References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to DD3 Acquisition Corp. References to our "management" or our
"management team" refer to our officers and directors, and references to the
"sponsor" refer to DD3 Mex Acquisition Corp. The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the financial statements and the notes thereto
contained elsewhere in this Quarterly Report. Certain information contained in
the discussion and analysis set forth below includes forward-looking statements
that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that are not historical facts, and involve risks and
uncertainties that could cause actual results to differ materially from those
expected and projected. All statements, other than statements of historical fact
included in this Form 10-Q including, without limitation, statements in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financial position, business strategy and
the plans and objectives of management for future operations, are
forward-looking statements. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. A number
of factors could cause actual events, performance or results to differ
materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to the Risk Factors section of the
Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange
Commission (the "SEC") on September 20, 2019 and our definitive proxy statement
on Schedule 14A filed with the SEC on January 22, 2020 (the "Proxy Statement")
in connection with the proposed Transaction (as defined below). The Company's
securities filings can be accessed on the EDGAR section of the SEC's website at
www.sec.gov. Except as expressly required by applicable securities law, the
Company disclaims any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future events
or otherwise.
Overview
We are a blank check company incorporated in the British Virgin Islands on
July 23, 2018 formed for the purpose of effecting a merger, share exchange,
asset acquisition, stock purchase, recapitalization, reorganization or similar
business combination with one or more businesses or entities ("business
combination").
In July 2018, we issued 1,473,500 founder shares ("founder shares") to our
sponsor for $25,000 in cash, at a purchase price of approximately $0.02 per
share. In September 2018, our sponsor forfeited 36,000 founder shares, resulting
in an aggregate of 1,437,500 founder shares outstanding. In November 2018, our
sponsor forfeited 46,250 founder shares following the expiration of the
unexercised portion of the over-allotment option granted to the underwriters in
connection with our initial public offering ("initial public offering"), thereby
reducing the number of founder shares held by the sponsor to 1,391,250.
The registration statement on Form S-1 (File No. 333-227423) for our initial
public offering was declared effective by the SEC on October 11, 2018. On
October 16, 2018, we consummated our initial public offering of 5,000,000 units
("Units"), with each Unit consisting of one ordinary share, no par value, and
one warrant, each warrant exercisable to purchase one ordinary share at an
exercise price of $11.50 per share. On October 23, 2018, the underwriters for
our initial public offering purchased an additional 565,000 Units pursuant to
the partial exercise of their over-allotment option. The Units were sold at an
offering price of $10.00 per Unit, generating total gross proceeds of
$55,650,000.
Simultaneously with the consummation of our initial public offering and the
closing of the over-allotment option, we consummated private placements
("private placements") of 225,000 and 14,125 private units ("Private Units"),
respectively, to our sponsor at a price of $10.00 per Private Unit, generating
total proceeds of $2,391,250.
A total of $55,650,000 (or $10.00 per Unit sold in our initial public offering)
of the net proceeds from our initial public offering and the private placements
was placed in a trust account ("trust account"), and has been invested only in
U.S. "government securities" within the meaning of Section 2(a)(16) of the
Investment Company Act, having a maturity of 180 days or less, or in money
market funds meeting certain conditions under Rule 2a-7 promulgated under the
Investment Company Act which invest only in direct U.S. government treasury
obligations, until the earlier of: (i) the completion of our initial business
combination and (ii) the distribution of the trust account, as described below,
except that interest earned on the trust account can be released to pay our
taxes payable and for dissolution or liquidation expenses up to $50,000, as
applicable.
16
Transaction costs amounted to $1,939,920, consisting of $1,391,250 of
underwriting fees, and $548,670 of other costs. As of December 31, 2019, we had
$278 in our operating bank accounts, $57,131,598 in securities held in the trust
account to be used for a business combination or to repurchase or redeem our
ordinary shares in connection therewith and a working capital deficit of
$571,761.
Our Units began trading on October 12, 2018 on the Nasdaq Capital Market under
the symbol "DDMXU." Commencing on October 23, 2018, the ordinary shares and
warrants comprising the Units began separate trading on the Nasdaq Capital
Market under the symbols "DDMX" and "DDMXW," respectively. Those Units not
separated continue to trade on the Nasdaq Capital Market under the symbol
"DDMXU."
In July 2019, our sponsor transferred all of the outstanding founder shares and
47,825 Private Units to certain of our directors and officers and their
affiliates (as permitted transferees) at the price originally paid for such
securities, and such transferred securities remain subject to the escrow and
transfer restrictions described in the Proxy Statement.
We intend to utilize cash derived from the proceeds of our initial public
offering, our securities, debt or a combination of cash, securities and debt, in
effecting a business combination.
The issuance of additional ordinary or preferred shares:
? may significantly reduce the equity interest of our shareholders;
? may subordinate the rights of holders of ordinary shares if we issue
preferred shares with rights senior to those afforded to our ordinary
shares;
? will likely cause a change in control if a substantial number of our
ordinary shares are issued, which may affect, among other things, our
ability to use our net operating loss carry forwards, if any, and most
likely will also result in the resignation or removal of our present
officers and directors; and
? may adversely affect prevailing market prices for our securities.
Similarly, if we issue debt securities or otherwise incur significant
indebtedness, it could result in:
? default and foreclosure on our assets if our operating revenues after a
business combination are insufficient to pay our debt obligations;
? acceleration of our obligations to repay the indebtedness even if we
have made all principal and interest payments when due if the debt
security contains covenants that required the maintenance of certain
financial ratios or reserves and we breach any such covenant without a
waiver or renegotiation of that covenant;
? our immediate payment of all principal and accrued interest, if any, if
the debt security is payable on demand; and
? our inability to obtain additional financing, if necessary, if the debt
security contains covenants restricting our ability to obtain additional
financing while such security is outstanding.
We have until April 16, 2020 to consummate an initial business combination. If
we are unable to consummate an initial business combination within such time
period, we will redeem 100% of our outstanding public shares for a pro rata
portion of the funds held in the trust account, 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, divided by the number of
then outstanding public shares, subject to applicable law and as further
described herein, and then seek to dissolve and liquidate. We expect the pro
rata redemption price to be approximately $10.00 per public share, without
taking into account any interest earned on such funds. However, we cannot assure
you that we will in fact be able to distribute such amounts as a result of
claims of creditors which may take priority over the claims of our public
shareholders.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a business
combination will be successful.
17
On August 2, 2019, we entered into a Combination and Stock Purchase Agreement
(the "Business Combination Agreement") with Campalier, S.A. de C.V., a Mexican
sociedad anónima de capital variable ("Campalier"), Promotora Forteza, S.A. de
C.V., a Mexican sociedad anónima de capital variable ("Forteza"), Strevo, S.A.
de C.V., a Mexican sociedad anónima de capital variable ("Strevo", and together
with Campalier and Forteza, the "Sellers"), Betterware de México, S.A. de C.V.
("Betterware"), BLSM Latino América Servicios, S.A. de C.V., a Mexican sociedad
anónima de capital variable ("BLSM"), and, solely for the purposes set forth in
Article XI of the Business Combination Agreement, our sponsor, pursuant to which
we agreed to merge (the "Merger") with and into Betterware in a business
combination (the "Transaction") that will result in Betterware surviving the
Merger (the "Surviving Company") and BLSM becoming a wholly-owned subsidiary of
the Surviving Company. On September 23, 2019, we entered into an Amendment
Agreement to the Combination and Stock Purchase Agreement (the "Amendment") with
the Sellers, Betterware, BLSM and our sponsor. Pursuant to the Amendment, the
definition of "Companies Valuation" under Article I of the Business Combination
Agreement was revised to eliminate the inclusion of Net Debt (as defined in the
Business Combination Agreement) in such valuation. Other than as modified
pursuant to the Amendment, the Business Combination Agreement remains in full
force and effect.
In January 2020, DD3 Hipotecaria S.A. de C.V. SOFOM ENR, an affiliate of our
sponsor, committed to provide an aggregate of $185,000 in loans to us.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from inception to December 31, 2019 were organizational
activities, those necessary to prepare for our initial public offering,
described below, and identifying a target company for a business combination and
activities in connection with the proposed Transaction with Betterware. We do
not expect to generate any operating revenues until after the completion of our
initial business combination. We generate non-operating income in the form of
interest income on marketable securities held in the trust account. We incur
expenses as a result of being a public company (for legal, financial reporting,
accounting and auditing compliance), as well as for due diligence expenses in
connection with completing a business combination. We are also incurring
expenses in connection with our proposed Transaction with Betterware.
For the three months ended December 31, 2019, we had net income of $119,110,
which consists of interest income on marketable securities held in the trust
account of $237,739, offset by operating costs of $111,931 and an unrealized
loss on marketable securities held in the trust account of $6,698.
For the six months ended December 31, 2019, we had net loss of $244,570, which
consists of operating costs of $336,761 and share based compensation of $451,017
related to our sponsor's transfer of founder shares to certain of our directors
and officers and their affiliates (as permitted transferees), offset by interest
income on marketable securities held in the trust account of $541,561 and an
unrealized gain on marketable securities held in the trust account of $1,647.
For the three months ended December 31, 2018, we had net income of $71,283,
which consists of interest income on marketable securities held in the trust
account of $266,078, offset by an unrealized loss on marketable securities held
in the trust account of $3,099 and operating costs of $191,696.
For the period from July 23, 2018 (inception) through December 31, 2018, we had
net income of $67,698, which consists of interest income on marketable
securities held in the trust account of $266,078, offset by an unrealized loss
on marketable securities held in the trust account of $3,099 and operating costs
of $195,281.
Liquidity and Capital Resources
On October 16, 2018, we consummated our initial public offering of 5,000,000
Units at a price of $10.00 per Unit, generating gross proceeds of $50,000,000.
Simultaneously with the closing of our initial public offering, we consummated
the sale of 225,000 Private Units to our sponsor at a price of $10.00 per
Private Unit, generating gross proceeds of $2,250,000.
On October 23, 2018, in connection with the underwriters' election to partially
exercise their over-allotment option, we consummated the sale of an additional
565,000 Units and the sale of an additional 14,125 Private Units, generating
total gross proceeds of $5,791,250.
Following our initial public offering (including the partial exercise of the
underwriters' over-allotment option) and the sale of the Private Units, a total
of $55,650,000 was placed in the trust account, and we had $638,806 of cash held
outside of the trust account, after payment of costs related to our initial
public offering, and available for working capital purposes. We incurred
$1,939,920 in transaction costs, including $1,391,250 of underwriting fees and
$548,670 of other costs.
18
As of December 31, 2019, we had marketable securities held in the trust account
of $57,131,598 (including approximately $1,482,000 of interest income and
unrealized gains) consisting of U.S. Treasury Bills with a maturity of 180 days
or less.
For the six months ended December 31, 2019, cash used in operating activities
was $175,552. Net loss of $244,570 was affected by interest earned on marketable
securities held in the trust account of $541,561, an unrealized gain on
marketable securities held in the trust account of $1,647, share based
compensation expense of $451,017 and changes in operating assets and
liabilities, which provided $161,209 of cash in operating activities.
For the period from July 23, 2018 (inception) through December 31, 2018, cash
used in operating activities was $160,369. Net income of $67,698 was affected by
interest earned on marketable securities held in the trust account of $266,078,
an unrealized loss on marketable securities held in the trust account of $3,099
and changes in operating assets and liabilities, which provided $34,912 of cash.
We intend to use substantially all of the funds held in the trust account to
acquire a target business and to pay our expenses relating thereto. To the
extent that our share capital is used in whole or in part as consideration to
effect a business combination, the remaining proceeds held in the trust account
as well as any other net proceeds not expended will be used as working capital
to finance the operations of the target business.
We intend to use the funds held outside the trust account primarily to identify
and evaluate prospective acquisition candidates, perform business due diligence
on prospective target businesses, travel to and from the offices, plants or
similar locations of prospective target businesses, review corporate documents
and material agreements of prospective target businesses, select the target
business to acquire and structure, negotiate and consummate a business
combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a business combination, our sponsor, an affiliate of our sponsor
or our officers and directors may, but are not obligated to, loan us funds as
may be required. If we complete a business combination, we would repay such
loaned amounts. In the event that a business combination does not close, we may
use a portion of the working capital held outside the trust account to repay
such loaned amounts, but no proceeds from the trust account would be used for
such repayment. Up to $1,500,000 of such loans may be convertible into units, at
a price of $10.00 per unit, at the option of the lender. The units would be
identical to the Private Units.
We have principally financed our operations from inception using proceeds from
the sale of our equity securities to our shareholders prior to our initial
public offering and such amount of proceeds from our initial public offering
that were placed in an account outside of the trust account for working capital
purposes. As of December 31, 2019, we had $278 in our operating bank accounts,
$57,131,598 in securities held in the trust account to be used for a business
combination or to repurchase or redeem our ordinary shares in connection
therewith and a working capital deficit of $571,761. In October 2019, DD3
Hipotecaria S.A. de C.V. SOFOM ENR, an affiliate of our sponsor, committed to
provide us an aggregate of $135,000 in loans. In January 2020, the commitment
was replaced by an aggregate commitment of $185,000. The loans will be evidenced
by notes and would either be repaid upon the consummation of a business
combination or up to $1,500,000 of the notes may be converted into units that
would be identical to the Private Units. In addition, one of our service
providers has agreed to defer the payment of fees owed to them until the
consummation of a business combination, which amounted to approximately $470,000
as of December 31, 2019. Based on the foregoing, we believe we will have
sufficient cash to meet our needs through the earlier of the consummation of a
business combination or April 16, 2020, the date that we will be required to
cease all operations except for the purpose of winding up, if a business
combination is not consummated.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of December 31, 2019. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements,
established any special purpose entities, guaranteed any debt or commitments of
other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or long-term liabilities,
other than an agreement to pay our sponsor a monthly fee of $7,500 for certain
general and administrative services, including office space, utilities and
administrative support. We began incurring these fees on October 11, 2018 and
will continue to incur these fees monthly until the earlier of the completion of
a business combination and our liquidation.
19
We have engaged EarlyBirdCapital, Inc. ("EarlyBirdCapital") as an advisor in
connection with a business combination to assist us in holding meetings with our
shareholders to discuss a potential business combination and the target
business' attributes, introduce us to potential investors that are interested in
purchasing securities, assist us in obtaining shareholder approval for the
business combination and assist us with our press releases and public filings in
connection with a business combination. We 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 our initial public offering (exclusive of
any applicable finders' fees which might become payable).
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Ordinary shares subject to possible redemption
We account for ordinary shares subject to possible redemption in accordance with
the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Ordinary shares subject to mandatory
redemption are classified as a liability instrument and are measured at fair
value. Conditionally redeemable ordinary shares (including ordinary shares that
feature redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within
our control) are classified as temporary equity. At all other times, ordinary
shares are classified as shareholders' equity. Our ordinary shares feature
certain redemption rights that are considered to be outside of our control and
subject to occurrence of uncertain future events. Accordingly, ordinary shares
subject to possible redemption are presented at redemption value as temporary
equity, outside of the shareholders' equity section of the balance sheets.
Net loss per ordinary share
We apply the two-class method in calculating earnings per share. Ordinary shares
subject to possible redemption which are not currently redeemable and are not
redeemable at fair value, have been excluded from the calculation of basic net
loss per ordinary share since such shares, if redeemed, only participate in
their pro rata share of the trust account earnings. Our net income is adjusted
for the portion of income that is attributable to ordinary shares subject to
redemption, as these shares only participate in the earnings of the trust
account and not our income or losses.
Recent accounting pronouncements
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
condensed financial statements.
Proposed Transaction
On August 2, 2019, we entered into the Business Combination Agreement with the
Sellers, Betterware, BLSM, and, solely for the purposes set forth in Article XI
of the Business Combination Agreement, our sponsor, pursuant to which we agreed
to merge with and into Betterware in a Transaction that will result in
Betterware surviving the Merger and BLSM becoming a wholly-owned subsidiary of
the Surviving Company. The Business Combination Agreement provides that, prior
to the closing of the Transaction (the "Closing"), we will redomicile out of the
British Virgin Islands and continue as a Mexican corporation pursuant to
Section 184 of the BVI Business Companies Act, 2004, and Article 2 of the
Mexican General Corporations Law (Ley General de Sociedades Mercantiles). The
ability to domesticate out of the British Virgin Islands to another jurisdiction
is expressly provided for in our amended and restated memorandum and articles of
association, subject to obtaining requisite shareholder approval.
20
The Business Combination Agreement provides that we will purchase certain shares
from the Sellers and thereafter consummate the Merger. At the effective time of
the Merger pursuant to the Merger Agreement (defined below) (the "Effective
Time"), (i) we will pay to the Sellers the amount, if any, by which the amount
in the trust account as of the Closing exceeds $25,000,000 up to a maximum of
$30,000,000, (ii) all of the Betterware shares issued and outstanding
immediately prior to the Effective Time of the Merger will be canceled and to
the extent the Sellers receive $30,000,000 in cash consideration from the trust
account, the Sellers will be entitled to receive 28,700,000 Surviving Company
shares or if the Sellers receive less than $30,000,000 in cash consideration,
the Sellers will be entitled to receive the number of Surviving Company shares
equal to the combined valuation of Betterware and BLSM (as calculated pursuant
to the Business Combination Agreement) less the cash consideration amount
received by the Sellers, divided by $10.00; provided, however, that a portion of
such Surviving Company shares will be held in trust to secure debt obligations
of the Surviving Company, which will represent all of the Surviving Company
shares received by the Sellers, and (iii) all of our ordinary shares issued and
outstanding immediately prior to the Effective Time will be canceled and
exchanged for Surviving Company shares on a one-for-one basis.
On September 23, 2019, we entered into the Amendment with the Sellers,
Betterware, BLSM and our sponsor. Pursuant to the Amendment, the definition of
"Companies Valuation" under Article I of the Business Combination Agreement was
revised to eliminate the inclusion of Net Debt (as defined in the Business
Combination Agreement) in such valuation. Other than as modified pursuant to the
Amendment, the Business Combination Agreement remains in full force and effect.
The Business Combination Agreement contains customary representations and
warranties and pre-closing covenants. The Transaction will be consummated
subject to the closing conditions and deliverables as further described in the
Business Combination Agreement.
The Merger Agreement
In connection with, and as a condition to the consummation of, the Transaction,
we will enter into a Merger Agreement (the "Merger Agreement") with Betterware
on the date of the Closing. Pursuant to the terms of the Merger Agreement, we
will merge with and into Betterware, Betterware will continue as the Surviving
Company, our separate corporate existence will cease and BLSM will become a
wholly-owned subsidiary of the Surviving Company. At the Effective Time, (i) all
of our ordinary shares issued and outstanding immediately prior to the Effective
Time will be canceled and exchanged for shares of the Surviving Company on a
one-for-one basis and (ii) all of the Betterware shares issued and outstanding
immediately prior to the Effective Time will be canceled and to the extent the
Sellers receive $30,000,000 in cash consideration from the trust account, the
Sellers will be entitled to receive 28,700,000 Surviving Company shares or if
the Sellers receive less than $30,000,000 in cash consideration, the Sellers
will be entitled to receive the number of Surviving Company shares equal to the
combined valuation of Betterware and BLSM (as calculated pursuant to the
Business Combination Agreement) less the cash consideration amount received by
the Sellers, divided by $10.00.
The Registration Rights Agreement
In connection with, and as a condition to the consummation of, the Transaction,
we will enter into a Registration Rights Agreement (the "Registration Rights
Agreement") with Betterware and certain persons and entities that will receive
securities of the Surviving Company in exchange for certain of our existing
securities and the existing securities of Betterware and BLSM upon consummation
of the Merger (collectively, the "Holders") on the date of the Closing. Pursuant
to the terms of the Registration Rights Agreement, the Surviving Company will be
obligated to file a shelf registration statement to register the resale of
certain securities of the Surviving Company held by the Holders. The
Registration Rights Agreement will also provide the Holders with demand,
"piggy-back" and Form F-3 registration rights, subject to certain minimum
requirements and customary conditions.
The Lock-Up Agreements
In connection with, and as a condition to the consummation of, the Transaction,
(i) certain persons and entities who will hold shares of the Surviving Company
upon consummation of the Merger (the "Members") will enter into a Member Lock-Up
Agreement (the "Member Lock-Up Agreement"), and (ii) certain members of the
Surviving Company's management team ("Management") will enter into a Management
Lock-Up Agreement (the "Management Lock-Up Agreement" and, together with the
Member Lock-Up Agreement, the "Lock-Up Agreements"), in each case, on the date
of the Closing, pursuant to which the Members and Management will agree not to
transfer any shares of the Surviving Company held by them for a period of six or
twelve months, as applicable, after the Closing, subject to certain limited
exceptions.
21
Recent Developments
On January 22, 2020, the SEC declared effective Betterware's registration
statement on Form F-4 (File No. 333-233982), as amended, which includes a proxy
statement with respect to our special meeting of shareholders to approve the
Business Combination Agreement, among other matters, that constitutes a
prospectus of Betterware with respect to the securities to be issued in the
Transaction. On January 22, 2020, we filed the Proxy Statement with the SEC,
which was mailed on or about that date to our shareholders as of the January 16,
2020 record date.
On January 22, 2020, the SEC declared effective Betterware's registration
statement on Form F-1 (File No. 333-234692), as amended, pursuant to which
Betterware is offering to sell up to 4,500,000 ordinary shares, with an offering
price of $10.00 per share. There is no minimum number of shares that must be
sold by Betterware. If the full amount of shares are sold by Betterware, it is
expected that approximately $20,000,000 of the proceeds will be distributed to
the selling shareholders of Betterware and the balance of the proceeds will
remain with Betterware and be available for working capital purposes. There is
no assurance that Betterware will receive the proceeds from the sale of the
ordinary shares thereunder.
© Edgar Online, source Glimpses
