UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December
31, 2020
or
☐
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________
to ________________
Commission file number: 001-38508
TRIDENT ACQUISITIONS CORP.
(Exact name of registrant as specified in
its charter)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
77 Water St., 8th Floor New York, NY 10005
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including
area code: (646)229-7549
Securities registered pursuant to Section
12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, $0.001 par value per share TDAC NASDAQ Capital Market
Warrants TDACW NASDAQ Capital Market
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 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 the definitions 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 ☐
At June 30, 2020, the aggregate market
value of the Registrant’s common stock held by non-affiliates of the Registrant was approximately $62,493,876.
The number of shares outstanding of the Registrant’s common
stock as of March 22, 2021 was 11,967,720.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TRIDENT ACQUISITIONS CORP.
Annual Report on Form 10-K for the Year
Ended December 31, 2020
PART I 1
ITEM 1. BUSINESS 1
ITEM 1A. RISK FACTORS 17
ITEM 1B. UNRESOLVED STAFF COMMENTS 17
ITEM 2. PROPERTIES 17
ITEM 3. LEGAL PROCEEDINGS 17
ITEM 4. MINE SAFETY DISCLOSURES 17
ITEM 6. SELECTED FINANCIAL DATA 19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 23
ITEM 9A. CONTROLS AND PROCEDURES 23
ITEM 9B. OTHER INFORMATION 24
PART III 25
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 25
ITEM 11. EXECUTIVE COMPENSATION 31
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 38
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 39
i
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, or the Securities Act, and Section 21E
of the Securities Exchange Act of 1934, or the Exchange Act. The statements contained in this report that are not purely historical
are forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our
management’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 “anticipates,” “believe,” “continue,” “could,”
“estimate,” “expect,” “intend,” “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 complete our initial business combination with Lottery.com;
● pool of prospective target businesses;
● the potential liquidity and trading of our securities;
● the lack of a market for our securities;
● 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 and/or if and when management knows or has a reasonable basis on which to conclude that previously
disclosed projections are no longer reasonably attainable.
ii
CERTAIN TERMS
Unless otherwise stated, references to:
● “we,” “us” or “our company” refer to Trident Acquisitions Corp.;
● our “management” or our “management team” refer to our officers and directors;
iii
PART I
Item 1. Business.
Introduction
We are a blank check company formed under
the laws of the State of Delaware on March 17, 2016. We were formed for the purpose of entering into a merger, share exchange,
asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination, with one or more target
businesses. To date, our efforts have been limited to organizational activities, completing our initial public offering, searching
for a target business to acquire and activities in connection with the proposed acquisition of AutoLotto, Inc. (“Lottery.com”),
which is described below. If the transaction with Lottery.com does not close, our efforts to identify a prospective target business
will not be limited to any particular industry or geographic region, although we intend to focus our search on target businesses
operating in oil and gas or other natural resources companies in Eastern Europe or interested in expanding into Eastern Europe.
As Europe is striving to achieve energy
independence, we believe that Eastern European oil and gas deposits, which are small and technically difficult to access, will
attract the interest of investors and governments. We believe that historical exploration data can be reassessed with new geological
knowledge to determine which reserves that were previously considered unrecoverable or uneconomic can be profitably recovered.
Initial Public Offering
On June 1, 2018, we consummated our initial
public offering of 17,500,000 Units, with each Unit consisting of one share of common stock and one warrant (the “Initial
Public Offering”). On June 5, 2018, we sold an additional 2,625,000 Units pursuant to the underwriters fully exercising their
over-allotment option. Each warrant entitles the holder to purchase one share common stock at a price of $11.50 per share. Each
warrant will become exercisable on the later of 30 days after the completion of our initial business combination (the “Business
Combination”) or 12 months from the closing of the Initial Public Offering. The warrants will expire five years after the
completion of our initial Business Combination or earlier upon redemption or liquidation. Once the warrants issued in connection
with the Initial Public Offering become exercisable, we may redeem those outstanding warrants in whole and not in part at a price
of $0.01 per warrant upon a minimum of 30 days’ prior written notice of redemption, but if, and only if, the last sale price
of our common stock equals or exceeds $16.00 per share for any 20 trading days within a 30-trading day period ending on the third
trading day prior to the date on which we send the notice of redemption to the warrant holders. The Units in the Initial Public
Offering were sold at an offering price of $10.00 per Unit, generating total gross proceeds of $201,250,000.
In connection with the Initial Public Offering,
we also sold to Chardan Capital Markets LLC, the representative of the underwriters (“Chardan”), for $100,
an option to purchase up to a total of 1,750,000 Units exercisable at $10.00 per unit commencing on the consummation of a Business
Combination. The units issuable upon exercise of this option are identical to the Units sold in the Initial Public Offering.
After deducting the underwriting fee (excluding
the deferred underwriting commission of $5,031,250, which amount will be payable upon consummation of the Business Combination,
if consummated) and the Initial Public Offering expenses, the total net proceeds from our Initial Public Offering and the sale
of the Private Units was $206,679,386 of which $205,275,000 (or $10.20 per Unit sold in the Initial Public Offering) was placed
in the trust account.
Proposed Business Combination with Lottery.com
On February 21, 2021, we entered into a
business combination agreement (the “Merger Agreement”) with Trident Merger Sub II Corp. (“Merger Sub”)
and AutoLotto, Inc. (“Lottery.com”). Upon the closing (the “Closing”) of the business combination with
Lottery.com, Merger Sub will merge with and into Lottery.com, with Lottery.com as the surviving company, continuing as our wholly
owned subsidiary, following the transaction and the separate existence of Merger Sub shall cease. At the Closing, each share of
Lottery.com common stock issued and outstanding as of immediately prior to the Closing shall be converted into the right to receive
the Per Share Merger Consideration. “Per Share Merger Consideration” means the quotient obtained by dividing (a) 40,000,000
shares of our common stock by (b) the aggregate number of shares of Lottery.com common stock (including shares issued upon the
conversion or exercise of Lottery.com convertible securities) issued and outstanding as of immediately prior to the Closing (the
“Lottery.com Shares”). The Per Share Merger Consideration shall be reduced by the number of shares of our common stock
equal to the quotient of (i) the amount by which Net Indebtedness exceeds $10,000,000, as mutually agreed between us and Lottery.com
(each acting reasonably), divided by (ii) 11.00. “Net Indebtedness” means the amount equal to Lottery.com’s Indebtedness,
less cash and cash equivalents. For the avoidance of doubt, Lottery.com’s Indebtedness shall not include current liabilities
or any intercompany Indebtedness between or among Lottery.com and any of its subsidiaries.
The holders of the Lottery.com Shares (the
“Sellers”) will also be entitled to receive up to 6,000,000 additional shares of our common stock (the “Seller
Earnout Shares”) that may be issuable from time to time as set forth below. The aggregate value of the consideration to be
paid by us in the business combination (excluding the Seller Earnout Shares) is approximately $444 million (calculated as follows:
40,000,000 shares of our common stock to be issued to the Sellers, multiplied by $11.00). Upon the Closing, we will change
our name to “Lottery.com.”
If, at any time on or prior to December
31, 2021, the daily volume-weighted average price of shares of our common stock equals or exceeds $13.00 per share for 20 of any
30 consecutive trading days commencing after the Closing, each Seller shall receive its pro rata portion of 3,000,000 Seller Earnout
Shares and Vadim Komissarov, Ilya Ponomarev and Marat Rosenberg (the “Founder Holders”) shall receive an aggregate
of 2,000,000 shares of our common stock. If, at any time on or prior to December 31, 2022, the daily volume-weighted average price
of shares of our common stock equals or exceeds $16.00 per share for 20 of any 30 consecutive trading days commencing after the
Closing, each Seller shall receive its pro rata portion of 3,000,000 Seller Earnout Shares and the Founder Holders shall receive
an aggregate of 2,000,000 shares of our common stock. The Seller Earnout Shares then earned and issuable shall be issued to the
Sellers on a pro-rata basis based on the percentage of the Lottery.com Shares owned by them immediately prior to the Closing.
The parties agreed that immediately following
the Closing, our board of directors will consist of five directors, four of which will be designated by Lottery.com and one of
which will be designated by us, such appointment by us to be an independent director. The boards of directors of each of us and
Lottery.com have unanimously approved this business combination. The transaction will require the approval of our stockholders
and of Lottery.com, the effectiveness of a registration statement on Form S-4 to be filed with the Securities and Exchange Commission
(the “SEC”) in connection with the transaction, satisfaction of the conditions stated in the Merger Agreement and other
customary closing conditions.
Extensions of Time Period to Complete
a Business Combination
On November 26, 2019, we held our Annual Meeting of
the Stockholders (the “Annual Meeting”) at which the stockholders approved a proposal to amend our Amended and Restated Certificate
of Incorporation (the “Charter Amendment”) to extend the period of time for which we are required to complete a Business Combination
two times for an additional 90 days each time to June 1, 2020 (the termination date as so extended, the “Extended Termination Date”).
Our stockholders were able to elect to redeem their shares in connection with the Annual Meeting for a pro rata portion of the amount
then on deposit in the trust account ($10.00 per share, plus any pro rata interest earned on the funds held in the trust account and not
previously released to us to pay franchise and income taxes). With respect to public shares not redeemed in connection with the Annual
Meeting, we agreed to make a cash contribution of $500,000 to the trust account for each 90-day extension. As of March 31, 2020, we had
contributed an aggregate of $1,000,015 to the trust account and extended the time to complete a Business Combination to June 1, 2020.
In connection with the approval of the
Charter Amendment, stockholders elected to redeem an aggregate of 13,081,434 shares of our common stock. As a result, an aggregate
of approximately $137,130,484 (or approximately $10.48 per share) was removed from our trust account to pay such stockholders,
and 13,224,816 shares of common stock were then issued and outstanding following such redemption.
On May 28, 2020, we held a Special Meeting
of the Stockholders at which the stockholders approved a proposal to amend our Amended and Restated Certificate of Incorporation
(the “Second Charter Amendment”) to extend the period of time for which we are required to complete a Business Combination
to September 1, 2020 (the “Second Extended Date”). We made a cash contribution of $962,476 to the trust account for
the three-month extension period. In addition, the stockholders elected to redeem an aggregate of 627,059 shares of our common
stock. As a result, an aggregate of $6,666,775 (or approximately $10.63 per share) was removed from our trust account to pay such
stockholders and 12,597,757 shares of common stock were then issued and outstanding following such redemption.
On August 28, 2020, we held a Special Meeting
of the Stockholders at which the stockholders approved a proposal to amend our Amended and Restated Certificate of Incorporation
(the “Third Charter Amendment”) to extend the period of time for which we are required to complete a Business Combination
to December 1, 2020 (the “Third Extended Date”). We made a cash contribution of $867,971 to the trust account for the
three-month extension period. In addition, the stockholders elected to redeem an aggregate of 630,037 shares of our common stock.
As a result, an aggregate of $6,781,851 (or approximately $10.76 per share) was removed from our trust account to pay such stockholders
and 11,967,720 shares of common stock were then issued and outstanding following such redemption.
On November 30, 2020, we held a Special
Meeting of Stockholders, pursuant to which the stockholders approved the extension to the Third Extended Date from December 1,
2020 to March 1, 2021, with an ability to further extend for an additional three months to June 1, 2021 (the “Fourth Extended
Date”) if approved by our board of directors. We agreed to contribute $0.05 for each Public Share outstanding that was not
redeemed for each month of the extension going forward. On December 1, 2020, we contributed an aggregate of $289,323 to the trust
account. On February 26, 2021, our board of directors approved the extension of the Fourth Extended Date to June 1, 2021
to permit sufficient time for us to consummate our proposed business combination with Lottery.com, including filing a registration
statement on Form S-4 that will include a proxy statement.
Market Overview
Europe has well developed industries and
a large population, although it experiences a deficit of energy resources. Until 2040, European net imports of gas are projected
to grow due to transition away from coal and nuclear energy, and are currently in excess of 310 billion cubic meters of gas per
annum.
All of the European states except Norway
and Romania are energy-dependent. Traditionally, Europe relied on oil and gas coming from four major sources: The Middle East,
Russia, North Africa and Norway. While the largest supplier for Western Europe is currently Norway, almost all of the energy for
Eastern Europe comes from Russia (35% of all European consumption of natural gas is delivered by Gazprom).
Russia’s recent military and political
offensive in Ukraine has triggered an intense desire within the European Union to secure energy independence. War in Ukraine is
feared to be disruptive for major gas pipelines from Russia to the European Union (2/3 of Gazprom’s total supply). In July
2017, U.S. President Donald Trump stood beside his Polish counterpart, Andrzej Duda, in Warsaw and promised to help wean the nation
off Russian energy imports, “so that you can never be held hostage to a single supplier.”
Promising deposits are located within three
regions: Western (Germany, France, UK); Central (Poland, Lithuania, Western Ukraine, Romania, Bulgaria, Slovakia, Hungary, Serbia);
and Eastern (Eastern Ukraine). The Western region will be unlikely to be developed within the foreseeable future because of political
reasons in host countries (with the exception of the UK, but its potential is the smallest among three) and the Eastern region,
which currently produces more oil and gas than the other regions, is located near the Russia-Ukraine border, which makes it unattractive
for additional near-term investment. That leaves the Central region as the area of development on which we intend to focus.
Two of the most promising countries in
Europe for exploration and development of oil and gas are Ukraine and Poland.
Ukraine
Ukraine has three separate basins that
have oil and gas deposits. Although not widely known, Ukraine was a major gas producing region in the Soviet Union until late 1970s,
when new fields in Western Siberia were developed. Production was cut not because of depletion, but because of difficult reservoir
characteristics and military risks (the proximity to Western borders of USSR). After Ukraine claimed its independence in 1991,
there was virtually no additional development.
Naftogaz of Ukraine: http://www.naftogaz.com/www/3/nakweben.nsf/0/69CDD708EEFC16B4C22570D8003432CC/$file/small5.jpg
Ukraine’s Eastern basin was a focus
for Shell, but war with Russia has disrupted exploration drilling in the area. Ukraine’s Western basin was of interest to
Chevron, but it decided to shut down its European explorations altogether, including exploration in Romania and Ukraine, to focus
on already discovered offshore properties due to low energy prices. The Southern basin is located next to Odessa, and stretches
from onshore (primarily oil) to offshore (more gas) Black Sea locations. Active exploration in the areas adjacent to Romania and
Crimea are carried by ExxonMobil, OMV, and Lukoil.
New Ukrainian laws recently significantly
decreased the tax rate for royalty payments. As major oil and gas companies failed develop economic quantities of oil, small
companies have found their niches in both Eastern and Western Ukraine, and many produce commercially, despite the continuing crisis
with Russia.
Poland
Chevron, ConocoPhillips, ExxonMobil and
Marathon were all developing assets in Poland until recently. Each of them has decided not to pursue development because they did
not feel that they could be commercially successful. National oil & gas company PGNiG is still active and producing limited
quantities of hydrocarbons.
We believe that the weak results of the
first wells drilled by major oil companies can be explained by, among other things, the size and bureaucratic nature of large oil
companies, which increased their costs of producing oil and gas to such an extent that it made the region uneconomic at current
prices for oil and gas.
Our Investment Strategy
If the transaction with Lottery.com does
not close, we want to take advantage of privately held Eastern European oil and gas operating companies that have significant production
volume and positive cash flows, but little or no reserves. By acquiring a company with undeveloped reserves and hiring companies
that have engineering and geological expertise to develop the reserves, we believe that we will be able to create value for our
investors.
We anticipate targeting companies with
recoverable reserves in Romania, Poland, Ukraine and other Eastern European countries. We also intend to target companies with
operations outside of Eastern Europe that are interested in expanding in Eastern Europe.
Our Team
Our executive officers and directors have
extensive experience in starting and managing industrial businesses in Eastern Europe, in particular in the energy sector. As a
group, they combine Western business practice experience and technical know-how with extensive government and business networks
that are crucial to success in the region. Our officers and directors also have extensive experience in identifying, negotiating
with and conducting due diligence on companies targeted for acquisition and consummating acquisitions of energy companies. Our
management team, however, does not have prior experience in pursuing acquisitions on behalf of blank check companies and past performance
by our management team is not a guarantee of success with respect to locating a target business to acquire.
Subsequent to the consummation of our initial
business combination, we believe that the strengths of our management team, particularly their international experience and technical
knowhow, will be valuable to any business in Ukraine with which we consummate our initial business combination, although the specific
roles, if any, they may have following our initial business combination cannot be determined at this time.
Competitive Strengths
We believe our competitive strengths to
be the following:
Status as a public company
We believe our structure will make us an
attractive business combination partner to target businesses. As an existing public company, we 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. We believe target businesses
might 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, roadshow and public reporting efforts
that will likely not be present to the same extent in connection with a business combination with us. Furthermore, once the business
combination is consummated, the target business will have effectively become public, whereas an initial public offering is always
subject to the underwriters’ ability to complete the offering, as well as general market conditions that could 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 than it would have as a privately-held company.
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 status as a public
company will make us an attractive business partner, some potential target businesses may view the inherent limitations in our
status as a blank check company, such as our lack of an operating history and our requirements to seek stockholder approval of
any proposed initial business combination and provide holders of public shares the opportunity to convert their shares into cash
from the trust account, as a deterrent and may prefer to effect a business combination with a more established entity or with a
private company.
Transaction flexibility
We offer a target business a variety of
options such as providing the owners of a target business with shares in a public company and a public means to sell such shares,
providing cash for stock, and 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 consummate our initial 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 it may not be available to us.
Competitive Weaknesses
We believe our competitive weaknesses to
be the following:
Limited Financial Resources
Our financial reserves will be relatively
limited when contrasted with those of venture capital firms, leveraged buyout firms and operating businesses competing for acquisitions.
In addition, our financial resources could be reduced because of our obligation to convert shares held by our public stockholders
as well as any tender offer we conduct.
Lack of experience with blank check companies
Our management team is not experienced
in pursuing business combinations on behalf of blank check companies. Other blank check companies may be sponsored and managed
by individuals with prior experience in completing business combinations between blank check companies and target businesses. Our
managements’ lack of experience may not be viewed favorably by target businesses.
Limited technical and human resources
As a blank check company, we have limited
technical and human resources. Many venture capital funds, leveraged buyout firms and operating businesses possess greater technical
and human resources than we do and thus we may be at a disadvantage when competing with them for target businesses.
Delay associated with stockholder approval or tender offer
We may be required to seek stockholder
approval of our initial business combination. If we are not required to obtain stockholder approval of an initial business combination,
we will allow our stockholders to sell their shares to us pursuant to a tender offer. Both seeking stockholder approval and conducting
a tender offer will delay the consummation of our initial business combination. Other companies competing with us for acquisition
opportunities may not be subject to similar requirement, or may be able to satisfy such requirements more quickly than we can.
As a result, we may be at a disadvantage in competing for these opportunities.
Effecting Our Initial Business Combination
General
We are not presently engaged in, and we
will not engage in, any substantive commercial business until we close a business combination. We intend to utilize cash derived
from the proceeds our initial public offering, the sale of our private units, our capital stock, debt or a combination of these
in effecting our initial business combination. Although substantially all of the net proceeds of our initial public offering are
intended to be applied generally toward effecting a business, the proceeds are not otherwise being designated for any more specific
purposes. Our initial business combination may involve the acquisition of, or merger with, a company which does not need substantial
additional capital but which desires to establish a public trading market for its shares. In the alternative, we may seek to consummate
a business combination with a company that may be financially unstable or in its early stages of development or growth. While we
may seek to effect simultaneous business combinations with more than one target business, we will probably have the ability, as
a result of our limited resources, to effect only a single business combination.
Sources of Target Businesses
If the transaction with Lottery.com does
not close, we believe based on our management’s business knowledge and past experience that there are numerous business combination
candidates. We anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including
investment bankers, venture capital funds, private equity funds, leveraged buyout funds, management buyout funds and other members
of the financial community. Target businesses may be brought to our attention by such unaffiliated sources as a result of being
solicited by us through calls or mailings. These sources may also introduce us to target businesses in which they think we may
be interested on an unsolicited basis. Our officers and directors, as well as their affiliates, may also bring to our attention
target business candidates that they become aware of through their business contacts as a result of formal or informal inquiries
or discussions they may have, as well as attending trade shows or conventions. We may engage professional firms or other individuals
that specialize in business acquisitions or mergers in the future, in which event we may pay a finder’s fee, consulting fee
or other compensation to be determined in an arm’s length negotiation based on the terms of the transaction. Except for the
$7,500 per month administrative services fee, in no event will our insiders or any of the members of our management team be paid
any finder’s fee, consulting fee or other compensation prior to, or for any services they render in order to effectuate,
the consummation of our initial business combination (regardless of the type of transaction that it is). We have no present intention
to enter into a business combination with a target business that is affiliated with any of our officers, directors, director nominees
or insiders. However, we are not restricted from entering into any such transactions and may do so if (1) such transaction is approved
by a majority of our disinterested and independent directors (if we have any at that time) and (2) we obtain an opinion from an
independent investment banking firm that the business combination is fair to our unaffiliated stockholders from a financial point
of view.
Selection of a Target Business and Structuring of Our Initial
Business Combination
Subject to our management team’s
fiduciary duties and the limitation that one or more target businesses have an aggregate fair market value of at least 80% of the
value of the trust account (excluding any deferred underwriter’s fees and taxes payable on the income earned on the trust
account) at the time of the execution of a definitive agreement for our initial business combination, as described below in more
detail, our management will have virtually unrestricted flexibility in identifying and selecting a prospective target business.
While the fair market value of the target business must satisfy the 80% test, the consideration we pay the owners of the target
business may be a combination of cash (whether cash from the trust account or cash from a debt or equity financing transaction
that closes concurrently with the business combination) or our equity securities. The exact nature and amount of consideration
would be determined based on negotiations with the target business, although we will attempt to primarily use our equity as transaction
consideration. There is no limitation on our ability to raise funds privately or through loans in connection with our initial business
combination. We have not established any specific attributes or criteria (financial or otherwise) for prospective target businesses.
To the extent we effect our initial business
combination with a financially unstable company or an entity in its early stage of development or growth, including entities without
established records of sales or earnings, we may be affected by numerous risks inherent in the business and operations of financially
unstable and early stage or potential emerging growth companies. Although our management will endeavor to evaluate the risks inherent
in a particular target business, we may not properly ascertain or assess all significant risk factors. In evaluating a prospective
target business, our management may consider a variety of factors, including one or more of the following:
● financial condition and results of operation;
● growth potential;
● brand recognition and potential;
● return on equity or invested capital;
● market capitalization or enterprise value;
● experience and skill of management and availability of additional personnel;
● capital requirements;
● competitive position;
● barriers to entry;
● stage of development of the products, processes or services;
● existing distribution and potential for expansion;
● impact of regulation on the business;
● regulatory environment of the industry;
● costs associated with effecting the business combination;
● macro competitive dynamics in the industry within which the company competes.
These criteria are not intended to be exhaustive.
Our management may not consider any of the above criteria in evaluating a prospective target business. The retention of our officers
and directors following the completion of any business combination will not be a material consideration in our evaluation of a
prospective target business.
Any evaluation relating to the merits of
a particular business combination will be based, to the extent relevant, on the above factors as well as other considerations deemed
relevant by our management in effecting a business combination consistent with our business objective. In evaluating a prospective
target business, we will conduct an extensive due diligence review which will encompass, among other things, meetings with incumbent
management and inspection of facilities, as well as review of financial and other information which is made available to us. This
due diligence review will be conducted either by our management or by unaffiliated third parties we may engage, although we have
no current intention to engage any such third parties.
The time and costs required to select and
evaluate a target business and to structure and complete our initial business combination remain to be determined. Any costs incurred
with respect to the identification and evaluation of a prospective target business with which a business combination is not ultimately
completed will result in a loss to us and reduce the amount of capital available to otherwise complete a business combination.
Fair Market Value of Target Business
Pursuant to Nasdaq listing rules, our initial
business combination must occur with one or more target businesses having an aggregate fair market value equal to at least 80%
of the value of the funds in the trust account (excluding any deferred underwriter’s fees and taxes payable on the income
earned on the trust account), which we refer to as the 80% test, at the time of the execution of a definitive agreement for our
initial business combination, although we may structure a business combination with one or more target businesses whose fair market
value significantly exceeds 80% of the trust account balance. While the fair market value of the target business must satisfy the
80% test, the consideration we pay the owners of the target business may be a combination of cash (whether cash from the trust
account or cash from a debt or equity financing transaction that closes concurrently with the business combination) or our equity
securities. The exact nature and amount of consideration would be determined based on negotiations with the target business,
although we will attempt to primarily use our equity as transaction consideration. If we are no longer listed on Nasdaq, we will
not be required to satisfy the 80% test.
We currently anticipate structuring a business
combination to acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure
a business combination where we merge directly with the target business or where we acquire less than 100% of such interests or
assets of the target business in order to meet certain objectives of the target management team or stockholders or for other reasons,
but we will only complete such business combination if the post-transaction company owns 50% or more of the outstanding voting
securities of the target or otherwise owns 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 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% test. In order to consummate such an acquisition, we may
issue a significant amount of our debt or equity securities to the sellers of such businesses and/or seek to raise additional funds
through a private offering of debt or equity securities. We have not entered into any such fund raising arrangement and have no
current intention of doing so. The fair market value of the target will be determined by our board of directors based upon one
or more standards generally accepted by the financial community (such as actual and potential sales, earnings, cash flow and/or
book value). If our board is not able to independently determine that the target business has a sufficient fair market value, we
will obtain an opinion from an unaffiliated, independent investment banking firm, or another independent entity that commonly renders
valuation opinions on the type of target business we are seeking to acquire, with respect to the satisfaction of such criteria.
We will not be required to obtain an opinion from an independent investment banking firm, or another independent entity that commonly
renders valuation opinions on the type of target business we are seeking to acquire, as to the fair market value if our board of
directors independently determines that the target business complies with the 80% threshold. However, if we seek to consummate
an initial business combination with an entity that is affiliated with any of our officers, directors or insiders and are therefore
required to obtain an opinion from an independent investment banking firm that the business combination is fair to our unaffiliated
stockholders from a financial point of view, we may ask that banking firm to opine on whether the target business met the 80% fair
market value test. Nevertheless, we are not required to do so and could determine not to do so without consent of our stockholders.
Lack of Business Diversification
We expect to complete only a single business
combination, although this process may entail simultaneous business combinations with several operating businesses. Therefore,
at least initially, the prospects for our success may be entirely dependent upon the future performance of a single business operation.
Unlike other entities which may have the resources to complete several business combinations of entities operating in multiple
industries or multiple areas of a single industry, it is probable that we will not have the resources to diversify our operations
or benefit from the possible spreading of risks or offsetting of losses. By consummating our initial business combination with
only a single entity, our lack of diversification may:
If we determine to simultaneously consummate
our initial business combination with several businesses and such businesses are owned by different sellers, we will need for each
of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other combinations,
which may make it more difficult for us, and delay our ability, to complete the business combination. With a business combination
with several businesses, we could also face additional risks, including additional burdens and costs with respect to possible multiple
negotiations and due diligence investigations and the additional risks associated with the subsequent assimilation of the operations
and services or products of the target companies in a single operating business.
Limited Ability to Evaluate the Target Business’ Management
Team
Although we intend to scrutinize the management
team of a prospective target business when evaluating the desirability of effecting our initial business combination, our assessment
of the target business’ management team may not prove to be correct. In addition, the future management team may not have
the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of our officers and
directors, if any, in the target business following our initial business combination remains to be determined. While it is possible
that some of our key personnel will remain associated in senior management or advisory positions with us following our initial
business combination, it is unlikely that they will devote their full time efforts to our affairs subsequent to our initial business
combination. Moreover, they would only be able to remain with the company after the consummation of our initial business combination
if they are able to negotiate employment or consulting agreements in connection with the business combination. Such negotiations
would take place simultaneously with the negotiation of the business combination and could provide for them to receive compensation
in the form of cash payments and/or our securities for services they would render to the company after the consummation of the
business combination. While the personal and financial interests of our key personnel may influence their motivation in identifying
and selecting a target business, their ability to remain with the company after the consummation of our initial business combination
will not be the determining factor in our decision as to whether or not we will proceed with any potential business combination.
Additionally, our officers and directors may not have significant experience or knowledge relating to the operations of the particular
target business.
Following our initial business combination,
we may seek to recruit additional managers to supplement the incumbent management of the target business. We may not have the ability
to recruit additional managers, or that any such additional managers we do recruit will have the requisite skills, knowledge or
experience necessary to enhance the incumbent management.
Stockholder Approval of Business Combination
In connection with any proposed business
combination, we will either (1) seek stockholder approval of our initial business combination at a meeting called for such purpose
at which public stockholders (but not our insiders, officers or directors) may seek to convert their shares of common stock, regardless
of whether they vote for or against the proposed business combination, into a portion of the aggregate amount then on deposit in
the trust account, or (2) provide our stockholders with the opportunity to sell their shares to us by means of a tender offer (and
therefore avoid the need for a stockholder vote) for an amount equal to their pro rata share of the aggregate amount then on deposit
in the trust account, in each case subject to the limitations described herein. If we determine to engage in a tender offer, such
tender offer will be structured so that each stockholder may tender all of his, her or its shares rather than some pro rata portion
of his, her or its shares. The decision as to whether we will seek stockholder approval of a proposed business combination or whether
we will allow stockholders to sell their shares to us in a tender offer will be made by us, solely in our discretion, and will
be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise
require us to seek stockholder approval. We anticipate that our business combination could be completed by way of a merger, share
exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar transaction. Stockholder approval
will not be required under Delaware law if the business combination is structured as an acquisition of assets of the target company,
a share exchange with target company stockholders or a purchase of stock of the target company; however, Nasdaq rules would require
us to obtain stockholder approval if we seek to issue shares representing 20% or more of our outstanding shares as consideration
in a business combination. A merger of our company into a target company would require stockholder approval under Delaware law.
A merger of a target company into our company would not require stockholder approval unless the merger results in a change to our
amended and restated certificate of incorporation, or if the shares issued in connection with the merger exceed 20% of our outstanding
shares prior to the merger. A merger of a target company with a subsidiary of our company would not require stockholder approval
unless the merger results in a change in our amended and restated certificate of incorporation; however, Nasdaq rules would require
us to obtain stockholder approval of such a transaction if we week to issue shares representing 20% or more of our outstanding
shares as consideration.
If a stockholder vote is not required and
we do not decide to hold a stockholder vote for business or other legal reasons, we will provide our stockholders with an opportunity
to tender their shares to us pursuant to a tender offer pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate
issuer tender offers, and we will file tender offer documents with the SEC which will contain substantially the same financial
and other information about the initial business combination as is required under the SEC’s proxy rules.
In the event we allow stockholders to tender
their shares pursuant to the tender offer rules, our tender offer will remain open for at least 20 business days, in accordance
with Rule 14e-1(a) under the Exchange Act, and we will not be permitted to complete our initial business combination until the
expiration of the tender offer period. In addition, the tender offer will be conditioned on public stockholders not tendering more
than a specified number of public shares, which number will be based on the requirement that we may not purchase public shares
in an amount that would cause our net tangible assets to be less than $5,000,001 (so that we are not subject to the SEC’s
“penny stock” rules) or any greater net tangible asset or cash requirement which may be contained in the agreement
relating to our initial business combination. If public stockholders tender more shares than we have offered to purchase, we will
withdraw the tender offer and not complete the initial business combination.
If, however, stockholder approval of the
transaction is required by law or Nasdaq requirements, or we decide to obtain stockholder approval for business or other legal
reasons, we will:
● file proxy materials with the SEC.
In the event that we seek stockholder approval
of our initial business combination, we will distribute proxy materials and, in connection therewith, provide stockholders with
the conversion rights described above upon completion of the initial business combination.
We will consummate our initial business
combination only if public stockholders do not exercise conversion rights in an amount that would cause our net tangible assets
to be less than $5,000,001 and a majority of the outstanding shares of common stock voted are voted in favor of the business combination.
We chose our net tangible asset threshold of $5,000,001 to ensure that we would avoid being subject to Rule 419 promulgated under
the Securities Act. However, if we seek to consummate an initial business combination with a target business that imposes any type
of working capital closing condition or requires us to have a minimum amount of funds available from the trust account upon consummation
of such initial business combination, our net tangible asset threshold may limit our ability to consummate such initial business
combination (as we may be required to have a lesser number of shares converted) and may force us to seek third party financing
which may not be available on terms acceptable to us or at all. As a result, we may not be able to consummate such initial business
combination and we may not be able to locate another suitable target within the applicable time period, if at all. Public stockholders
may therefore have to wait until June 1, 2021 in order to be able to receive a portion of the trust account.
Our insiders, officers and directors have
agreed (1) to vote any shares of common stock owned by them in favor of any proposed business combination, (2) not to convert any
shares of common stock into the right to receive cash from the trust account in connection with a stockholder vote to approve a
proposed initial business combination or a vote to amend the provisions of our amended and restated certificate of incorporation
relating to stockholders’ rights or pre-business combination activity and (3) not sell any shares of common stock in any
tender in connection with a proposed initial business combination.
Depending on how a business combination is structured,
any stockholder approval requirement could be satisfied by obtaining the approval of either (i) a majority of the shares of our common
stock that were voted at the meeting (assuming a quorum was present at the meeting), or (ii) a majority of the outstanding shares of our
common stock. Because our insiders, officers and directors collectively beneficially own approximately 26.7% of our issued and outstanding
shares of common stock, no public shares (if the approval requirement was a majority of shares voted and the minimum number of shares
required for a quorum attended the meeting) would need to be voted in favor a business combination in order for it to be approved.
None of our insiders or their affiliates
has indicated any intention to purchase units or shares of common stock from persons in the open market or in private transactions.
However, if we seek stockholder approval of a business combination and if we hold a meeting to approve a proposed business combination
and a significant number of stockholders vote, or indicate an intention to vote, against such proposed business combination, we
or our insiders or their affiliates could make such purchases in the open market or in private transactions in order to influence
the vote. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated
any terms or conditions for any such transactions. No funds from the trust account can be released from the trust account prior
to the consummation of a business combination to make such purchases (although such purchases could be made using funds available
to us after the closing of a business combination). 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. Notwithstanding the foregoing, we or our insiders or their affiliates
will not make purchases of shares of common stock if the purchases would violate Sections 9(a)(2) or 10(b) of the Exchange Act
or Regulation M, which are rules that prohibit manipulation of a company’s stock, and we and they will comply with Rule 10b-18
under the Exchange Act in connection with any open-market purchases. If purchases cannot be made without violating applicable law,