NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
Note
1 — Description of Organization and Business Operations
Megalith
Financial Acquisition Corp. (the “Company”) was incorporated in Delaware on November 13, 2017. The Company was formed
for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses (the “Business Combination”). Although the Company is not limited to a particular
industry or sector for purposes of consummating a Business Combination, the Company intends to focus its search on the financial
technology and the financial services sectors. The Company is an emerging growth company and, as such, the Company is subject
to all of the risks associated with emerging growth companies.
As
of September 30, 2019, the Company had not commenced any operations. All activity through September 30, 2019 relates to the Company’s
formation and Initial Public Offering, which is described below, and since the offering, the search for a prospective Business
Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination,
at the earliest. The Company will generate non-operating income in the form of interest income earned on investments from the
proceeds derived from the Initial Public Offering. The registration statement for the Company’s initial public offering
(“Initial Public Offering”) was declared effective on August 23, 2018. On August 28, 2018, the Company consummated
the Initial Public Offering of 15,000,000 units (“Units”) with respect to the Class A Common Stock included in the
Units being offered (the “Public Shares”) at $10.00 per Unit generating gross proceeds of $150,000,000, which is discussed
in Note 3.
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the sale of 6,560,000 warrants (“Private Placement
Warrants”) at a price of $1.00 per Private Placement Warrant in a private placement to the Company’s sponsor,
MFA Investor Holdings, LLC ($5,810,000) (the “Sponsor”) and Chardan Capital Markets, LLC ($750,000) (“Chardan”),
generating gross proceeds of $6,560,000, which is described in Note 4.
Offering
costs for the Initial Public Offering amounted to $10,521,211, consisting of $3,192,889 of underwriting fees, $6,771,556 of deferred
underwriting fees payable (which are held in the Trust Account (defined below)) and $556,766 of other costs. As described in Note
5, the $6,771,556 deferred underwriting fee payable is contingent upon the consummation of a Business Combination by May 28, 2020,
subject to the terms of the underwriting agreement.
Following
the closing of the Initial Public Offering on August 28, 2018, an amount of $151,500,000 ($10.10 per Unit) from the net proceeds
of the sale of the Units in the Initial Public Offering and the Private Placement Warrants was placed in a trust account (“Trust
Account”) and was invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment
Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended
investment company that holds itself out as a money market fund selected by the Company meeting the conditions of paragraphs (d)(2),
(d)(3) and (d)(4) 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 Trust Account, as described below.
On
September 21, 2018, the Company consummated the closing of the sale of 1,928,889 additional Units upon receiving notice of the
underwriter’s election to partially exercise its overallotment option (“Overallotment Units”), generating additional
gross proceeds of $19,288,890 and incurring additional offering costs of $964,445 in underwriting fees which were partially deferred
until the completion of the Company’s initial business combination. Simultaneously with the exercise of the overallotment,
the Company consummated the Private Placement of an additional 385,778 Private Placement Warrants to the Sponsor, generating gross
proceeds of $385,778.
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 Placement Warrants, although substantially all of the net proceeds are intended to be applied
generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business
Combination successfully. The Company must complete one or more initial Business Combinations having 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 income earned on the Trust Account) at the time of the agreement to enter into the initial Business Combination. However, the
Company will only complete a 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.
The
Company will provide its holders of the outstanding shares of its Class A Common Stock, par value $0.0001 (“Class A Common
Stock”), sold in the Initial Public Offering (the “Public Stockholders”) with the opportunity to redeem all
or a portion of their Public Shares (as defined above) 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 (initially $10.10 per Public Share). The per-share amount to be distributed to Public Stockholders who
redeem their Public Shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriters
(as discussed in Note 5). In such case, the Company will proceed with a Business Combination if the Company has net tangible assets
of at least $5,000,001 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 its Certificate
of Incorporation (the “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 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. Additionally, each Public Stockholder may elect to redeem
their Public Shares irrespective of whether they vote for or against the proposed transaction. If the Company seeks stockholder
approval in connection with a Business Combination, the Initial Stockholders (as defined below) have agreed to vote its Founder
Shares (as defined in Note 4) and any Public Shares held by them in favor of approving a Business Combination. In addition, the
Initial Stockholders have agreed to waive their redemption rights with respect to their Founder Shares and Public Shares in connection
with the completion of a Business Combination.
Notwithstanding
the foregoing, the Certificate of Incorporation provides that a Public Stockholder, together with any affiliate of such stockholder
or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares
with respect to more than an aggregate of 15% or more of the Class A Common Stock sold in the Initial Public Offering, without
the prior consent of the Company.
The
Company’s Sponsor, officers and directors (the “Initial Stockholders”) have agreed not to propose an amendment
to the Certificate of Incorporation that would 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 shares of Class A Common Stock in conjunction with any such amendment.
If
the Company is unable to complete a Business Combination by May 28, 2020, 21 months from the closing of the Initial Public Offering
(“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 us to pay the Company’s franchise and income taxes (less up to $100,000 of
interest to pay dissolution expenses), 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
Initial Stockholders have agreed to waive their liquidation rights with respect to the Founder Shares if the Company fails to
complete a Business Combination within the Combination Period. However, if the Initial Stockholders should acquire Public Shares
in or after the Initial Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect
to such Public Shares if the Company fails to complete a Business Combination within the Combination Period. The underwriters
have agreed to waive their rights to its deferred underwriting commission (see Note 5) held in the Trust Account in the event
the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included
with the other funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event
of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including
Trust Account assets) will be only $10.10 per share held in the Trust Account. 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. This liability will not apply with respect to any claims by a third
party who executed a waiver of any right, title, interest or claim of any kind in or to any monies held in the Trust Account or
to any claims under the Company’s indemnity of the underwriters of the 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 waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Going
Concern and Liquidity
As
of September 30, 2019, the Company had a cash balance of $685,621 and a working capital surplus of $9,503.Current liabilities
totaling $488,145 can be paid by interest income from investments held in the Trust Account. During the nine months ended September
30, 2019, the Company withdrew $658,815 of interest income to pay its federal income tax estimates and franchise taxes.
Until
the consummation of a Business Combination, the Company will be using funds held outside of the Trust Account for paying existing
accounts payable, identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective
target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses, reviewing
corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring,
negotiating and consummating the business combination. If the Company’s estimates of the costs of identifying a target business,
undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so,
the Company may have insufficient funds available to operate its business prior to a Business Combination. Moreover, the Company
may need to obtain additional financing either to complete a Business Combination or because it becomes obligated to redeem a
significant number of its public shares upon completion of a Business Combination, in which case the Company may issue additional
securities or incur debt in connection with such Business Combination. In order to finance transaction costs in connection with
a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of our officers and directors may, but are not
obligated to, loan us funds as may be required. If the Company completes a Business Combination, the Company would repay such
loaned amounts. In the event that a Business Combination does not close, the Company may use a portion of the working capital
held outside the Trust Account to repay any such loaned amounts and up to $100,000 of interest on an annual basis for certain
working capital purposes, but no other proceeds from the Trust Account would be used for such repayment.
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, suspending the pursuit of a potential transaction. The Company cannot provide
any assurance that new financing will be available to it on commercially acceptable terms, if at all.
In
addition, in connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting
Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s
Ability to Continue as a Going Concern”, management has determined that the liquidity, mandatory liquidation and subsequent
dissolution raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been
made to the carrying amounts of assets or liabilities should the Company be required to liquidate after May 28, 2020.
Note
2 — Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions
to Form 10-Q and Article 10 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial
statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC for
interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive
presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying financial
statements include all adjustments, consisting of a normal and recurring nature, which are necessary for a fair presentation of
the financial position, operating results, and cash flows for the periods presented. Interim results are not necessarily
indicative of results for a full year.
The
accompanying unaudited interim financial statements should be read in conjunction with the audited financial statements and notes
thereto included in the Form 10-K filed by the Company with the SEC on April 1, 2019.
Reclassification
Certain
amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial
statements. These reclassifications had no effect on the previously reported net loss.
Emerging
Growth Company
Section
102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (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 an emerging growth
company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth
companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition
period, which means that when a standard is issued or revised, and it has different application dates for public or private companies,
the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new
or revised standard.
This
may make comparison of the Company’s financial statement with another public company that is neither an emerging growth
company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because
of the potential differences in accounting standards used.
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 September 30, 2019 and December 31, 2018.
Class
A common stock subject to possible redemption
The
Company accounts for its Class A common stock subject to possible redemption in accordance with the guidance in Accounting Standards
Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Shares of Class A common stock
subject to mandatory redemption (if any) is classified as a liability instrument and is measured at fair value. Conditionally
redeemable Class A common stock (including Class A common stock that features redemption rights that are either within the control
of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control)
is classified as temporary equity. At all other times, Class A common stock is classified as stockholders’ equity. The Company’s
Class A 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, at September 30, 2019 and December 31, 2018, 16,124,366 and 15,943,727
shares of Class A common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’
equity section of the Company’s balance sheets.
Offering
Costs
Offering
costs consist principally of legal, accounting, underwriting fees and other costs directly related to the Initial Public Offering.
Offering costs amounting to $9,556,766 were charged to stockholders’ equity upon the completion of the Initial Public Offering
and an additional $964,445 were charged to stockholders’ equity upon the underwriter’s partial exercise of the over-allotment.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution,
which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. As of September 30, 2019 and December 31, 2018,
the Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks
on such account.
Financial
Instruments
The
fair value of the Company’s assets and liabilities, which qualify as financial instruments under the FASB ASC 820, “Fair
Value Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying balance sheets, primarily
due to their short-term nature.
Net
Income (Loss) Per Share
The
Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” Net income
(loss) per share is computed by dividing net income applicable to common stockholders by the weighted average number of shares
of common stock outstanding for the period. As of September 30, 2019 the Company has not considered the effect of the warrants
sold in the Initial Public Offering and Private Placement to purchase an aggregate of 23,874,667 shares of Class A common stock
in the calculation of diluted earnings per share, since their inclusion would be anti-dilutive under the treasury stock method.
The
Company’s statements of operations include a presentation of income per share for Class A common stock subject to redemption
in a manner similar to the two-class method of income per share. Net income per share, basic and diluted for Class A common stock
is calculated by dividing the investment income earned on the Trust Account, net of applicable taxes, by the weighted average
number of shares of Class A common stock outstanding since the initial issuance. Net income (loss) per share, basic and diluted
for Class B common stock is calculated by dividing the net income, less income attributable to Class A common stock, by the weighted
average number of shares of Class B common stock outstanding for the period.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. 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 financial statements and the reported amounts of expenses during the reporting periods. Actual results could
differ from those estimates.
Income
Taxes
The
Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “Income Taxes.”
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between
the balance sheet carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized. Management has determined that a full valuation allowance on the deferred tax
asset (related to start up costs) is appropriate at this time after consideration of all available positive and negative evidence
related to the realization of the deferred tax asset.
FASB
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement
of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more
likely than not to be sustained upon examination by taxing authorities. 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 were accrued
for the payment of interest as of September 30, 2019 or December 31, 2018. The Company is currently not aware of any issues under
review that could result in significant payments, accruals or material deviation from its position. The Company is subject to
income tax examinations by major taxing authorities since inception.
Deferred
tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and
liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Current income taxes
are based on the year’s income taxable for federal and state income tax reporting purposes. Total tax provision may differ
from the statutory tax rates applied to income before provision for income taxes due principally to expenses charged which are
not tax deductible.
Recent
Accounting Pronouncements
The
Company’s management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently
adopted, would have a material effect on the Company’s financial statements.
Note
3 — Initial Public Offering and Private Placement
Pursuant
to the Initial Public Offering, the Company sold 16,928,889 units at a price of $10.00 per Unit. Each Unit consists of one share
of Class A Common Stock (such shares of Class A Common Stock included in the Units being offered, the “Public Shares”),
and one redeemable warrant (each, a “Public Warrant”). Each Public Warrant entitles the holder to purchase one share
of Class A Common Stock at a price of $11.50 per share, subject to adjustment (see Note 6).
Note
4 — Related Party Transactions
Founder
Shares
On
November 13, 2017, the Sponsor purchased 4,312,500 shares (the “Founder Shares”) of the Company’s Class B Common
Stock, par value $0.0001 (“Class B Common Stock”) for an aggregate price of $25,000. The Founder Shares will automatically
convert into shares of Class A Common Stock at the time of the Company’s initial Business Combination and are subject to
certain transfer restrictions, as described in Note 6. Holders of Founder Shares may also elect to convert their shares of Class
B Common Stock into an equal number of shares of Class A Common Stock, subject to adjustment, at any time. The Sponsor agreed
to forfeit up to 562,500 Founder Shares to the extent that the 45-day over-allotment option was not exercised in full by the underwriters.
Since the underwriters exercised the over-allotment option in part, the Sponsor forfeited 80,278 Founder Shares on September 21,
2018. The Founder Shares forfeited by the Sponsor were cancelled by the Company. The Sponsor agreed, subject to limited exceptions,
not to transfer, assign or sell any of its Founder Shares until the earlier to occur of: (A) one year after the completion of
the initial Business Combination or (B) subsequent to the initial Business Combination, (x) if the last sale price of the Class
A Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations
and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial Business
Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange or other similar transaction
that results in all of the Company’s stockholders having the right to exchange their shares of Common Stock for cash, securities
or other property.
Private Placement Warrants
Concurrently with the
closing of the Initial Public Offering, the Sponsor and Chardan purchased an aggregate of 6,560,000 Private Placement Warrants
at a price of $1.00 per Private Placement Warrant (5,810,000 by the Sponsor and 750,000 by Chardan) for an aggregate purchase price
of $6,560,000. Each whole Private Placement Warrant is exercisable for one whole share of Class A Common Stock at a price of $11.50
per share (subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like and for certain
issuances of equity or equity-linked securities). Concurrently with the underwriter’s partial exercise of the over-allotment,
the Company consummated a private sale of an additional 385,778 Private Placement Warrants to the Sponsor at a price of $1.00 per
Private Placement Unit generating gross proceeds of $385,778. The proceeds from the Private Placement Warrants was added to the
proceeds from the Initial Public Offering and the underwriter’s partial exercise of the over-allotment are held in the Trust
Account. If the Company does not complete a Business Combination within the Combination Period, the Private Placement Warrants
will expire worthless. The Private Placement Warrants are non-redeemable and exercisable on a cashless basis so long as they are
held by the Sponsor or its permitted transferees. In addition, for as long as the Private Placement Warrants are held by Chardan
or its designees or affiliates, they may not be exercised after five years from the effective date of the registration statement
for the Initial Public Offering.
The Sponsor and Chardan
and the Company’s officers and directors have agreed, subject to limited exceptions, not to transfer, assign or sell any
of their Private Placement Warrants until 30 days after the completion of the initial Business Combination.
Registration Rights
The holders of Founder
Shares, Private Placement Warrants and Warrants that may be issued upon conversion of working capital loans, if any, are entitled
to registration rights (in the case of the Founder Shares, only after conversion of such shares to shares of Class A Common
Stock) pursuant to a registration rights agreement. These holders will be entitled to certain demand and “piggyback”
registration rights.
The holders of Founder
Shares, Private Placement Warrants and Warrants that may be issued upon conversion of working capital loans will not be able to
sell these securities until the termination of the applicable lock-up period for the securities to be registered. The Company will
bear the expenses incurred in connection with the filing of any such registration statements.
Related Party Loans
On November 27, 2017,
the Sponsor had agreed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public Offering
pursuant to a promissory note, amended and restated on September 30, 2018 (the “Note”). This loan was non-interest
bearing and payable on the earlier of December 31, 2018 or as soon as practical after the Initial Public Offering. The Company
fully repaid these amounts to the Sponsor in September 2018.
Due to affiliates
In conjunction with
the formation of the Company, affiliates of the Sponsor paid $32,726 of organizational and deferred offering costs on behalf of
the Company. The Company fully repaid these amounts to the affiliates in September 2018.
Support Services
The Company presently occupies
office space provided by an affiliate of the Sponsor. The affiliate has agreed that, until the Company consummates a Business Combination,
it will make such office space, as well as certain administrative and support services, available to the Company, as may be required
by the Company from time to time. The Company will pay the affiliate an aggregate of $2,000 per month for such office space, administrative
and support services. During the three and nine months ended September 30, 2019, total support services costs incurred were $6,000
and $18,000, respectively and $2,000 during the three and nine months ended September 30, 2018
The Company pays an entity
affiliated with the President a fee of approximately $7,692 every two weeks until the earlier of the consummation of the Business
Combination or liquidation. A bonus of $78,000 was paid out after the successful completion of the Initial Public Offering. The
total amount of expense incurred to this entity was $146,154 and $93,385 for the nine months ended September 30, 2019 and September
30, 2018, respectively. The total amount of expense incurred to this entity was $46,154 and $93,385 for the three months ended
September 30, 2019 and September 30, 2018, respectively.
Note 5 — Commitments and Contingencies
Registration Rights
The holders of Founder
Shares, Private Placement Warrants and warrants that may be issued upon conversion of working capital loans, if any, are entitled
to registration rights (in the case of the Founder Shares, only after conversion of such shares to shares of Class A Common Stock)
pursuant to a registration rights agreement dated August 23, 2018. These holders are entitled to certain demand and “piggyback”
registration rights. However, the registration rights agreement provides that the Company will not permit any registration statement
filed under the Securities Act to become effective until the termination of the applicable lock-up period for the securities to
be registered. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company had
granted the underwriters a 45-day option to purchase up to 2,250,000 additional Units to cover over-allotments at the Initial Public
Offering price less the underwriting discounts and commissions. On September 21, 2018, the underwriters exercised a partial exercise
of their overallotment option and purchased 1,928,889 units at a purchase price of $10.00 per unit.
The underwriters were
paid a cash underwriting discount of $0.20 per unit, or $3 million in the aggregate at the closing of the Initial Public Offering
and $192,889 in conjunction with the underwriters’ partial exercise of its overallotment option. In addition, the underwriters
are entitled to a deferred underwriting commissions of $0.40 per unit, or $6 million in the aggregate from the closing of the Initial
Public Offering and $771,556 from the underwriters’ partial exercise of its overallotment option will be payable to the underwriters.
The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the
Company completes a Business Combination, subject to the terms of the underwriting agreement.
Note 6 — Stockholders’ Equity
Common Stock
Class A Common
Stock — The Company is authorized to issue 100,000,000 shares of Class A Common Stock with a par value of $0.0001
per share. At September 30, 2019 and December 31, 2018, there were 804,523 and 985,162 (excluding 16,124,366 and 15,943,727 shares
of Class A Common Stock subject to possible redemption) shares of Class A Common Stock issued and outstanding.
Class B Common
Stock — The Company is authorized to issue 10,000,000 shares of Class B Common Stock with a par value of $0.0001
per share. Holders of Class B Common Stock are entitled to one vote for each share. As of September 30, 2019 and December 31, 2018,
there were 4,232,222 shares of Class B Common Stock outstanding after giving effect to the forfeiture of 80,278 shares to the Company
by the Sponsor for no consideration since the underwriters’ 45-day over-allotment option was not exercised in full, so that
the Initial Stockholders collectively own 20% of the Company’s issued and outstanding Common Stock after the Initial Public
Offering.
Holders of Class A
Common Stock and Class B Common Stock will vote together as a single class on all other matters submitted to a vote of stockholders
except as required by law.
The shares of Class
B Common Stock will automatically convert into shares of Class A Common Stock at the time of the initial Business Combination on
a one-for-one basis, subject to adjustment. In the case that additional shares of Class A Common Stock, or equity-linked securities,
are issued or deemed issued in excess of the amounts offered in the Initial Public Offering and related to the closing of the initial
Business Combination, the ratio at which shares of Class B Common Stock shall convert into shares of Class A Common Stock will
be adjusted (unless the holders of a majority of the outstanding shares of Class B Common Stock agree to waive such adjustment
with respect to any such issuance or deemed issuance) so that the number of shares of Class A Common Stock issuable upon conversion
of all shares of Class B Common Stock will equal, in the aggregate, on an as-converted basis, 20% of the sum of the total number
of all shares of Common Stock outstanding upon the completion of the Initial Public Offering plus all shares of Class A Common
Stock and equity-linked securities issued or deemed issued in connection with the initial Business Combination (excluding any shares
or equity-linked securities issued, or to be issued, to any seller in the initial Business Combination and any private placement-equivalent
warrants issued to the Sponsor or its affiliates upon conversion of loans made to the Company).
Preferred Stock
— The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights
and preferences as may be determined from time to time by the Company’s board of directors. As September 30, 2019 and December
31, 2018, there were no shares of preferred stock issued or outstanding.
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; provided in each case that the Company has an effective registration statement
under the Securities Act covering the Class A common stock issuable upon exercise of the Public Warrants and a current prospectus
relating to them is available (or the Company permits holders to exercise their Public Warrants on a cashless basis and such cashless
exercise is exempt from registration under the Securities Act). The Company has agreed that as soon as practicable, but in no event
later than 15 business days, after the closing of a Business Combination, the Company will use its best efforts to file with the
SEC a registration statement for the registration, under the Securities Act, of the Class A common stock issuable upon exercise
of the Public Warrants. The Company will use its best efforts to cause the same to become effective and to maintain the effectiveness
of such registration statement, and a current prospectus relating thereto, until the expiration of the Public Warrants in accordance
with the provisions of the warrant agreement. If a registration statement covering the Class A common stock issuable upon exercise
of the warrants is not effective by the sixtieth (60th) day after the closing of the initial Business Combination, warrant holders
may, until such time as there is an effective registration statement and during any period when the Company will have failed to
maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9)
of the Securities Act or another exemption. The Public Warrants will expire five years after the completion of a Business Combination
or earlier upon redemption or liquidation.
The Private Placement
Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private
Placement Warrants and the Class A common stock issuable upon exercise of the Private Placement Warrants will not be transferable,
assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally,
the Private Placement Warrants will be non-redeemable so long as they are held by the initial purchasers or such purchasers’
permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted
transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis
as the Public Warrants.
The Company may call
the Public Warrants for redemption (except with respect to the Private Placement Warrants):
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in
whole and not in part;
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at
a price of $0.01 per warrant;
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upon
a minimum of 30 days’ prior written notice of redemption; and
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if,
and only if, the last reported closing price of the shares equals or exceeds $24.00 per share for any 20 trading days within a
30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to
the warrant holders.
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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.
In addition, except
in the case of the Private Placement Warrants purchased by Chardan, if (x) we issue additional shares of Class A common stock or
equity-linked securities for capital raising purposes in connection with the closing of our initial Business Combination at an
issue price or effective issue price of less than $9.50 per share of Class A Common Stock (with such issue price or effective issue
price to be determined in good faith by our board of directors), (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 our initial Business Combination,
and (z) the volume weighted average trading price of our Class A Common Stock during the 20 trading day period starting on the
trading day prior to the day on which we consummate our initial Business Combination (such price, the “Market Value”)
is below $9.50 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the
Market Value, and the $24.00 per share redemption trigger price described above will be adjusted (to the nearest cent) to be equal
to 240% of the Market Value.
Note 7 — Trust Account and Fair Value
Measurement
The Trust Account can
be invested in U.S. government securities, within the meaning set forth in the Investment Company Act, having a maturity of 180
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.
The Company’s
amended and restated certificate of incorporation provide that, other than the withdrawal of interest to pay income and franchise
taxes and up to $100,000 of interest to pay dissolution expenses if any, none of the funds held in the Trust Account will be released
until the earlier of: (i) the completion of the Business Combination; (ii) the redemption of Public Shares properly tendered in
connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation to modify the
substance or timing of the Company’s obligation to redeem 100% of the Public Shares if the Company does not complete the
Business Combination within the Combination Period or (iii) the redemption of 100% of the Public Shares if the Company is unable
to complete a Business Combination within the Combination Period.
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.
The following table
presents information about the Company’s assets that are measured at fair value on a recurring basis at September 30, 2019
and December 31, 2018, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair
value:
Description
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Level
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September 30,
2019
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December 31,
2018
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Assets:
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Marketable securities held in Trust Account
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1
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$
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174,618,157
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$
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172,213,794
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Note 8 — Subsequent Events
The Company evaluated
subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were
available to be issued.