This Report (as defined below),
including, without limitation, statements under “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act (as defined
below) and Section 21E of the Exchange Act (as defined below). These forward-looking statements can be identified by the use of
forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,”
“intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,”
“continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There
can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to,
any statements relating to our ability to consummate any acquisition or other business combination and any other statements that are
not statements of current or historical facts. These statements are based on management’s current expectations, but actual results
may differ materially due to various factors, including, but not limited to:
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. Future developments affecting us may not 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. 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.
Unless otherwise stated in
this Report, or the context otherwise requires, references to:
PART I
Item 1. Business.
Overview
We are a Delaware blank check
company incorporated on August 5, 2020, formed for the purpose of effecting an initial business combination. Our efforts to identify
a prospective target business are not limited to a particular industry or geographic region although we are focused on target businesses
in the healthy living industries that benefit from strong ESG profiles in North America and Europe.
Initial Public Offering
On November 17, 2020, we
consummated our IPO of 11,000,000 units. Each unit consists of one share of common stock and one redeemable warrant of the Company, with
each whole warrant entitling the holder thereof to purchase one share of Common Stock for $11.50 per share. The units were sold at a
price of $10.00 per unit, generating gross proceeds to the Company of $110,000,000.
Simultaneously with the closing
of the IPO, we completed the private sale of an aggregate of 4,800,000 private placement warrants to our sponsor and EarlyBirdCapital
(3,975,000 private placement warrants to our sponsor and 825,000 to EarlyBirdCapital) at a purchase price of $1.00 per private placement
warrant, generating gross proceeds of $4,800,000.
In connection with the IPO,
the underwriters were granted a 45-day option from the date of our IPO prospectus to purchase up to 1,650,000 additional units to cover
over-allotments, if any. On November 19, 2020, the underwriters purchased an additional 1,618,600 units pursuant to the partial exercise
of the Over-Allotment Option, and cancelled the remainder of the Over-Allotment Option. The additional units were sold at an offering
price of $10.00 per unit, generating aggregate additional gross proceeds of $16,186,000 to us. In connection with the cancellation of
the remainder of the Over-Allotment Option, we cancelled an aggregate of 7,850 shares of common stock issued to the sponsor prior to
the IPO. Simultaneously with the consummation of the Over-Allotment Option, we completed the private sale of an additional 485,580 private
placement warrants to our sponsor and EarlyBirdCapital (402,121 private placement warrants to our sponsor and 83,459 to EarlyBirdCapital),
generating gross proceeds to us of $485,580.
A total of $127,447,860,
comprised of $122,162,280 of the proceeds from the IPO and $5,285,580 of the proceeds from the sale of the private placement warrants,
was initially deposited in a trust account maintained by Continental, acting as trustee.
We originally had up to 12
months from the closing of our IPO, or until November 17, 2021, to consummate an initial business combination. However, by resolution
of our board as requested by our sponsor, we extended the period of time to consummate a business combination two times, each by an additional
three months, for a total of up to 18 months, or until May 17, 2022. On May 12, 2022, our stockholders approved the First Charter
Extension, which extended the date by which we must consummate our initial business combination from May 17, 2022 to August 17, 2022.
On August 15, 2022, our stockholders approved the Second Charter Extension, which extended the date by which we must consummate our initial
business combination from August 17, 2022 to February 17, 2023. On February 8, 2023, our stockholders approved the Third Charter Extension,
which extended the date by which we must consummate our initial business combination from February 17, 2023 to August 17, 2023. For more
information regarding the extensions, see “Effecting an Initial Business Combination” below.
It is the job of our sponsor
and management team to complete our initial business combination. Our management team is led by Rosemary L. Ripley, our Chief Executive
Officer, and Peter S.H. Grubstein, our Chief Financial Officer. We must complete our initial business combination by August 17, 2023,
which is 33 months from the closing of our IPO. If our initial business combination is not consummated by August 17, 2023, then
our existence will terminate, and we will distribute all amounts in the trust account.
However, we may further extend
the deadline by which we must consummate our initial business combination. Such an extension requires the approval from our public stockholders
to amend our charter, and who will be provided the opportunity to at that time to redeem all or a portion of their shares (which would
likely have a material adverse effect on the funds held in our trust account and may result in other adverse effects on us, such as our
ability to maintain our listing on Nasdaq). Our sponsor may also explore transactions under which it would sell its interest in us to
another management team.
Heritage Business Combination
Heritage Business Combination Agreement
On December 9, 2022, the
Company announced the execution of the Heritage Business Combination Agreement with Heritage, Pubco, the Merger Subs, our sponsor, in
the capacity as the representative for the stockholders of the Company and Pubco (other than the former Heritage stockholders), and the
Holder Representative for a proposed business combination among the parties. Pursuant to the Heritage Business Combination Agreement,
Pubco changed its name to Heritage Distilling Group, Inc. and will serve as the parent company of each of the Company and Heritage following
the consummation of the Heritage Business Combination.
Pursuant to the Heritage Business
Combination Agreement, subject to the terms and conditions set forth therein, at the Effective Time (as defined in the Heritage Business
Combination Agreement), (i) SPAC Merger Sub will merge with and into the Company, with the Company continuing as the surviving entity,
and, in connection therewith, (A) each share of the Company’s common stock issued and outstanding immediately prior to the Effective
Time will be cancelled in exchange for the right of the holder thereof to receive, with respect to each share of the Company’s common
stock that is not redeemed or converted in the redemption in connection with the closing of the Heritage Business Combination, one share
of common stock of Pubco (“Pubco Common Stock”) and one CVR (as defined below) (subject to the holders of founder shares and
representative shares waiving their right to receive CVRs for such shares pursuant to the CVR Funding and Waiver Letter (as defined below)),
and (B) Pubco will assume all of the outstanding warrants of the Company and each such warrant will become a warrant to purchase the same
number of shares of Pubco Common Stock at the same exercise price during the same exercise period and otherwise on the same terms as the
warrant being assumed; (ii) Heritage Merger Sub will merge with and into Heritage, with Heritage continuing as the surviving entity, and,
in connection therewith, (A) the shares of capital stock of Heritage issued and outstanding immediately prior to the Effective Time will
be cancelled in exchange for the right of the holders thereof to receive shares of Pubco Common Stock as set forth in the Heritage Business
Combination Agreement, (B) holders of certain Heritage unsecured convertible promissory notes will receive shares of Pubco Common Stock
separate from the Stockholder Merger Consideration (as defined in the Heritage Business Combination Agreement), (C) Pubco will assume
certain Heritage warrants (the “Heritage Financing/Interim Warrants”) and each Heritage Financing/Interim Warrant will become
a warrant to purchase shares of Pubco Common Stock, with the number of shares and exercise price thereof equitably adjusted in accordance
with the Heritage Business Combination Agreement, (D) certain Heritage warrants (the “Contributed Warrants”) will be contributed
to Pubco and exchanged for the right to receive such number of shares of Pubco Common Stock as such holder of a Contributed Warrant would
have received pursuant to the Heritage Business Combination Agreement if such Contributed Warrant had been exercised immediately prior
to the Effective Time for the number of shares of common stock of Heritage (“Heritage common stock”) set forth in that certain
Contribution Agreement, dated December 8, 2022, by and among Heritage and the warrant holders party thereto, (E) each award of restricted
stock units based on shares of Heritage common stock granted under the Heritage Distilling Company, Inc. 2018 Stock Incentive Plan and
the Heritage Distilling Holding Company, Inc. 2019 Stock Incentive Plan (“Restricted Stock Unit Award”) outstanding immediately
prior to the Effective Time, as amended in accordance with the Heritage Business Combination Agreement will be assumed by Pubco, with
the number of shares underlying such Restricted Stock Unit Award to be adjusted in accordance with the Heritage Business Combination Agreement
and the RSU Award Amendments, and (F) all other Company Convertible Securities (as defined in the Heritage Business Combination Agreement)
will be terminated; and (iii) as a result of the Mergers, the Company and Heritage each will become wholly owned subsidiaries of Pubco,
and Pubco will become a publicly traded company.
The aggregate merger consideration
to be paid pursuant to the Heritage Business Combination Agreement to Heritage Securityholders will be an amount equal to $77,500,000,
subject to adjustments for Heritage’s closing debt and certain transaction bonuses, if any (the “Participant Consideration”).
The Stockholder Merger Consideration to be payable to the Heritage stockholders will be allocated among the Heritage stockholders pro
rata based on the number of shares of Heritage common stock owned by such Heritage stockholder.
Contingent Value Rights
At the Heritage Closing,
each public stockholder that did not redeem their shares of our common stock in connection with the Heritage Transactions will receive
one contingent value right (“CVR”) in the SPAC Merger in addition to one share of Pubco Common Stock. At the Heritage Closing,
our Sponsor will place 1,000,000 shares of Pubco Common Stock (the “Founder CVR Escrow Shares”), and certain Heritage security
holders will place 3,000,000 shares of Pubco Common Stock from the Participant Consideration (less the number of RSU CVR Shares (as defined
in the Heritage Business Combination Agreement) attributable to Restricted Stock Unit Awards that also will support the CVRs) (the “Heritage
CVR Escrow Shares”) into escrow, for an aggregate of 4,000,000 shares of Pubco Common Stock to support the CVRs, pursuant to a
contingent value rights agreement (the “CVR Agreement”) to be entered into prior to the Heritage Closing, by and among the
Holder Representative (on behalf of such Heritage security holders), Pubco, our sponsor and Continental, as rights agent.
Upon the date that is 18
months from Heritage Closing (which date may be extended to 24 months following the Heritage Closing at the option of our sponsor), CVR
holders will be entitled to receive a number of escrowed shares (and earnings thereon other than ordinary dividends) designed to provide
the CVR holders with a simple annual rate of return of 10% on the redemption price for their common stock of the Company based on the
price of the Pubco Common Stock as of such 18- or 24-month anniversary and any amounts that they have received with respect to their
shares of Pubco Common Stock through such time, including if the stock price drops below the price in the Redemption, but solely to the
extent of the escrowed shares and earnings thereon other than ordinary dividends, and up to a maximum of the equivalent of two shares
of Pubco Common Stock for each CVR. The number of shares to be released to the CVR holders will be allocated from the Heritage security
holders’ and our sponsor’s escrowed shares on a pro-rata basis, and any escrowed shares not released to CVR holders by the
end of the CVR term will be released to the contributing Heritage security holders and our sponsor on a pro-rata basis.
Earnout
Certain security holders
of Heritage, including holders of Restricted Stock Unit Awards (the “Heritage Earnout Participants”), will have the contingent
right to receive to up to an aggregate of 3,000,000 additional shares of Pubco Common Stock (the “Earnout Shares”) as contingent
consideration after the Heritage Closing based on Pubco’s net revenue performance for the years 2023, 2024 and 2025 and stock price
performance during the three year period following the Heritage Closing (the “Earnout Period”), as follows:
|
(i) |
an aggregate of 500,000
Earnout Shares will be issued to the Heritage Earnout Participants in the event that Pubco reports net revenue in its audited financial
statements for the fiscal year ended December 31, 2023, equal to or in excess of $18,100,000 (the “2023 Net Revenue Earnout
Milestone”); |
|
(ii) |
an aggregate of 500,000
Earnout Shares will be issued to the Heritage Earnout Participants in the event that the VWAP of the Pubco Common Stock equals or
exceeds $12.50 per share for 20 out of 30 consecutive trading days during the Earnout Period (the “First Price Earnout Milestone”); |
|
(iii) |
an aggregate of 750,000
Earnout Shares will be issued to the Heritage Earnout Participants in the event that Pubco reports net revenue in its audited financial
statements for the fiscal year ended December 31, 2024, equal to or in excess of $29,300,000 (the “2024 Net Revenue Earnout
Milestone”) (provided that if the 2023 Net Revenue Earnout Milestone was not met and such Earnout Shares were not issued, an
aggregate of 1,250,000 Earnout Shares will be issued to the Heritage Earnout Participants); |
|
(iv) |
an aggregate of 750,000
Earnout Shares will be issued to the Heritage Earnout Participants in the event that the VWAP of the Pubco Common Stock equals or
exceeds $15.00 per share for 20 out of 30 consecutive trading days during the Earnout Period (the “Second Price Earnout Milestone”)
(provided that if the First Price Earnout Milestone was not met and such Earnout Shares were not issued, an aggregate of 1,250,000
Earnout Shares will be issued to the Earnout Participants); and |
|
(v) |
an aggregate of 500,000
Earnout Shares will be issued to the Heritage Earnout Participants in the event that Pubco reports net revenue in its audited financial
statements for the fiscal year ended December 31, 2025, equal to or in excess of $46,500,000 (the “2025 Net Revenue Earnout
Milestone”) (provided that if any prior Earnout Shares were not previously earned and issued, the Heritage Earnout Participants
will be entitled to receive all unissued Earnout Shares). |
In the event of a Change
of Control (as defined in the Heritage Business Combination Agreement) during the Earnout Period, the Heritage Earnout Participants will
be entitled to receive all Earnout Shares with respect to the Earnout Year in which such Change of Control is consummated plus all Earnout
Shares with respect to each Earnout Year subsequent to the Earnout Year in which the Change of Control was consummated.
At the Heritage Closing,
our sponsor will also contribute 500,000 of its founder shares (the “Sponsor Escrow Shares”) into an escrow account (the
“Sponsor Escrow Account”), which shares will be released as set forth below based on Pubco’s achievement of the earnout
milestones set forth above (with any Sponsor Escrow Shares remaining in escrow at the end of the Earnout Period to be forfeited) (the
“Sponsor Earnout”):
|
(i) |
100,000 of the Sponsor
Escrow Shares will vest, no longer be subject to forfeiture and be released from the Sponsor Escrow Account at such time (if any)
that the Heritage Earnout Participants are issued any Earnout Shares based upon the achievement of the 2023 Net Revenue Earnout Milestone; |
|
(ii) |
100,000 of the Sponsor
Escrow Shares will vest, no longer be subject to forfeiture and be released from the Sponsor Escrow Account at such time (if any)
that the Heritage Earnout Participants are issued any Earnout Shares based upon the achievement of the First Price Earnout Milestone; |
|
(iii) |
150,000 of the Sponsor
Escrow Shares will vest, no longer be subject to forfeiture and be released from the Sponsor Escrow Account at such time (if any)
that the Heritage Earnout Participants are issued any Earnout Shares based upon the achievement of the 2024 Net Revenue Earnout Milestone; |
|
(iv) |
150,000 of the Sponsor
Escrow Shares will vest, no longer be subject to forfeiture and be released from the Sponsor Escrow Account at such time (if any)
that the Heritage Earnout Participants are issued any Earnout Shares based upon the achievement of the Second Price Earnout Milestone;
and |
|
(v) |
in the event that fewer
than all of the Sponsor Escrow Shares have been released from the Sponsor Escrow Account based upon the achievement of the foregoing
events, then any such remaining Sponsor Escrow Shares in the Sponsor Escrow Account will vest, no longer be subject to forfeiture
and be released from the Sponsor Escrow Account at such time (if any) that the Heritage Earnout Participants are issued any Earnout
Shares based upon the achievement of the 2025 Net Revenue Milestone. |
In addition, all of the Sponsor
Escrow Shares will vest, no longer be subject to forfeiture and be released from the Sponsor Escrow Account to our sponsor upon the first
to occur of certain “Triggering Events” described in the Sponsor Earnout Letter.
Heritage Ancillary Documents
Lock-Up Agreements
Simultaneously with the execution
and delivery of the Heritage Business Combination Agreement, directors, officers and certain significant security holders of Heritage
entered into a lock-up agreement with Pubco, the Company, and Heritage (the “Lock-Up Agreements”). The Heritage Business
Combination Agreement includes a closing condition requiring certain additional significant security holders of Heritage to enter into
Lock-Up Agreements prior to the Heritage Closing. Pursuant to the Lock-Up Agreements, the Heritage security holders agreed not to, during
the period commencing from the Heritage Closing and ending on the 12-month anniversary of the Heritage Closing (subject to early release
if Pubco consummates a liquidation, merger, share exchange or other similar transaction with an unaffiliated third party): (i) lend,
offer, pledge, hypothecate, encumber, donate, assign, sell, contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any
restricted securities, (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of such restricted securities, or (iii) publicly disclose the intention to do any of the foregoing, whether
any such transaction described in clauses (i) or (ii) above is to be settled by delivery of the restricted securities or other securities,
in cash or otherwise (in each case, subject to certain limited permitted transfers, provided that the transferred shares will continue
to be subject to the Lock-Up Agreement). Notwithstanding the foregoing, 50% of the restricted securities will be released in the event
that the closing price of Pubco Common Stock on Nasdaq (or other principal stock exchange or quotation service on which such shares then
trade) equals or exceeds $12.50 per share for any 20 out of 30 consecutive trading days.
Voting Agreements
Simultaneously with the execution
and delivery of the Heritage Business Combination Agreement, the Company and Heritage entered into voting agreements (collectively, the
“Voting Agreements”) with directors, officers and certain Heritage significant security holders required to approve the Heritage
Transactions. Under the Voting Agreements, each such Heritage security holder party thereto agreed, among other matters, to vote all
of such Heritage security holder’s shares of Heritage in favor of the Heritage Business Combination Agreement and the Heritage
Transactions, and to otherwise take (or not take, as applicable) certain other actions in support of the Heritage Business Combination
Agreement and the Heritage Transactions and the other matters to be submitted to the Heritage security holders for approval in connection
with the Heritage Transactions, in the manner and subject to the conditions set forth in the Voting Agreements, and provide a proxy to
Heritage to vote such shares accordingly in the event that such security holder fails to perform or otherwise comply with the covenants,
agreements or other obligations set forth in the Voting Agreement. The Voting Agreements prevent transfers of the Heritage shares held
by such Heritage security holder party thereto between the date of the Voting Agreement and the date of the Heritage Closing, except
for certain permitted transfers where the recipient also agrees to comply with the terms of the Voting Agreement.
Non-Competition Agreements
Simultaneously with the execution
and delivery of the Heritage Business Combination Agreement, directors, officers and certain significant Heritage security holders entered
into non-competition and non-solicitation agreements (the “Non-Competition Agreements”) in favor of Heritage, the Company
and Pubco and their direct and indirect subsidiaries and their respective present and future successors and direct and indirect subsidiaries
(“Covered Parties”), to be effective as of the Heritage Closing. Under the Non-Competition Agreements, the signatory thereto
agrees not to compete with the Covered Parties during the two-year period following the Heritage Closing and, during such two-year restricted
period, not to solicit employees or customers of such entities. The Non-Competition Agreements also contain customary confidentiality
and non-disparagement provisions.
Heritage Registration Rights Agreement
At or prior to the Heritage
Closing, certain Heritage security holders will enter into a registration rights agreement (the “Heritage Registration Rights Agreement”)
with Pubco and the Company, pursuant to which, among other matters, Pubco will agree to undertake certain registration obligations in
accordance with the Securities Act and such security holders will be granted customary demand and piggyback registration rights.
Founder Registration Rights Agreement Amendment
At or prior to the Heritage
Closing, Pubco, the Company and our sponsor will enter into an amendment to the registration rights agreement (the “Founder Registration
Rights Agreement Amendment”) entered into by the Company and our sponsor at the time of the IPO (the “Founder Registration
Rights Agreement”). Under the Founder Registration Rights Agreement Amendment, the Founder Registration Rights Agreement will be
amended to, among other things, add Pubco as a party and to reflect the issuance of Pubco Common Stock and warrants pursuant to the Heritage
Business Combination Agreement, and to reconcile with the provisions of the Heritage Registration Rights Agreement, including making
the registration rights of the Heritage security holders and our sponsor pari passu with respect to any underwriting cutbacks.
CVR Agreement
The public stockholders who
do not redeem their shares of the Company’s common stock in connection with the Heritage Transactions will receive one CVR in the
Heritage Business Combination in addition to one share of Pubco Common Stock. At the Heritage Closing, our sponsor will place the 1,000,000
Founder CVR Escrow Shares and certain Heritage security holders will place 3,000,000 Heritage CVR Escrow Shares (less the number of RSU
CVR Shares attributable to Restricted Stock Unit Awards that also will support the CVRs) into escrow, for an aggregate of up to 4,000,000
shares of Pubco Common Stock to support the CVR, pursuant to the CVR Agreement. Upon the date that is 18 months from Heritage Closing
(which date may be extended to 24 months following the Heritage Closing at the option of our sponsor), CVR holders will be entitled to
receive a number of escrowed shares (and earnings thereon other than ordinary dividends) designed to provide the CVR holders with a simple
annual rate of return of 10% on the redemption price for their common stock of the Company based on the price of the Pubco Common Stock
as of such 18- or 24-month anniversary and any amounts that they have received with respect to their shares of Pubco Common Stock through
such time, including if the stock price drops below the price in the Redemption, but solely to the extent of the escrowed shares and
earnings thereon other than ordinary dividends, and up to a maximum of the equivalent of two shares of Pubco Common Stock for each CVR.
The number of shares to be released to the CVR holders will be allocated from the Heritage security holders’ and our sponsor’s
escrowed shares on a pro-rata basis, and any escrowed shares not released to CVR holders by the end of the CVR term will be released
to the contributing Heritage security holders and our sponsor on a pro-rata basis.
CVR Funding and Waiver Letter
Simultaneously with the execution
and delivery of the Heritage Business Combination Agreement, our sponsor, EarlyBirdCapital, the Company, Heritage and Pubco entered into
a letter agreement (the “CVR Funding and Waiver Letter”), pursuant to which (i) our sponsor agreed at the Heritage Closing
to deposit into escrow an aggregate of 1,000,000 Founder CVR Escrow Shares, with such Founder CVR Escrow Shares (together with the Heritage
CVR Escrow Shares) to be held in escrow in accordance with the terms and conditions of the Heritage Business Combination Agreement and
the CVR Escrow Agreement and the CVR Agreement, and (ii) our sponsor and EarlyBirdCapital have agreed to waive any rights to receive
any CVRs for or with respect to their founder shares and representative shares.
Sponsor Earnout Letter
At the Heritage Closing,
our sponsor will contribute the 500,000 Sponsor Escrow Shares into the Sponsor Escrow Account. All of the Sponsor Escrow Shares will
vest, no longer be subject to forfeiture and be released from the Sponsor Escrow Account to our sponsor upon the first to occur of certain
“Triggering Events” described in the sponsor earnout letter agreement to be entered into by and among the Company, Pubco,
Heritage and our sponsor prior to the Heritage Closing (the “Sponsor Earnout Letter”).
Other than as specifically
discussed, this Report does not assume the closing of the Heritage Business Combination. For more information about the Heritage Business
Combination, see the Heritage Registration Statement and the Company’s Current Report on Form 8-K filed with the SEC on December
15, 2022.
Our Company
We believe our management
team, together with N*GEN, an affiliate of our sponsor, are well suited to identify businesses that benefit from strong ESG profiles
and have the potential to generate attractive risk-adjusted returns for our stockholders.
We are seeking to identify
and acquire a business that could benefit from a strategically experienced owner with extensive investment experience in the healthy
consumer and smart cities sectors, and that presents potential for an attractive risk-adjusted return profile. The global wellness
economy was a $4.4 trillion market in 2020, growing at a compound annual rate of 9.9% through 2025. Personal care, beauty and food products
accounted for approximately $1.9 trillion of that total. Globally, organic foods and beverages are expected to grow at a compound annual
growth rate of over 14.7% from 2020 to 2027, reaching nearly $500 billion by 2027. Consumers are seeking healthier, cleaner, more
sustainable products and ingredients in the U.S. and globally. According to a study by NYU Stern and IRI, products marketed as sustainable
drove over 50% of packaged goods market growth across all channels and categories from 2013-2018, despite representing only a 16.6% market
share. This growth was over 5.6 times faster than conventional products and accounted for $114 billion in sales in 2018.
In part due to the impacts
of Covid-19, U.S. organic food sales grew 13% to a record high in 2020. Due to the pandemic, changes to how people live, eat, and consume
that were already underway accelerated dramatically. Incumbent businesses are reacting to address shifts in consumer tastes and the changing
landscape. Many of these shifts will continue to change the ways we live and work, reflecting an acceleration of trends in which members
of our management team have been investing for over 10 years.
A smarter city makes the
lives of its inhabitants safer, more convenient, and more comfortable. According to the 2010 Census, U.S. cities are home to nearly 63%
of the population but comprise under 4% of the total land area of the United States. While this density can lead to the cherished
dynamism of urban areas, it also creates a myriad of issues like pollution, traffic, disease, and food & energy insecurity.
Adoption of green technologies is addressing these problems and forging the city of the future. According to Grand View Research, the
global Smart City market reached almost $1.1 trillion in 2021 and is forecasted to grow at a compound annual rate of 24.2% from 2022
to 2030.
Importantly, economics and
cost are propelling the diffusion of these new Smart City technologies. According to the National Renewable Energy Laboratory (“NREL”),
costs of utility scale lithium-ion battery storage systems fell 72% from 2015 to 2019 with an additional 42% cost reduction through
2030. Solar energy costs fell 89% from 2009 to 2019, leading to a total installed capacity of 760 gigawatts as of 2020. This is enough
to power over 120 million homes.
Our sponsor, BWA Holdings
LLC, is an entity owned by members of our management and is affiliated with N*GEN. Rosemary L. Ripley, our CEO, and Peter S.H. Grubstein,
our CFO, have worked together at N*GEN since 2007. Shay Murphy joined N*GEN in 2015. Founded in 2001, N*GEN has raised over $500 million
in a number of venture capital investment vehicles that it currently manages. Ms. Ripley and Mr. Grubstein are both Managing
Members of N*GEN. Ms. Ripley brings years of private equity, strategy and M&A experience in the consumer products industry.
Mr. Grubstein has deep operating and investing experience in the manufacturing and distribution businesses and in the sustainability
sectors. Both individuals are experienced operating and investment professionals, under whose leadership N*GEN has distinguished itself
by being a market innovator and leader in ESG and impact investing and making numerous direct investments in healthier consumer sectors,
energy efficiency, urban farming and smart cities, and is known in the industry both for its track record of selecting companies utilizing
proprietary research and the value that it adds to its portfolio companies in scaling their growth. As a result, N*GEN has developed
deep industry relationships across its sectors.
We believe the reputation
and expertise of our management team in the healthy living industry make us a desirable partner for potential business combination targets.
The breadth and depth of our investing experience have afforded us with insight on potential candidates in multiple sectors within the
healthy living sector.
As growth equity investors,
we seek to back world class entrepreneurs and invest in innovative B2B and B2C companies offering differentiated, healthier, and
more efficient solutions. We are looking for innovation-driven, growth companies that capitalize on next generation consumer behavior
and challenges that we believe will ultimately become the innovation engines of their industries, including those in the next generation
consumer, health and wellness, and enabling technologies sectors.
We are especially focusing
on sectors being transformed by massive change, which we believe creates enormous opportunities for younger companies to capture market
share by utilizing new business models, routes to market and cleaner ingredients. Specifically, the acquisition opportunities we are
pursuing include companies in the healthy consumer and smart cities sectors that are working to develop new and creative services and
solutions for the next generation consumer. Our management team seeks to collaborate with experienced entrepreneurs and invest in high
growth companies to create a healthier, smarter, and cleaner future.
Historically, N*GEN has sourced
its transactions using proprietary research and targeted sectors growing faster than the overall economy. N*GEN focuses on differentiated
businesses that demonstrate strong, sustainable profitable growth. N*GEN has honed its investment process over the years and leveraged
its extensive network of contacts including advisors, senior professionals in select industries, private equity principals, investment
bankers, other financial sponsors and owners of private businesses.
Covid-19 has further
accelerated changes in how people live and interact with the world, leading people to seek healthier, more connected, and more sustainable
lifestyles. We expect our business combination target to be able to take advantage of the current trends toward increased spending on
health and wellness as well as smarter homes and work environments. On the commercial side, security, mobility and greater municipal
autonomy are fueling growth in local food supply systems, health, infrastructure, communications, and energy security/efficiency programs.
Business Strategy
Our acquisition and value
creation strategy is to identify, acquire and build a company in the healthy living/ESG sector that complements the experience of our
management team, benefiting from our strategic and operational expertise. After the initial business combination, we may pursue additional
acquisitions with a focus on generating attractive risk adjusted returns for our stockholders. We seek to leverage our management team’s
network of potential proprietary and public transaction sources where we believe a combination of our relationships, knowledge and experience
could effect a positive transformation or augmentation of existing businesses to improve their overall value.
We utilize a research-driven process
to generate significant deal flow that we believe is enhanced by the network and industry experience of our management team.
Over the course of their
careers, the members of our management team and their affiliates have developed a broad network of contacts and corporate relationships
that we believe will serve as a useful source of acquisition opportunities. This network has been developed through our management team’s:
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extensive experience in
both investing in and operating across our targeted sectors; |
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experience in sourcing,
structuring, acquiring, operating, developing, growing, financing and selling businesses; and |
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experience in executing
transactions in the sectors under varying economic and financial market conditions. |
We expect these networks
will continue to provide our management team with a robust flow of acquisition opportunities, and supplement our internally derived deal
flow. In addition, target business candidates may be brought to our attention from various unaffiliated sources, which may include investment
market participants, private equity groups, investment banking firms, consultants, accounting firms and large business enterprises.
Acquisition Criteria
Consistent with this strategy,
we have identified the following general criteria and guidelines that we believe are important in evaluating prospective target businesses.
We have used and will continue to use these criteria and guidelines in evaluating acquisition opportunities, including the Heritage Business
Combination, but we may decide to enter into our initial business combination with a target business that only meets some but not all
of these criteria and guidelines. We intend to acquire companies that we believe:
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have market and/or cost
leadership positions in their respective sectors and would benefit from our networks and insights; |
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provide innovative products
or services, with the potential for revenue, market share and/or distribution improvements; |
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are fundamentally sound
companies that offer compelling growth and value; |
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offer the opportunity for
our management team to partner with established management teams or business owners to achieve long-term strategic and operational
excellence; |
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exhibit unrecognized value
or other characteristics, desirable returns on capital, and a need for capital to achieve the company’s growth strategy that
offers superior risk/reward potential based on our analysis and due diligence review; and |
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will offer an attractive
risk-adjusted return for our stockholders. |
These criteria are not intended
to be exhaustive. Any evaluation relating to the merits of a particular initial business combination may be based, to the extent relevant,
on these general guidelines as well as other considerations, factors and criteria that our management may deem relevant.
Our Acquisition Process
In evaluating a prospective
target business, such as Heritage, we conduct thorough due diligence that encompasses, among other things, meetings with incumbent management
and employees, document reviews, inspection of facilities, as well as a review of financial and other information that will be made available
to us. We utilize our operational and capital allocation experience. We are not prohibited from pursuing an initial business combination
with a company that is affiliated with our sponsor, officers or directors. While Heritage is not an affiliate of our sponsor, officers,
or directors, in the event we do not consummate the Heritage Business Combination and seek to complete our initial business combination
with a company that is affiliated with our sponsor, officers or directors, we, or a committee of independent directors, will obtain an
opinion from an independent investment banking firm or another independent entity that commonly renders valuation opinions that our initial
business combination is fair to our company from a financial point of view.
Members of our management
team and our independent directors indirectly own founder shares and/or private placement warrants and, accordingly, may have a conflict
of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial business
combination. Further, each of our officers and directors may have a conflict of interest with respect to evaluating a particular business
combination if the retention or resignation of any such officers and directors was included by a target business as a condition to any
agreement with respect to our initial business combination. Each of our officers and directors presently has, and any of them in the
future may have additional, fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will
be required to present a business combination opportunity. Accordingly, if any of our officers or directors becomes aware of a business
combination opportunity which is suitable for an entity to which he or she has then-current fiduciary or contractual obligations,
he or she will honor his or her fiduciary or contractual obligations to present such opportunity to such entity. We do not believe, however,
that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our
initial business combination.
Initial Business Combination
Our initial business combination
must occur with one or more target businesses that together have an aggregate fair market value of at least 80% of the assets held in
the trust account (excluding the deferred underwriting commissions and taxes payable on the income earned on the trust account) at the
time of the agreement to enter into the initial business combination. If our board of directors is not able to independently determine
the fair market value of the target business or businesses, we will obtain an opinion from an independent investment banking firm or
another independent entity that commonly renders valuation opinions with respect to the satisfaction of such criteria.
Corporate Information
We are an “emerging
growth company,” as defined in Section 2(a) of the Securities Act as modified by the JOBS Act. As such, we are eligible to
take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging
growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404
of the Sarbanes-Oxley Act. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year
(a) following November 17, 2025, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in
which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by nonaffiliates exceeds
$700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in
non-convertible debt securities during the prior three-year period.
Competitive Strengths
Alternative Path to Becoming Public
We believe our structure
as a public company makes us an attractive business combination partner to prospective target businesses, such as Heritage, that desire
to become a publicly listed company. A merger with us will offer a target business an alternative process to a public listing rather
than the traditional initial public offering process. We believe that target businesses may favor this alternative, which we believe
is less expensive, while offering greater certainty of execution than the traditional initial public offering. Furthermore, once a proposed
business combination, such as the Heritage Business Combination, is approved by our stockholders and the transaction 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 have greater access to capital and additional means of creating management incentives that are better
aligned with stockholders’ interests than it would as a private company. A public company can offer further benefits by augmenting
a company’s profile among potential new customers and vendors and aid in attracting talented management. With public company corporate
governance standards, a target business may become attractive to the public investors.
Strong and Stable Financial Position with
Flexibility.
With funds in the trust account
of approximately $31.8 million following the Third Charter Extension, which is available to use for an initial business combination assuming
no redemptions (in connection with stockholder votes on either, or both, of the proposal to approve our initial business combination
or a proposal to amend our charter to extend the date by which we must consummate our initial business combination), we can offer a target
business, such as Heritage, 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 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. See “Heritage Business Combination” above for more information
regarding the consideration in the Heritage Business Combination.
Effecting an Initial Business Combination
We are not presently engaged
in, and we will not engage in, any substantive commercial business until we consummate our initial business combination. We will utilize
cash derived from the proceeds of our IPO and the sale of the private placement warrants, our capital stock, debt or a combination of
these in effecting an initial business combination. An 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, while
avoiding what it may deem to be adverse consequences of undertaking a public offering itself. These include time delays, significant
expense, loss of voting control and compliance with various federal and state securities laws. In the alternative, we may seek to consummate
an initial 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.
We originally had up to 12 months
from the closing of our IPO, or until November 17, 2021, to consummate an initial business combination. However, by resolution of our
board as requested by our sponsor, we extended the period of time to consummate an initial business combination two times, each by an
additional three months, for a total of up to 18 months, or until May 17, 2022. Pursuant to the terms of our amended and restated
certificate of incorporation and the trust agreement entered into between us and Continental, in order for the time available for us
to consummate our initial business combination to be extended, our sponsor deposited into the trust account $1,261,860 (or $0.10 per
unit, for an aggregate of $2,523,720), for each three month extension.
On November 9, 2021, our
board of directors approved the extension of the date by which we have to consummate an initial business combination from November 17,
2021 to February 17, 2022. In connection with the extension, our sponsor deposited into the trust account $0.10 for each of the 12,618,600
shares issued in the IPO, for a total of $1,261,860. We issued to our sponsor the Sponsor Note in the principal amount of $1,261,860.
On February 17, 2022, our sponsor deposited an additional $1,261,860 (representing $0.10 per public share) into our trust account. This
second deposit allowed us to extend the date by which we have to complete our initial business combination from February 17, 2022 to
May 17, 2022. In connection with the deposit, we amended and restated the Sponsor Note to increase the principal amount from $1,262,860
to $2,523,720.
On May 12, 2022, we held
a special meeting of stockholders at which our stockholders approved an amendment to our amended and restated certificate of incorporation
to extend the date by which we must consummate our initial business combination from May 17, 2022 to August 17, 2022. In connection with
the First Charter Extension, on May 17, 2022, we amended and restated the Sponsor Note in its entirety to increase the principal amount
thereunder from $2,523,720 to $3,223,720. At the time of the First Charter Extension, we also deposited an additional $500,000 borrowed
under the Sponsor Note into the trust account.
On August 15, 2022, we held
a special meeting of stockholders at which our stockholders approved a second amendment to our amended and restated certificate of incorporation,
as amended, to extend the date by which we must consummate our initial business combination from August 17, 2022 to February 17, 2023.
In connection with the Second Charter Extension, on August 17, 2022, we amended and restated the Sponsor Note in its entirety to increase
the principal amount thereunder from $3,223,720 to $3,683,720. At the time of the Second Charter Extension, we deposited an additional
$360,000 borrowed under the Sponsor Note into the trust account. Commencing on November 17, 2022, we also deposited an additional $120,000
borrowed under the Sponsor Note for each of the three remaining calendar months of the Second Charter Extension.
On December 31, 2022, we
amended and restated the Sponsor Note in its entirety to increase the principal amount thereunder from $3,683,720 to $4,323,720. The
Sponsor Note is payable by us upon the earlier of the consummation of the initial business combination or our liquidation on or before
February 17, 2023. Up to $1,500,000 of loans under the Sponsor Note may be convertible into private placement warrants at a price of
$1.00 per private placement warrant at the option of our sponsor.
On February 8, 2023, we held
a special meeting of stockholders at which our stockholders approved a third amendment to our amended and restated certificate of incorporation,
as amended, to extend the date by which we must consummate our initial business combination from February 17, 2023 to August 17, 2023.
At the time of the Third Charter Extension, we deposited $120,000 borrowed under the Additional Extension Note into the trust account.
For each additional month of Third Charter Extension needed to consummate an initial business combination, $120,000 borrowed under the
Additional Extension Note will be deposited into the trust account. The Additional Extension Note is payable by us upon the earlier of
the consummation of the initial business combination or our liquidation on or before August 17, 2023.
For more information regarding
the Heritage Business Combination, please see “Heritage Business Combination” above.
Sources of Target Businesses
Our principal means of identifying
potential target businesses is through the extensive contacts and relationships of our sponsor, initial stockholders, officers and directors.
While our officers and directors are not required to commit any specific amount of time in identifying or performing due diligence on
potential target businesses, our officers and directors believe that the relationships they have developed over their careers and their
access to our sponsor’s contacts and resources have generated, and will continue to generate, a number of potential business combination
opportunities that will warrant further investigation. Target business candidates may 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 they think we may be interested
in on an unsolicited basis, since many of these sources will have read this Report and know what types of businesses we are targeting.
Our officers and directors
must present to us all target business opportunities that have a fair market value of at least 80% of the assets held in the trust account
at the time of the agreement to enter into the initial business combination, subject to any pre-existing fiduciary or contractual
obligations. We may engage the services of professional firms or other individuals that specialize in business acquisitions, 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. In no event, however, will our sponsor, initial stockholders, officers, directors or their respective
affiliates be paid any compensation prior to, or for any services they render in order to effectuate, the consummation of an initial
business combination (regardless of the type of transaction that it is) other than the $10,000 per month administrative fee, the payment
of consulting, success or finder fees in connection with the consummation of our initial business combination and reimbursement of any
out-of-pocket expenses. Our audit committee reviews and approves all reimbursements and payments made to our sponsor, officers,
directors or our or their respective affiliates, with any interested director abstaining from such review and approval.
While Heritage is not an
affiliate of our sponsor, officers, or directors, in the event we do not consummate the Heritage Business Combination and seek to complete
our initial business combination with a company that is affiliated with our sponsor, officers or directors, we have no present intention
to enter into a business combination with a target business that is affiliated with any of our officers, directors or sponsor. However,
we are not restricted from entering into any such transactions and may do so if (i) such transaction is approved by a majority of
our disinterested independent directors and (ii) we obtain an opinion from an independent investment banking firm, or another independent
entity that commonly renders valuation opinions, that the business combination is fair to our unaffiliated stockholders from a financial
point of view.
Selection of a Target Business and Structuring
of an Initial Business Combination
Subject to our management
team’s pre-existing fiduciary obligations and the limitations that a target business have a fair market value of at least
80% of the balance in the trust account at the time of the execution of a definitive agreement for our initial business combination,
as described below in more detail, and that we must acquire a controlling interest in the target business, our management will have virtually
unrestricted flexibility in identifying and selecting a prospective target business. We have not established any specific attributes
or criteria (financial or otherwise) for prospective target businesses. In evaluating a prospective target business, our management may
consider a variety of factors, including one or more of the following:
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financial condition and
results of operation; |
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brand recognition and potential; |
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experience and skill of
management and availability of additional personnel; |
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existing distribution and potential for expansion; |
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degree of current or potential market acceptance of the products, processes or services; |
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proprietary aspects of products and the extent of intellectual property or other protection for products or formulas; |
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impact of regulation on the business; |
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regulatory environment of the industry; |
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costs associated with effecting the business combination; |
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industry leadership, sustainability of market share and attractiveness of market industries in which a target business participates; and |
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macro competitive dynamics in the industry within which the company competes. |
These criteria are not intended
to be exhaustive. 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, including Heritage, we conduct an extensive due diligence review
which encompasses, 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 is 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 the initial business combination cannot presently be ascertained
with any degree of certainty. 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 an initial business combination.
Fair Market Value of Target Business
Nasdaq listing rules require
that the target business or businesses that we acquire must collectively have a fair market value equal to at least 80% of the balance
of the funds in the trust account (excluding the deferred underwriting commissions 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. Notwithstanding the foregoing, if
we are not then listed on Nasdaq for whatever reason, we would no longer be required to meet the foregoing 80% fair market value 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
our initial business combination where we merge directly with the target business or a newly formed subsidiary 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 or acquires 50% or
more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not
to be required to register as an investment company under the Investment Company Act. Even if the post-transaction company owns or
acquires 50% or more of the voting securities of the target, our stockholders prior to the business combination may collectively own a
minority interest in the post-transaction company, depending on valuations ascribed to the target and us in the business combination
transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the
outstanding capital stock of a target. In this case, we could 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% of trust account balance test.
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). The proxy solicitation materials or tender offer documents used
by us in connection with any proposed transaction will provide public stockholders with our analysis of the fair market value of the target
business, as well as the basis for our determinations. If our board of directors is not able to independently determine 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, with respect to the satisfaction of such criteria. We will not be required
to obtain an opinion from an investment banking firm as to the fair market value if our board of directors independently determines that
the target business complies with the 80% threshold.
Lack of Business Diversification
We may seek to effect an initial
business combination with more than one target business, although we expect to complete our business combination with just one business.
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 an initial business combination with only a single entity,
our lack of diversification may:
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subject us to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to a business combination, and |
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result in our dependency upon the performance of a single operating business or the development or market acceptance of a single or limited number of products, processes or services. |
If we determine to simultaneously
acquire 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 acquisitions, which may make it more difficult for us,
and delay our ability, to complete the business combination. With multiple acquisitions, we could also face additional risks, including
additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers)
and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies
in a single operating business.
Limited Ability to Evaluate the Target Business’
Management
Although we closely scrutinize
the management of a prospective target business, including the management of Heritage, when evaluating the desirability of effecting a
business combination with that business and plan to continue to do so if the Heritage Business Combination is not consummated and we seek
other initial business combination opportunities, we cannot assure you that our assessment of the target business’ management will
prove to be correct. In addition, we cannot assure you that the future management will 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 an initial
business combination cannot presently be stated with certainty. While it is possible that some of our officers or directors will remain
associated with us in some capacity following an initial business combination, including the Heritage Business Combination in which our
Chairman and Chief Executive Officer Rosemary L. Ripley is expected to serve as a director of the post-combination company, it is unlikely
that they will devote their full-time efforts to our affairs subsequent to an initial business combination. Moreover, they would only
be able to remain with us after the consummation of an 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
initial 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 us 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 us after the
consummation of an 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, we cannot assure you that our officers and directors will have significant experience
or knowledge relating to the operations of the particular target business.
Following an initial business
combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure
you that we will have the ability to recruit additional managers, or that any such additional managers we do recruit will have the requisite
skills, knowledge or experience necessary to enhance the incumbent management.
Stockholders May Not Have the Ability to Approve
an Initial Business Combination
In connection with any proposed
initial business combination, we will either (1) seek stockholder approval of our initial business combination at a meeting called
for such purpose (as is the case in the Heritage Business Combination) at which stockholders may seek to convert their shares, regardless
of whether they vote for or against the proposed business combination or do not vote at all, into their pro rata share of the aggregate
amount then on deposit in the trust account (net of taxes payable), or (2) if the Heritage Business Combination is not consummated,
provide our stockholders with the opportunity to sell their shares to us by means of a tender offer (and thereby 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 (net of taxes
payable), in each case subject to the limitations described herein. The decision as to whether we will seek stockholder approval of a
proposed initial business combination or 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. 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. In that
case, 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. Whether we seek stockholder approval or engage in a
tender offer, we will consummate our initial business combination only if we have net tangible assets of at least $5,000,001 immediately
prior to or upon consummation of such business combination and, if we seek stockholder approval, a majority of the outstanding shares
of common stock voted are voted in favor of the business combination. We have no specified maximum percentage threshold for conversions
in our amended and restated certificate of incorporation and even those public stockholders who vote in favor of our initial business
combination have the right to convert their public shares. As a result, this may make it easier for us to consummate our initial 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,
we may need to have more than $5,000,001 in net tangible assets immediately prior to or upon consummation and this 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 up to 33 months, or until August 17, 2023, from the closing of our IPO in order to be able
to receive a pro rata share of the trust account. We may further extend the deadline by which we must consummate our initial business
combination. Such an extension requires the approval of our public stockholders to amend our charter, and who will be provided the opportunity
to at that time to redeem all or a portion of their shares (which would likely to have a material adverse effect on the funds held in
our trust account and may result in other adverse effects on us, such as our ability to maintain our listing on Nasdaq).
Our sponsor, initial stockholders,
officers and directors have agreed (1) to vote any shares of common stock owned by them in favor of any proposed initial business
combination, (2) not to convert any shares of common stock in connection with a stockholder vote to approve a proposed initial business
combination and (3) not sell any shares of common stock in any tender in connection with a proposed initial business combination.
None of our officers, directors,
sponsor, initial stockholders or their affiliates has indicated any intention to purchase units or shares of common stock in our IPO or
from persons in the open market or in private transactions. However, if we hold a meeting to approve a proposed initial business combination
and a significant number of stockholders vote, or indicate an intention to vote, against such proposed initial business combination or
that they wish to convert their shares, our officers, directors, sponsor, initial stockholders or their affiliates could make such purchases
in the open market or in private transactions in order to influence the vote and reduce the number of conversions. Notwithstanding the
foregoing, our officers, directors, sponsor, initial stockholders and their affiliates will not make purchases of shares of common stock
if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act, which are rules designed to stop potential
manipulation of a company’s stock.
Conversion Rights
At any meeting called to approve
an initial business combination, including the Heritage Business Combination, public stockholders may seek to convert their shares, regardless
of whether they vote for or against the proposed business combination or do not vote at all, into their pro rata share of the aggregate
amount then on deposit in the trust account as of two business days prior to the consummation of the initial business combination, less
any taxes then due but not yet paid. Alternatively, we may provide our public stockholders with the opportunity to sell their shares of
our common stock to us through a tender offer (and thereby 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, less any taxes then due but not yet paid.
Our sponsor, initial stockholders
and our officers and directors do not have conversion rights with respect to any shares of common stock owned by them, directly or indirectly,
whether acquired prior to our IPO or purchased by them in our IPO or in the aftermarket. Additionally, the holders of the representative
shares do not have conversion rights with respect to the representative shares.
We may require public stockholders,
whether they are a record holder or hold their shares in “street name,” to either (i) tender their certificates to our
transfer agent or (ii) deliver their shares to the transfer agent electronically using DWAC System, at the holder’s option,
in each case prior to a date set forth in the proxy materials sent in connection with the proposal to approve the initial business combination.
There is a nominal cost associated
with the above-referenced delivery process and the act of certificating the shares or delivering them through the DWAC System. The
transfer agent will typically charge the tendering broker a nominal amount and it would be up to the broker whether or not to pass this
cost on to the holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise conversion
rights. The need to deliver shares is a requirement of exercising conversion rights regardless of the timing of when such delivery must
be effectuated. However, in the event we require stockholders seeking to exercise conversion rights prior to the consummation of the proposed
business combination and the proposed business combination is not consummated this may result in an increased cost to stockholders.
Any proxy solicitation materials
we furnish to stockholders in connection with a vote for any proposed business combination will indicate whether we are requiring stockholders
to satisfy such certification and delivery requirements. Accordingly, a stockholder would have from the time the stockholder received
our proxy statement up until the vote on the proposal to approve the initial business combination to deliver his shares if he wishes to
seek to exercise his conversion rights. This time period varies depending on the specific facts of each transaction. However, as the delivery
process can be accomplished by the stockholder, whether or not he is a record holder or his shares are held in “street name,”
in a matter of hours by simply contacting the transfer agent or his broker and requesting delivery of his shares through the DWAC System,
we believe this time period is sufficient for an average investor. However, we cannot assure you of this fact.
Any request to convert such
shares once made, may be withdrawn at any time up to the vote on the proposed initial business combination or the expiration of the tender
offer. Furthermore, if a holder of public shares delivered his certificate in connection with an election of their conversion and subsequently
decides prior to the applicable date not to elect to exercise such rights, he may simply request that the transfer agent return the certificate
(physically or electronically).
If the initial business combination
is not approved or completed for any reason, then our public stockholders who elected to exercise their conversion rights would not be
entitled to convert their shares for the applicable pro rata share of the trust account. In such case, we will promptly return any shares
delivered by public holders.
If the Heritage Business Combination
is not completed, we may continue to try to complete a business combination with a different target by August 17, 2023.
Liquidation if No Initial Business Combination
Our amended and restated certificate
of incorporation, as amended, provides that we have only up to 33 months from the closing of our IPO, or until August 17, 2023, to complete
an initial business combination. If we have not completed the Heritage Business Combination or another initial business combination by
such date, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but
not more than ten business days thereafter, redeem 100% of the outstanding public shares, at a per-share price, payable in cash,
equal to the aggregate amount then on deposit in the trust account, including any interest not previously released to us but net of taxes
payable, divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’
rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as
promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors,
dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations under Delaware law to provide for claims
of creditors and the requirements of other applicable law.
Our sponsor, initial stockholders,
officers and directors have agreed that they will not propose any amendment to our amended and restated certificate of incorporation that
would affect our public stockholders’ ability to convert or sell their shares to us in connection with a business combination as
described herein or affect the substance or timing of our obligation to redeem 100% of our public shares if we do not complete a business
combination within up to 33 months from the closing of our IPO, or until August 17, 2023, unless we provide our public stockholders with
the opportunity to convert their shares of common stock upon such approval at a per-share price, payable in cash, equal to the aggregate
amount then on deposit in the trust account, including interest not previously released to us but net of taxes payable, divided by the
number of then outstanding public shares. This redemption right will apply in the event of the approval of any such amendment, whether
proposed by our sponsor, initial stockholders, executive officers, directors or any other person.
Under the DGCL, stockholders
may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution.
The pro rata portion of our trust account distributed to our public stockholders upon the redemption of 100% of our outstanding public
shares in the event we do not complete our initial business combination within the required time period may be considered a liquidation
distribution under Delaware law. If the corporation complies with certain procedures set forth in Section 280 of the DGCL intended
to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims
can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional
150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect
to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed
to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. It is our intention
to redeem our public shares as soon as reasonably possible following the 33-month period from the closing of our IPO, or by August 17,
2023, and, therefore, we do not intend to comply with those procedures. As such, our stockholders could potentially be liable for any
claims to the extent of distributions received by them (but no more) and any liability of our stockholders may extend well beyond the
third anniversary of such date.
Furthermore, if the pro rata
portion of our trust account distributed to our public stockholders upon the redemption of 100% of our public shares in the event we do
not complete our initial business combination within the required time period is not considered a liquidation distribution under Delaware
law and such redemption distribution is deemed to be unlawful, then pursuant to Section 174 of the DGCL, the statute of limitations
for claims of creditors could then be six years after the unlawful redemption distribution, instead of three years, as in the case of
a liquidation distribution.
Because we will not be complying
with Section 280 of the DGCL, Section 281(b) of the DGCL requires us to adopt a plan, based on facts known to us at such time
that will provide for our payment of all existing and pending claims or claims that may be potentially brought against us within the subsequent
ten years. However, because we are a blank check company, rather than an operating company, and our operations will be limited to searching
for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as lawyers, investment bankers,
etc.) or prospective target businesses.
We are required to seek to
have all third parties (including any vendors or other entities we engage after our IPO) and any prospective target businesses enter into
agreements with us waiving any right, title, interest or claim of any kind they may have in or to any monies held in the trust account.
As a result, the claims that could be made against us will be limited, thereby lessening the likelihood that any claim would result in
any liability extending to the trust. We therefore believe that any necessary provision for creditors will be reduced and should not have
a significant impact on our ability to distribute the funds in the trust account to our public stockholders. Nevertheless, Marcum and
the underwriters of our IPO will not execute agreements with us waiving such claims to the monies held in the trust account. Furthermore,
there is no guarantee that other vendors, service providers and prospective target businesses will execute such agreements. Nor is there
any guarantee that, even if they execute such agreements with us, they will not seek recourse against the trust account. Our sponsor has
agreed that it will be liable to ensure that the proceeds in the trust account are not reduced below $10.10 per share by the claims of
target businesses or claims of vendors or other entities that are owed money by us for services rendered or contracted for or products
sold to us, but we cannot assure you that it will be able to satisfy its indemnification obligations if it is required to do so. We have
not asked our sponsor to reserve for such indemnification obligations, nor have we independently verified whether our sponsor has sufficient
funds to satisfy its indemnity obligations and believe that our sponsor’s only assets are securities of our company. Therefore,
we believe it is unlikely that our sponsor will be able to satisfy its indemnification obligations if it is required to do so. Additionally,
the agreement our sponsor entered into specifically provides for two exceptions to the indemnity it has given: it will have no liability
(1) as to any claimed amounts owed to a target business or vendor or other entity who has executed an agreement with us waiving any
right, title, interest or claim of any kind they may have in or to any monies held in the trust account, or (2) as to any claims
for indemnification by the underwriters of our IPO against certain liabilities, including liabilities under the Securities Act. As a result,
if we liquidate, the per-share distribution from the trust account could be less than $10.10 due to claims or potential claims of
creditors.
We anticipate notifying the
trustee of the trust account to begin liquidating such assets promptly after the 33-month period from the closing of our IPO and anticipate
it will take no more than 10 business days to effectuate such distribution. The holders of the founder shares have waived their rights
to participate in any liquidation distribution from the trust account with respect to such shares. There will be no distribution from
the trust account with respect to our warrants, which will expire worthless. We will pay the costs of any subsequent liquidation from
our remaining assets outside of the trust account. If such funds are insufficient, our sponsor has contractually agreed to advance us
the funds necessary to complete such liquidation (currently anticipated to be no more than approximately $15,000) and has contractually
agreed not to seek repayment for such expenses.
If we are unable to complete an initial business combination and expend
all of the net proceeds of our IPO, other than the proceeds deposited in the trust account, as of the Third Charter Extension the per-share redemption
price would be approximately $10.60. As discussed above, the proceeds deposited in the trust account could become subject to claims of
our creditors that are in preference to the claims of public stockholders.
Our public stockholders will
be entitled to receive funds from the trust account only in the event of our failure to complete an initial business combination within
the required time period, if the stockholders seek to have us convert or purchase their respective shares upon an initial business combination
that is actually completed by us or upon certain amendments to our amended and restated certificate of incorporation prior to consummating
an initial business combination. In no other circumstances will a stockholder have any right or interest of any kind to or in the trust
account.
If we are forced to file
a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the proceeds held in the trust account
could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties
with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, we cannot assure you
we will be able to return to our public stockholders at least $10.60 per share.
If we are forced to file a
bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, any distributions received by stockholders
could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent
conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. Furthermore, because
we intend to distribute the proceeds held in the trust account to our public stockholders promptly after August 17, 2023, or 33 months
from the closing of our IPO, this may be viewed or interpreted as giving preference to our public stockholders over any potential creditors
with respect to access to or distributions from our assets. Furthermore, our board may be viewed as having breached their fiduciary duties
to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying
public stockholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought
against us for these reasons.
Amended and Restated Certificate of Incorporation
Our amended and restated certificate
of incorporation contains certain requirements and restrictions relating to our IPO that will apply to us until the consummation of our
initial business combination. These provisions cannot be amended without the approval of a majority of our stockholders. If we seek to
amend any provisions of our amended and restated certificate of incorporation that would affect our public stockholders’ ability
to convert or sell their shares to us in connection with an initial business combination as described herein or affect the substance or
timing of our obligation to redeem 100% of our public shares if we do not complete a business combination within 33 months from the closing
of our IPO, or by August 17, 2023, we will provide dissenting public stockholders with the opportunity to convert their public shares
in connection with any such vote. This conversion right will apply in the event of the approval of any such amendment, whether proposed
by our sponsor, any executive officer, director or director nominee, or any other person. Our sponsor, officers and directors have agreed
to waive any conversion rights with respect to any founder shares and any public shares they may hold in connection with any vote to amend
our amended and restated certificate of incorporation. Specifically, our amended and restated certificate of incorporation provides, among
other things, that:
|
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we will either (1) seek stockholder approval of our initial business combination at a meeting called for such purpose at which stockholders may seek to convert their shares, regardless of whether they vote for or against the proposed business combination or do not vote at all, into their pro rata share of the aggregate amount then on deposit in the trust account (net of taxes payable), or (2) provide our stockholders with the opportunity to sell their shares to us by means of a tender offer (and thereby 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 (net of taxes payable), in each case subject to the limitations described herein; |
|
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we will consummate our initial business combination only if we have net tangible assets of at least $5,000,001 immediately prior to or upon consummation of such business combination and, if we seek stockholder approval, a majority of the outstanding shares of common stock voted are voted in favor of the business combination; |
|
● |
if our initial business combination is not consummated within the required time period, then we will redeem all of the outstanding public shares and thereafter liquidate and dissolve our company; |
|
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we may not consummate any other business combination, merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar transaction prior to our initial business combination; and |
|
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prior to our initial business combination, we may not issue additional stock that participates in any manner in the proceeds of the trust account, or that votes as a class with the common stock sold in our IPO on an initial business combination. |
Competition
In identifying, evaluating
and selecting a target business, we may encounter intense competition from other entities having a business objective similar to ours.
Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or
through affiliates. Many of these competitors possess greater technical, human and other resources than us and our financial resources
will be relatively limited when contrasted with those of many of these competitors. While we believe there may be numerous potential target
businesses that we could acquire with the net proceeds of our IPO, our ability to compete in acquiring certain sizable target businesses
may be limited by our available financial resources.
The following also may not
be viewed favorably by certain target businesses:
|
● |
our obligation to seek stockholder approval of an initial business combination or engage in a tender offer may delay the completion of a transaction; |
|
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our obligation to convert or repurchase shares of common stock held by our public stockholders may reduce the resources available to us for a business combination; and |
|
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our outstanding warrants, and the potential future dilution they represent. |
Any of these factors may place
us at a competitive disadvantage in successfully negotiating an initial business combination. Our management believes, however, that our
status as a public entity and potential access to the United States public equity markets may give us a competitive advantage over
privately held entities having a similar business objective as ours in acquiring a target business with significant growth potential on
favorable terms.
If we succeed in effecting
an initial business combination, there will be, in all likelihood, intense competition from competitors of the target business. We cannot
assure you that, subsequent to an initial business combination, we will have the resources or ability to compete effectively.
Employees
We have three executive officers.
These individuals are not obligated to devote any specific number of hours to our matters and devote only as much time as they deem necessary
to our affairs. The amount of time they devote in any time period varies based on the stage of the business combination process we are
in. Accordingly, once a suitable target business to acquire has been located, such as Heritage, management may spend more time investigating
such target business and negotiating and processing the business combination (and consequently spend more time on our affairs) than had
been spent prior to locating a suitable target business. We presently expect our executive officers to devote such amount of time as they
reasonably believe is necessary to our business. We do not intend to have any full-time employees prior to the consummation of an
initial business combination.
Periodic Reporting and Audited Financial Statements
Our units, common stock and
warrants are registered under the Exchange Act, and we have reporting obligations, including the requirement that we file annual, quarterly
and current reports with the SEC. In accordance with the requirements of the Exchange Act, this Report contains financial statements audited
and reported on by our independent registered public accountants.
We will provide stockholders
with audited financial statements of the prospective target business as part of any proxy solicitation materials or tender offer documents
sent to stockholders to assist them in assessing the target business. These financial statements will need to be prepared in accordance
with or reconciled to GAAP or international financial reporting standards as promulgated by the International Accounting Standards Board.
We cannot assure you that any particular target business identified by us as a potential acquisition candidate will have the necessary
financial statements. To the extent that this requirement cannot be met, we may not be able to acquire the proposed target business.
We are required to evaluate
our internal control procedures for the fiscal year ending December 31, 2022, as required by the Sarbanes-Oxley Act. Only in
the event we are deemed to be a large accelerated filer or an accelerated filer, and no longer qualify as an emerging growth company,
will we be required to have our internal control procedures audited. A target company may not be in compliance with the provisions of
the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity
to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition.
Item 1A. Risk Factors.
As a smaller reporting company
under Rule 12b-2 of the Exchange Act, we are not required to include risk factors in this Report. However, below is a partial list of
material risks, uncertainties and other factors that could have a material effect on the Company and its operations:
| ● | We
are a blank check company with no revenue or basis to evaluate our ability to select a suitable
business target; |
| ● | We
may not be able to complete our initial business combination in the prescribed time frame;
|
| ● | Our
expectations around the performance of a prospective target business, such as Heritage, may
not be realized; |
| ● | We
may not be successful in retaining or recruiting required officers, key employees or directors
following our initial business combination; |
| ● | Our
officers and directors may have difficulties allocating their time between the Company and
other businesses and may potentially have conflicts of interest with our business or in approving
our initial business combination; |
| ● | We
may not be able to obtain additional financing to complete our initial business combination
or reduce the number of stockholders requesting redemption; |
| ● | We
may issue our shares to investors in connection with our initial business combination at
a price that is less than the prevailing market price of our shares at that time; |
| ● | You
may not be given the opportunity to choose the initial business target or to vote on the
initial business combination; |
| ● | Trust
account funds may not be protected against third party claims or bankruptcy; |
| ● | An
active market for our public securities may not develop and you will have limited liquidity
and trading; |
| ● | The
availability to us of funds from interest income on the trust account balance may be insufficient
to operate our business prior to the business combination; |
| ● | Our
financial performance following a business combination with an entity may be negatively affected
by their lack an established record of revenue, cash flows and experienced management; |
| ● | There
may be significant competition to find an attractive target for an initial business combination,
which could increase the costs associated with completing our initial business combination; |
| ● | Changes
in the market for directors and officers liability insurance could make it more difficult
and more expensive for us to negotiate and complete an initial business combination; |
| ● | We
may engage one or more of our underwriters or one of their respective affiliates to provide
additional services to us after the IPO, which may include acting as a financial advisor
in connection with an initial business combination or as placement agent in connection with
a related financing transaction. Our underwriters are entitled to receive deferred underwriting
commissions that will be released from the trust account only upon a completion of an initial
business combination. These financial incentives may cause them to have potential conflicts
of interest in rendering any such additional services to us after the IPO, including, for
example, in connection with the sourcing and consummation of an initial business combination; |
| ● | We
may attempt to complete our initial business combination with a private company about which
little information is available, such as Heritage, which may result in a business combination
with a company that is not as profitable as we suspected, if at all; |
| ● | Our
warrants are accounted for as derivative liabilities and are recorded at fair value upon
issuance with changes in fair value each period reported in earnings, which may have an adverse
effect on the market price of our common stock or may make it more difficult for us to consummate
an initial business combination; |
| ● | Since
our sponsor, officers, directors and initial stockholders will lose their entire investment
in us if our initial business combination is not completed (other than with respect to any
public shares they may acquire during or after the IPO), and because our sponsor, officers
and directors may profit substantially even under circumstances in which our public stockholders
would experience losses in connection with their investment, a conflict of interest may arise
in determining whether a particular business combination target is appropriate for our initial
business combination; |
| ● | Changes
in laws or regulations or how such laws or regulations are interpreted or applied, or a failure
to comply with any laws or regulations, may adversely affect our business, including our
ability to negotiate and complete our initial business combination, and results of operations;
|
| ● | The
value of the founder shares following completion of our initial business combination is likely
to be substantially higher than the nominal price paid for them, even if the trading price
of our common stock at such time is substantially less than $10.60 per share; |
| ● | Resources
could be wasted in researching acquisitions that are not completed, which could materially
adversely affect subsequent attempts to locate and acquire or merge with another business.
If we have not completed our initial business combination by August 17, 2023, our public
stockholders may receive only approximately $10.00 per share, or less than such amount in
certain circumstances, on the liquidation of our trust account and our warrants will expire
worthless; |
| ● | In
March 2022, the SEC issued proposed rules relating to certain activities of SPACs. Certain
of the procedures that we, a potential business combination target, or others may determine
to undertake in connection with such proposals may increase our costs and the time needed
to complete our initial business combination and may constrain the circumstances under which
we could complete an initial business combination. The need for compliance with such proposals
may cause us to liquidate the funds in the trust account or liquidate the Company at an earlier
time than we might otherwise choose; |
| ● | If
we are deemed to be an investment company for purposes of the Investment Company Act, we
would be required to institute burdensome compliance requirements and our activities would
be severely restricted. As a result, in such circumstances, unless we are able to modify
our activities so that we would not be deemed an investment company, we may abandon our efforts
to complete an initial business combination and instead liquidate the Company; |
| ● | To
mitigate the risk that we might be deemed to be an investment company for purposes of the
Investment Company Act, in November 2022 we instructed Continental to liquidate the investments
held in the trust account and instead to hold the funds in the trust account in cash items
until the earlier of the consummation of our initial business combination or our liquidation.
As a result, we expect to receive less interest on the funds held in the trust account than
if we continued to hold the funds in securities, which will likely reduce the dollar amount
our public stockholders would receive upon any redemption or liquidation of the Company; |
| ● | We
may not be able to complete an initial business combination with certain potential target
companies if a proposed transaction with the target company may be subject to review or approval
by regulatory authorities pursuant to certain U.S. or foreign laws or regulations, including
the Committee on Foreign Investment in the United States; |
| ● | Recent
increases in inflation and interest rates in the United States and elsewhere could make it
more difficult for us to consummate an initial business combination; |
| ● | Military
conflict in Ukraine or elsewhere may lead to increased price volatility for publicly traded
securities, which could make it more difficult for us to consummate an initial business combination;
|
| ● | A
1% U.S. federal excise tax may be imposed on us in connection with our redemptions of shares
in connection with a business combination or other stockholder vote pursuant to which stockholders
would have a right to submit their shares for redemption; |
| ● | There
is substantial doubt about our ability to continue as a going concern; |
| ● | We
have identified a material weakness in our internal control over financial reporting as of
December 31, 2022. If we are unable to develop and maintain an effective system of internal
control over financial reporting, we may not be able to accurately report our financial results
in a timely manner, which may adversely affect investor confidence in us and materially and
adversely affect our business and operating results; and |
| ● | We
may seek to further extend the deadline by which we must consummate our initial business
combination, such as the Heritage Business Combination. Such an extension requires the approval
of our public stockholders, who will be provided the opportunity to at that time, to redeem
all or a portion their shares (which would likely have a material adverse effect on the amount
held in our trust account and other adverse effects on our company, such as our ability to
maintain our listing on Nasdaq). Our sponsor may also explore transactions under which it
would sell its interest in our company to another management team. |
For risks relating to Heritage
and the Heritage Business Combination, please see the Heritage Registration Statement.
Adverse developments
affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial
institutions, could adversely affect our business, financial condition or results of operations, or our prospects.
The funds in our operating
account and our trust account are held in banks or other financial institutions. Our cash held in non-interest bearing and interest-bearing
accounts would exceed any applicable Federal Deposit Insurance Corporation (“FDIC”) insurance limits. Should events, including
limited liquidity, defaults, non-performance or other adverse developments occur with respect to the banks or other financial institutions
that hold our funds, or that affect financial institutions or the financial services industry generally, or concerns or rumors about any
events of these kinds or other similar risks, our liquidity may be adversely affected. For example, on March 10, 2023, the FDIC announced
that Silicon Valley Bank had been closed by the California Department of Financial Protection and Innovation. Although we did not have
any funds in Silicon Valley Bank or other institutions that have been closed, we cannot guarantee that the banks or other financial institutions
that hold our funds will not experience similar issues.
In addition, investor concerns
regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest
rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby
making it more difficult for us to acquire financing on terms favorable to us in connection with a potential business combination, or
at all, and could have material adverse impacts on our liquidity, our business, financial condition or results of operations, and our
prospects.
For the complete list of risks
relating to our operations, see the section titled “Risk Factors” contained in (i) the IPO Registration Statement, (ii) Amendment
No. 1 to our Annual Report on Form 10-K/A for the year ended December 31, 2020 filed with the SEC on December 14, 2021, (iii) our Quarterly
Reports on Form 10-Q for the quarterly periods ended March 31, 2022, June 30, 2022, and September 30, 2022, filed with the SEC on May
13, 2022, August 3, 2022 and November 14, 2022, respectively, and (iv) our Definitive Proxy Statement on Schedule 14A filed with the SEC
on January 17, 2023. Any of these factors could result in a significant or material adverse effect on our results of operations or financial
condition. Additional risks could arise that may also affect our business or ability to consummate an initial business combination. We
may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
Our executive offices are
located at 775 Park Avenue, New York, New York 10021, and our telephone number is (212) 450-9700. The cost for our use of this
space is included in the $10,000 per month we pay to NGEN MGT II, LLC, an affiliate of our executive officers, for office space,
utilities and secretarial support. We consider our current office space, combined with the other office space otherwise available to our
executive officers, adequate for our current operations.
Item 3. Legal Proceedings.
To the knowledge of our management
team, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such
or against any of our property.
Item 4. Mine Safety Disclosures.
Not applicable.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
NOTE 1. DESCRIPTION OF ORGANIZATION, BUSINESS OPERATIONS,
LIQUIDITY AND GOING CONCERN
Better World Acquisition
Corp. (the “Company”) was incorporated in Delaware on August 5, 2020. The Company is a blank check company 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 businesses or entities (the “Business Combination”).
Although the Company
is not limited to a particular industry or sector for purposes of consummating a Business Combination, the Company is focused on target
businesses in the healthy living industries that benefit from strong Environmental, Social and Governance profiles. The Company is an
early stage and emerging growth company and, as such, the Company is subject to all the risks associated with early stage and emerging
growth companies.
As of December
31, 2022, the Company had not commenced any operations. All activity for the period from August 5, 2020 (inception) through December 31,
2022 relates to the Company’s formation, the initial public offering (“Initial Public Offering”), which is described
below, and identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the
completion of a Business Combination, at the earliest. The Company generates non-operating income in the form of interest income from
the marketable securities held in the Trust Account (as defined below).
The registration
statement for the Company’s Initial Public Offering was declared effective on November 12, 2020. On November 17, 2020, the Company
consummated the Initial Public Offering of 11,000,000 units (the “Units” and, with respect to the shares of common stock included
in the Units sold, the “Public Shares”), at $10.00 per Unit, generating gross proceeds of $110,000,000, which is described
in Note 3.
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the sale of 4,800,000 warrants (the “Private Warrants”)
at a price of $1.00 per Private Warrant in a private placement to BWA Holdings LLC (the “Sponsor”) and EarlyBirdCapital, Inc.
(“EarlyBirdCapital”), generating gross proceeds of $4,800,000, which is described in Note 4.
Following the
closing of the Initial Public Offering on November 17, 2020, an amount of $111,100,000 ($10.10 per Unit) from the net proceeds of the
sale of the Units in the Initial Public Offering and the sale of the Private Warrants was placed in a trust account (the “Trust
Account”) located in the United States and 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 (the “Investment Company Act”), with a maturity of 185 days or less or in
any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule
2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and
(ii) the distribution of the funds in the Trust Account, as described below.
On
November 17, 2020, the underwriters notified the Company of their intention to partially exercise their over-allotment option on
November 19, 2020. As such, on November 19, 2020, the Company consummated the sale of an additional 1,618,600 Units, at $10.00 per
Unit, generating gross proceeds of $16,186,000, and the sale of an additional 485,580 Private Warrants, at $1.00 per Private
Warrant, generating gross proceeds of $485,580. A total of $16,347,860 of the net proceeds was deposited into the Trust Account on
November 20, 2020, bringing the aggregate proceeds held in the Trust Account to $127,447,860. On November 9, 2021, in connection
with the first extension of the date by which the Company has to consummate a Business Combination, a total of $1,261,860 was
deposited into the Trust Account. On February 17, 2022, a total of $1,261,860 was deposited in the Trust Account in connection with
the extension of the date by which the Company has to consummate a Business Combination to May 17, 2022. On May 18, 2022, a total of
$500,000 was deposited into the Trust Account in connection with a further extension of the date by which the Company has to
consummate a Business Combination to August 17, 2022. On August 17, 2022, November 16, 2022, and December 19, 2022 an aggregate
amount of $600,000 was deposited into the Trust Account in connection with a further extension of the date by which the Company has
to consummate a Business Combination to February 17, 2023. On January 18, 2023, February 16, 2023 and March 16, 2023,
an aggregate amount of $360,000 was deposited into the Trust Account in connection with a further extension of the date by which the
Company has to consummate a Business Combination to August 17, 2023.
Transaction costs
amounted to $2,880,354 consisting of $2,523,720 of underwriting fees and $356,634 of other offering costs.
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
The Company’s
management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale
of the Private Warrants, although substantially all of the net proceeds are intended to be applied generally toward completing a Business
Combination. The Company must complete a Business Combination having an aggregate fair market value of at least 80% of the assets held
in the Trust Account (excluding taxes payable on income earned on the Trust Account) at the time of the agreement to enter into a Business
Combination. The Company will only complete a Business Combination if the post Business Combination company owns or acquires 50% or more
of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to
be required to register as an investment company under the Investment Company Act. There is no assurance that the Company will be able
to complete a Business Combination successfully.
The Company will
provide its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion
of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve
the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of
a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public stockholders will be
entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account ($10.59 per Public Share as of December
31, 2022 and $10.20 per Public Share as of December 31, 2021, plus any pro rata interest earned on the funds held in the Trust Account
and not previously released to the Company to pay its tax obligations). There will be no redemption rights upon the completion of a Business
Combination with respect to the Company’s warrants.
The Company will
proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 immediately prior to or upon such consummation
of a Business Combination and, if the Company seeks stockholder approval, a majority of the shares voted are voted in favor of the Business
Combination. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other
legal reasons, the Company will, pursuant to the Company’s amended and restated Certificate of incorporation, as amended (the “Amended
and Restated Certificate of Incorporation”), conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and
Exchange Commission (“SEC”) and file tender offer documents with the SEC containing substantially the same information as
would be included in a proxy statement prior to completing a Business Combination. If, however, stockholder approval of the transaction
is required by law, or the Company decides to obtain stockholder approval for business or legal reasons, the Company will offer to redeem
shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company
seeks stockholder approval in connection with a Business Combination, the Sponsor has agreed to vote its Founder Shares (as defined in
Note 5), Representative Shares (as defined in Note 8) and any Public Shares purchased during or after the Initial Public Offering (a)
in favor of approving a Business Combination and (b) not to redeem any shares in connection with a stockholder vote to approve a Business
Combination or sell any shares to the Company in a tender offer in connection with a Business Combination. Additionally, each public stockholder
may elect to redeem their Public Shares, irrespective of whether they vote for or against the proposed Business Combination.
The Sponsor has
agreed (a) to waive its redemption rights with respect to the Founder Shares and Public Shares held by it in connection with the completion
of a Business Combination and (b) not to propose an amendment to the Amended and Restated Certificate of Incorporation that would affect
a public stockholders’ ability to convert or sell their shares to the Company in connection with a Business Combination or affect
the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the Company does not complete a Business
Combination, unless the Company provides the public stockholders with the opportunity to redeem their Public Shares in conjunction with
any such amendment.
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
On November 9,
2021, the Company’s board of directors approved the extension of the date by which the Company has to consummate a Business Combination
from November 17, 2021 to February 17, 2022. In connection with the extension, the Sponsor deposited into the Trust Account $0.10 for
each of the 12,618,600 shares issued in the Initial Public Offering, for a total of $1,261,860. The Company issued the Sponsor a non-interest
bearing unsecured promissory note in the principal amount of $1,261,860 (the “Convertible Promissory Note”), which is payable
by the Company upon the earlier of the consummation of the Business Combination or the liquidation of the Company. The Convertible Promissory
Note may be repaid in cash or convertible into Private Warrants at a price of $1.00 per Private Warrant. On February 16, 2022, the Company’s
board of directors approved the extension of the date by which the Company has to consummate a Business Combination from February 17,
2022 to May 17, 2022. In connection with the extension, the Sponsor deposited into the Trust Account an additional $1,261,860 ($0.10 per
Public Share) on February 17, 2022, and the Company amended and restated the Convertible Promissory Note in its entirety solely to increase
the principal amount thereunder from $1,261,860 to $2,523,720. On May 12, 2022, the Company held a special meeting of stockholders at
which a proposal to amend the Amended and Restated Certificate of Incorporation to extend the date by which the Company must consummate
a Business Combination from May 17, 2022 to August 17, 2022 was approved by the stockholders. In connection with this extension, the Company
deposited $500,000 into the Trust Account on May 18, 2022. The Company amended and restated the Convertible Promissory Note to increase
the principal amount thereunder from $2,523,720 to $3,223,720, which included a drawdown of $500,000 for the extension and a drawdown
of $200,000 for working capital needs. On August 17, 2022, the Company held a special meeting of stockholders at which the Company’s
stockholders approved an amendment to the Amended and Restated Certificate of Incorporation to extend the date by which the Company must
consummate a Business Combination from August 17, 2022 to February 17, 2023. On August 17, 2022, the Company amended and restated the
Convertible Promissory Note to increase the principal amount thereunder from $3,223,720 to $3,683,720, which included a drawdown of $360,000
for the extension and $100,000 for working capital purposes. On December 31, 2022, the Company amended and restated the Convertible Promissory
Note to increase the principal amount thereunder from $3,683,720 to $4,323,720, which included a drawdown of $240,000 for the extension
and $400,000 for working capital purposes. On February 8, 2023, the Company held a special meeting of stockholders at which the Company’s
stockholders approved an extension of the date by which the Company must consummate a Business Combination from February 17, 2023 to August
17, 2023 (the “Combination Period”).
If the Company
is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose
of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a
per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the
funds held in the Trust Account and not previously released to the Company to pay taxes, divided by the number of then outstanding Public
Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive
further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption,
subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate,
subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of
other applicable law.
The Sponsor has
agreed to waive its liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination within
the Combination Period. However, if the Sponsor acquires Public Shares in or after the Initial Public Offering, such Public Shares will
be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination
Period. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution
will be less than the amount of funds initially deposited into the Trust Account (initially $10.10 per share, subsequently increased to
approximately $10.60 following the extension in February 2023).
In order to protect
the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a vendor
for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering
into a transaction agreement, reduce the amount of funds in the Trust Account to below $10.10 per Public Share, except as to any claims
by a third party who executed a valid and enforceable agreement with the Company waiving any right, title, interest or claim of any kind
they may have in or to any monies held in the Trust Account and except as to any claims under the Company’s indemnity of the underwriters
of Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities
Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not
be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor
will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (except the
Company’s independent registered public accounting firm), prospective target businesses or other entities with which the Company
does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the
Trust Account.
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
Business Combination Agreement
On December 9,
2022, the Company announced the execution of a definitive business combination agreement (the “Business Combination Agreement”)
with Heritage Distilling Holding Company, Inc., a Delaware corporation (together with its successors, “Heritage”), Heritage
Distilling Group, Inc. (formerly HDH Newco, Inc.), a Delaware corporation and a wholly owned subsidiary of Better World (“Pubco”
), BWA Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Pubco (“SPAC Merger Sub”), HD Merger Sub,
Inc., a Delaware corporation and a wholly owned subsidiary of Pubco (“Company Merger Sub”), the Sponsor in the capacity as
the representative for the stockholders of the Company and Pubco (other than the former Heritage stockholders), and (vii) Justin Stiefel,
in the capacity as the representative for certain security holders of Heritage, for a proposed business combination among the parties
(the “Heritage Business Combination”). Pursuant to the Business Combination Agreement, Pubco changed its name to Heritage
Distilling Group, Inc. and will serve as the parent company of each of the Company and Heritage following the consummation of the Heritage
Business Combination.
Under
the Business Combination Agreement, subject to the terms and conditions set forth therein, at the closing of the transactions contemplated
by the Business Combination Agreement (the “Closing”), among other matters, Merger Sub will merge with and into Heritage,
with Heritage continuing as the surviving entity in the merger, as a result of which, (i) SPAC Merger Sub will merge with and into the
Company, with the Company continuing as the surviving entity, and, in connection therewith, (A) each share of common stock of the Company
(“SPAC Common Stock”) issued and outstanding immediately prior to the effective time of the Heritage Business Combination
(the “Effective Time”) will be cancelled in exchange for the right of the holder thereof to receive, with respect to each
share of SPAC Common Stock that is not redeemed or converted in the Closing Redemption (as defined in the Business Combination Agreement),
one share of common stock of Pubco (“Pubco Common Stock”) and one contingent value right (“CVR”) (subject to the
holders of Founder Shares and Representative Shares waiving their right to receive CVRs for such shares pursuant to the CVR Funding and
Waiver Letter entered into simultaneously with the execution and delivery of the Business Combination Agreement by and among our sponsor,
EarlyBirdCapital, the Company, Heritage and Pubco, and (B) Pubco will assume all of the outstanding warrants of the Company (“SPAC
Warrants”) and each SPAC Warrant will become a warrant to purchase the same number of shares of Pubco Common Stock at the same exercise
price during the same exercise period and otherwise on the same terms as the SPAC Warrant being assumed; (ii) Company Merger Sub will
merge with and into Heritage, with Heritage continuing as the surviving entity, and, in connection therewith, (A) the shares of capital
stock of Heritage issued and outstanding immediately prior to the Effective Time will be cancelled in exchange for the right of the holders
thereof to receive shares of Pubco Common Stock as set forth in the Business Combination Agreement, (B) holders of Company Interim Notes
(as defined in the Business Combination Agreement) will receive shares of Pubco Common Stock separate from the Stockholder Merger Consideration
(as defined in the Business Combination Agreement), (C) Pubco will assume all of the outstanding Company Financing/Interim Warrants (as
defined in the Business Combination Agreement) and each Company Financing/Interim Warrant will become a warrant to purchase shares of
Pubco Common Stock with the number of shares and exercise price thereof equitably adjusted in accordance with the Business Combination
Agreement, (D) each Contributed Warrant (as defined in the Business Combination Agreement) shall be contributed to Pubco and exchanged
for the right to receive such number of shares of Pubco Common Stock as such holder of a Contributed Warrant would have received pursuant
to Section 1.14(a) of the Business Combination Agreement if such Contributed Warrant had been exercised immediately prior to the Effective
Time for the number of shares of common stock of Heritage set forth in that certain Contribution Agreement entered into simultaneously
with the Business Combination Agreement, (E) each award of restricted stock units based on shares of Heritage common stock granted under
the Heritage Distilling Company, Inc. 2018 Stock Incentive Plan and the Heritage Distilling Holding Company, Inc. 2019 Stock Incentive
Plan (“Restricted Stock Unit Award”) outstanding immediately prior to the Effective Time, as amended in accordance with the
Business Combination Agreement and the RSU Award Amendments, will be assumed by Pubco, with the number of RSU Shares underlying such Restricted
Stock Unit Award to be adjusted in accordance with the Business Combination Agreement, and (F) all other Company Convertible Securities
(as defined in the Business Combination Agreement) will be terminated; and (iii) as a result of such mergers, the Company and Heritage
each will become wholly owned subsidiaries of Pubco, and Pubco will become a publicly traded company.
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
The
total consideration to be paid by Pubco to Heritage’s security holders (other than the holders of Heritage warrants that are assumed
by Pubco, which will not affect the consideration) at the Closing (the “Participant Consideration”) will be an amount equal
to $77,500,000, less the amount of Closing Net Debt (as defined in the Business Combination Agreement) and the aggregate amount of any
Company Transaction Bonuses (as defined in the Business Combination Agreement), which Participant Consideration will be payable in new
shares of Pubco Common Stock, each valued at a price per share of $10.00; provided that such shares of Pubco Common Stock payable to holders
of Company Interim Notes shall be valued at a price per share equal to seventy five percent (75%) of the Redemption Price (as defined
in the Business Combination Agreement). Any such shares of Pubco Common Stock payable to holders of Company Interim Notes shall reduce
the shares of Pubco Common Stock allocable to Heritage shareholders, and therefore will not affect the total consideration payable by
the Pubco. The portion of the Participant Consideration payable to Heritage security holders is set forth in the Business Combination
Agreement.
For more information about the
Heritage Business Combination, see the Registration Statement on Form S-4 filed by Pubco on February 14, 2023 (File No. 333-269754), as
amended from time to time, and the Company’s Current Report on Form 8-K filed with the SEC on December 15, 2022.
Risks and Uncertainties
Management continues
to evaluate the impact of the COVID-19 pandemic and the military conflict in Ukraine and has concluded that while it is reasonably possible
that the virus and the military conflict could have a negative effect on the Company’s financial position, results of its operations
and/or search for a target company, the specific impacts are not readily determinable as of the date of these consolidated financial statements.
The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act
of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise
tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded
foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its
shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased
at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the
fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition,
certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury Department”) has authority
to promulgate regulations and provide other guidance regarding the excise tax. In December 2022, the Treasury Department issued Notice
2023-2, indicating its intention to propose such regulations and issuing certain interim rules on which taxpayers may rely. Under the
interim rules, liquidating distributions made by publicly traded domestic corporations are exempt from the excise tax. In addition, any
redemptions that occur in the same taxable year as a liquidation is completed will also be exempt from such tax. Accordingly, redemptions
of Public Shares in connection with a Business Combination, extension vote or otherwise (a “Redemption Event”) may subject
the Company to the excise tax, unless one of the two exceptions above apply.
The extent to which the Company
would be subject to the excise tax in connection with a Redemption Event would depend on a number of factors, including (i) the fair market
value of the redemptions and repurchases in connection with the Redemption Event, (ii) the nature and amount of any “PIPE”
or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Redemption Event but
issued within the same taxable year of a Business Combination), (iii) if we fail to timely consummate a Business Combination and liquidate
in a taxable year following a Redemption Event and (iv) the content of any proposed or final regulations and other guidance from the Treasury
Department. In addition, because the excise tax would be payable by the Company and not by the redeeming holders, the mechanics of any
required payment of the excise tax remains to be determined. Any excise tax payable by us in connection with a Redemption Event may cause
a reduction in the cash available to us to complete a Business Combination and could affect our ability to complete a Business Combination.
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
Liquidity and Going Concern
As of December 31, 2022, the Company had $2,369
in its operating bank account outside the Trust Account and $44,696,624 in the Trust Account to be used for a Business Combination or
to repurchase or redeem its common stock in connection therewith. As of December 31, 2022, $398,454 of the amount on deposit in the Trust
Account represented accrued interest income, which can be withdrawn to pay the Company’s tax obligations.
On May 13, 2022, July 1, 2022 and August 16, 2022,
the Company withdrew $178,564, $66,751 and $113,396, respectively, of accrued interest from the Trust Account to pay certain tax obligations.
On November 9, 2021, the Company issued the Convertible
Promissory Note in the principal amount of $1,261,860 to the Sponsor in connection with the Extension (See Note 5). On February 17, 2022,
April 14, 2022, May 18, 2022, August 17, 2022 and December 31, 2022 the Company amended and restated the Convertible Promissory Note to
increase the principal amount thereunder from $1,261,860 to $4,323,720.
On May 12, 2022 and August 15,
2022, the Company held special meetings of stockholders at which proposals to amend the Company’s amended and restated certificate
of incorporation to extend the date by which the Company must consummate a Business Combination from May 17, 2022 to August 17, 2022 and
from August 17, 2022 to February 17, 2023, were approved, respectively. In connection with the May 12, 2022 and the August 15, 2022 meetings,
stockholders holding 5,586,910 shares and 2,818,237 shares, respectively, exercised their right to redeem such shares for a pro rata portion
of the funds in the Trust Account. As a result, approximately $57.5 million and $29.2 million, respectively, was released from the Trust
Account. On February 8, 2023, the Company held a special meeting of stockholders at which a third amendment to the Company’s amended
and restated certificate of incorporation to extend the date by which the Company must consummate its initial business combination from
February 17, 2023 to August 17, 2023 was approved. In connection with the meeting stockholders holding 1,213,453 shares of the Company’s
common stock exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account. As a result, approximately
$12.9 million was released from the Trust Account.
Until the consummation of a Business Combination,
the Company will use the funds not held in the Trust Account for identifying and evaluating prospective acquisition candidates, performing
due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to acquire, and structuring,
negotiating and consummating the Business Combination.
The Company expects it will need to raise additional
capital through loans or additional investments from its Sponsor, stockholders, officers, directors, or third parties. The Company’s
officers, directors and the Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever
amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may
not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional
measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit
of the Business Combination, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available
to it on commercially acceptable terms, if at all.
In connection
with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board (“FASB”)
Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue
as a Going Concern,” the Company has until August 17, 2023 to consummate a Business Combination. It is uncertain that the Company
will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this date and another
extension has not been requested by the Sponsor and approved by the Company’s stockholders, there will be a mandatory liquidation
and subsequent dissolution of the Company. Management has determined that the liquidity condition and the mandatory liquidation and potential
subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern.
No adjustments
have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after August 17, 2023. The
Company intends to complete a Business Combination before the mandatory liquidation date.
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying
consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America
(“GAAP”) and pursuant to the rules and regulations of the SEC.
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.
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified
to conform to the current period presentation. These reclassifications had no effect on the reported results of operations. An adjustment
has been made to the balance sheet for December 31, 2021 to reclassify the deferred legal fees balance from accrued expenses to a separate
deferred legal fees line.
Emerging Growth Company
The Company is
an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business
Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required
to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously
approved.
Further, Section
102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards
until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a
class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards.
The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply
to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended
transition period which means that when a standard is issued or revised and it has different application dates for public or private companies,
the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised
standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging
growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because
of the potential differences in accounting standards used.
Use of Estimates
The preparation of the 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 income 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. Two of the more significant accounting estimates
included in these consolidated financial statements is the determination of the fair value of the warrant liabilities as well as the fair
value of the Convertible Promissory Note. Such estimates may be subject to change as more current information becomes available and 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, 2022 and 2021.
Cash and Marketable Securities Held in Trust Account
At December 31,
2022, all of the assets held in the Trust Account were held in a cash account. At December 31, 2021, substantially all of the assets held
in the Trust Account were held in U.S. Treasury Securities. All of the Company’s investments held in the Trust Account are classified
as trading securities. Trading securities are presented on the balance sheets at fair value at the end of each reporting period. Gains
and losses resulting from the change in fair value of investments held in the Trust Account are included in interest earned on marketable
securities held in the Trust Account in the accompanying statements of operations. The estimated fair values of investments held in the
Trust Account are determined using available market information. As of December 31, 2022, the Company has withdrawn $358,711 of interest
income from the Trust Account to pay certain tax obligations.
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
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’ deficit section of the Company’s balance sheets.
The Company recognizes
changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption
value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges
against additional paid in capital and accumulated deficit.
At December 31,
2022 and 2021, the common stock reflected in the balance sheets are reconciled in the following table:
Gross proceeds | |
$ | 126,186,000 | |
Less: | |
| | |
Common stock issuance costs | |
| (2,868,790 | ) |
Plus: | |
| | |
Accretion of carrying value to redemption value | |
| 5,392,510 | |
| |
| | |
Common stock subject to possible redemption – December 31, 2021 | |
| 128,709,720 | |
Less: | |
| | |
Redemption of shares | |
| (86,773,410 | ) |
Plus: | |
| | |
Accretion of carrying value to redemption value | |
| 2,696,104 | |
Common stock subject to possible redemption – December 31, 2022 | |
$ | 44,632,414 | |
Warrant Liabilities
The Company accounts
for the Private Warrants in accordance with the guidance contained in ASC 815-40-15-7D and 7F under which the Private Warrants do not
meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Private Warrants as
liabilities at their fair value and adjusts the Private Warrants to fair value at each reporting period.
This liability
is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statements
of operations. The Private Warrants for periods where no observable traded price was available are valued using a binomial lattice simulation
model.
Convertible Promissory Note –
Related Party
The Company accounts
for its Convertible Promissory Note under ASC 815, Derivatives and Hedging (“ASC 815”). Under ASC 815-15-25, the election
can be made at the inception of a financial instrument to account for the instrument under the fair value option under ASC 825. The Company
has made such election for its Convertible Promissory Note. Using the fair value option, the Convertible Promissory Note is required to
be recorded at its initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value
of the note are recognized as non-cash changes in the fair value of the Convertible Promissory Note in the consolidated statements of
operations. The fair value of the option to convert the Convertible Promissory Note into Private Warrants was valued by utilizing a binomial
lattice model incorporating the Cox-Rubenstein methodology.
Income Taxes
The Company accounts for
income taxes under ASC 740, “Income Taxes.” ASC 740, Income Taxes, requires the recognition of deferred tax assets and liabilities
for both the expected impact of differences between the financial statements and tax basis of assets and liabilities and for the expected
future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be
established when it is more likely than not that all or a portion of deferred tax assets will not be realized. As of December 31, 2022
and 2021, the Company’s deferred tax asset had a full valuation allowance recorded against it.
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
ASC 740 also clarifies the accounting for uncertainty
in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process
for financial statement recognition and measurement of a tax position 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. ASC 740 also provides
guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
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, 2022 and 2021. 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 has identified the United States as
its only “major” tax jurisdiction. The Company is subject to income taxation by major taxing authorities since inception.
These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and
compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits
will materially change over the next twelve months.
Net Income per Common Share
The Company complies with accounting
and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. Net income per common share is computed by dividing
net income by the weighted average number of common shares outstanding for the period. Accretion associated with the redeemable shares
of common stock is excluded from income per common share as the redemption value approximates fair value.
The calculation
of diluted income per share does not consider the effect of the warrants issued in connection with the (i) Initial Public Offering, and
(ii) the private placement since the exercise of the warrants is contingent upon the occurrence of future events. The warrants are exercisable
to purchase 17,904,180 shares of common stock in the aggregate. As of December 31, 2022 and 2021, the Company did not have any dilutive
securities or other contracts that could, potentially, be exercised or converted into common stock and then participate in the earnings
of the Company. As a result, diluted net income per common share is the same as basic net income per common share for the periods presented.
Reconciliation of Net Income per Common
Share
The Company’s
net income is adjusted for the portion of income that is attributable to common stock subject to possible redemption, as these shares
only participate in the earnings of the Trust Account and not the income or losses of the Company. Accordingly, basic and diluted net
income per common share is calculated as follows:
| |
Year Ended December 31, | | |
Year Ended December 31, | |
| |
2022 | | |
2021 | |
| |
Redeemable
Common
Stock | | |
Non-
Redeemable Common Stock | | |
Redeemable
Common
Stock | | |
Non-
Redeemable
Common Stock | |
Basic and diluted net income per common share | |
| | |
| | |
| | |
| |
Numerator: | |
| | |
| | |
| | |
| |
Allocation of net income, as adjusted | |
$ | 2,262,970 | | |
$ | 987,105 | | |
$ | 1,645,500 | | |
$ | 454,723 | |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted weighted average stock outstanding | |
| 7,994,222 | | |
| 3,487,070 | | |
| 12,618,600 | | |
| 3,487,070 | |
Basic and diluted net income per common share | |
$ | 0.28 | | |
$ | 0.28 | | |
$ | 0.13 | | |
$ | 0.13 | |
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
Concentration of Credit Risk
Financial instruments
that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times
may exceed the Federal Deposit Insurance Corporation maximum coverage of $250,000. The Company has not experienced losses on these accounts.
Fair Value of Financial Instruments
The fair value
of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,”
approximates the carrying amounts represented in the accompanying balance sheets, primarily due to their short-term nature, except for
warrant liabilities (see Note 10).
Fair Value Measurements
Fair value is defined
as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market
participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
In some circumstances,
the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the
fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant
to the fair value measurement.
Recent Accounting Standards
In August 2020, the FASB
issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”
(“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under
current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope
exception, and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for fiscal years
beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The Company assessed
the potential impact of ASU 2020-06 and determined that it would not have an impact on the consolidated financial statements as presented.
Management does not believe
that any other 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 11,000,000 Units at a price of $10.00 per Unit. Each Unit consists of one share of common stock
and one redeemable warrant (“Public Warrant”). In connection with the underwriters’ partial exercise of the over-allotment
option on November 19, 2020, the Company sold an additional 1,618,600 Units, at a purchase price of $10.00 per Unit. Each Public Warrant
entitles the holder to purchase one share of common stock at an exercise price of $11.50 per share (see Note 8).
NOTE 4. PRIVATE PLACEMENT
Simultaneously
with the closing of the Initial Public Offering, the Sponsor and EarlyBirdCapital purchased an aggregate of 4,800,000 Private Warrants
at a price of $1.00 per Private Warrant for an aggregate purchase price of $4,800,000. The Sponsor purchased 3,975,000 Private Warrants
and EarlyBirdCapital purchased 825,000 Private Warrants. In connection with the underwriters’ partial exercise of the over-allotment
option on November 19, 2020, the Sponsor and EarlyBirdCapital purchased an additional 485,580 Private Warrants, at a purchase price of
$1.00 per Private Warrant, for an aggregate purchase price of $485,580. Each Private Warrant entitles the holder to purchase one share
of common stock at a price of $11.50 per full share, subject to adjustment (see Note 8). The proceeds from the Private Warrants were added
to the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within
the Combination Period, the proceeds from the sale of the Private Warrants will be used to fund the redemption of the Public Shares (subject
to the requirements of applicable law).
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
On August 5, 2020,
the Sponsor paid $25,000 to cover certain offering costs of the Company in consideration for 3,593,750 shares of common stock (the “Founder
Shares”). On November 9, 2020, the Sponsor returned to the Company for cancellation, at no cost, an aggregate of 718,750 Founder
Shares, resulting in an aggregate of 2,875,000 Founder Shares outstanding and held by the Sponsor. On November 12, 2020, the Company effected
a stock dividend of 0.1 shares for each share of common stock outstanding, resulting in an aggregate of 3,162,500 Founder Shares outstanding
and held by the Sponsor. The Founder Shares included, after giving retroactive effect to the share surrender and stock dividend, an aggregate
of up to 412,500 shares subject to forfeiture 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). In connection with the underwriters’ partial
exercise of the over-allotment option and the forfeiture of the remaining over-allotment option, 7,850 Founder Shares were forfeited,
and 404,650 Founder Shares are no longer subject to forfeiture resulting in an aggregate of 3,154,650 Founder Shares outstanding at December
31, 2022 and 2021.
The Sponsor has
agreed, subject to certain limited exceptions, not to transfer, assign or sell any of the Founder Shares until (1) with respect to 50%
of the Founder Shares, the earlier of one year after the completion of a Business Combination and the date on which the closing price
of the common stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations
and the like) for any 20 trading days within any 30-trading day period commencing after a Business Combination and (2) with respect to
the remaining 50% of the Founder Shares, one year after the completion of a Business Combination, or earlier, in either case, if, subsequent
to a Business Combination, the Company completes a liquidation, merger, stock exchange or other similar transaction which results in all
of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.
Administrative Services Agreement
The Company has agreed,
commencing on November 12, 2020 through the earlier of the Company’s consummation of a Business Combination and its liquidation,
to pay an affiliate of the Company’s management a total of $10,000 per month for office space, utilities and secretarial support.
For the year ended December 31, 2022, the Company incurred $120,000 in fees for these services, which amounts are included in accrued
expenses in the accompanying balance sheets. For the year ended December 31, 2021, the Company incurred $120,000, of which $20,000 is
included in accrued expenses in the accompanying balance sheets.
Promissory Note — Related Party
On August 5, 2020, the Company
issued an unsecured promissory note to the Sponsor (the “Promissory Note”), pursuant to which the Company could borrow up
to an aggregate principal amount of $300,000. The Promissory Note was non-interest bearing and payable on the earlier of (i) March 31,
2021, (ii) the consummation of the Initial Public Offering or (iii) the date on which the Company determined not to proceed with the Initial
Public Offering. The outstanding balance under the Promissory Note was repaid subsequent to the Initial Public Offering. As of December
31, 2022 and 2021, respectively, no balance is outstanding under the Promissory Note. Borrowings under the Promissory Note
are no longer available.
Related Party Loans
In addition, in order to
finance transaction costs in connection with a Business Combination, the Sponsor or certain of the Company’s officers and directors
or their affiliates may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). Each
loan would be evidenced by promissory note. The notes may be repaid upon completion of a Business Combination, without interest, or, at
the lender’s discretion, up to $1,500,000 of notes may be converted upon completion of a Business Combination into warrants at a
price of $1.00 per warrant. Such warrants would be identical to the Private Warrants. In the event that a Business Combination does not
close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held
in the Trust Account would be used to repay the Working Capital Loans.
On April 14, 2022 the Sponsor
advanced to the Company $100,000 to be used for working capital purposes. On August 17, 2022, the Company converted the advance from the
Sponsor to the second amended and restated promissory note. On October 13, 2022, the Sponsor advanced to the Company $200,000 to be used
for working capital purposes. On December 31, 2022, the Company converted the advance from the Sponsor to the third amended and restated
promissory note (see Convertible Promissory Note – Related Party below).
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
Convertible Promissory Note – Related
Party
As discussed in
Note 1, the Company previously extended the period of time to consummate a Business Combination to May 17, 2022. In order to extend the
time available for the Company to consummate a Business Combination, the Sponsor or its affiliates or designees deposited into the Trust
Account $1,261,860 ($0.20 per Public Share), on or prior to the date of the applicable deadline. Payments were made in the form of a non-interest
bearing, unsecured promissory note to be paid upon consummation of a Business Combination, or, at the Sponsor’s discretion, converted
upon consummation of a Business Combination into additional Private Warrants at a price of $1.00 per Private Warrant. The Sponsor and
its affiliates or designees are not obligated to fund the Trust Account to extend the time for the Company to complete a Business Combination.
On May 12, 2022, the Company held a special meeting of stockholders at which a proposal to amend the Company’s amended and restated
certificate of incorporation to extend the date by which the Company must consummate a Business Combination from May 17, 2022 to August
17, 2022 was approved by stockholders. In order to extend the time available for the Company to consummate a Business Combination, the
Sponsor or its affiliates or designees deposited into the Trust Account $500,000. On August 15, 2022, the Company held a special meeting
of stockholders at which a proposal to amend the Company’s amended and restated certificate of incorporation, as amended to extend
the date by which the Company must consummate a Business Combination from August 17, 2022 to February 17, 2023 was approved by stockholders.
In order to extend the time available for the Company to consummate a Business Combination, the Sponsor or its affiliates or designees
deposited into the Trust Account $360,000. On November 16, 2022 and December 19, 2022, the Company deposited an aggregate of $240,000
into the Trust Account in connection with the extension.
On November 9, 2021, the Company issued
the Convertible Promissory Note in the principal amount of $1,261,860 to the Sponsor in connection with the Extension. On August 15, 2022,
the Company held a special meeting of stockholders at which a proposal to amend the Company’s amended and restated certificate of
incorporation to extend the date by which the Company must consummate a Business Combination from August 17, 2022 to February 17, 2023
was approved by stockholders. On February 17, 2022, April 14, 2022, May 18, 2022, August 17, 2022 and December 31, 2022 the Company amended
and restated the Convertible Promissory Note to increase the principal amount thereunder from $1,261,860 to $4,323,720. The Convertible
Promissory Note bears no interest and is due and payable upon the earlier to occur of (i) the date on which the Company’s Business
Combination is consummated and (ii) the liquidation of the Company on or before February 17, 2023 or such later liquidation date as may
be approved by the Company’s stockholders. At the election of the Sponsor, up to $1,500,000 of the unpaid principal amount of the
Convertible Promissory Note may be converted into warrants of the Company, each warrant exercisable for one share of common stock of the
Company upon the consummation of its Business Combination, equal to: (x) the portion of the principal amount of the Convertible Promissory
Note being converted, divided by (y) $1.00, rounded up to the nearest whole number of warrants. As of December 31, 2022 and 2021, there
was $4,323,720 and $1,261,860 outstanding under the Convertible Promissory Note, respectively. The Convertible Promissory Note was valued
using the fair value method. The fair value of the Convertible Promissory Note as of December 31, 2022 and 2021, was $901,500 and $958,400,
respectively, which resulted in a change in fair value of the convertible promissory note of $2,772,360 and $303,460 which was recorded
in the statements of operations for the years ended December 31, 2022 and 2021, respectively (see Note 10).
NOTE 6. COMMITMENTS AND CONTINGENCIES
Registration Rights
Pursuant to a registration
rights agreement entered into on November 12, 2020, the holders of the Founder Shares and Representative Shares (as defined in Notes 5
and 8, respectively), as well as the holders of the Private Warrants (and underlying securities) and any warrants issued in payment of
Working Capital Loans made to Company (and underlying securities) will be 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
Founder Shares can 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 Representative Shares, Private Warrants and warrants
issued in payment of working capital loans made to the Company (or underlying securities) can elect to exercise these registration rights
at any time after the Company consummates a Business Combination. Notwithstanding anything to the contrary, EarlyBirdCapital may only
make a demand on one occasion and only during the five-year period beginning on the effective date of the registration statement of which
this prospectus forms a part. In addition, the holders have certain “piggy-back” registration rights with respect to registration
statements filed subsequent to consummation of a Business Combination; provided, however, that EarlyBirdCapital may participate in a “piggy-back”
registration only during the seven-year period beginning on the effective date of the registration statement of which this prospectus
forms a part. 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 1,650,000 additional Units to cover over-allotments,
if any, at the Initial Public Offering price less the underwriting discounts and commissions. On November 19, 2020, the underwriters
partially exercised their over-allotment option to purchase an additional 1,618,600 Units at $10.00 per Unit and forfeited the remaining
over-allotment option.
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
Business Combination Marketing Agreement
The Company has engaged
EarlyBirdCapital as an advisor in connection with a Business Combination to assist the Company in holding meetings with its stockholders
to discuss the potential Business Combination and the target business’ attributes, introduce the Company to potential investors
that are interested in purchasing the Company’s securities in connection with a Business Combination, assist the Company in obtaining
stockholder approval for the Business Combination and assist the Company with its press releases and public filings in connection with
the Business Combination. The Company will pay EarlyBirdCapital a cash fee for such services upon the consummation of a Business Combination
in an amount equal to 3.5% of the gross proceeds of the Initial Public Offering, or $4,416,510, (exclusive of any applicable finders’
fees which might become payable); provided that up to 30% of the fee may be allocated at the Company’s sole discretion to other
FINRA members that assist the Company in identifying and consummating a Business Combination.
Additionally, the Company
will pay EarlyBirdCapital a cash fee equal to 1.0% of the total consideration payable in a Business Combination if EarlyBirdCapital introduces
the Company to the target business with which the Company completes a Business Combination.
Legal Fee Agreements
The Company has engaged
various law firms to provide legal due diligence services and business combination services related to potential target companies. All
fees and expenses related to the various engagements will be deferred and are to be paid fully upon the closing of any Business Combination.
The law firms will not be entitled to any contingent fees or expense reimbursement if the Company does not consummate a Business Combination
within its deadline. Deferred fees of $1,654,062 and $1,009,868 related to these legal services have been accrued as of December 31, 2022
and 2021, respectively.
Extension
On February 16, 2022, the
Company issued a press release announcing that its Sponsor has requested that the Company extend the date by which the Company has to
consummate a Business Combination from February 17, 2022 to May 17, 2022 (the “Extension”). On February 18, 2022, the Company
issued a press release announcing that the Sponsor had deposited an additional $1,261,860 (representing $0.10 per Public Share) into the
Trust Account for its public stockholders. On May 12, 2022, the Company held a special meeting of stockholders at which a proposal to
amend the Amended and Restated Certificate of Incorporation to extend the date by which the Company must consummate a Business Combination
from May 17, 2022 to August 17, 2022 was approved by the stockholders. In connection with this extension, the Company deposited $500,000
into the Trust Account on May 18, 2022. In connection with the extension amendment, stockholders holding approximately 5,586,910 shares
of the Company’s redeemable common stock exercised their right to redeem such shares for a pro rata portion of the funds in the
Trust Account at a redemption price of approximately $10.30 per share. On August 15, 2022, the Company held a special meeting of stockholders
at which a proposal to amend the Amended and Restated Certificate of Incorporation to extend the date by which the Company must consummate
a Business Combination from August 17, 2022 to February 17, 2023 was approved by the stockholders. In connection with this extension,
the Company deposited $360,000 into the Trust Account on August 17, 2022, and stockholders holding approximately 2,818,237 shares of the
Company’s redeemable common stock exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account
at a redemption price of approximately $10.37 per share. On November 16, 2022 and December 19, 2022, the Company deposited an aggregate
amount of $240,000 into the Trust Account in connection with the extension. On February 8, 2023, the Company held a special meeting of
stockholders at which a proposal to amend the Amended and Restated Certificate of Incorporation to extend the date by which the Company
must consummate a Business Combination from February 17, 2023 to August 17, 2023 was approved by the stockholders. In connection with
the extension, stockholders holding 1,213,453 shares of the Company’s redeemable common stock exercised their right to redeem such
shares for a pro rata portion of the funds in the Trust Account at a redemption price of approximately $10.60 per share.
On November 16,
2021, the Company had previously issued the Convertible Promissory Note in the principal amount of $1,261,860 to the Sponsor. On February
17, 2022, April 14, 2022, May 18, 2022, August 17, 2022 and December 31, 2022, the Company amended and restated the Convertible Promissory
Note in its entirety to increase the principal amount thereunder from $1,261,860 to $4,323,720.
Business Combination Agreement
On December 9,
2022, the Company entered into the Business Combination Agreement with Heritage, Pubco, SPAC Merger Sub, Company Merger Sub, the Sponsor
in the capacity as the representative for the stockholders of the Company and Pubco (other than the former Heritage stockholders), and
(vii) Justin Stiefel, in the capacity as the representative for certain security holders of Heritage for a proposed business combination
among the parties. Pursuant to the Business Combination Agreement, Pubco changed its name to Heritage Distilling Group, Inc. and will
serve as the parent company of each of the Company and Heritage following the consummation of the Heritage Business Combination.
For more information about
the Heritage Business Combination, see the Registration Statement on Form S-4 filed by Pubco on February 14, 2023 (File No. 333-269754),
as amended from time to time, and the Company’s Current Report on Form 8-K filed with the SEC on December 15, 2022.
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
NOTE 7. STOCKHOLDERS’ DEFICIT
Preferred Stock
— The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations,
voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At December
31, 2022 and 2021, there were no shares of preferred stock issued or outstanding.
Common
Stock — The Company is authorized to issue 50,000,000 shares of common stock with a par value of $0.0001 per share. At December
31, 2022 and 2021, there were 3,487,070 shares of common stock issued and outstanding, excluding 4,213,453 and 12,618,600 shares of common
stock subject to possible redemption, respectively, which are presented as temporary equity. In connection with the extensions on May
12, 2022, stockholders holding 5,586,910 shares of the Company’s redeemable common stock exercised their right to redeem such shares
for a pro rata portion of the funds in the Trust Account at a redemption price of approximately $10.30 per share. In connection with the
extension on August 17, 2022, stockholders holding 2,818,237 shares of the Company’s redeemable stock exercised their right to redeem
such shares for a pro rata portion of the funds in the Trust Account at a redemption price of approximately $10.37 per share. In connection
with the extension on February 8, 2023, stockholders holding 1,213,453 shares of the Company’s redeemable stock exercised their
right to redeem such shares for a pro rata portion of the funds in the Trust Account at a redemption price of approximately $10.60 per
share.
NOTE 8. WARRANTS
The Public Warrants will
become exercisable on the later of (a) 30 days after the completion of a Business Combination or (b) 12 months from the closing of the
Initial Public Offering. No warrants will be exercisable for cash unless the Company has an effective and current registration statement
covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to such shares of common
stock. Notwithstanding the foregoing, if a registration statement covering the shares of common stock issuable upon exercise of the Public
Warrants is not effective within a specified period following the consummation of a Business Combination, warrant holders may, until such
time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective
registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities
Act, provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to
exercise their warrants on a cashless basis. The Public Warrants will expire five years after the completion of a Business Combination
or earlier upon redemption or liquidation.
The Company may redeem the
Public Warrants (excluding the Private Warrants and any warrants underlying units issued upon conversion of the Working Capital Loans):
| ● | in whole and not in part; |
| | |
| ● | at a price of $0.01 per warrant; |
| | |
| ● | upon not less than 30 days’ prior written notice of redemption to each warrant holder; and |
| | |
| ● | if, and only if, the last reported sale price of the common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like), for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. |
If the Company calls the
Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do
so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of common stock issuable
upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization,
reorganization, merger or consolidation. However, except as described below, the warrants will not be adjusted for issuance of common
stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If
the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the
Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution
from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire
worthless.
In addition, if (x) the
Company issues additional common stock or equity-linked securities for capital raising purposes in connection with the closing of a Business
Combination at an issue price or effective issue price of less than $9.20 per common stock (with such issue price or effective issue price
to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the Sponsor or its affiliates,
without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance), (y) the
aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for
the funding of a Business Combination on the date of the consummation of a Business Combination (net of redemptions), and (z) the volume
weighted average trading price of its common stock during the 20 trading day period starting on the trading day prior to the day on which
the Company consummates its Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price
of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the greater of (i) Market Value or (ii) the price at which
the Company issue the additional shares of common stock or equity-linked securities.
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
The Private Warrants
are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Warrants and the
shares of common stock issuable upon the exercise of the Private Warrants will not be transferable, assignable or saleable until after
the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants will be exercisable
for cash or on a cashless basis, at the holder’s option, and be non-redeemable so long as they are held by the initial purchasers
or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees,
the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
On August 5, 2020, the Company
issued to EarlyBirdCapital 377,750 shares of common stock (the “Representative Shares”). On November 9, 2020, EarlyBirdCapital
returned to the Company for cancellation, at no cost, an aggregate of 75,550 Representative Shares, resulting in an aggregate of 302,200
Representative Shares outstanding and held by EarlyBirdCapital. On November 12, 2020, the Company effected a stock dividend of 0.1 shares
for each share of common stock outstanding, resulting in EarlyBirdCapital holding an aggregate of 332,420 Representative Shares. The Company
accounted for the Representative Shares as an offering cost of the Initial Public Offering, with a corresponding credit to stockholders’
equity. The Company estimated the fair value of Representative Shares to be $2,666 based upon the price of the Founder Shares issued to
the Sponsor. The holders of the Representative Shares have agreed not to transfer, assign or sell any such shares until the completion
of a Business Combination. In addition, the holders have agreed (i) to waive their redemption rights with respect to such shares in connection
with the completion of a Business Combination and (ii) to waive their rights to liquidating distributions from the Trust Account with
respect to such shares if the Company fails to complete a Business Combination within the Combination Period.
The Representative
Shares have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the
effective date of the registration statement related to the Initial Public Offering pursuant to Rule 5110(g)(1) of FINRA’s NASD
Conduct Rules. Pursuant to FINRA Rule 5110(g)(1), these securities will not be sold during the Initial Public Offering, or sold, transferred,
assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result
in the economic disposition of the securities by any person for a period of 180 days immediately following the effective date of the Initial
Public Offering, except to any underwriter and selected dealer participating in the Initial Public Offering and their bona fide officers
or partners, provided that all securities so transferred remain subject to the lockup restriction above for the remainder of the time
period.
NOTE 9. INCOME TAX
The Company’s net deferred tax
assets at December 31, 2022 and 2021 are as follows:
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Deferred tax asset | |
| | |
| |
Net operating loss carryforward | |
$ | — | | |
$ | 52,219 | |
Startup/Organization Expenses | |
| 753,032 | | |
| 416,002 | |
Unrealized gain on marketable securities | |
| — | | |
| (1,515 | ) |
Total deferred tax asset | |
| 753,032 | | |
| 466,706 | |
Valuation Allowance | |
| (753,032 | ) | |
| (466,706 | ) |
Deferred tax asset | |
$ | — | | |
$ | — | |
The income tax
provision for the years ended December 31, 2022 and 2021 consists of the following:
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Federal | |
| | |
| |
Current | |
$ | 73,932 | | |
$ | — | |
Deferred | |
| (286,326 | ) | |
| (444,392 | ) |
State and Local | |
| | | |
| | |
Current | |
| — | | |
| — | |
Deferred | |
| — | | |
| — | |
| |
| | | |
| | |
Change in valuation allowance | |
| 286,326 | | |
| 444,392 | |
| |
| | | |
| | |
Income tax provision | |
$ | 73,932 | | |
$ | — | |
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
As of December 31, 2022 and 2021, the Company had $0 and $248,660,
respectively, of U.S. federal net operating loss carryovers available to offset future taxable income, which do not expire.
In assessing the realization of the deferred tax assets, management
considers whether it is more likely than not that some portion of all of the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing
net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax assets, projected future
taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management
believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established
a full valuation allowance. For the year ended December 31, 2022, the change in the valuation allowance was $286,326. For the year ended
December 31, 2021, the change in the valuation allowance was $444,392.
A reconciliation of the federal income
tax rate to the Company’s effective tax rate at December 31, 2022 and 2021 is as follows:
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Statutory federal income tax rate | |
| 21.00 | % | |
| 21.00 | % |
Change in fair value of warrant liabilities | |
| (17.5 | )% | |
| (39.1 | )% |
Change in fair value of convertible promissory note | |
| (13.3 | )% | |
| (3.0 | )% |
Transaction costs incurred in connection with Initial Public Offering | |
| — | % | |
| — | % |
Business combination expenses | |
| 3.5 | % | |
| — | % |
Change in Valuation allowance | |
| 8.6 | % | |
| 21.1 | % |
Income tax provision | |
| 2.2 | % | |
| 0.00 | % |
The Company’s effective tax rate was 2.2% and 0.0% for the year
ended December 31, 2022 and 2021, respectively. The effective tax rate differs from the statutory tax rate of 21% for the year ended December
31, 2022 and 2021, due to changes in fair value in warrant liability, changes in the fair value of the Convertible Promissory Note, business
combination expenses and the valuation allowance on the deferred tax assets.
The Company files income tax returns
in the U.S. federal and New York jurisdiction and is subject to examination by the various taxing authorities.
NOTE 10. FAIR VALUE MEASUREMENTS
The Company follows
the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period,
and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value
of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received
in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between
market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks
to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs
(internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to
classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
|
Level 1: |
Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
|
Level 2: |
Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. |
|
Level 3: |
Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability. |
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
The following
table presents information about the Company’s assets that are measured at fair value on a recurring basis at December 31, 2022
and 2021, respectively, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
Description | |
Level | | |
December 31, 2022 | | |
December 31, 2021 | |
Assets: | |
| | |
| | |
| |
Cash | |
| 1 | | |
$ | 44,696,624 | | |
$ | - | |
Marketable securities held in Trust Account | |
| 1 | | |
$ | - | | |
$ | 128,790,008 | |
| |
| | | |
| | | |
| | |
Liabilities: | |
| | | |
| | | |
| | |
Warrant liabilities – Private Warrants | |
| 3 | | |
$ | 528,558 | | |
$ | 2,641,204 | |
Convertible promissory note – related party | |
| 3 | | |
$ | 901,500 | | |
$ | 958,400 | |
Warrant Liabilities
The Private Warrants
were accounted for as a liability in accordance with ASC 815-40 and are presented within warrant liability on the balance sheets. The
warrant liability is measured at fair value at inception and on a recurring basis, with changes in fair value presented within change
in fair value of warrant liability in the statements of operations.
The Private Warrants
were valued using a binomial lattice model. The Company allocated the proceeds received from (i) the sale of Units (which is inclusive
of one share of common stock and one Public Warrant) and (ii) the sale of Private Warrants, first to the warrants based on their fair
values as determined at initial measurement, with the remaining proceeds allocated to common stock subject to possible redemption. The
Private Warrants were classified as Level 3 at the initial measurement date due to the use of unobservable inputs.
The following
are the inputs used by the Company in establishing the fair value of its Private Warrants at December 31, 2022 and December 31, 2021.
Input | |
December 31, 2022 | | |
December 31, 2021 | |
Risk-free interest rate | |
| 4.60 | % | |
| 1.15 | % |
Trading days per year | |
| 252 | | |
| 252 | |
Expected volatility | |
| 5.3 | % | |
| 9.6 | % |
Exercise price | |
$ | 11.50 | | |
$ | 11.50 | |
Stock Price | |
$ | 10.45 | | |
$ | 10.17 | |
On December 31, 2022 and 2021, the
fair values of the Private Warrants were determined to be $0.10 per warrant and $0.50 per warrant, respectively, for an aggregate value
of $0.5 million and $2.64 million, respectively.
The following
table presents the changes in the fair value of the warrant liabilities:
| |
Private Placement | |
Fair value as of December 31, 2021 | |
$ | 2,641,204 | |
Change in valuation inputs or other assumptions | |
| (2,112,646 | ) |
Fair value as of December 31, 2022 | |
$ | 528,558 | |
Convertible Promissory Note – Related
Party
The fair value of the option
to convert the Convertible Promissory Note into Private Warrants was valued by utilizing a binomial lattice model incorporating the Cox-Ross-Rubenstein
methodology.
BETTER WORLD ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022 and 2021
The estimated fair value
of the Convertible Promissory Note was based on the following significant inputs:
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
Risk-free interest rate |
|
|
4.60 |
% |
|
|
1.29 |
% |
Time to Expiration (in years) |
|
|
0.4 |
|
|
|
5.38 |
|
Expected volatility |
|
|
0.0 |
% |
|
|
9.6 |
% |
Exercise price |
|
$ |
11.50 |
|
|
$ |
11.50 |
|
Dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
Stock Price |
|
$ |
10.45 |
|
|
$ |
10.17 |
|
Probability of transaction |
|
|
25.00 |
% |
|
|
75.00 |
% |
The following table presents the changes in the
fair value of the Level 3 Convertible Promissory Note:
Fair value as of January 1, 2021 | |
$ | 958,400 | |
Conversion of Sponsor advance to Convertible Promissory Note | |
| 500,000 | |
Proceeds in excess of fair value | |
| (346,400 | ) |
Proceeds received through Convertible Promissory Note | |
| 2,561,860 | |
Change in fair value | |
| (2,772,360 | ) |
Fair value as of December 31, 2022 | |
$ | 901,500 | |
There were no
transfers in or out of Level 3 from other levels in the fair value hierarchy during the year ended December 31, 2022 for the Convertible
Promissory Note.
NOTE 11. SUBSEQUENT EVENTS
The Company evaluated
subsequent events and transactions that occurred after the balance sheet date up to the date that the consolidated financial statements
were issued. Based upon this review, other than as stated below, the Company did not identify any subsequent events that would have required
adjustment or disclosure in the consolidated financial statements.
On January 9,
2023, the Company received a written notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC indicating that
the Company was not in compliance with Nasdaq Listing Rule 5620(a) for continued listing, due to the Company’s failure to hold an
annual meeting of stockholders within twelve months of the end of the Company’s fiscal year ended December 31, 2021.
The Notice stated
that the Company has until February 23, 2023 to submit a plan to regain compliance with Listing Rule 5620(a). The Company submitted a
plan to regain compliance with Listing Rule 5620(a) on February 23, 2023. On March 8, 2023, Nasdaq granted the Company an extension until
June 29, 2023 to evidence compliance with Listing Rule 5620(a).
Trust Extension
On January 18, 2023, February 16, 2023, and March 16, 2023, the Company
made payments to the Trust Account in the aggregate amount of $360,000 in connection with the extension.
On February 8, 2023, the
Company held a special meeting of stockholders at which a proposal to amend the Amended and Restated Certificate of Incorporation to extend
the date by which the Company must consummate a Business Combination from February 17, 2023 to August 17, 2023 was approved by the stockholders.
In connection with the extension, stockholders holding 1,213,453 shares of the Company’s redeemable common stock exercised their
right to redeem such shares for a pro rata portion of the funds in the Trust Account at a redemption price of approximately $10.60 per
share. The Sponsor has agreed to contribute to the Trust Account $120,000 for each month of the extension.