Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion
and analysis of the Company’s financial condition and results of operations should be read in conjunction with our audited consolidated
financial statements and the notes related thereto which are included in “Item 8. Financial Statements and Supplementary Data”
of this Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking
statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors,
including those set forth under “Cautionary Note Regarding Forward-Looking Statements,” “Item 1A. Risk Factors”
and elsewhere in this Annual Report on Form 10-K.
Overview
We are a former blank check
company formed under the laws of the State of Delaware on November 12, 2019 for the purpose of effecting a capital stock exchange,
asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
We completed our IPO on June 4,
2020. On February 10, 2021, we consummated the previously announced acquisition of all of the issued and outstanding shares of Playboy,
in accordance with the Merger Agreement, by and among MCAC, Merger Sub, Playboy and Suying Liu. As contemplated in the Merger Agreement,
Merger Sub merged with and into Playboy with Playboy surviving as a wholly-owned subsidiary of MCAC. In addition, in connection with the
closing of the Business Combination, MCAC changed its name to “PLBY Group, Inc.”
23
Results of Operations
Our only activities from
inception to December 31, 2020 were organizational activities, those necessary to prepare for the IPO, identifying a target company
for the Business Combination and consummating the acquisition of Playboy. We generated non-operating income in the form of interest income
on marketable securities held after the IPO and prior to the Business Combination. We have incurred expenses as a result of being a public
company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses related to the Business
Combination.
For the year ended December 31,
2020, we had a net loss of $1,061,802 which consisted of operating costs of $1,093,833 offset by interest earned on marketable securities
held in the Trust Account of $31,669 and an unrealized gain on marketable securities held in our Trust Account of $362.
For the period from November 12,
2019 (inception) through December 31, 2019, we had net loss of $492, which consisted of operating costs.
Liquidity and Capital Resources
On June 9, 2020, we
consummated the IPO of 5,000,000 Units at a price of $10.00 per Unit, generating gross proceeds of $50,000,000. Simultaneously with the
closing of the IPO, we consummated the sale of 321,500 Private Units at a price of $10.00 per Private Unit in a private placement to the
Sponsor, generating gross proceeds of $3,215,000.
On June 19, 2020, in
connection with the underwriters’ election to partially exercise their over-allotment option, we consummated the sale of an additional
749,800 Units and the sale of an additional 33,741 Private Units, generating total gross proceeds of $7,835,410.
Following the IPO, the partial
exercise of the over-allotment option and the sale of the Private Units, a total of $58,647,960 was placed in the Trust Account. We incurred
$4,010,359 in transaction costs, including $1,437,450 of underwriting fees, $2,012,430 of deferred underwriting fees and $560,479 of other
offering costs.
For the year ended December 31,
2020 cash used in operating activities was $371,622. Net loss of $1,061,802 was impacted by interest earned on marketable securities held
in the Trust Account of $31,669, an unrealized gain on marketable securities held in the Trust Account of $362 and changes in operating
assets and liabilities, which provided $722,211 of cash from operating activities.
As of December 31, 2020,
we had cash and marketable securities in the Trust Account of $58,679,991 (including approximately $32,000 of interest income and unrealized
losses).
As a result of and at the
Closing of the Business Combination, on February 10, 2021, MCAC acquired all of the outstanding Playboy shares for approximately
$381.3 million in aggregate consideration, comprising an aggregate of 20,916,812 shares of common stock to existing stockholders of Playboy,
assumed Playboy options exercisable for an aggregate of 3,560,541 shares of common stock at a weighted average exercise price of $5.61,
and assumed the obligation to issue shares in respect of terminated Playboy restricted stock units for an aggregate of 2,045,634 shares
of common stock to be settled approximately one year following the Closing. As a result of the Business Combination, the Company became
obligated with respect to debt of Playboy and its subsidiaries that remained outstanding after the consummation of the Business Combination
under its credit agreement, which totaled approximately $158.2 million at the Closing.
As previously announced,
on September 30, 2020, concurrently with the execution of the Merger Agreement, MCAC entered into the Subscription Agreements and
registration rights agreements with certain institutional and accredited investors pursuant to, and on the terms and subject to the conditions
of which, the PIPE Investors collectively subscribed for an aggregate 5,000,000 shares of common stock at $10.00 per share for aggregate
gross proceeds of $50.0 million. The PIPE was consummated substantially concurrently with the Closing.
Prior to the Business
Combination, MCAC’s liquidity needs were satisfied from the proceeds obtained through the initial public offering not held in
the trust account.Following consummation of the Business Combination, the Company’s main source of liquidity
is cash on hand, including cash received from the Trust Account and proceeds from the PIPE received at the closing of the Business
Combination, and cash generated from operating and financing activities, which primarily includes cash derived from revenue
generating activities and proceeds from the issuance of debt including term loans, promissory notes and convertible promissory
notes. The Company believes its existing sources of liquidity will be sufficient to fund its operations, including lease
obligations, debt service requirements, capital expenditures and working capital obligations for the next 12 months. The Company may
seek additional equity or debt financing in the future to satisfy capital requirements or fund organic or inorganic growth
opportunities. In the event that additional financing is required from third party sources, the Company may not be able to raise it
on acceptable terms or at all.
24
Off-Balance Sheet Arrangements
We did not have any off-balance
sheet arrangements as of December 31, 2020.
Contractual Obligations
As of December 31, 2020,
we did not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities other than an agreement
to pay an affiliate of our Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support. We
began incurring these fees on June 4, 2020 and continued to incur those fees monthly until the completion of the Business Combination.
The underwriters of the
IPO were entitled to a deferred fee of $0.35 per Unit, or $2,012,430. The deferred fee became payable to the underwriters from the amounts
held in the Trust Account upon the completion of the Business Combination, subject to the terms of the underwriting agreement. The deferred
fee was paid upon the closing of the Business Combination.
In addition, subject to certain
conditions, we granted Chardan, for a period of 15 months after the date of the consummation of the Business Combination, a right of first
refusal to act as lead underwriters or minimally as a co-manager: (i) for any and all future public and private equity offerings
with at least 30% of the economics, or, in the case of a three-handed deal, 20% of the economics, and (ii) for any and all future
public and private debt offerings, with at least 15% of the economics. In accordance with Financial Industry Regulatory Authority (“FINRA”)
Rule 5110(f)(2)(E)(i), such right of first refusal shall not have a duration of more than three years from the effective date of
the registration statement related to the IPO.
Critical Accounting Policies
The preparation of consolidated
financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the consolidated financial statements, and income and expenses during the periods reported. Actual
results could materially differ from those estimates. We have identified the following critical accounting policies:
Common Stock Subject to Possible Redemption
We account for our common
stock subject to possible conversion in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480
“Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument
and measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either
within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified
as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our common stock featured certain redemption
rights that were considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, common stock
subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section
of our balance sheets.
Net Loss Per Common Share
The Company’s consolidated
statement of operations includes a presentation of income (loss) per share for common shares subject to possible redemption in a manner
similar to the two-class method of income (loss) per share. Net income per common share, basic and diluted, for common stock subject
to possible redemption is calculated by dividing the proportionate share of income or loss on marketable securities held by the Trust
Account, net of applicable franchise and income taxes, by the weighted average number of common stock subject to possible redemption
outstanding since original issuance.
25
Net loss per share, basic
and diluted, for non-redeemable common stock is calculated by dividing the net loss, adjusted for income or loss on marketable securities
attributable to Common stock subject to possible redemption, by the weighted average number of non-redeemable common stock outstanding
for the period.
Non-redeemable common stock
includes Insider Shares and non-redeemable shares of common stock as these shares do not have any redemption features. Non-redeemable
common stock participates in the income or loss on marketable securities based on non-redeemable common stock shares’ proportionate
interest.
Recent accounting pronouncements
Management does not believe
that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our
consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined
by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
26
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Page
Report of Independent Registered Public Accounting Firm F-28
Statements of Operations for the Years Ended December 31, 2020 and 2019 F-30
Statements of Cash Flows for the Years Ended December 31, 2020 and 2019 F-32
Notes to Financial Statements
27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Shareholders and Board of Directors of
PLBY Group, Inc. (f/k/a Mountain Crest Acquisition Corp)
Opinion on the Consolidated Financial Statements
We have audited the
accompanying balance sheets of PLBY Group, Inc. (f/k/a Mountain Crest Acquisition Corp) (the “Company”) as of
December 31, 2020 and 2019, the related statements of operations, changes in stockholders’ equity (deficit) and cash
flows for year ended December 31, 2020 and for the period from November 12, 2019 (inception) through December 31,
2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2020 and 2019, and the results of its operations and its cash flows for the year ended December 31, 2020 and
for the period from November 12, 2019 (inception) through December 31, 2019, in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in
accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we
are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing
procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits
provide a reasonable basis for our opinion.
/s/
Marcum LLP
Marcum LLP
We have served as the Company’s auditor
since 2019.
New York, NY
April 15, 2021
F-28
PLBY GROUP, INC.
(f/k/a MOUNTAIN CREST ACQUISITION CORP)
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
Current assets
Total Current Assets 92,066 —
Deferred offering costs — 100,231
Cash and marketable securities held in Trust Account 58,679,991 —
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Promissory note – related party — 100,498
Deferred underwriting fee payable 2,012,430 —
Commitments
Stockholders’ Equity (Deficit)
Stock subscription receivable — (25,000 )
Total Stockholders’ Equity (Deficit) 5,000,008 (492 )
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) $ 58,772,057 $ 100,231
The accompanying notes are an integral part
of the consolidated financial statements.
F-29
PLBY GROUP, INC.
(f/k/a MOUNTAIN CREST ACQUISITION CORP)
CONSOLIDATED STATEMENTS OF OPERATIONS
Other income:
Interest earned on marketable securities held in Trust Account 31,669 —
Unrealized gain on marketable securities held in Trust Account 362 —
Loss before provision for income taxes (1,061,802 ) (492 )
Weighted average shares outstanding, basic and diluted 1,912,761 1,250,000
Basic and diluted net loss per common share $ (0.56 ) $ (0.00 )
The accompanying notes are an integral part
of the consolidated financial statements.
F-30
PLBY GROUP, INC.
(f/k/a MOUNTAIN CREST ACQUISITION CORP)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
YEAR ENDED DECEMBER 31, 2020
Common Stock Additional Paid Stock Subscription Accumulated Total Stockholders’
Shares Amount in Capital Receivable Deficit Equity
Collection of stock subscription receivable — — — (25,000 ) — 25,000
Forfeiture of Insider Shares (50 ) — — — — —
Sale of unit purchase option — — 100 — — 100
FOR THE PERIOD FROM NOVEMBER 12, 2019 (INCEPTION)
THROUGH DECEMBER 31, 2019
Common Stock Additional Paid Stock Subscription Accumulated Total Stockholders’
Shares Amount in Capital Receivable Deficit Deficit
Balance – November 12, 2019 (inception) — $ — $ — $ — $ — $ —
The accompanying notes are an integral part
of the consolidated financial statements.
F-31
PLBY GROUP, INC. (f/k/a MOUNTAIN CREST
ACQUISITION CORP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows from Operating Activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Interest earned on marketable securities held in Trust Account (31,669 ) —
Unrealized gain on marketable securities held in Trust Account (362 ) —
Formation costs paid by Sponsor — 267
Changes in operating assets and liabilities:
Prepaid expenses (34,334 ) —
Income taxes payable — 225
Net cash used in operating activities (371,622 ) —
Cash Flows from Investing Activities:
Investment of cash in Trust Account (58,647,960 ) —
Net cash used in investing activities (58,647,960 ) —
Cash Flows from Financing Activities:
Proceeds from collection of stock subscription receivable 25,000 —
Proceeds from sale of Units, net of underwriting discounts paid 56,060,550 —
Proceeds from sale of Private Units 3,552,410 —
Proceeds from sale of unit purchase option 100 —
Proceeds from promissory note - related party 157,206 —
Repayment of promissory note - related party (257,704 ) —
Payment of offering costs (460,248 ) —
Net cash provided by financing activities 59,077,314 —
Net Change in Cash 57,732 —
Cash – Beginning of period — —
Cash – End of period $ 57,732 $ —
Non-Cash investing and financing activities:
Deferred underwriting fee payable 2,012,430 —
Issuance of common stock for stock subscription receivable $ — $ 25,000
Offering costs paid through promissory notes — 100,231
The accompanying notes are an integral part
of the consolidated financial statements.
F-32
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
PLBY Group, Inc. (the
“Company”), formerly known as Mountain Crest Acquisition Corp (“MCAC”), was incorporated in Delaware on November 12,
2019. 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.
Business Combination
On
February 10, 2021, Mountain Crest Acquisition Corp, a Delaware corporation (“MCAC” and, after the consummation
of the Business Combination as described below, “PLBY” or the “Company”), consummated the previously
announced acquisition of all of the issued and outstanding shares of Playboy Enterprises, Inc., a Delaware corporation (“Playboy”),
in accordance with that certain Agreement and Plan of Merger, dated as of September 30, 2020 (the “Merger Agreement”),
by and among MCAC, MCAC Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of MCAC which was incorporated on September 16,
2020 (“Merger Sub”), Playboy and Suying Liu, Chief Executive Officer of MCAC.
On
February 10, 2021 (the “Closing Date”), as contemplated in the Merger Agreement, Merger Sub merged with and into
Playboy, with Playboy surviving as a wholly-owned subsidiary of MCAC (the “Business Combination”).
In
addition, in connection with the closing of the Business Combination (the “Closing”), MCAC changed its name to “PLBY
Group, Inc.”
The
Merger will be accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States
of America (“GAAP”). Under this method of accounting, MCAC will be treated as the “acquired” company for accounting
purposes and the Business Combination will be treated as the equivalent of Playboy issuing stock for the net assets of MCAC, accompanied
by a recapitalization. The net assets of MCAC will be stated at historical cost, with no goodwill or other intangible assets recorded.
As
a result of and at the Closing, MCAC acquired all of the outstanding Playboy shares for approximately $381.3 million in aggregate consideration,
comprising (i) 23,920,000 shares of MCAC’s Common Stock, based on a price of $10.00 per share, subject to adjustment as described
below, and (ii) the assumption of no more than $142.1 million of Playboy. At the Closing, Playboy filed a certificate of merger with
the Secretary of State of the State of Delaware (the “Certificate of Merger”), executed in accordance with the relevant
provisions of the General Corporation Law of the State of Delaware. The Business Combination became effective at the time of the filing
of the Certificate of Merger (the “Effective Time”).
At
the Effective Time, by virtue of the Business Combination, each Playboy share issued and outstanding immediately prior to the Effective
Time was canceled and automatically converted into the right to receive, without interest, such applicable percentage of the consideration
issued pursuant to the Merger (“Merger Consideration”) in accordance with the Merger Agreement. Each outstanding
Playboy option was assumed by MCAC and automatically converted into an option to purchase such number of shares of common stock equal
to the product of (x) the Merger Consideration and (y) the option holder’s respective percentage of the Merger Consideration in
accordance with the Merger Agreement, which was reserved for future issuance upon the exercise of such assumed options. Prior to the Effective
Time, all then outstanding restricted stock units (“RSUs”) were terminated and converted into a right to receive a
number of shares of common stock equal to the product of (x) the Merger Consideration, and (y) the terminated RSU holder’s respective
percentage of the Merger Consideration in accordance with the Merger Agreement, which was reserved for future issuance in settlement of
such terminated RSUs. No certificates or scrip representing fractional shares were issued pursuant to the Business Combination.
As previously announced, on
September 30, 2020, concurrently with the execution of the Merger Agreement, MCAC entered into subscription agreements (the “Subscription
Agreements”) and registration rights agreements (the “PIPE Registration Rights Agreements”), with certain
institutional and accredited investors (collectively, the “PIPE Investors”) pursuant to, and on the terms and subject
to the conditions of which, the PIPE Investors collectively subscribed for an aggregate 5,000,000 shares of common stock at $10.00 per
share for aggregate gross proceeds of $50.0 million (the “PIPE Investment”). The PIPE Investment was consummated substantially
concurrently with the Closing.
F-33
At
the Closing and pursuant to the Merger Agreement, MCAC:
Prior to the Business Combination
All activity of the Company
through December 31, 2020 related to the Company’s formation, the initial public offering (“Initial Public Offering”),
which is described below, identifying a target company for a Business Combination, and activities in connection with the proposed acquisition
of Playboy.
The registration statement
for the Company’s Initial Public Offering was declared effective on June 4, 2020. On June 9, 2020, the Company consummated
the Initial Public Offering of 5,000,000 units (the “Units” and, with respect to the common stock included in the Units sold,
the “Public Shares”), at $10.00 per Unit, generating gross proceeds of $50,000,000, which is described in Note 3.
Simultaneously with the closing
of the Initial Public Offering, the Company consummated the sale of 321,500 units (the “Private Units”) at a price of $10.00
per Private Unit in a private placement to Sunlight Global Investment LLC (the “Sponsor”) and Chardan Capital Markets, LLC
(the “Chardan”), generating gross proceeds of $3,215,000, which is described in Note 4.
Following the closing of
the Initial Public Offering on June 9, 2020, an amount of $51,000,000 ($10.20 per Unit) from the net proceeds of the sale of the
Units in the Initial Public Offering and the sale of the Private Units was placed in a trust account (the “Trust Account”)
which was invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act
of 1940, as amended, or the Investment Company Act, with a maturity of 180 days or less or in any open-ended investment company that holds
itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company.
On June 19, 2020, the
underwriters exercised their over-allotment option in part, resulting in an additional 749,800 Units issued on June 19, 2020 for
$7,498,000, less the underwriters’ discount of $187,450. In connection with the underwriters’ exercise of their over-allotment
option, the Company also consummated the sale of an additional 33,741 Private Units at $10.00 per Private Unit, generating total proceeds
of $337,410. A total of $7,647,960 was deposited into the Trust Account, bringing the aggregate proceeds held in the Trust Account to
$58,647,960.
Transaction costs related
to the Business Combination amounted to $4,010,359, consisting of $1,437,450 of underwriting fees, $2,012,430 of deferred underwriting
fees and $560,479 of other offering costs.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated
financial statements are presented in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) and pursuant
to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Principles of Consolidation
The accompanying consolidated
financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany balances and transactions
have been eliminated in consolidation.
Emerging Growth Company
The Company is an “emerging
growth company,” as defined in Section 2(a) of the Securities Act, as amended (the “Securities Act”), as modified
by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not
limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404
of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements,
and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden
parachute payments not previously approved.
F-34
Further, Section 102(b)(1) of
the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until
private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class
of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS
Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging
growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period
which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company,
as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
This may make comparison of the Company’s consolidated financial statements with another public company which is neither an emerging
growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because
of the potential differences in accounting standards used.
Use of Estimates
The preparation of the consolidated
financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires
management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation
or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating
its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ
significantly from those estimates.
Cash and Cash Equivalents
The Company considers all
short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have
any cash equivalents as of December 31, 2020 and 2019.
Marketable Securities Held in Trust Account
At December 31, 2020
and 2019, substantially all of the assets held in the Trust Account were held U.S. Treasury securities. The Company accounts for its securities
held in the trust account in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 320 “Debt
and Equity Securities.” These securities are classified as trading securities with unrealized gains/losses, if any, recognized through
the statement of operations.
Common Stock Subject to Possible Redemption
The Company accounts for
its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”)
Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability
instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights
that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the
Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity.
The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control and
subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemption
value as temporary equity, outside of the stockholders’ equity (deficit) section of the Company’s consolidated balance sheets.
Income Taxes
The Company follows the asset
and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences between the consolidated 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.
F-35
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. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense.
There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2020 and 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.
On March 27, 2020, the
CARES Act was enacted in response to COVID-19 pandemic. Under ASC 740, the effects of changes in tax rates and laws are recognized in
the period which the new legislation is enacted. The CARES Act made various tax law changes including among other things (i) increasing
the limitation under Section 163(j) of the Internal Revenue Code of 1986, as amended (the “IRC”) for 2019 and 2020
to permit additional expensing of interest (ii) enacting a technical correction so that qualified improvement property can be immediately
expensed under IRC Section 168(k), (iii) making modifications to the federal net operating loss rules including permitting
federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate
a refund of previously paid income taxes and (iv) enhancing the recoverability of alternative minimum tax credits. Given the
Company’s full valuation allowance position, the CARES Act did not have an impact on the financial
statements.
Net Loss Per Common Share
Net earnings (loss) per share
is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. The Company
has not considered the effect of the rights sold in the Initial Public Offering and Private Placement to purchase an aggregate of 989,990
shares in the calculation of diluted loss per share, since the exercise of the rights are contingent upon the occurrence of future events
and the inclusion of such rights would be anti-dilutive.
The Company’s statement
of operations includes a presentation of earnings (loss) per share for common shares subject to possible redemption in a manner similar
to the two-class method of earnings (loss) per share. Net income per common share, basic and diluted, for common stock subject to possible
redemption is calculated by dividing the proportionate share of income or loss on marketable securities held by the Trust Account, net
of applicable franchise and income taxes, by the weighted average number of common stock subject to possible redemption outstanding since
original issuance.
Net loss per share, basic
and diluted, for non-redeemable common stock is calculated by dividing the net earnings (loss), adjusted for income or loss on marketable
securities attributable to common stock subject to possible redemption, by the weighted average number of non-redeemable common stock
outstanding for the period.
Non-redeemable common stock
includes Insider Shares (defined below) and non-redeemable shares of common stock as these shares do not have any redemption features.
Non-redeemable common stock participates in the income or loss on marketable securities based on non-redeemable common stock shares’
proportionate interest.
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Redeemable Common Stock
Numerator: Earnings allocable to Redeemable Common Stock
Interest Income $ 27,904 $ —
Unrealized Gain on Marketable Securities 319 —
Income Tax, Franchise Tax, and Regulatory Compliance Fees (28,233 ) —
Net Earnings $ — $ —
Denominator: Weighted Average Redeemable Common Stock
Redeemable Common Stock, Basic and Diluted 5,061,856 —
Earnings/Basic and Diluted Redeemable Common Stock $ 0.00 $ 0.00
Non-Redeemable Common Stock
Numerator: Net (Loss) Income minus Redeemable Net Earnings
Less: Redeemable Net Earnings — —
Denominator: Weighted Average Non-Redeemable Common Stock
Loss/Basic and Diluted Non-Redeemable Common Stock $ (0.56 ) $ 0.00
Concentration of Credit Risk
Financial instruments that
potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times,
may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on this account and management
believes the Company is not exposed to significant risks on such account.
Fair Value of Financial Instruments
The fair value of the Company’s
assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates
the carrying amounts represented in the accompanying balance sheets, primarily due to their short-term nature.
Recent Accounting Standards
Management does not believe
that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s
consolidated financial statements.
NOTE 3. PUBLIC OFFERING
Pursuant to the Initial Public
Offering, the Company sold 5,749,800 Units, inclusive of 749,800 Units sold to the underwriters on June 19, 2020 upon the underwriters’
election to partially exercise their option to purchase additional Units, at a purchase price of $10.00 per Unit. Each Unit consisted
of one share of common stock and one right (“Public Right”). Each Public Right entitled the holder to receive one-tenth of
one share of common stock at the closing of a Business Combination (see Note 7).
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing
of the Initial Public Offering, the Sponsor and Chardan (and/or their designees) purchased an aggregate of 321,500 Private Units at a
price of $10.00 per Private Unit, of which 296,500 Private Units were purchased by the Sponsor and 25,000 Private Units were purchased
by Chardan for an aggregate purchase price of $3,215,000. On June 19, 2020, the Sponsor and Chardan purchased an additional aggregate
amount of 33,741 Private Units, for an aggregate purchase price of $337,410. Each Private Unit consisted of one share of common stock
(“Private Share”) and one right (“Private Right”). Each Private Right entitled the holder to receive one-tenth
of one share of common stock at the closing of the Business Combination. The proceeds from the Private Units were added to the proceeds
from the Initial Public Offering held in the Trust Account. If the Company did not complete the Business Combination within the Combination
Period, the proceeds from the sale of the Private Units would have been used to fund the redemption of the Public Shares (subject to the
requirements of applicable law), and the Private Units and all underlying securities would have expired without any value.
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NOTE 5. RELATED PARTY TRANSACTIONS
Insider Shares
On November 12, 2019,
the Company issued 100 shares of common stock to the Sponsor for an aggregate purchase price of $25,000. The Company received payment
for the shares on January 28, 2020. Accordingly, as of December 31, 2019, the $25,000 payment due to the Company is recorded
as stock subscription receivable in the stockholders’ equity (deficit) section of the accompanying balance sheets. On January 17,
2020, the Company effected a share dividend of 21,561.50 shares of common stock for each outstanding share, resulting in 2,156,250 shares
of common stock being issued and outstanding. In May 2020, the Company declared a reverse split of one share of common stock for
every 1.5 outstanding share of common stock, resulting in 1,437,500 shares of common stock being outstanding (the “Insider Shares”).
All share and per share information have been retroactively adjusted to reflect the share dividend and reverse split. The 1,437,500 Insider
Shares included an aggregate of up to 187,500 shares subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment
was not exercised in full or in part, so that the Sponsor would collectively own 20% of the Company’s issued and outstanding shares
after the Initial Public Offering (assuming the Sponsor did not purchase any Public Shares in the Initial Public Offering and excluding
the Private Shares). As a result of the underwriters’ election to partially exercise their over-allotment option on June 19,
2020, 50 Founders Shares were forfeited and 187,450 Insider Shares are no longer subject to forfeiture.
The Sponsor has agreed not
to transfer, assign or sell any of the Insider Shares (except to certain permitted transferees) until, with respect to 50% of the Insider
Shares, the earlier of six months after the date of the consummation of the Business Combination and the date on which the closing price
of the Company’s common stock equals or exceeds $12.50 per share for any 20 trading days within a 30-trading day period following
the consummation of the Business Combination and, with respect to the remaining 50% of the Insider Shares, six months after the date of
the consummation of the Business Combination, or earlier in each case if, subsequent to the Business Combination, the Company completes
a liquidation, merger, stock exchange or other similar transaction which results in all of the stockholders having the right to exchange
their shares of common stock for cash, securities or other property.
Promissory Note — Related Party
On
December 1, 2019, the Company issued an unsecured promissory note to the Sponsor (the “Promissory Note”), pursuant to
which the Company could borrow up to an aggregate amount of $500,000 to cover expenses related to the Initial Public Offering. The Promissory
Note was non-interest bearing and payable on the completion of the Initial Public Offering. Upon the consummation of the Initial
Public Offering on June 9, 2020, the Company repaid an aggregate amount of $165,000 under the Promissory Note. At June 9, 2020,
there was $92,704 outstanding under the Promissory Note, which amount was repaid on June 11, 2020.
Administrative Support Agreement
The Company entered into
an agreement whereby, commencing on June 4, 2020 through the Company’s consummation of the Business Combination, the Company
agreed to pay an affiliate of the Sponsor a total of $10,000 per month for office space, utilities and
secretarial and administrative support. For the year ended December 31, 2020, the Company incurred and paid $70,000 in fees
for these services, of which $10,000 is included in accrued expenses in the accompanying consolidated balance sheet.
Related Party Loans
In order to finance transaction
costs in connection with the Business Combination, the Sponsor, an affiliate of the Sponsor, or the Company’s officers and directors
were entitled to, but are not obligated to, loan the Company funds from time to time or at any time, as may have been required (“Working
Capital Loans”). Each Working Capital Loan was to be evidenced by a promissory note. The Working Capital Loans were to either be
paid upon consummation of the Business Combination, without interest, or, at the holder’s discretion, up to $1,500,000 of the Working
Capital Loans could have been converted into private units at a price of $10.00 per unit. The private units would have been identical
to the Private Units. In the event that the Business Combination did not close, the Company could have used a portion of the proceeds
held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account were to be used to repay
the Working Capital Loans.
Related Party Extension Loans
As discussed in Note 1, the
Company could have extended the period of time to consummate the Business Combination up to three times, each by an additional three months
(for a total of 21 months to complete the Business Combination). In order to extend the time available for the Company to consummate the
Business Combination, the Sponsor or its affiliates or designees were required to deposit into the Trust Account $500,000, or $575,000
if the underwriters’ over-allotment option was exercised in full ($0.10 per Public Share in either case), on or prior to the date
of the applicable deadline, for each three month extension. Any such payments were to be made in the form of a non-interest bearing, unsecured
promissory note. Such notes would have either been paid upon consummation of the Business Combination, or, at the relevant insider’s
discretion, converted upon consummation of the Business Combination into additional Private Units at a price of $10.00 per Private Unit.
The Sponsor and its affiliates or designees were not obligated to fund the Trust Account to extend the time for the Company to complete
the Business Combination.
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NOTE 6. COMMITMENTS
Registration Rights
Pursuant to a registration
rights agreement entered into on June 4, 2020, the holders of the Insider Shares, the Private Units, and any shares that were issued
in payment of Working Capital Loans (and all underlying securities) are entitled to registration rights. The holders of a majority of
these securities are entitled to make up to two demands that the Company register such securities. The holders of the majority of the
Founders Shares could elect to exercise these registration rights at any time commencing three months prior to the date on which these
shares of common stock are to be released from escrow. The holders of a majority of the Private Units (and underlying securities) and
securities issued in payment of Working Capital Loans could elect to exercise these registration rights at any time commencing on the
date that the Company consummated the Business Combination. In addition, the holders have certain “piggy-back” registration
rights with respect to registration statements filed subsequent to the consummation of the Business Combination. The registration rights
agreement does not contain liquidating damages or other cash settlement provisions resulting from delays in registering the Company’s
securities. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriters
a 45-day option from the date of the Initial Public Offering to purchase up to 750,000 additional Units to cover over-allotments, if any,
at the Initial Public Offering price less the underwriting discounts and commissions. On June 19, 2020, the underwriters partially
exercised their over-allotment option to purchase an additional 749,800 Units at $10.00 per Unit and forfeited the option to exercise
the remaining 200 Units.
The underwriters are entitled
to a deferred fee of $0.35 per Unit, or $2,012,430. The deferred fee became payable to the underwriters from the amounts held in the Trust
Account upon the completion of the Business Combination, subject to the terms of the underwriting agreement. The deferred fee was paid
upon the closing of the Business Combination.
Right of First Refusal
Subject to certain conditions,
the Company granted Chardan, for a period of 15 months after the date of the consummation of the Business Combination, a right of first
refusal to act as lead underwriters or minimally as a co-manager: (i) for any and all future public and private equity offerings
with at least 30% of the economics, or, in the case of a three-handed deal, 20% of the economics, and (ii) for any and all future
public and private debt offerings, with at least 15% of the economics. In accordance with the Financial Industry Regulatory Authority
(“FINRA”) Rule 5110(f)(2)(E)(i), such right of first refusal shall not have a duration of more than three years from
the effective date of the registration statement related to the Initial Public Offering.
NOTE 7. STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock —
On June 4, 2020, the Company amended its Certificate of Incorporation such that the Company was authorized to issue 30,000,000 shares
of common stock with a par value of $0.0001 per share. Holders of the Company’s common stock are entitled to one vote for
each share. At December 31, 2020 and 2019, there were 2,540,342 and 1,437,500
shares of common stock issued and outstanding, excluding 5,002,149 and no shares of common stock subject to possible redemption, respectively.
Rights —
Each holder of a Public Right automatically received one-tenth (1/10) of one share of common stock upon consummation of the Business Combination,
even if the holder of a Public Right converted all shares held by him, her or it in connection with the Business Combination or an amendment
to the Company’s Amended and Restated Certificate of Incorporation with respect to its pre-business combination activities. Each
holder of a Public Right was required to affirmatively convert his, her or its rights in order to receive the one-tenth (1/10) of a share
underlying each Public Right upon consummation of the Business Combination. No additional consideration was required to be paid by a holder