UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2021
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from
to
HNR ACQUISITION CORP
(Exact
name of registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code: (619)500-7747
Not
Applicable
(Former
name or former address, if changed since last report)
Securities
registered pursuant to Section 12(b) of the Act:
Title of Each Class: Trading Symbol: Name of Each Exchange on Which Registered:
Common Stock, par value $0.0001 per share HNRA NYSE American LLC
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer, “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐
The
Registrant’s Units began trading on the NYSE American on February 11, 2022 (separate trading of the Registrant’s common stock
and warrants underlying such Units commenced trading separately on the NYSE American on April 4, 2022, and the Units ceased trading on
April 4, 2022). As of June 30, 2021, the last business day of the Registrant’ most recently completed second fiscal quarter, the
Registrant’s common stock was not publicly traded. Accordingly, there was no market value for the Registrant’s common stock
on such date.
As of April 15, 2022, 11,631,250 shares of common stock, par value
$0.0001 per share, were issued and outstanding.
TABLE
OF CONTENTS
PAGE
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS iii
PART I 1
Item 1 Business 1
Item 1.A. Risk Factors 18
Item 1.B. Unresolved Staff Comments 44
Item 2. Properties 44
Item 3. Legal Proceedings 44
Item 4. Mine Safety Disclosures 44
Item 6. [Reserved] 46
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 49
Item 8. Financial Statements and Supplementary Data 49
Item 9A. Controls and Procedures 49
Item 9B. Other Information. 50
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections. 50
PART III 51
Item 10. Directors, Executive Officers and Corporate Governance 51
Item 11. Executive Compensation 58
Item 14. Principal Accountant Fees and Services 62
Item 15. Exhibits and Financial Statement Schedules 63
i
CERTAIN
TERMS
Unless
otherwise stated in this Annual Form 10-K (this “Report”), or the context otherwise requires, references to:
● “common stock” is to our common stock;
● “management” or our “management team” are to our officers and directors;
● “sponsor” is to HNRAC Sponsors, LLC, a Delaware limited liability company;
● “HNR,” “we,” “us,” “company” or “our company” are to HNR Acquisition Corp.
ii
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some
statements contained in this Report may constitute “forward-looking statements” for purposes of United States federal
securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s
expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts
or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.
The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,”
“intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,”
“project,” “should,” “would” and similar expressions may identify forward-looking statements,
but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this report
may include, for example, statements about:
● our ability to select an appropriate target business or businesses;
● our ability to complete our initial business combination;
● our pool of prospective target businesses;
● our public securities’ potential liquidity and trading;
● the lack of a market for our securities;
● the trust account not being subject to claims of third parties; or
● our financial performance following our Initial Public Offering.
The
forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments
and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated.
These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions
that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements.
These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.”
Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may
vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise
any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under
applicable securities laws. These risks and others described under “Risk Factors” may not be exhaustive.
By
their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that
may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that
our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ
materially from those made in or suggested by the forward-looking statements contained in this Amendment. In addition, even if our results
or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking
statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.
iii
PART
I
ITEM
1. BUSINESS
Our
Company
We
are a newly organized blank check company incorporated on December 9, 2020 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 not selected any specific business combination target and we have not, nor has anyone on our behalf,
initiated any substantive discussions, directly or indirectly, with any business combination target. Our efforts to identify a prospective
target business will not be limited to a particular industry or geographic region. While we may pursue an acquisition opportunity in
any industry or sector, we intend to focus on assets used in exploring, developing, producing, transporting, storing, gathering, processing,
fractionating, refining, distributing or marketing of natural gas, natural gas liquids, crude oil or refined products in North America.
We
intend to identify and acquire a business that could benefit from a hands-on owner with extensive operational experience in the
energy sector in North America and that presents potential for an attractive risk-adjusted return profile under our stewardship.
The largest oil and gas companies, including ExxonMobil, Royal Dutch Shell, Chevron and BP, are projected to sell a combined $100 billion
in oil and gas assets around the world as they focus on top-performing regions according to a new analysis from consulting firm
Rystad (October 2020). Our management team has extensive experience in identifying and executing such potential acquisitions across the
upstream and midstream energy sectors. In addition, our team has significant hands-on experience working with private companies
in preparing for and executing an initial public offering and serving as active owners and directors by working closely with these companies
to continue their transformations and to create value in the public markets.
We
believe that our management team is well positioned to identify attractive risk-adjusted returns in the marketplace and that their
contacts and transaction sources, ranging from industry executives, private owners, private equity funds, and investment bankers, will
enable us to pursue a broad range of opportunities.
We
will seek to capitalize on the extensive experience of each of the members of our management team who have more than 40 years average
experience in the energy industry. Mr. Donald H. Goree, our Chairman and Chief Executive Officer has over 40 years’ experience
in the oil and gas industry involving exploration and production, oil and gas pipeline construction and operations, natural gas gathering,
processing and gas liquification. Mr. Goree was the Founder and President of Goree Petroleum Inc., a corporation engaged in oil
and gas exploration and production in premiere basins throughout the United States for 35 years. Currently, Mr. Goree
is the Founder, Chairman and Chief Executive officer of Houston Natural Resources, Inc., a global natural resource corporation located
in Houston, Texas and the controlling member of our sponsor. Mr. Goree also previously served as Founder, Chairman and Chief Executive
officer of Global Xchange Solutions AG., a publicly reporting corporation, private equity, investment bank and market-making firm,
based in Zurich, Switzerland, with offices in Frankfurt, Germany and London, United Kingdom. Global Xchange Solutions sponsored
listings of private companies to the London Stock Exchange, AIM, the Frankfurt Stock Exchange, the Berlin Stock Exchange and the Börse
Stuttgart, and provided public company development and marketdevelopment advice. Mr. Goree also previously
served as Chairman and Chief Executive officer of Azur Holdings, Inc., a Fort Lauderdale, Florida-based, OTC-listed luxury real
estate developer of mid-rise waterfront condominiums. Mr. Donald W. Orr, our President, is a degreed geologist with over 42 years
of experience in petroleum geology and production operations. Mr. Orr began his career as a junior geologist with Texas Oil and
Gas Corporation in 1976, and was elevated within two years to a supervisory role overseeing over five geologists on his team, most of
whom had more experience than Mr. Orr. In 1979, Mr. Orr helped form American Shoreline, Inc., an independent oil and gas company.
Mr. Orr formerly held a position with Seven Energy LLC, a wholly owned subsidiary of Weatherford International plc in 2005, where
he pioneered numerous innovations in underbalanced drilling, or UBD, including drilling with unconventional materials and devising the
methodology for unlocking the productive capacity of the Buda Lime through the use of UBD. In June 2009, Mr. Orr founded XNP
Resources, LLC, an independent oil and gas company engaged in the exploration, development, production, and acquisition of oil and natural
gas resources. Shortly thereafter, XNP Resources teamed up with Tahoe Energy Partners, LLC to acquire oil and gas leases for drilling
in the Rocky Mountain region. At Mr. Orr’s direction, XNP Resources began acquiring a strategic leasehold position in the
Sand Wash Basin in Colorado. XNP Resources was able to secure a major leasehold position in the heart of what has become the highly competitive
Niobrara Shale formation in western Colorado. Since 2014, Mr. Orr has been developing an unconventional resource play in Alaska
that contains over 600 billion cubic feet of gas in stacked coal reservoirs. More recently, Mr. Orr assembled a team of oil
and gas professionals in order to study certain oil provinces in Columbia. South America.
1
The
past performance of the members of our management team is not a guarantee that we will be able to identify a suitable candidate for our
initial business combination or of success with respect to any business combination we may consummate. You should not rely on the historical
record of the performance of our management team as indicative of our future performance. Additionally, in the course of their respective
careers, members of our management team have been involved in businesses and deals that were unsuccessful. None of our officers and directors
has experience with SPACs.
Business
Strategy
Our
acquisition and value creation strategy will be to identify, acquire and, after our initial business combination, build a company in
the energy industry in North America that complements the experience of our management team and can benefit from their operational expertise
and/or executive oversight. Our acquisition strategy will leverage our management team’s network of potential proprietary and public
transaction sources where we believe a combination of our relationships, knowledge and experience in the energy industry could effect
a positive transformation or augmentation of existing businesses or properties to improve their overall value proposition.
We
plan to utilize the network and industry experience of our management team and business partners in seeking an initial business combination
and employing our acquisition strategy. Over the course of their careers, the members of our management team and their affiliates have
developed a broad network of contacts and industry relationships that we believe will serve as a useful source of acquisition opportunities.
This network has been developed through our management team’s extensive experience in both investing and operating in the energy
industry. In addition to our industry and lending community relationships, we plan to leverage relationships with management teams of
public and private companies, capital market participants, private equity groups, investment banking firms, consultants, restructuring
advisers, attorneys and accounting firms, which we believe should provide us with a number of business combination opportunities. The
members of our management team will communicate with their networks of relationships to articulate the parameters for our search for
a target business and a potential business combination and begin the process of pursuing and reviewing opportunities with value creation
potential.
The
primary strategies our management team will use to identify a potential business combination to generate favorable returns include seeking
to:
Acquisition
Criteria
Consistent
with this strategy, we have identified the following general criteria and guidelines that we believe are important in evaluating prospective
target businesses. We will use these criteria and guidelines in evaluating acquisition opportunities, but we may decide to enter into
our initial business combination with a target business that does not meet these criteria and guidelines. We intend to acquire companies
that we believe:
● have the ability to generate significant current free cash flow;
2
We
will seek to acquire the target on terms and in a manner that leverage our management team’s experience investing within the energy
industry. Potential upside from growth in the target business and an improved capital structure will be weighed against any identified
downside risks.
These
criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular initial business combination may be
based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that our management
may deem relevant. In the event that we decide to enter into our initial business combination with a target business that does not meet
the above criteria and guidelines, we will disclose that the target business does not meet the above criteria in our stockholder communications
related to our initial business combination, which, as discussed in this Report, would be in the form of tender offer documents or proxy
solicitation materials that we would file with the SEC.
Our
Acquisition Process
In
evaluating a prospective target business, we expect to conduct a thorough due diligence review that will encompass, among other things,
meetings with incumbent management and employees, document reviews, inspection of facilities, as well as a review of financial and other
information that will be made available to us. In conducting our due diligence review, we intend to leverage the experience of members
of our management team on an efficient and cost effective basis as we deploy them to review matters related to their specific areas of
functional expertise.
We
are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, or any of our officers
or directors. In the event we seek to complete our initial business combination with a company that is affiliated with our sponsor, or
any of our officers or directors, we, or a committee of independent directors, will obtain an opinion from either an independent investment
banking firm or another independent entity that commonly renders valuation opinions that our initial business combination is fair to
our company from a financial point of view. We will also provide a summary of any such opinion or report to shareholders in connection
with any vote on an initial business combination in our proxy materials or tender offer documents, as applicable, related to our initial
business combination in accordance with Section 1015(b) of Regulation S-K. Additionally, pursuant to the NYSE American rules, any initial
business combination must be approved by a majority of our independent directors.
Members
of our management team will directly or indirectly own founder shares and/or private placement units and, accordingly, may have a conflict
of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial business
combination. Further, each of our officers and directors may have a conflict of interest with respect to evaluating a particular business
combination target if the retention or resignation of any such officers and directors was included by a target business as a condition
to any agreement with respect to our initial business combination.
We
have not selected any specific business combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions,
directly or indirectly, with any business combination target. Each of our officers and directors presently has, and any of them in the
future may have additional, fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will
be required to present a business combination opportunity. Accordingly, if any of our officers or directors becomes aware of a business
combination opportunity which is suitable for an entity to which he or she has then-current fiduciary or contractual obligations,
he or she will honor his or her fiduciary or contractual obligations to present such opportunity to such entity. We do not believe, however,
that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our
business combination. Our amended and restated certificate of incorporation will provide that we renounce our interest in any corporate
opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or her capacity
as a director or officer of our company and such opportunity is one we are legally and contractually permitted to undertake and would
otherwise be reasonable for us to pursue.
Our
executive officers are not required to commit any specified amount of time to our affairs, and, accordingly, will have conflicts of interest
in allocating management time among various business activities, including identifying potential business combination targets and monitoring
the related due diligence.
3
Initial
Business Combination
So
long as we maintain a listing for our securities on the NYSE American, our initial business combination must be with one or more target
businesses that together have an aggregate fair market value equal to at least 80% of the value of the assets held in the trust account
(excluding any deferred underwriters fees and taxes payable on the interest earned on the trust account) at the time of our signing a
definitive agreement in connection with our initial business combination. The fair market value of the target or targets will be determined
by our board of directors based upon one or more standards generally accepted by the financial community (such as actual and potential
sales, earnings, cash flow and/or book value). Although our board of directors will rely on generally accepted standards, our board of
directors will have discretion to select the standards employed. In addition, the application of the standards generally involves a substantial
degree of judgment. Accordingly, investors will be relying on the business judgment of the board of directors in evaluating the fair
market value of the target or targets. The proxy solicitation materials or tender offer documents used by us in connection with any proposed
transaction will provide public stockholders with our analysis of the fair market value of the target business, as well as the basis
for our determinations. If our board of directors is not able to independently determine the fair market value of the target business
or businesses, we will obtain an opinion from an independent investment banking firm or another independent entity that commonly renders
valuation opinions that our initial business combination is fair to our company from a financial point of view. We will also provide
a summary of any such opinion or report to shareholders in connection with any vote on an initial business combination in our proxy materials
or tender offer documents, as applicable, related to our initial business combination in accordance with Section 1015(b) of Regulation
S-K. Additionally, pursuant to the NYSE American rules, any initial business combination must be approved by a majority of our independent
directors.
We
currently anticipate structuring our initial business combination so that the post-transaction company in which our public stockholders
own shares will own or acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure
our initial business combination such that the post-transaction company owns or acquires less than 100% of such interests or assets
of the target business in order to meet certain objectives of the target management team or stockholders or for other reasons. However,
we will only complete such business combination if the post-transaction company owns or acquires 50% or more of the outstanding
voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register
as an investment company under the Investment Company Act. Even if the post-transaction company owns or acquires 50% or more of
the voting securities of the target, our stockholders prior to the business combination may collectively own a minority interest in the
post-transaction company, depending on valuations ascribed to the target and us in the business combination transaction. For example,
we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock
of a target. In this case, we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial
number of new shares, our stockholders immediately prior to our initial business combination could own less than a majority of our outstanding
shares subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses
are owned or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what
will be valued for purposes of the 80% fair market value test. If the business combination involves more than one target business, the
80% fair market value test will be based on the aggregate value of all of the target businesses and we will treat the target businesses
together as the initial business combination for purposes of a tender offer or for seeking stockholder approval, as applicable.
Sourcing
of Potential Business Combination Targets
We
believe our management team’s significant operating and transaction experience and relationships with companies will provide us
with a substantial number of potential business combination targets. Over the course of their careers, such individuals have developed
a broad network of contacts and corporate relationships around the world. This network has grown through the activities of our management
team sourcing, acquiring, financing and selling businesses, our management team’s relationships with sellers, financing sources
and target management teams and the experience of such individuals in executing transactions under varying economic and financial market
conditions.
In
addition, members of our management team have developed contacts from serving on the boards of directors of several companies in diverse
sectors, as described more fully in “Management.”
This
network is expected to provide us with a robust and consistent flow of acquisition opportunities which we expect to be proprietary or
where a limited group of investors will be invited to participate in the sale process. In addition, we anticipate that target business
candidates will be brought to our attention from various unaffiliated sources, including investment market participants, private equity
funds and large business enterprises seeking to divest non-core assets or divisions.
We
are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, officers or directors.
In the event we seek to complete our initial business combination with a company that is affiliated with our sponsor, officers or directors,
we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm or another independent
entity that commonly renders valuation opinion that our initial business combination is fair to our company from a financial point of
view. We will also provide a summary of any such opinion or report to shareholders in connection with any vote on an initial business
combination in our proxy materials or tender offer documents, as applicable, related to our initial business combination in accordance
with Section 1015(b) of Regulation S-K. Additionally, pursuant to the NYSE American rules, any initial business combination must be approved
by a majority of our independent directors.
4
As
more fully discussed in “Management — Conflicts of Interest,” if any of our executive officers or directors
becomes aware of a business combination opportunity that falls within the line of business of any entity to which such officer or director
has pre-existing fiduciary or contractual obligations, such officer or director may be required to present such business combination
opportunity to such entity prior to presenting such business combination opportunity to us. Our executive officers and directors currently
have fiduciary duties or contractual obligations to several entities that may present a conflict of interest. As a result of these duties
and obligations, situations may arise in which business opportunities may be given to one or more of these other entities prior to being
presented to us.
Status
as a Public Company
We
believe our structure will make us an attractive business combination partner to target businesses. As a public company, we will offer
a target business an alternative to the traditional initial public offering through a merger or other business combination. In this situation,
the owners of the target business would exchange their shares of stock in the target business for shares of our stock or for a combination
of shares of our stock and cash, allowing us to tailor the consideration to the specific needs of the sellers. Although there are various
costs and obligations associated with being a public company, we believe target businesses will find this method a more certain and cost
effective method to becoming a public company than the typical initial public offering. In a typical initial public offering, there are
additional expenses incurred in marketing, road show and public reporting efforts that may not be present to the same extent in connection
with a business combination with us.
Furthermore,
once a proposed business combination is completed, the target business will have effectively become public, whereas an initial public
offering is always subject to the underwriter’s ability to complete the offering, as well as general market conditions, which could
delay or prevent the offering from occurring. Once public, we believe the target business would then have greater access to capital and
an additional means of providing management incentives consistent with stockholders’ interests. It can offer further benefits by
augmenting a company’s profile among potential new customers and vendors and aid in attracting talented employees.
While
we believe that our structure and our management team’s backgrounds will make us an attractive business partner, some potential
target businesses may view our status as a blank check company, without an operating history, and the uncertainty relating to our ability
to obtain stockholder approval of our proposed initial business combination and retain sufficient funds in our trust account in connection
therewith, negatively.
Emerging
Growth Company
We
are an “emerging growth company,” as defined in the JOBS Act. As such, we are eligible to take advantage of certain exemptions
from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”
including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act,
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the
requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments
not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market
for our securities and the prices of our securities may be more volatile.
In
addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In
other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would
otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, the
information we provide to you may be different than you might get from other public companies in which you hold securities.
We
will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary
of the closing of our Initial Public Offering, or December 31, 2027, (ii) the last day of the fiscal year in which we have total
annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large
accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common
stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year
or (iv) the date on which we have issued more than $1.00 billion in non-convertible debt securities during the prior three-year period.
5
Financial
Position
With
funds available for a business combination initially in the amount of $87,975,000, assuming no redemptions, we offer a target business
a variety of options such as creating a liquidity event for its owners, providing capital for the potential growth and expansion of its
operations or strengthening its balance sheet by reducing its debt ratio. Because we are able to complete our business combination using
our cash, debt or equity securities, or a combination of the foregoing, we have the flexibility to use the most efficient combination
that will allow us to tailor the consideration to be paid to the target business to fit its needs and desires. However, we have not taken
any steps to secure third party financing and there can be no assurance it will be available to us.
Effecting
our Initial Business Combination
We
are not presently engaged in, and we will not engage in, any operations for an indefinite period of time following our Initial Public
Offering. 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 units, our capital stock, debt or a combination of these as the consideration to be paid in
our initial business combination. We may seek to complete our initial business combination with a company or business that may be financially
unstable or in its early stages of development or growth, which would subject us to the numerous risks inherent in such companies and
businesses.
If
our initial business combination is paid for using equity or debt securities, or not all of the funds released from the trust account
are used for payment of the consideration in connection with our business combination or used for redemptions of purchases of our common
stock, we may apply the balance of the cash released to us from the trust account for general corporate purposes, including for maintenance
or expansion of operations of the post-transaction company, the payment of principal or interest due on indebtedness incurred in
completing our initial business combination, to fund the purchase of other companies or for working capital.
We
have not selected any specific business combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions,
directly or indirectly, with any business combination target.
We
may seek to raise additional funds through a private offering of debt or equity securities in connection with the completion of our initial
business combination, and we may effectuate our initial business combination using the proceeds of such offering rather than using the
amounts held in the trust account.
In
the case of an initial business combination funded with assets other than the trust account assets, our tender offer documents or proxy
materials disclosing the business combination would disclose the terms of the financing and, only if required by law, we would seek stockholder
approval of such financing. There are no prohibitions on our ability to raise funds privately or through loans in connection with our
initial business combination. At this time, we are not a party to any arrangement or understanding with any third party with respect
to raising any additional funds through the sale of securities or otherwise.
Selection
of a target business and structuring of our initial business combination
The
NYSE American rules require that our initial business combination must be with one or more target businesses that together have an aggregate
fair market value equal to at least 80% of the value of the assets held in the trust account (excluding any deferred underwriters fees
and taxes payable on the interest earned on the trust account) at the time of our signing a definitive agreement in connection with our
initial business combination. So long as we maintain a listing for our securities on the NYSE American, we will be required to comply
with such rule. The fair market value of the target or targets will be determined by our board of directors based upon one or more standards
generally accepted by the financial community. Although our board of directors will rely on generally accepted standards, our board of
directors will have discretion to select the standards employed. In addition, the application of the standards generally involves a substantial
degree of judgment. Accordingly, investors will be relying on the business judgment of the board of directors in evaluating the fair
market value of the target or targets. The proxy solicitation materials or tender offer documents used by us in connection with any proposed
transaction will provide public stockholders with our analysis of the fair market value of the target business, as well as the basis
for our determinations. If our board is not able to independently determine the fair market value of the target business or businesses,
we will obtain an opinion from an independent investment banking firm or another independent entity that commonly renders valuation opinion
that our initial business combination is fair to our company from a financial point of view. We will also provide a summary of any such
opinion or report to shareholders in connection with any vote on an initial business combination in our proxy materials or tender offer
documents, as applicable, related to our initial business combination in accordance with Section 1015(b) of Regulation S-K. Additionally,
pursuant to the NYSE American rules, any initial business combination must be approved by a majority of our independent directors. We
do not intend to purchase multiple businesses in unrelated industries in conjunction with our initial business combination. Subject to
this requirement, our management will have virtually unrestricted flexibility in identifying and selecting one or more prospective target
businesses, although we will not be permitted to effectuate our initial business combination with another blank check company or a similar
company with nominal operations.
6
In
any case, we will only complete an initial business combination in which we own or acquire 50% or more of the outstanding voting securities
of the target or otherwise acquire a controlling interest in the target sufficient for it not to be required to register as an investment
company under the Investment Company Act. If we own or acquire less than 100% of the equity interests or assets of a target business
or businesses, the portion of such business or businesses that are owned or acquired by the post-transaction company is what will
be valued for purposes of the 80% fair market value test. There is no basis for investors in our Initial Public Offering to evaluate
the possible merits or risks of any target business with which we may ultimately complete our business combination.
To
the extent we effect our business combination with a company or business that may be financially unstable or in its early stages of development
or growth we may be affected by numerous risks inherent in such company or business. Although our management will endeavor to evaluate
the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all significant risk
factors.
In
evaluating a prospective target business, we expect to conduct a thorough due diligence review which will encompass, among other things,
meetings with incumbent management and employees, document reviews, inspection of facilities, as well as a review of financial, operational,
legal and other information which will be made available to us.
The
time required to select and evaluate a target business and to structure and complete our initial business combination, and the costs
associated with this process, are not currently ascertainable with any degree of certainty. Any costs incurred with respect to the identification
and evaluation of a prospective target business with which our business combination is not ultimately completed will result in our incurring
losses and will reduce the funds we can use to complete another business combination.
Lack
of business diversification
For
an indefinite period of time after the completion of our initial business combination, the prospects for our success may depend entirely
on the future performance of a single business.
Unlike
other entities that have the resources to complete business combinations with multiple entities in one or several industries, it is probable
that we will not have the resources to diversify our operations and mitigate the risks of being in a single line of business. By completing
our business combination with only a single entity, our lack of diversification may:
Limited
ability to evaluate the target’s management team
Although
we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting our business
combination with that business, our assessment of the target business’ management may not prove to be correct. In addition, the
future management may not have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future
role of members of our management team, if any, in the target business cannot presently be stated with any certainty. While it is possible
that one or more of our directors will remain associated in some capacity with us following our business combination, it is unlikely
that any of them will devote their full efforts to our affairs subsequent to our business combination. Moreover, we cannot assure you
that members of our management team will have significant experience or knowledge relating to the operations of the particular target
business.
We
cannot assure you that any of our key personnel will remain in senior management or advisory positions with the combined company. The
determination as to whether any of our key personnel will remain with the combined company will be made at the time of our initial business
combination.
Following
a business combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We
cannot assure you that we will have the ability to recruit additional managers, or that additional managers will have the requisite skills,
knowledge or experience necessary to enhance the incumbent management.
7
Stockholders
may not have the ability to approve our initial business combination
We
may conduct redemptions without a stockholder vote pursuant to the tender offer rules of the SEC. However, we will seek stockholder approval
if it is required by law or applicable stock exchange rule, or we may decide to seek stockholder approval for business or other legal
reasons. Presented in the table below is a graphic explanation of the types of initial business combinations we may consider and whether
stockholder approval is currently required under Delaware law for each such transaction.
Type of Transaction Whether Stockholder Approval is Required under Delaware Law
Purchase of assets No
Purchase of stock of target not involving a merger with the company No
Merger of target into a subsidiary of the company No
Merger of the company with a target Yes
Under
the NYSE American’s listing rules, stockholder approval would be required for our initial business combination if, for example:
Permitted
purchases of our securities
In
the event we seek stockholder approval of our business combination and we do not conduct redemptions in connection with our business
combination pursuant to the tender offer rules, our sponsor, directors, officers, advisors or their affiliates may purchase shares in
privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination.
However, we are not aware of any current commitments, plans or intentions to engage in such transactions and have not formulated any
terms or conditions for any such transactions. None of the funds in the trust account will be used to purchase shares in such transactions.
They will not make any such purchases when they are in possession of any material non-public information not disclosed to the seller
or if such purchases are prohibited by Regulation M under the Exchange Act. Such a purchase may include a contractual acknowledgement
that such stockholder, although still the record holder of our shares is no longer the beneficial owner thereof and therefore agrees
not to exercise its redemption rights. We will adopt an insider trading policy which will require insiders to: (i) refrain from
purchasing shares during certain blackout periods and when they are in possession of any material non-public information and (ii) to
clear all trades with our legal counsel prior to execution. We cannot currently determine whether our insiders will make such purchases
pursuant to a Rule 10b5-1 plan, as it will be dependent upon several factors, including but not limited to, the timing and
size of such purchases. Depending on such circumstances, our insiders may either make such purchases pursuant to a Rule 10b5-1 plan
or determine that such a plan is not necessary.
In
the event that our sponsor, directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from
public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke
their prior elections to redeem their shares. We do not currently anticipate that such purchases, if any, would constitute a tender offer
subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules
under the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such
rules, the purchasers will comply with such rules.
The
purpose of such purchases would be to (i) vote such shares in favor of the business combination and thereby increase the likelihood
of obtaining stockholder approval of the business combination or (ii) to satisfy a closing condition in an agreement with a target
that requires us to have a minimum net worth or a certain amount of cash at the closing of our business combination, where it appears
that such requirement would otherwise not be met. This may result in the completion of our business combination that may not otherwise
have been possible.
8
In
addition, if such purchases are made, the public “float” of our common stock may be reduced and the number of beneficial
holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our
securities on a national securities exchange.
Our
sponsor, officers, directors and/or their affiliates anticipate that they may identify the stockholders with whom our sponsor, officers,
directors or their affiliates may pursue privately negotiated purchases by either the stockholders contacting us directly or by our receipt
of redemption requests submitted by stockholders following our mailing of proxy materials in connection with our initial business combination.
To the extent that our sponsor, officers, directors, advisors or their affiliates enter into a private purchase, they would identify
and contact only potential selling stockholders who have expressed their election to redeem their shares for a pro rata share of the
trust account or vote against the business combination. Our sponsor, officers, directors, advisors or their affiliates will only purchase
shares if such purchases comply with Regulation M under the Exchange Act and all other applicable federal securities laws.
Any
purchases by our sponsor, officers, directors and/or their affiliates who are affiliated purchasers under Rule 10b-18 under
the Exchange Act will only be made to the extent such purchases are able to be made in compliance with Rule 10b-18, which is a safe
harbor from liability for manipulation under Section 9(a)(2) of, and Rule 10b-5 under, the Exchange Act. Rule 10b-18 has
certain technical requirements that must be complied with in order for the safe harbor to be available to the purchaser. Our sponsor,
officers, directors and/or their affiliates will not make purchases of common stock if the purchases would violate Section 9(a)(2)
of, or Rule 10b-5 under, the Exchange Act.
Ability
to Extend Time to Complete Business Combination
We will have until 12 months from February 10, 2022 to consummate
our initial business combination. However, if we anticipate that we may not be able to consummate our initial business combination within
12 months, we may, by resolution of our board if requested by our sponsor, extend the period of time to consummate a business combination
up to two times, each by an additional three months (for a total of up to 18 months to complete a business combination), subject
to the sponsor depositing additional funds into the trust account as set out below. Pursuant to the terms of the trust agreement entered
into between us and Continental Stock Transfer & Trust Company, LLC, in order to extend the time available for us to consummate our
initial business combination, our initial shareholders or their affiliates or designees, upon five days advance notice prior to the applicable
deadline, must deposit into the trust account for each three-month extension, $862,500 on or prior to the date of the applicable
deadline, up to an aggregate of $1,725,000, or approximately $0.20 per share. Any such payments would be made in the form of a loan. Any
such loans will be non-interest bearing and payable upon the consummation of our initial business combination. 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 $1,000,000 of such loans may be convertible into private placement warrants of the post business
combination entity at a price of $1.00 per private placement warrant at the option of the lender. Furthermore, the letter agreement with
our initial stockholders contains a provision pursuant to which our sponsor has agreed to waive its right to be repaid for such loans
out of the funds held in the trust account in the event that we do not complete a business combination. In the event that we receive notice
from our sponsor five days prior to the applicable deadline of its wish for us to effect an extension, we intend to issue a press release
announcing such intention at least three days prior to the applicable deadline. In addition, we intend to issue a press release the day
after the applicable deadline announcing whether or not the funds had been timely deposited. Our sponsor and its affiliates or designees
are not obligated to fund the trust account to extend the time for us to complete our initial business combination. If we choose to extend
the period of time to consummate a business combination as set forth herein, you will not have the ability to vote or redeem your shares
in connection with either of the three-month extensions. However, if we seek to complete a business combination during an extension
period, investors will still be able to vote and redeem their shares in connection with that business combination.