $1.00 in cash
per warrant, if the aggregate gross cash proceeds from the Trust Account at the Closing (after all redemptions of shares of Class
A common stock in connection with the Business Combination but including any proceeds received by the Company from any private
investment in public equity financing with private investors (“PIPE Financing”) (if consummated)) equals at least
$225 million or (ii) $0.50 in cash and 0.055 of a share of Blue Impact common stock per warrant, if the aggregate gross cash proceeds
from the Trust Account at the Closing (after all redemptions of shares of Class A common stock in connection with the Business
Combination but including any proceeds received by the Company from any PIPE Financing (if consummated)) is less than $225 million.
However, in respect of at least 14,587,770 of the 17,500,000 private placement warrants owned by our Sponsor, our Sponsor has
agreed to receive all stock in such exchange at a rate of 0.11 of a share of Blue Impact common stock per warrant (or 1,604,655
share in total) and that such private placement warrants may not be exchanged for cash notwithstanding the terms of the Private
Warrant Amendment. The Company further agreed to offer the option to certain institutional investors of Sponsor, who are the beneficial
owners of the remaining 2,912,230 private placement warrants in the aggregate (which are held of record by the Sponsor), to exchange
such private placement warrants for either (a) 0.11 shares of Blue Impact common stock per private placement warrant or (b) the
same consideration as set forth in the Private Warrant Amendment; provided, that if such beneficial owners cease to beneficially
own any of such private placement warrants for any reason, such private placement warrants shall revert back to the Sponsor and
shall be exchanged solely for 0.11 shares of Blue Impact common stock per private placement warrant and may not be exchanged for
cash notwithstanding the terms of the Private Warrant Amendment. We expect the beneficial owners of the remaining 2,912,230 private
placement warrants to exchange their private placement warrants for the same consideration as the public warrants pursuant to
the Public Warrant Amendment. For more information on the proposed warrant amendments, please see the preliminary consent solicitation
statement on Schedule 14A filed with the Securities and Exchange Commission (“SEC”) on March 31, 2020.
The
Company’s Charter and final IPO prospectus dated November 16, 2017, (which was filed with the SEC on November 17, 2017)
provided that the Company had until November 21, 2019 to complete a business combination. In order to provide the Company additional
time to complete the Business Combination, on October 22, 2019 the Company’s stockholders approved an Extension Amendment
(the “Extension Amendment”) in order to extend the deadline to complete the Business Combination from November 21,
2019 to December 21, 2019 and thereafter at the Company’s option or upon the Sellers request up to five times, initially
to January 21, 2020, and thereafter by up to four additional 30-day periods ending on May 20, 2020. The deadline to consummate
the Business Combination is currently extended to May 20, 2020. On April 21, 2020, the Company filed a definitive proxy on Schedule
14A related to the Second Extension (as discussed below in more detail). The Company intends to hold the special meeting for the
Second Extension and, if approved, effect a further extension of the Extended Date to November 20, 2020 only if the Business Combination
is not consummated by the Extended Date. While the purpose of the Extension Amendment (and, if approved, the Second Extension)
is to allow the Company more time to complete the proposed Business Combination, if the Business Combination is terminated the
Company may seek to use the Extension (and, if approved, the Second Extension) to complete an alternative business combination
(which effort would likely be impractical as of the date these financial statements are issued). The Company may continue to withdraw
from the Trust Account amounts necessary for taxes, and for working capital of up to $750,000 annually (on a pro rata basis),
during the period of the Extension Amendment.
On
October 23, 2019, the Company issued a note (the “Seller Note”) for the aggregate principal amount of approximately
$979,000, to the Seller (including $100,000 provided to the Company for working capital). Borrowings under the Seller Note will
bear interest at a rate equal to the 1-month USD LIBOR interest rate, plus 1.5%. The Seller Note was issued in connection with
the approval by the Company’s stockholders of the Extension Amendment. In connection with the Extension Amendment, stockholders
elected to redeem 694,820 shares of the Company’s Class A common stock, par value $0.0001 per share (the “Class A
common stock”), issued in the Company’s initial public offering (the “public shares”), and 29,305,180
public shares remain issued and outstanding following such redemptions. Accordingly, consistent with the Company’s proxy
materials relating to the special meeting, on or about October 23, 2019, the Company made a cash contribution to the Trust Account
in an amount equal to $0.03 for each public share that was not redeemed in connection with the stockholder approval of the Extension
Amendment for the initial extension through December 21, 2019, which equaled an aggregate amount of approximately $979,000 (including
$100,000 provided to Company for costs and expenses). On December 17, 2019, in connection with the Company’s extension of
the date by which the Company has to consummate a business combination from December 21, 2019, to January 21, 2020, the Company
issued an amended and restated note (the “Amended Seller Note”) to the Seller that amended and restated the Seller
Note and received the second Seller Loan from the Seller. Borrowings under the Amended Seller Note will continue to bear interest
at a rate equal to the 1 month USD LIBOR interest rate, plus 1.5% accruing from the date of the applicable borrowings. Subsequent
to December 31, 2019, the Company extended the date by which it has to consummate a business combination from January 21, 2020
to February 20, 2020, from February 20, 2020 to March 21, 2020, from March 21, 2020 to April 20, 2020 and from April 20, 2020
to May 20, 2020. In connection with each of the first three extensions, the Seller loaned approximately $979,000 to the Company
under the Amended Seller Note. Additionally, in connection with the remaining extensions, the Seller loaned approximately $879,000
per extension. As a result, Seller has loaned to the Company a total of approximately $4,696,000 and approximately $1,958,000,
respectively, at March 31, 2020 and December 31, 2020. Seller subsequently loaned approximately $879,000 to the Company in April
2020, equaling an aggregate total of approximately $5,575,000 in Seller loans pursuant to the Extension Amendment and the Amended
Seller Note.
Under
the terms of the Share Exchange Agreement, the Seller agreed to loan (each, a “Seller Loan”) to the Company the amount
of the contributions to be made by the Company in connection with the initial extension through December 21, 2019, and for each
period of the Extension thereafter; provided, however, that the Seller is not be required to make any loan to the Company with
respect to any Extension for the purpose of consummating an initial business combination other than the Business Combination.
In addition, the Seller agreed that the Seller Loans may include additional amounts to cover certain costs and expenses that the
Company will reasonably incur in connection with the continuation of operations until the earlier of the consummation of the Business
Combination or the Extended Date and the total of all such costs and expenses shall not exceed a total of $300,000 in the aggregate
for all Extensions through the Extended Date. No Seller Loan may exceed $1,000,000 in the aggregate (including loans to fund costs
and expenses). The Seller Loans made on or about October 23, 2019, December 21, 2019 and January 21, 2020, each in the principal
amount of approximately $979,000 under the Amended Seller Note reflects a loan to fund the Company’s Contributions to the
Trust Account of approximately $879,000 plus $100,000 to fund the costs and expenses that the Company reasonably expects incur
in connection with the continuation of operations until the earlier of the consummation of the Business Combination or the Extended
Date. As of March 31, 2020, the Company had borrowed in respect of its costs and expenses a total of $300,000 in the aggregate.
The
Seller Loans will be forgiven by the Seller if the closing of the Business Combination does not occur and the Trust Account liquidates,
except to the extent of any funds that are available to the Company (i) after such liquidation in accordance with the trust agreement,
or (ii) from any other source. The amount of the Seller Loans will be repayable by the Company to the Seller upon consummation
of the Business Combination.
When
the Company elected and/or the Seller requested that the Company extend the date by which the Company has to consummate the Business
Combination, the Company publicly announced the Company’s decision. In addition, the Company has made additional Contributions
of $0.03 per outstanding public share for each period of the extension by the Company at its option and/or at the Seller’s
request. The Seller has made Contributions of approximately $979,000 for each of the first three extensions, and approximately
$879,000 each, for the fourth and fifth extension to March 21, 2020, for Contributions of a total aggregate amount of approximately
$4,696,000. Subsequent to March 31, 2020, in April 2020, the Company elected to extend the date for the final 30-day extension
period, and the Seller made a Contribution of approximately $879,000.
The
Company filed a definitive proxy statement on Schedule 14A with the SEC on April 21, 2020 seeking the Second Extension to further
extend the deadline to consummate a business combination to November 20, 2020. The special meeting of stockholders to vote on
the Second Extension is to be held on May 18, 2020 (the “Second Extension Meeting”). If the Company’s board
of directors determines that the Company will not be able to consummate an initial business combination by November 20, 2020,
if the Second Extension is approved at the Second Extension Meeting, or by May 20, 2020, if the Second Extension is not approved,
the Company’s board of directors would wind up the Company’s affairs and redeem 100% of the outstanding public shares.
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation:
The
accompanying unaudited condensed interim financial statements of the Company are presented in U.S. dollars in conformity with
accounting principles generally accepted in the United States of America (“GAAP”) pursuant to the rules and regulations
of the SEC and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of the financial position as of March 31, 2020, and the results of operations and cash flows
for the periods presented. Certain information and disclosures normally included in financial statements prepared in accordance
with GAAP have been omitted pursuant to such rules and regulations. Interim results are not necessarily indicative of results
for a full year. All dollar amounts are rounded to the nearest thousand dollars.
The
accompanying unaudited condensed interim financial statements should be read in conjunction with the Company’s audited financial
statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed
on February 27, 2020, as well as the Current Report on Form 8-K filed on August 27, 2019 and the Definitive Proxy Statement filed
on March 31, 2020.
Emerging
Growth Company
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 an 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.
Net
Income (Loss) per Common Share
Net
income (loss) per common share is computed by dividing net income (loss) applicable to common stockholders by the weighted average
number of common shares outstanding for the periods. The Company has not considered the effect of the warrants sold in the initial
public offering and private placement to purchase an aggregate of 23,750,000 Class A ordinary shares in the calculation of diluted
income (loss) per share, since their inclusion would be anti-dilutive under the treasury stock method. As a result, diluted income
(loss) per common share is the same as basic loss per common share for the periods.
The
Company’s condensed statements of operations include a presentation of income (loss) per share for common stock subject
to redemption in a manner similar to the two-class method of income (loss) per share. Net income (loss) per common share, basic
and diluted for Class A common stock is calculated by dividing the interest income earned on the Trust Account, net of income
tax expense, franchise tax expense and funds available to be withdrawn from Trust for working capital purposes (up to a maximum
of $750,000 annually), by the weighted average number of Class A common stock outstanding for the period. Net income (loss) per
common share, basic and diluted, for Class F common stock is calculated by dividing the net income (loss), less income attributable
to Class A Common Stock, by the weighted average number of Class F common stock outstanding for the period. Net income (loss)
available to each class of common stockholders is as follows for the three months ended March 31, 2020 and 2019:
|
|
Three months ended
|
|
|
|
March 31
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net income available to Class A common stockholders:
|
|
|
|
|
|
|
Interest income
|
|
$
|
936,000
|
|
|
$
|
1,761,000
|
|
Less: Income and franchise taxes
|
|
|
(236,000
|
)
|
|
|
(410,000
|
)
|
Expenses available to be paid with interest income from Trust (up to a maximum of $750,000 per year)
|
|
|
(188,000
|
)
|
|
|
(212,000
|
)
|
Net income available to Class A common stockholders
|
|
$
|
512,000
|
|
|
$
|
1,139,000
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net income available to Class F common stockholders:
|
|
|
|
|
|
|
Net income
|
|
$
|
284,000
|
|
|
$
|
1,139,000
|
|
Less: amount attributable to Class A common stockholders
|
|
|
(512,000
|
)
|
|
|
(1,139,000
|
)
|
Net income (loss) available to class F common stockholders
|
|
$
|
(228,000
|
)
|
|
$
|
-
|
|
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. The Company has not experienced losses on these
accounts and management believes the Company is not exposed to significant risks on such accounts.
Financial
Instruments:
The
fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair
Value Measurements and Disclosures,” approximates the carrying amounts represented in the financial statements.
Use
of Estimates:
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
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 amount of revenue
and expenses during the reporting periods. Actual results could differ from those estimates.
Deferred
Offering Costs:
The
Company complies with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (SAB) Topic 5A – “Expenses
of Offering.” Offering costs of approximately $17,379,000 consisted principally of underwriter discounts of $16,500,000
(including $10,500,000 of which payment is deferred) and approximately $887,000 of professional, printing, filing, regulatory
and other costs, have been charged to additional paid-in-capital upon completion of the Public Offering.
Income
Taxes:
The
Company follows the asset and liability method of accounting for income taxes under FASB 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.
The
Company’s currently taxable income consists of interest income on the Trust Account net of franchise taxes. The Company’s
general and administrative costs are generally considered start-up costs and are not currently deductible. The Company recorded
income tax expense of approximately $186,000 and $360,000, respectively, in the three months ended March 31, 2020 and 2019, respectively,
primarily related to interest income earned on the Trust Account net of franchise taxes. The Company’s effective tax rate
was approximately 40% and 24%, respectively, for the three months ended March 31, 2020 and 2019. The Company’s effective
tax rate differs from the expected income tax rate due to the start-up and business combination costs (discussed above) which
are not currently deductible. At March 31, 2020 and December 31, 2019, the Company has a deferred tax asset of approximately $1,177,000
and $1,080,000, respectively, primarily related to start-up and business combination costs. Management has determined that a full
valuation allowance of the deferred tax asset is appropriate at this time.
FASB
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement
of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of March 31, 2020 and December
31, 2019. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No
amounts were accrued for the payment of interest and penalties at March 31, 2020 and 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.
Redeemable
Common Stock:
As
discussed in Note 4, all of the 30,000,000 common shares sold as part of a Unit in the Public Offering (694,820 of which were
redeemed in October 2019 as discussed in Note 2 above leaving 29,305,180 outstanding) contain a redemption feature which allows
for the redemption of common shares under the Company’s Liquidation or Tender Offer/Stockholder Approval provisions. In
accordance with FASB 480, redemption provisions not solely within the control of the Company require the security to be classified
outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s
equity instruments, are excluded from the provisions of FASB ASC 480. Although the Company did not specify a maximum redemption
threshold, its charter provides that in no event will it redeem its Public Shares in an amount that would cause its net tangible
assets (stockholders’ equity) to be less than $5,000,001.
The
Company recognizes changes immediately as they occur and adjusts the carrying value of the securities at the end of each reporting
period. Increases or decreases in the carrying amount of redeemable common stock are affected by adjustments to additional paid-in
capital. Accordingly, at March 31, 2020 and December 31, 2019, 28,372,422 and 28,344,013, respectively, of the 30,000,000 Public
Shares (29,305,180 of which were outstanding at March 31, 2020) were classified outside of permanent equity.
Recent
Accounting Pronouncements:
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.
Subsequent
Events:
Management
has evaluated subsequent events to determine if events or transactions occurring after the date of the financial statements but
before the financial statements were issued, require potential adjustment to or disclosure in the financial statements and has
concluded that all such events that would require adjustment or disclosure have been recognized or disclosed.
NOTE
4 – PUBLIC OFFERING
On
November 21, 2017, the Company closed on the Public Offering and sale of 30,000,000 units at a price of $10.00 per unit (the “Units”).
Each Unit consists of one share of the Company’s Class A common stock and one redeemable common stock purchase warrant (the
“Warrants”). Under the terms of a warrant agreement, the Company has agreed to use its best efforts to file a new
registration statement under the Securities Act, following the completion of the initial business combination. Each Warrant entitles
the holder to purchase one half of one share of Class A common stock at a price of $5.75 (11.50 per whole share). No fractional
shares will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive
a fractional interest in a share, the Company will, upon exercise, round down to the nearest whole number the number of shares
of Class A common stock to be issued to the warrant holder. Each Warrant will become exercisable on the later of 30 days after
the completion of the Company’s initial business combination or 12 months from the closing of the Public Offering and will
expire five years after the completion of the Company’s initial business combination or earlier upon redemption or liquidation.
However, if the Company does not complete its initial business combination on or prior to the Extended Date allotted to complete
the business combination, the Warrants will expire at the end of such period. If the Company is unable to deliver registered shares
of Class A common stock to the holder upon exercise of Warrants issued in connection with the 30,000,000 public units during the
exercise period, there will be no net cash settlement of these Warrants and the Warrants will expire worthless, unless they may
be exercised on a cashless basis in the circumstances described in the warrant agreement. Once the warrants become exercisable,
the Company may redeem the outstanding warrants in whole and not in part at a price of $0.01 per warrant upon a minimum of 30
days’ prior written notice of redemption, only in the event that the last sale price of the Company’s shares of common
stock equals or exceeds $18.00 per share for any 20 trading days within the 30-trading day period ending on the third trading
day before the Company sends the notice of redemption to the warrant holders.
The
Company granted the underwriters in the Public Offering a 45-day option to purchase up to 4,500,000 additional Units to cover
any over-allotment, at the initial public offering price less the underwriting discounts and commissions. On November 27, 2017,
the Company was advised by the underwriters’ that the overallotment option would not be exercised. As such, the 1,125,000
shares subject to forfeiture which are described in Note 5 were forfeited.
The
Company paid an underwriting discount of 2% of the per Unit offering price to the underwriters at the closing of the Public Offering
($6,000,000), with an additional fee (the “Deferred Discount”) of 3.5% of the gross offering proceeds ($10,500,000)
payable upon the Company’s completion of a business combination. The Deferred Discount will become payable to the underwriters
from the amounts held in the Trust Account solely in the event the Company completes its initial business combination.
See
Notes 2 and 6 regarding the 694,820 shares redeemed for approximately $7,108,000 at October 22, 2019 in connection with the Extension
Amendment.
NOTE
5 – RELATED PARTY TRANSACTIONS
Founder
Shares
In
October 2016, the Sponsor purchased 8,625,000 shares of Class F common stock (the “Founder Shares”) for $25,000, or
approximately $0.001 per share (see Note 7). The Founder Shares are identical to the Class A common stock included in the Units
being sold in the Public Offering except that the Founder Shares are convertible under the circumstances described below and subject
to certain transfer restrictions, as described in more detail below. The Sponsor agreed to forfeit up to 1,125,000 Founder Shares
to the extent that the over-allotment option was not exercised in full by the underwriters (see Notes 5 and 7) so that the initial
stockholder would own 20.0% of the Company’s issued and outstanding shares after the Public Offering. As discussed further
in Notes 5 and 7, on November 27, 2017, the underwriters’ notified the Company that they would not exercise the overallotment
option and, as such, the 1,125,000 shares that were subject to forfeiture were forfeited as of the closing of the Public Offering
on November 21, 2017. The Founder Shares will automatically convert into shares of Class A common stock at the time of the business
combination on a one-for-one basis, subject to adjustment as described in the Company’s amended and restated certificate
of incorporation.
The
Company’s initial stockholder has agreed not to transfer, assign or sell any of its Founder Shares until the earlier of
(A) one year after the completion of the Company’s initial business combination, or earlier if, subsequent to the Company’s
initial business combination, the last sale price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted
for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading
day period commencing at least 150 days after the Company’s initial business combination or (B) the date on which the Company
completes a liquidation, merger, stock exchange or other similar transaction after the initial business combination that results
in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other
property (the “Lock Up Period”).
Private
Placement Warrants
Upon
the closing of the Public Offering on November 21, 2017, the Sponsor paid the Company $8,750,000 for the private placement purchase
from the Company of 17,500,000 warrants at $0.50 per warrant (the “Private Placement Warrants”). Each Private Placement
Warrant entitles the holder to purchase one-half of one share of Class A common stock at $5.75 ($11.50 per whole share). A portion
of the purchase price of the Private Placement Warrants has been added to the proceeds from the Public Offering held in the Trust
Account pending completion of the Company’s initial business combination. The Private Placement Warrants (including the
common stock issuable upon exercise of the Private Placement Warrants) are not transferable, assignable or salable until 30 days
after the completion of the initial business combination and are non-redeemable so long as they are held by the Sponsor or its
permitted transferees. If the Private Placement Warrants are held by someone other than the Sponsor or its permitted transferees,
the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the warrants
included in the Units being sold in the Public Offering. Otherwise, the Private Placement Warrants have terms and provisions that
are identical to those of the Warrants sold as part of the Units in the Public Offering and have no net cash settlement provisions.
However,
the proposed Warrant Amendments described in Note 2 would provide that each outstanding public warrant and each outstanding private
placement warrant shall no longer be exercisable to purchase one-half share of Class A common stock for $5.75 per half-share
(subject to adjustment as provided in the Warrant Agreement) and instead shall be converted solely into the right to receive (i) if,
at the Closing, the aggregate gross cash proceeds from the trust, after redemptions and any PIPE Financing (if consummated), equals
at least $225 million, $1.00 in cash or (ii) if, at the Closing, the aggregate gross cash proceeds from the trust, after
redemptions and any PIPE Financing (if consummated), is less than $225 million, $0.50 in cash and 0.055 of a share of common stock.
However, in respect of at least 14,587,770 of the 17,500,000 private placement warrants owned by the Sponsor, the Company and
Sponsor have agreed each such private placement warrant shall be exchanged solely for 0.11 of a share of common stock (or 1,604,655
shares in total) and may not be exchanged for cash notwithstanding the terms of the Warrant Amendments. The beneficial owners
of the remaining 2,912,230 private placement warrants will have the option to exchange such private placement warrants for 0.11
shares of common stock per private placement warrant in lieu of the consideration set forth in the Warrant Amendments (and we
expect such beneficial owners to elect to receive the same consideration as the public warrants pursuant to the Warrant Amendments);
provided, that if such beneficial owners cease to beneficially own any of such private placement warrants for any reason, such
private placement warrants shall revert back to the Sponsor and shall be exchanged solely for 0.11 shares of common stock per
private placement warrant and may not be exchanged for cash notwithstanding the terms of the Warrant Amendments.
If
the Company does not complete a business combination within the Extended Date, then the proceeds will be part of the liquidating
distribution to the public stockholders and the Warrants issued to the Sponsor will expire worthless.
Registration
Rights
The
Company’s initial stockholder and holders of the Private Placement Warrants are entitled to registration rights (in the
case of the Founder Shares, only after conversion to shares of Class A common stock) pursuant to a registration rights agreement
dated November 16, 2017. The Company’s initial stockholder and holders of the Private Placement Warrants are entitled to
make up to three demands, excluding short form registration demands, that the Company register such securities for sale under
the Securities Act. In addition, these holders have “piggy-back” registration rights to include their securities in
other registration statements filed by the Company. The Company will bear the expenses incurred in connection with the filing
of any such registration statements.
Administrative
Service Agreement and Services Agreement
The
Company pays $10,000 a month, $30,000 for each of the three months ended March 31, 2020 and 2019, for office space, accounting
services, utilities and secretarial support provided by the Sponsor subsequent to the date the Company’s securities were
first listed on the NYSE. Such monthly fee will terminate upon the earlier of the consummation by the Company of an initial business
combination or the liquidation of the Company. No amounts were payable at March 31, 2020 or December 31, 2019.
NOTE
6 – TRUST ACCOUNT AND FAIR VALUE MEASUREMENT
The
Company complies with FASB ASC 820, Fair Value Measurements, 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.
Upon
the closing of the Public Offering and the private placement, a total of $300,000,000 was deposited into the Trust Account. All
proceeds in the Trust Account may be invested in either U.S. government treasury bills with a maturity of 180 days or less or
in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended, and that
invest solely in U.S. government treasury obligations.
At
March 31, 2020 and December 31, 2019, the proceeds of the Trust Account were invested in a money market fund that invests solely
in U.S. government treasury bills. The Company classifies its U.S. government treasury bills and equivalent securities as held-to-maturity
in accordance with FASB ASC 320, “Investments – Debt and Equity Securities.” Held-to-maturity securities are
those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity U.S. government treasury
bills are recorded at amortized cost on the accompanying March 31, 2020 and December 31, 2019 condensed balance sheets and adjusted
for the amortization of discounts.
The
following table presents information about the Company’s assets that are measured at fair value on a recurring basis as
of March 31, 2020 and December 31, 2019 and indicates the fair value hierarchy of the valuation techniques the Company utilized
to determine such fair value. Since all of the Company’s permitted investments at March 31, 2020 and December 31, 2019 consist
of money market funds holding U.S. government treasury bills, fair values of its investments are determined by Level 1 inputs
utilizing quoted prices (unadjusted) in active markets for identical assets or liabilities as follows:
|
|
|
|
|
|
|
|
Quoted Price
|
|
|
|
Carrying
value at
|
|
|
Gross
Unrealized
|
|
|
Prices in
Active
|
|
Description
|
|
March 31,
2020
|
|
|
Holding
Gain
|
|
|
Markets
(Level 1)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash and money market
|
|
$
|
305,937,000
|
|
|
$
|
-
|
|
|
$
|
305,937,000
|
|
Total
|
|
$
|
305,937,000
|
|
|
$
|
-
|
|
|
$
|
305,937,000
|
|
|
|
|
|
|
|
|
|
Quoted Price
|
|
|
|
Carrying
value at
|
|
|
Gross
Unrealized
|
|
|
Prices in
Active
|
|
Description
|
|
December 31,
2019
|
|
|
Holding
Loss
|
|
|
Markets
(Level 1)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash and money market
|
|
$
|
302,529,000
|
|
|
$
|
-
|
|
|
$
|
302,529,000
|
|
Total
|
|
$
|
302,529,000
|
|
|
$
|
-
|
|
|
$
|
302,529,000
|
|
The
Company may continue to withdraw from the Trust Account amounts necessary for taxes, and for working capital of up to $750,000
annually (on a pro rata basis), during the period of the Extension Agreement.
During
the three months ended March 31, 2020, the Company withdrew approximately $165,000 from the Trust Account to fund permitted withdrawals
for working capital at the rate of $750,000 per year. Subsequent to March 31, 2020, in April 2020, the Company withdrew approximately
$125,000 permitted to be withdrawn for working capital.
During
the year ended December 31, 2019, the Company withdrew approximately $2,638,000 from the Trust Account in order to pay 2018 actual
and 2019 estimated income taxes (approximately $1,397,000) and franchise taxes (approximately $420,000) paid in installments and
to released approximately $813,000 allowed for working capital (including undistributed amounts from the prior year).
On October 22, 2019, in connection with the
Extension Amendment, stockholders elected to redeem 694,820 public shares of the Company’s Class A common stock at approximately
$10.23 per share resulting in a distribution from the Trust Account of approximately $7,108,000. Additionally, during the year
ended December 31, 2019, the Company received approximately $1,758,000 (two payments of approximately $879,000) from the Seller
representing the payment of $0.03 per outstanding public share (29,305,180 public shares) for each extension period under the Extension
Amendment discussed further in Note 2. Subsequent to December 31, 2019, the Company has extended the date by which it has to consummate
a business combination from January 21, 2020 to February 20, 2020, and from February 20, 2020 to March 21, 2020. In connection
with each of these extensions, the Company deposited approximately $879,000 into the Trust Account representing the continued payment
of $0.03 per outstanding public share (29,305,180 public shares for each extension period). As a result of the extensions, the
Company has deposited a total of approximately $4,396,000 (five payments) and $1,758,000 (two payments) at March 31, 2020 and December
31, 2019, respectively. Subsequent to March 31, 2020, in April 2020, an additional approximately $879,000 was deposited in the
Trust Account, raising the total deposited to approximately $5,275,000.
NOTE
7 – STOCKHOLDERS’ EQUITY
Common
Stock
The
authorized common stock of the Company is 110,000,000 shares, including 100,000,000 shares of Class A common stock, par value
$0.0001, and 10,000,000 shares of Class F common stock, par value $0.00001. Upon completion of the Public Offering, the Company
will likely (depending on the terms of the initial business combination) be required to increase the number of shares of common
stock which it is authorized to issue at the same time as its stockholders vote on the business combination to the extent the
Company seeks stockholder approval in connection with its initial business combination. Holders of the Company’s common
stock vote together as a single class and are entitled to one vote for each share of common stock.
In
October 2016, the Sponsor purchased 8,625,000 shares of Class F common stock (the “Founder Shares”) for $25,000, or
approximately $0.004 per share. The Sponsor had agreed to forfeit up to 1,125,000 Founder Shares to the extent that the over-allotment
option is not exercised in full by the underwriters. The forfeiture would be adjusted to the extent that the over-allotment option
is not exercised in full by the underwriters so that the initial stockholder will own 20% of the Company’s issued and outstanding
shares after the Public Offering. On November 27, 2017, the Company was advised by the underwriters’ that the overallotment
option would not be exercised. As such, the 1,125,000 shares subject to forfeiture were forfeited.
On
October 22, 2019, in connection with the Extension Amendment, stockholders elected to redeem 694,820 shares of the Company’s
Class A common stock, par value $0.0001 per share, issued in the Company’s initial public offering (the “public shares”).
The shares were redeemed at $10.23 per share, the per share value of the Trust Account at that date resulting in a distribution
from the Trust Account of approximately $7,108,000. As a result, 29,305,180 public shares remain issued and outstanding following
such redemptions.
At
each of March 31, 2020 and December 31, 2019 there were 7,500,000 shares of Class F common stock issued and outstanding and 29,305,180
shares of Class A common stock outstanding (28,372,422 and 28,344,013, respectively, of which are classified outside of equity
as redeemable common stock).
Preferred
Stock
The
Company is authorized to issue 1,000,000 shares of preferred stock, par value $0.0001, with such designations, voting and other
rights and preferences as may be determined from time to time by the Board of Directors. At March 31, 2020 and December 31, 2019,
the rights and preferences have not been determined and there were no shares of preferred stock issued and outstanding.
NOTE
8 – COMMITMENTS AND CONTINGENCIES
Risks
and Uncertainties
Management
is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible
that the virus could have a negative effect on the Company’s, or its target’s, financial position, results of its operations
and/or completion of the business combination, the specific impact is not readily determinable as of the date of these financial
statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the
condensed financial statements and the notes thereto contained elsewhere in this report. This management’s discussion and
analysis should also be read in conjunction with the management’s discussion and analysis and the financial statements for
the year ended December 31, 2019 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission
on February 27, 2020.
Special
Note Regarding Forward-Looking Statements
All
statements other than statements of historical fact included in this section and elsewhere in this Form 10-Q regarding our financial
position, business strategy and the plans and objectives of management for future operations, are forward-looking statements.
When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,”
“intend” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such
forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available
to, our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result
of certain factors detailed in our filings with the SEC.
Recent
Developments — Impact of COVID 19
In
December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, Hubei Province, China, which has and is continuing
to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization
declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.”
On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United
States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized
the outbreak as a “pandemic.” A significant outbreak of COVID-19 and other infectious diseases respectively has resulted
and could result in a widespread health crisis that could adversely affect the economies and financial markets worldwide, and
the business of any potential target business with which we consummate a business combination could be materially and adversely
affected. Furthermore, we may be unable to complete a business combination if continued concerns relating to COVID-19 and related
disruptions in the domestic and global economies and the financial markets persist, which may make it difficult to negotiate financing
related to a business combination and to consummate a transaction in a timely manner. The extent to which COVID-19 impacts our
business combination will depend on future developments, which are highly uncertain and cannot be predicted, including new information
which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If
the disruptions posed by COVID-19 or other matters of global concern continue for an extensive period of time, our ability to
consummate a business combination, or the operations of a target business with which we ultimately consummate a business combination,
may be materially adversely affected.
The
Blue Impact business is continuing to monitor the impact of the COVID-19 pandemic, including changes in business and consumer
behavior related to illness and pandemic fears and restrictions intended to slow the spread of COVID-19 (such as quarantines,
government-mandated actions, shelter-in-place orders and other restrictions) on its global business and its financial results,
as well as the economic conditions in the regions it, its clients and their customers operate and reside. The Blue Impact business
is working with various stakeholders (including its clients, team members and vendors) to assess and implement responsive actions
designed to mitigate adverse consequences of the COVID-19 pandemic. Areas being assessed include (i) the potential and varying
negative impact of the COVID-19 pandemic on advertising and marketing service spending and budgets of our various clients, (ii)
Blue Impact’s inability to provide certain marketing services (such as events-based marketing services), and (iii) the ability
of Blue Impact employees to generally work and effectively operate and interface remotely with clients and other Blue Impact team
members and offices (including Blue Impact offices in Europe, Canada and the U.S. which are currently closed and with its team
members working remotely).
At
this time, the impact of the COVID-19 pandemic on the overall Blue Impact business, financial condition and results of operations
is uncertain. As a result of the uncertainties around the impact of the COVID-19 pandemic and related events that may directly
impact its operations, the historic results and preliminary results as well as any previously provided forward-looking estimates,
may not be representative of the Blue Impact business’s overall future operating results or growth prospects.
Overview
We
are a blank check company incorporated as a Delaware corporation and formed for the purpose of effecting a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We have
reviewed a number of opportunities for the purpose of entering into a business combination with an operating business, and, as
described below in further detail under the caption “Agreement for Business Combination and Extension Amendment” have
entered into a Share Exchange Agreement with Blue Valor Limited, but we are not able to determine as of the date of this Form
10-Q whether we will complete a business combination with such target business or with any other target business. We intend to
effectuate our initial business combination using cash from the proceeds of our initial public offering and the private placement
of the private placement warrants, our capital stock, debt or a combination of cash, stock and debt.
The
issuance of additional shares of our stock in a business combination, including any shares that may be issued in connection with
the Warrant Amendments:
|
●
|
may
significantly dilute the equity interest of investors in our initial public offering, which dilution could increase if the
anti-dilution provisions in the Class F common stock are not waived (as contemplated by the terms of the Share Exchange Agreement
and related transaction agreements) and result in the issuance of shares of Class A common stock on a greater than one-to-one
basis upon conversion of the shares of Class F common stock;
|
|
●
|
may
subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded our common
stock;
|
|
●
|
could
cause a change of control if a substantial number of shares of our common stock are issued, which may affect, among other
things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of
our present officers and directors;
|
|
●
|
may
have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a
person seeking to obtain control of us; and
|
|
●
|
may
adversely affect prevailing market prices for our Class A common stock and/or warrants.
|
Similarly,
if we issue debt securities, it could result in:
|
●
|
default
and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our
debt obligations;
|
|
●
|
acceleration
of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain
covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
|
|
●
|
our
immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand;
|
|
●
|
our
inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain
such financing while the debt security is outstanding;
|
|
●
|
our
inability to pay dividends on our common stock;
|
|
●
|
using
a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for
dividends on our common stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes;
|
|
●
|
limitations
on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
|
|
●
|
increased
vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government
regulation; and
|
|
●
|
limitations
on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution
of our strategy and other purposes and other disadvantages compared to our competitors who have less debt.
|
As
indicated in the accompanying financial statements, at March 31, 2020 we had approximately $569,000 in cash. We expect to incur
significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to raise capital or to complete
our initial business combination will be successful.
Agreement
for Business Combination and Extension Amendment
On
December 2, 2019, we entered into an Amended and Restated Share Exchange Agreement, as amended by that First Amendment to the
Amended and Restated Share Exchange Agreement, dated March 13, 2020 (the “Share Exchange Agreement”), that amends
and restates the Share Exchange Agreement dated as of August 23, 2019, as amended by that First Amendment to Share Exchange Agreement
dated as of September 27, 2019, with Blue Valor Limited (“Blue Valor” or the “Seller”), a company incorporated
in Hong Kong and an indirect, wholly owned subsidiary of Blue Focus Intelligent Communications Group (“BlueFocus”).
Pursuant to the Share Exchange Agreement, we will purchase all of the issued and outstanding shares of a wholly-owned holding
company organized in the Cayman Islands (the “Blue Impact target”), that, at closing, will hold the Blue Impact business,
a digital-first, intelligent and integrated global advertising and marketing services company (the “Blue Impact business”).
We refer to the transactions contemplated by the Share Exchange as the “Business Combination.” Following the closing
of the Business Combination (the “Closing”), we will change our legal name from Legacy Acquisition Corp. to Blue Impact
Inc. (“Blue Impact”).
Pursuant
to the Share Exchange Agreement, at the Closing, the Seller will receive 27,000,000 shares of our Class A common stock (the “Closing
Payment Shares”), subject to adjustment as set forth below, and we expect to (a) assume approximately $40 million of net
debt related to the Blue Impact business, (b) assume $48 million of deferred acquisition purchase price obligations, and (c) pay
up to approximately $90 million related to the acquisition of 100% of Madhouse.
To
facilitate the business combination, the Sponsor will transfer 3,500,000 outstanding Founder Shares (as defined herein) back to
us prior to the Closing (which shares will then be cancelled and cease to be outstanding) for the right to potentially receive
Deferred Shares (as described below) and the Seller has agreed to reduce the number of Closing Payment Shares from 30,000,000
shares (as originally provided in the Share Exchange Agreement) to 27,000,000 shares. The Sponsor may receive up to 2,000,000
Deferred Shares pursuant to the Sponsor Earn Back provisions and Seller will earn back all 3,000,000 of its deferred shares pursuant
to the Seller Earn Back provisions.
The
Closing Payment Shares will be subject to adjustment following Closing based on the extent to which, as of the Closing Date, (a) the
net debt of the Blue Impact business, (b) the deferred acquisition purchase price obligations for the Blue Impact business
(excluding Madhouse) and (c) the amount of the purchase price to acquire 100% of Madhouse, are each finally determined to
be greater or less than the targets for such amounts specified in the Share Exchange Agreement. The determinations as of the Closing
Date of the foregoing amounts and any related adjustments will be mutually agreed to by the Seller and a committee of independent
directors of Blue Impact with any disagreements being resolved by a nationally recognized independent public accounting firm jointly
selected by the Seller and Blue Impact.
Post-Closing
up to $222 million also may be payable to the Seller after the 2022 audit is complete in the form of an incentive-based earn-out
tied to average profit growth of the Madhouse business over the three-year period ending December 31, 2022. The earn-out will
be payable at Blue Impact’s option in cash, stock or a combination thereof if Blue Impact’s common stock share price
at the time of payment is at least $10 per share. If not, then dependent upon Blue Impact’s then-available cash, the earn-out
will be payable in cash or subordinated notes. Seller has partially and irrevocably assigned a portion of any earn-out payment
to fund a long-term incentive plan to be established for the benefit of designated individuals employed by or associated with
the Blue Impact business.
For
more information about the transactions contemplated by the Share Exchange Agreement, please see the Current Report on Form 8-K
filed with the SEC on March 13, 2020 and the Definitive Proxy Statement filed on March 31, 2020.
In
connection with the Business Combination, we are also seeking amendments to our public warrants (the “Public Warrant Amendments”)
and private placement warrants (the “Private Warrant Amendments”, together with the Public Warrant Amendments, the
“Warrant Amendments”). We have outstanding 30,000,000 public warrants and 17,500,000 private placement warrants each
entitling the holder to acquire 0.5 of a share of our Class A common stock, par value $0.0001 per share (the “Class A common
stock”) at an exercise price of $5.75. The Warrant Amendments would involve all our outstanding public warrants and private
placement warrants being cancelled at the Closing or as soon as practicable thereafter in exchange for either (i) $1.00 in cash
per warrant, if the aggregate gross cash proceeds from the Trust Account at the Closing (after all redemptions of shares of Class
A common stock in connection with the Business Combination but including any proceeds received by us from any private investment
in public equity financing with private investors (“PIPE Financing”) (if consummated)) equals at least $225 million
or (ii) $0.50 in cash and 0.055 of a share of Blue Impact common stock per warrant, if the aggregate gross cash proceeds from
the Trust Account at the Closing (after all redemptions of shares of Class A common stock in connection with the Business Combination
but including any proceeds received by us from any PIPE Financing (if consummated)) is less than $225 million. However, in respect
of at least 14,587,770 of the 17,500,000 private placement warrants owned by our Sponsor, our Sponsor has agreed to receive all
stock in such exchange at a rate of 0.11 of a share of Blue Impact common stock per warrant (or 1,604,655 share in total) and
that such private placement warrants may not be exchanged for cash notwithstanding the terms of the Private Warrant Amendment.
We further agreed to offer the option to certain institutional investors of Sponsor, who are the beneficial owners of the remaining
2,912,230 private placement warrants in the aggregate (which are held of record by the Sponsor), to exchange such private placement
warrants for either (a) 0.11 shares of Blue Impact common stock per private placement warrant or (b) the same consideration as
set forth in the Private Warrant Amendment; provided, that if such beneficial owners cease to beneficially own any of such private
placement warrants for any reason, such private placement warrants shall revert back to the Sponsor and shall be exchanged solely
for 0.11 shares of Blue Impact common stock per private placement warrant and may not be exchanged for cash notwithstanding the
terms of the Private Warrant Amendment. We expect the beneficial owners of the remaining 2,912,230 private placement warrants
to exchange their private placement warrants for the same consideration as the public warrants pursuant to the Public Warrant
Amendment. For more information on the proposed warrant amendments, please see the preliminary consent solicitation statement
on Schedule 14A filed with the Securities and Exchange Commission (“SEC”) on March 31, 2020.
Our
Charter and final IPO prospectus dated November 16, 2017, (which was filed with the SEC on November 17, 2017) provided that we
have until November 21, 2019 to complete a business combination. In order to provide us additional time to complete the business
combination, on October 22, 2019 our stockholders approved an Extension Amendment (the “Extension Amendment”) in order
to extend the deadline to complete the business combination from November 21, 2019 to December 21, 2019 and thereafter at our
option or upon the Sellers request up to five times, initially to January 21, 2020, and thereafter by up to four additional 30-day
periods ending on May 20, 2020. The deadline to consummate the business combination is currently extended to May 20, 2020. On
April 21, 2020, we filed a definitive proxy on Schedule 14A seeking to further extend the deadline to consummate a business combination
(the “Second Extension”) to November 20, 2020 (as discussed below in more detail). We intend to hold the special meeting
for the Second Extension and, if approved, effect a further extension of the Extended Date to November 20, 2020 only if the Business
Combination is not consummated by the Extended Date. While the purpose of the Extension Amendment (and, if approved, the Second
Extension) is to allow us more time to complete the proposed Business Combination, if the Business Combination is terminated we
may seek to use the Extension to complete an alternative business combination (which effort would likely be impractical as of
the date these financial statements are issued). We may continue to withdraw from the Trust Account amounts necessary for taxes,
and for working capital of up to $750,000 annually (on a pro rata basis), during the period of the Extension Amendment.
On
October 23, 2019, we issued a note (the “Seller Note”) for the aggregate principal amount of approximately $979,000,
to the Seller (including $100,000 provided to us for working capital). Borrowings under the Seller Note will bear interest at
a rate equal to the 1-month USD LIBOR interest rate, plus 1.5%. The Seller Note was issued in connection with the approval by
our stockholders of the Extension Amendment. In connection with the Extension Amendment, stockholders elected to redeem 694,820
shares of our Class A common stock, par value $0.0001 per share (the “Class A common stock”), issued in our initial
public offering (the “public shares”), and 29,305,180 public shares remain issued and outstanding following such redemptions.
Accordingly, consistent with our proxy materials relating to the special meeting, on or about October 23, 2019, we made a cash
contribution to the Trust Account in an amount equal to $0.03 for each public share that was not redeemed in connection with the
stockholder approval of the Extension Amendment for the initial extension through December 21, 2019, which equaled an aggregate
amount of approximately $979,000 (including $100,000 provided to Company for costs and expenses). On December 17, 2019, in connection
with our extension of the date by which we have to consummate a business combination from December 21, 2019, to January 21, 2020,
we issued an amended and restated note (the “Amended Seller Note”) to the Seller that amended and restated the Seller
Note and received the second Seller Loan from the Seller. Borrowings under the Amended Seller Note will continue to bear interest
at a rate equal to the 1 month USD LIBOR interest rate, plus 1.5% accruing from the date of the applicable borrowings. Subsequent
to December 31, 2019, we have extended the date by which it has to consummate a business combination from January 21, 2020 to
February 20, 2020, from February 20, 2020 to March 21, 2020, from March 21, 2020 to April 20, 2020 and from April 20, 2020 to
May 20, 2020. In connection with each of the first three extensions, the Seller loaned approximately $979,000 to us under the
Amended Seller Note. Additionally, in connection with the remaining extensions, the Seller loaned approximately $879,000 per extension.
As a result, Seller has loaned to us a total of approximately $4,696,000 and approximately $1,958,000, respectively, at March
31, 2020 and December 31, 2020. Seller subsequently loaned approximately $879,000 to us in April 2020, equaling an aggregate total
of approximately $5,575,000 in Seller loans pursuant to the Extension Amendment and the Amended Seller Note.
Under
the terms of the Share Exchange Agreement, the Seller agreed to loan (each, a “Seller Loan”) to us the amount of the
contributions to be made by us in connection with the initial extension through December 21, 2019, and for each period of the
Extension thereafter; provided, however, that the Seller is not be required to make any loan to us with respect to any Extension
for the purpose of consummating an initial business combination other than the Business Combination. In addition, the Seller agreed
that the Seller Loans may include additional amounts to cover certain costs and expenses that we will reasonably incur in connection
with the continuation of operations until the earlier of the consummation of the Business Combination or the Extended Date and
the total of all such costs and expenses shall not exceed a total of $300,000 in the aggregate for all Extensions through the
Extended Date. No Seller Loan may exceed $1,000,000 in the aggregate (including loans to fund costs and expenses). The Seller
Loans made on or about October 23, 2019, December 21, 2019 and January 21, 2020, each in the principal amount of approximately
$979,000 under the Amended Seller Note reflects a loan to fund our Contributions to the Trust Account of approximately $879,000
plus $100,000 to fund the costs and expenses that we reasonably expect incur in connection with the continuation of operations
until the earlier of the consummation of the Business Combination or the Extended Date. As of March 31, 2020, we had borrowed
in respect of its costs and expenses a total of $300,000 in the aggregate.
The
Seller Loans will be forgiven by the Seller if the closing of the Business Combination does not occur and the Trust Account liquidates,
except to the extent of any funds that are available to us (i) after such liquidation in accordance with the trust agreement,
or (ii) from any other source. The amount of the Seller Loans will be repayable by us to the Seller upon consummation of the Business
Combination.
When
we elected and/or the Seller requested that we extend the date by which we have to consummate the Business Combination, we have
publicly announced our decision. In addition, we have made additional Contributions of $0.03 per outstanding public share for
each period of the extension by us at our option and/or at the Seller’s request. The Seller has made Contributions of approximately
$979,000 for each of the first three extensions, and approximately $879,000 each, for the fourth and fifth extension to March
21, 2020, for Contributions of a total aggregate amount of approximately $4,696,000. Subsequent to March 31, 2020, in April 2020,
we elected to extend the date for the final 30-day extension period, and the Seller made a Contribution of approximately $879,000.
We
filed a definitive proxy statement on Schedule 14A with the SEC on April 21, 2020 seeking to further extend the deadline to consummate
a business combination (the “Second Extension”) to November 20, 2020. The special meeting of stockholders to vote
on the Second Extension is to be held on May 18, 2020 (the “Second Extension Meeting”). If our board of directors
determines that we will not be able to consummate an initial business combination by November 20, 2020, if the Second Extension
is approved at the Second Extension Meeting, or by May 20, 2020, if the Second Extension is not approved, our board of directors
would wind up our affairs and redeem 100% of the outstanding public shares.
Results
of Operations and Known Trends or Future Events
We
have neither engaged in any operations nor generated any revenues to date. Our primary activities since inception have been organizational
activities and those necessary to prepare for our initial public offering which was consummated on November 21, 2017. Since that
time, our activities have also included the activities in our search for a business combination and our negotiation and entry
into the Share Exchange Agreement and our performance of our obligations thereunder.
In
the three months ended March 31, 2020 and 2019 our principal operating expenses included approximately $84,000 and $72,000 for
the professional, insurance and listing costs associated with our public reporting, approximately $50,000 and $50,000 in franchise
taxes, approximately $275,000 and $60,000 in consulting, legal and travel costs associated with our search for a business combination
candidate and related proxy and other costs and approximately $30,000 and $30,000 ($10,000 per month) in administrative fees to
our Sponsor. Additionally, in the three months ended March 31, 2020, we incurred approximately $24,000 of interest expense on
the notes issued in connection with the October 23, 2020 Extension Amendment, as amended. Further, during the three months ended
March 31, 2020 and 2019, we generated approximately $936,000 and $1,761,000 of interest income on the U.S. government treasury
bill investments in the Trust Account. The lower interest income in 2020 is largely due to lower interest rates. Such interest
income is currently taxable and results in a provision for income taxes of approximately $186,000 and $360,000 in the three months
ended March 31, 2020 and 2019 since the majority of our operating expenses are considered start-up costs and are not currently
deductible. We periodically withdraw funds from the Trust Account to fund the payment of income and franchise taxes and for permitted
withdrawals for working capital.
Following
the closing of our initial public offering in November 2017, we have not generated, and will not generate, any operating revenues
until after completion of our initial business combination. As discussed above, we currently generate non-operating income in
the form of interest income on cash and cash equivalents after our initial public offering and such income generates a currently
payable provision for income taxes on such income since our operating expenses are considered start-up expenses and are not currently
deductible. In addition to our taxes, administrative fees to our Sponsor and costs associated with our public reporting, we expect
to incur increased expenses for our due diligence and other costs of identifying, documenting and closing a business combination
and such costs are expected to be very significant and will vary with the stage of development of a business combination. We intend
to pay our income and franchise taxes from the income of the Trust Account and we are permitted to draw $750,000 annually from
the Trust Account for working capital, which amounts for 2018 and 2019 have been fully drawn and included in our current cash
balances. We may continue to withdraw from the Trust Account amounts necessary for taxes, and for working capital of up to $750,000
annually (on a pro rata basis), during the period of the Extension Agreement.
Liquidity
and Capital Resources
The
net proceeds from (i) the sale of the Units in our initial public offering, after deducting offering expenses of approximately
$887,000 and underwriting commissions of $6,000,000 (excluding deferred underwriting commissions of $10,500,000), and (ii) the
sale of the private placement warrants for a purchase price of $8,750,000, are approximately $301.6 million. Of this amount, $300.0
million was placed in the Trust Account, which includes up to $10,500,000 of deferred underwriting commissions. The remaining
approximately $1,600,000 was made available to us for working capital and is not held in the Trust Account. See below regarding
approximately $7,108,000 which was disbursed from the Trust Account in October 2019 in connection with the redemption of 694,820
shares by stockholders in connection with the Extension Amendment.
We
intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on
the trust account (which interest shall be net of taxes payable and up to $750,000 released to us annually to fund working capital
requirements and excluding deferred underwriting commissions) to complete our initial business combination. We may withdraw interest
to pay taxes, if any, and up to $750,000 to fund working capital requirements (all of which has been drawn from the Trust at September
30, 2019) annually. Delaware franchise tax is based on our authorized shares or on our assumed par and non-par capital, whichever
yields a lower result. Our annual franchise tax obligation is expected to be capped at the maximum amount of annual franchise
taxes payable by us as a Delaware corporation of $200,000. We may continue to withdraw from the Trust Account amounts necessary
for taxes, and for working capital of up to $750,000 annually (on a pro rata basis), during the period of the Extension Agreement.
Our annual income tax obligations will depend on the amount of interest and other income earned on the amounts held in the Trust
Account. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our initial business
combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the
target business or businesses, make other acquisitions and pursue our growth strategies.
As
of March 31, 2020, we have available to us approximately $569,000 of proceeds held outside the Trust Account. We may continue
to withdraw from the Trust Account amounts necessary for taxes, and for working capital of up to $750,000 annually (on a pro rata
basis), during the period of the Extension Amendment.
See
“Overview, Agreement for Business Combination and Exchange Amendment” above for a discussion of the Share Exchange
Agreement and the Extension Amendment.
On
October 23, 2019, we issued the Seller Note for the aggregate principal amount of approximately $979,000 (including $100,000 provided
to us for working capital), to the Seller. Borrowings under the Seller Note will bear interest at a rate equal to the 1 month
USD LIBOR interest rate, plus 1.5%. The Seller Note was issued in connection with the approval by our stockholders of the Extension
Amendment. In connection with the Extension Amendment, stockholders elected to redeem 694,820 shares of our Class A common stock,
par value $0.0001 per share, issued in our Initial Public Offering ( the “public shares”), and approximately 29,305,180
public shares remain issued and outstanding following such redemptions. Accordingly, consistent with our proxy materials relating
to the special meeting, on or about October 23, 2019, we made a cash Contribution to the Trust Account in an amount equal to $0.03
for each public share that was not redeemed in connection with the stockholder approval of the Extension Amendment for the initial
extension through December 21, 2019, which equaled an aggregate amount of approximately $979,000 (including $100,000 provided
to Company for costs and expenses). On December 17, 2019, in connection with our extension of the date by which we have to consummate
a business combination from December 21, 2019, to January 21, 2020, we issued an amended and restated note (the “Amended
Seller Note”) to the Seller that amended and restated the Seller Note and received the second Seller Loan from the Seller.
Borrowings under the Amended Seller Note will continue to bear interest at a rate equal to the 1 month USD LIBOR interest rate,
plus 1.5% accruing from the date of the applicable borrowings. Subsequent to December 31, 2019, we have extended the date by which
it has to consummate a business combination from January 21, 2020 to February 20, 2020, from February 20, 2020 to March 21, 2020,
from March 21, 2020 to April 20, 2020 and from April 20, 2020 to May 20, 2020. In connection with each of the first three extensions,
the Seller loaned approximately $979,000 to us under the Amended Seller Note. Additionally, in connection with the remaining extensions,
the Seller loaned $879,000. As a result, Seller has loaned to us a total of $4,696,000 at March 31, 2020, excluding $879,000 loaned
subsequent to March 31, 2020 in April 2020 (an aggregate total of approximately $5,575,000).
Under
the terms of the Share Exchange Agreement, the Seller agreed to loan (each, a “Seller Loan”) to us the amount of the
Contributions to be made by us in connection with the initial Extension through December 21, 2019, and for each period of the
Extension thereafter; provided, however, that the Seller is not be required to make any loan to us with respect to any Extension
for the purpose of consummating an initial business combination other than the business combination. In addition, the Seller agreed
that the Seller Loans may include additional amounts to cover certain costs and expenses that we will reasonably incur in connection
with the continuation of operations until the earlier of the consummation of the business combination or the Extended Date and
the total of all such costs and expenses shall not exceed a total of $300,000 in the aggregate for all Extensions through the
Extended Date. No Seller Loan may exceed $1,000,000 in the aggregate (including loans to fund costs and expenses). The Seller
Loans made on or about October 23, 2019, December 21, 2019 and January 21, 2020, each in the principal amount of approximately
$979,000 under the Amended Seller Note reflects a loan to fund our Contributions to the Trust Account of approximately $879,000
plus $100,000 to fund the costs and expenses that we reasonably expect incur in connection with the continuation of operations
until the earlier of the consummation of the business combination or the Extended Date. As of March 31, 2020, we had borrowed
in respect of its costs and expenses a total of $300,000 in the aggregate.
The
Seller Loans will be forgiven by the Seller if the closing of the business combination does not occur and the Trust Account liquidates,
except to the extent of any funds that are available to us (i) after such liquidation in accordance with the trust agreement,
or (ii) from any other source. The amount of the Seller Loans will be repayable by us to the Seller upon consummation of the business
combination.
When
we elected and/or the Seller requested that we extend the date by which we have to consummate the business combination, we publicly
announced the Company’s decision. In addition, we made additional Contributions of $0.03 per outstanding public share for
each period of the extension by us at our option and/or at the Seller’s request. The Seller has so far made Contributions
of approximately $979,000 for each of the first three extensions, and approximately $879,000 for the fourth and fifth extension
to March 21, 2020, for Contributions of a total aggregate amount of approximately $4,696,000. Subsequent to March 31, 2020, in
April 2020, we elected to extend the date for the one remaining 30-day extension periods, the Seller made Contributions of approximately
$879,000, respectively. On April 21, 2020, we filed a definitive proxy on Schedule 14A seeking to further extend the deadline
to consummate a business combination. We intend to hold the special meeting for the Second Extension and, if approved, effect
a further extension of the Extended Date to November 20, 2020 only if the Business Combination is not consummated by the Extended
Date. If our board of directors determines that we will not be able to consummate an initial business combination by the Extended
Date (or, if approved, the Second Extension), our board of directors would wind up our affairs and redeem 100% of the outstanding
public shares.
We
believe our sources of liquidity, including our $569,000 cash position at March 31, 2020, together with the agreement for Seller
Loans in the Share Exchange Agreement, are adequate to fund our operations until May 20, 2020 the Extended Date. In addition,
we may continue to withdraw from the Trust Account amounts necessary for taxes, and for working capital of up to $750,000 annually
(on a pro rata basis), during the period of the Extension Agreement. We will use these funds primarily to perform business due
diligence on the prospective business combination target business, review corporate documents and material agreements of prospective
target business, structure, negotiate and complete the business combination, pay our professional and other costs of being a public
company, and to pay taxes to the extent the interest earned on the trust account is not sufficient to pay our taxes. We do not
expect to have any material capital expenditures during 2020, except as may be incurred in connection with our initial business
combination (if any).
In
order to fund working capital deficiencies or finance transaction costs in connection with an intended initial business combination,
our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds
as may be required. If we complete our initial business combination, we would repay such loaned amounts. In the event that our
initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay
such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may
be convertible into warrants of the post business combination entity at a price of $0.50 per warrant at the option of the lender.
The warrants would be identical to the private placement warrants issued to our Sponsor, including as to exercise price, exercisability
and exercise period. The terms of such loans by our officers and directors, if any, have not been determined and no written agreements
exist with respect to such loans. Assuming that we complete our initial business combination within the Outside Extended Date,
we do not expect to seek loans from parties other than our Sponsor or an affiliate of our sponsor as we do not believe third parties
will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account.
Unless
and until we complete an initial business combination, we expect our primary liquidity requirements will include legal, accounting,
due diligence, travel and other expenses associated with completing the business combination or structuring, negotiating and documenting
successful business combinations; legal and accounting fees related to regulatory reporting requirements; NYSE and other regulatory
fees; office space, administrative, consulting and support services provided under an agreement with our Sponsor and other working
capital needs. In addition, we expect to use a portion of the funds not being placed in trust to pay commitment fees for financing,
fees to consultants to assist us with our search for a target business or as a down payment or to fund a “no-shop”
provision (a provision designed to keep target businesses from “shopping” around for transactions with other companies
on terms more favorable to such target businesses) with respect to a particular proposed business combination. If we entered into
an agreement where we paid for the right to receive exclusivity from a target business, the amount that would be used as a down
payment or to fund a “no-shop” provision would be determined based on the terms of the specific business combination
and the amount of our available funds at the time. Our forfeiture of such funds (whether as a result of our breach or otherwise)
could result in our not having sufficient funds to continue searching for, or conducting due diligence with respect to, prospective
target businesses. There can be no assurances that we will complete our initial business combination within the 24 month period
subsequent to our Public Offering and called for under the Extension Amendment, which could materially and adversely affect our
liquidity requirements and working capital needs.
Going
Concern
In
connection with our assessment of going concern considerations in accordance with Financial Accounting Standard Board’s
Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to
Continue as a Going Concern”, management has determined that the working capital deficit and the mandatory liquidation and
subsequent dissolution raises substantial doubt about our ability to continue as a going concern. No adjustments have been made
to the carrying amounts of assets or liabilities should we be required to liquidate after May 20, 2020.
Critical
Accounting Policies
The
preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ
from those estimates. The Company has identified the following as its critical accounting policies:
Emerging
Growth Company
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 an 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.
Net
Income (Loss) per Common Share
Net
income (loss) per common share is computed by dividing net income (loss) applicable to common stockholders by the weighted average
number of common shares outstanding for the period. The Company has not considered the effect of the warrants sold in the initial
public offering (including the consummation of the over-allotment) and private placement to purchase an aggregate of 23,750,000
Class A ordinary shares in the calculation of diluted income (loss) per share, since their inclusion would be anti-dilutive under
the treasury stock method. As a result, diluted income (loss) per common share is the same as basic loss per common share for
the period.
The
Company’s statements of operations include a presentation of income (loss) per share for common stock subject to redemption
in a manner similar to the two-class method of income (loss) per share. Net income (loss) per common share, basic and diluted
for Class A common stock is calculated by dividing the interest income earned on the Trust Account, net of income tax expense,
franchise tax expense and funds available to be withdrawn from Trust for working capital purposes (up to a maximum of $750,000
annually), by the weighted average number of Class A common stock outstanding for the period. Net income (loss) per common share,
basic and diluted, for Class F common stock is calculated by dividing the net income (loss), less income attributable to Class
A Common Stock, by the weighted average number of Class F common stock outstanding for the period. Net income (loss) available
to each class of common stockholders is as follows for the three months ended March 31, 2020 and 2019:
|
|
Three months ended
|
|
|
|
March 31
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net income available to Class A common stockholders:
|
|
|
|
|
|
|
Interest income
|
|
$
|
936,000
|
|
|
$
|
1,761,000
|
|
Less: Income and franchise taxes
|
|
|
(222,000
|
)
|
|
|
(410,000
|
)
|
Expenses available to be paid with interest income from Trust (up to a maximum of $750,000 per year)
|
|
|
(188,000
|
)
|
|
|
(212,000
|
)
|
Net income available to Class A common stockholders
|
|
$
|
526,000
|
|
|
$
|
1,139,000
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net income available to Class F common stockholders:
|
|
|
|
|
|
|
Net income
|
|
$
|
284,000
|
|
|
$
|
1,139,000
|
|
Less: amount attributable to Class A common stockholders
|
|
|
(526,000
|
)
|
|
|
(1,139,000
|
)
|
Net income (loss) available to class F common stockholders
|
|
$
|
(242,000
|
)
|
|
$
|
-
|
|
Financial
Instruments:
The
fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair
Value Measurements and Disclosures,” approximates the carrying amounts represented in the financial statements.
Deferred
Offering Costs:
The
Company complies with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (SAB) Topic 5A – “Expenses
of Offering”. Offering costs of approximately $17,387,000 consisted principally of underwriter discounts of $16,500,000
(including $10,500,000 of which payment is deferred) and approximately $887,000 of professional, printing, filing, regulatory
and other costs, have been charged to additional paid-in-capital upon completion of the public offering.
Income
Taxes:
The
Company follows the asset and liability method of accounting for income taxes under FASB 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.
The
Company’s currently taxable income consists of interest income on the Trust Account net of franchise taxes. The Company’s
general and administrative costs are generally considered start-up costs and are not currently deductible. The Company recorded
income tax expense of approximately $186,000 and $360,000, respectively, in the three months ended March 31, 2020 and 2019, respectively,
primarily related to interest income earned on the Trust Account net of franchise taxes. The Company’s effective tax rate
was approximately 40% and 24%, respectively, for the three months ended March 31, 2020 and 2019. The Company’s effective
tax rate differs from the expected income tax rate due to the start-up costs and business combination costs (discussed above)
which are not currently deductible. At March 31, 2020 and December 31, 2019, the Company has a deferred tax asset of approximately
$1,177,000 and $1,080,000, respectively, primarily related to start-up costs and business combination costs. Management has determined
that a full valuation allowance of the deferred tax asset is appropriate at this time.
FASB
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement
of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of March 31, 2020 and December
31, 2019. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No
amounts were accrued for the payment of interest and penalties at March 31, 2020 and 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.
Redeemable
Common Stock:
As
discussed in Note 3, all of the 30,000,000 common shares sold as part of a Unit in the public offering contain a redemption feature
which allows for the redemption of common shares under the Company’s Liquidation or Tender Offer/Stockholder Approval provisions.
In accordance with FASB 480, redemption provisions not solely within the control of the Company require the security to be classified
outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s
equity instruments, are excluded from the provisions of FASB ASC 480. Although the Company did not specify a maximum redemption
threshold, its charter provides that in no event will it redeem its Public Shares in an amount that would cause its net tangible
assets (stockholders’ equity) to be less than $5,000,001.
The
Company recognizes changes immediately as they occur and adjusts the carrying value of the securities at the end of each reporting
period. Increases or decreases in the carrying amount of redeemable common stock are affected by adjustments to additional paid-in
capital. Accordingly, at March 31, 2020 and December 31, 2019, 28,372,422 and 28,344,013, respectively, of the 30,000,000 Public
Shares were classified outside of permanent equity at approximately $10.00 per share.
Recent
Accounting Pronouncements
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.