The following discussion should be read in conjunction with our Financial
Statements and footnotes thereto contained in this annual report.
Forward Looking Statements
All statements other than statements of historical fact included in this annual
report on Form 10-K including, without limitation, statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding our financial position, business strategy and the plans
and objectives of management for future operations, are forward looking
statements. When used in this annual report on Form 10-K, words such "may,"
"should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions, as they relate to us or our management, identify forward looking
statements. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described in our other SEC filings. Such
forward looking statements are based on the beliefs of management, as well as
assumptions made by, and information currently available to, our management. No
assurance can be given that results in any forward-looking statement will be
achieved and actual results could be affected by one or more factors, which
could cause them to differ materially. The cautionary statements made in this
annual report on Form 10-K should be read as being applicable to all
forward-looking statements whenever they appear in this annual report. Actual
results could differ materially from those contemplated by the forward looking
statements as a result of certain factors detailed in our filings with the SEC.
All subsequent written or oral forward looking statements attributable to us or
persons acting on our behalf are qualified in their entirety by this paragraph.
Overview
We are a blank check company formed on August 7, 2017 for the purpose of
effecting a merger, share exchange, asset acquisition, share purchase,
recapitalization, reorganization or other similar business combination with one
or more businesses or entities. Our efforts in identifying a prospective target
business are not limited to a particular industry or geographic region of the
world.
Initial Public Offering
Prior to our initial public offering, we issued to Eric Rosenfeld, our Chief
Executive Officer, an aggregate of 4,312,500 shares of common stock in exchange
for a capital contribution of $25,000, or approximately $0.01 per share. Mr.
Rosenfeld then transferred all of the shares to two trusts for the benefit of
his immediate family members, and subsequently, a portion of such shares was
transferred to the other initial stockholders in exchange for $0.01 per share.
In April 2018, the initial stockholders contributed to capital an aggregate of
575,000 shares for no additional consideration, leaving them with an aggregate
of 3,737,500 shares of common stock.
On July 6, 2018, we closed our initial public offering of 14,950,000 units,
including 1,950,000 units that were issued pursuant to the exercise in full of
the underwriters' over-allotment option, with each unit consisting of one share
of common stock, one right, and one warrant. The initial public offering
generated gross proceeds of $149,500,000.
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Simultaneously with the consummation of the initial public offering, we
consummated the private placement of 372,500 private placement units at a price
of $10.00 per private placement unit, generating gross proceeds of $3,725,000.
The private placement units were purchased by the initial stockholders, Cantor,
and Chardan.
Following the closing of the initial public offering on July 6, 2018, an amount
of $149,500,000 ($10.00 per unit) from the net proceeds of the sale of the units
and private placement units was placed in the trust account. Continental Stock
Transfer & Trust Company is acting as trustee. The trust funds are invested in
U.S. government treasury bills, until the earlier of: (i) the consummation of a
business combination or (ii) our failure to consummate a business combination by
March 31, 2020. Eric Rosenfeld has agreed that he will be liable under certain
circumstances to ensure that the proceeds in the trust account are not reduced
by the claims of target businesses or vendors or other entities that are owed
money by us for services rendered, contracted for or products sold to the
Company. However, he may not be able to satisfy those obligations should they
arise.
Our management has broad discretion with respect to the specific application of
the net proceeds of our initial public offering and simultaneous private
placement, although substantially all of the net proceeds are intended to be
applied generally towards consummating a business combination.
Proposed Business Combination
On November 8, 2019, we entered into the Merger Agreement with Merger Sub,
Holdings, Midco, Rohit Manocha, solely in his capacity as the initial
representative of the equityholders of Holdings and Midco. Pursuant to the
Merger Agreement, (i) Holdings will effectuate the Distribution, (ii)
immediately following the Distribution, the Merger will be consummated, and
(iii) immediately following the Merger, the Second Merger will be consummated.
Under the Merger Agreement, the equityholders of Midco following the
Distribution (which were the equityholders of Holdings prior to the
Distribution) will receive an aggregate of $30,000,000 in consideration, in the
form of cash and shares of common stock, with the mix of cash and shares of
common stock determined at the option of the equityholders. Holders of
approximately 86% of the outstanding membership interests of Holdings have
elected to receive shares of common stock as consideration in the Merger and
holders of approximately 14% of the outstanding membership interests of Holdings
have elected to receive cash. Therefore, upon consummation of the Merger, we
will issue an aggregate of 2,561,786 shares of common stock and $3,997,919 in
cash to the equityholders of Midco. The equityholders of Midco will also have
the right to receive up to 2,000,000 shares of common stock upon the first to
occur of: (i) Allegro's adjusted EBITDA equals or exceeds $70,000,000 as
reported in Allegro's annual report on Form 10-K for the year ended December 31,
2020, December 31, 2021, or December 31, 2022 or (ii) the reported last sale
price of our common stock equals or exceeds $15.00 per share (as adjusted for
stock splits, stock dividends, reorganizations, recapitalizations or other
similar actions) for any 20 trading days in a 30 trading day period at any time
after the closing of the Transactions and prior to December 31, 2022.
The equityholders of Midco receiving shares of common stock upon the closing of
the Transactions will be subject to a lockup period for all shares of common
stock received as part of the closing consideration, which terminates on the
earlier of (i) December 15, 2020, (ii) our completion of a liquidation, merger,
stock exchange, or other similar transaction that results in all holders of our
common stock having the right to exchange their shares of common stock for cash
or other property, or (iii) the reported closing sale price of our common stock
on Nasdaq equals or exceeds $12.00 per share (as adjusted for share splits,
share dividends, reorganizations and recapitalizations) for a period of any 20
trading days during a 30-trading day period commencing at least 150 days after
the closing of the Transactions.
Upon the closing of the Transactions, Cowen will be entitled to a facilitation
fee in the amount of (i) $3,800,000 payable by Allegro in cash, (ii) an
aggregate of 796,875 shares of common stock to be transferred from David D.
Sgro, Eric Rosenfeld 2017 Trust No. 1, Eric Rosenfeld 2017 Trust No. 2, and
Gregory Monahan, and (iii) an aggregate of up to an additional 478,125 shares of
common stock to be transferred from David D. Sgro, Eric Rosenfeld 2017 Trust No.
1, Eric Rosenfeld 2017 Trust No. 2, and Gregory Monahan, if Allegro requests
assistance from Cowen to raise additional capital to satisfy the minimum cash
closing condition set forth in the Merger Agreement, with the number of shares
of common stock transferrable to be determined by a ratio set forth in the
Merger Agreement. For one year after the closing of the Transactions, all shares
of common stock transferred to Cowen will continue to be subject to the transfer
restrictions applicable to such shares prior to such transfer.
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The Transactions will result in Allegro acquiring the TGI Fridays business, an
American casual dining bar and grill concept.
Consummation of the Transactions is subject to customary conditions and
covenants of the respective parties, including approval of our stockholders and
us having cash on hand of at least $30 million. Further information regarding
the proposed business combination, the proposed business of the combined company
following consummation of the Transactions and the risks related to the proposed
business of the combined company following consummation of the Transactions can
be found in our Current Report on Form 8-K filed with the SEC on November 8,
2019, the preliminary proxy statement filed by the Company with the SEC on
January 24, 2020, and the definitive proxy statement to be filed by the Company
with the SEC. Unless otherwise indicated, the information in this annual report
assumes we will not consummate the Transactions, will not find an alternative
target with which to consummate an initial business combination, and will be
forced to liquidate.
Extension Amendment
On January 3, 2020, the Company received stockholder approval to extend the date
by which it must complete an initial business combination from January 6, 2020
to March 31, 2020. In connection with such extension, holders of 3,782,869
public shares exercised their right to convert their shares into a pro rata
portion of the cash held in the trust account and certain of Allegro's initial
stockholders made aggregate contributions of $781,699.
Critical Accounting Policy
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. The Company has identified the following critical accounting policy:
Common stock subject to possible redemption
The Company accounts for its common stock shares 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 redemptions (if any) is classified as a liability instrument and is
measured at fair value. Conditionally redeemable common stock (including common
stock 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 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, at December 31, 2019 and 2018, common stock subject to
possible redemption is presented as temporary equity, outside of the
stockholders' equity section of the Company's consolidated balance sheets.
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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.
Results of Operations
We have neither engaged in any business operations nor generated any revenues to
date. Our entire activity up to December 31, 2019 has been related to our
company's formation, the initial public offering, and since the closing of the
initial public offering, a search for a business combination candidate and
expenses incurred in connection with the proposed business combination with TGI
Fridays. We have, and expect to continue to generate small amounts of
non-operating income in the form of interest income on cash and cash
equivalents. Interest income is not expected to be significant in view of
current low interest rates on risk-free investments (treasury securities). We
expect to incur increased expenses as a result of being a public company (for
legal, financial reporting, accounting and auditing compliance), as well as for
due diligence expenses.
For the year ended December 31, 2019, we had net income of $1,927,147, which
consisted of interest income from our trust account of $3,234,522 offset by
operating expenses of $523,845 and franchise and income taxes of $132,000 and
$651,530, respectively.
For the year ended December 31, 2018, we had net income of $948,493, which
consisted of interest income from our trust account of $1,522,523 offset by
operating expenses of $204,780 and franchise and income taxes of $63,950 and
$306,301, respectively.
Our operating expenses principally consisted of expenses related to our public
filings and listing and identification and due diligence related to a potential
target business, and to general operating expenses including printing, insurance
and office expenses. Until we consummate a business combination, we will have no
operating revenues.
Liquidity and Capital Resources
We presently have no revenue; our net income of $1,927,147 for the year ended
December 31, 2019 consists primarily of interest income on the trust account.
Through December 31, 2019, our liquidity needs were satisfied through receipt of
$3,234,522 in interest income on the trust account, the proceeds from the
consummation of the private placement not held in Trust Account of approximately
$766,000, and $25,000 from the sale of the private shares.
In order to finance transaction costs in connection with an initial business
combination and working capital expenses, our initial stockholders, officers,
directors or their affiliates may, but are not obligated to, loan us funds as
may be required. In the event that the initial 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 our trust account
would be used for such repayment. Such loans would be evidenced by promissory
notes. The notes would either be paid upon consummation of our initial business
combination, without interest, or, at the lender's discretion, up to $1,000,000
of the notes may be converted upon consummation of our business combination into
additional private placement units at a price of $10.00 per unit.
The accompanying financial statements have been prepared assuming we will
continue as a going concern, which contemplates, among other things, the
realization of assets and satisfaction of liabilities in the normal course of
business. As of December 31, 2019, we had working capital of $101,158 (excluding
income taxes and franchise fees which may be paid out of the trust account).
Further, we have incurred and expect to continue to incur significant costs in
pursuit of our financing and acquisition plans. Our plans to raise capital or to
consummate the initial business combination may not be successful. These
matters, among others, raise substantial doubt about our ability to continue as
a going concern. Based on the foregoing, we currently do not have sufficient
cash and working capital to meet our needs through the mandatory liquidation
date unless our initial stockholders provide us additional funds for our working
capital needs or we obtain other financing.
The accompanying financial statements do not include any adjustments that might
be necessary if we are unable to continue as a going concern.
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Related Party Transactions
Private Shares
In connection with Allegro's organization in August 2017, Allegro issued to Eric
Rosenfeld, the Chief Executive Officer, an aggregate of 4,312,500 shares of
common stock in exchange for a capital contribution of $25,000, or approximately
$0.01 per share. The foregoing issuance was made pursuant to the exemption from
registration contained in Section 4(a)(2) of the Securities Act. Prior to the
initial public offering, Mr. Rosenfeld then transferred all of the shares to two
trusts for the benefit of his immediate family members, and subsequently, the
trusts transferred a portion of such private shares to the other initial
stockholders in exchange for $0.01 per share. In April 2018, the initial
stockholders contributed to Allegro's capital an aggregate of 575,000 shares for
no additional consideration, leaving them with an aggregate of 3,737,500 private
shares.
The private shares are identical to the shares of common stock included in the
units sold in the initial public offering. However, the initial stockholders
have agreed (A) not to transfer, assign or sell any of their private until the
earlier to occur of: (i) one year after the completion of Allegro's initial
business combination or (ii) the date on which Allegro completes a liquidation,
merger, stock exchange or other similar transaction after the initial business
combination that results in all stockholders having the right to exchange their
shares of common stock for cash, securities or other property, or (iii) if the
last sale price of our 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 Allegro's initial business combination, and
(B) each holder of private shares has agreed to waive his, her or its redemption
rights with respect to the private shares, (i) in connection with the
consummation of a business combination, (ii) in connection with a stockholder
vote to amend Allegro's charter to modify the substance or timing of Allegro's
obligation to redeem 100% of the public shares if Allegro does not complete an
initial business combination by the required deadline, (iii) if Allegro fails to
consummate an initial business combination by the required deadline, and (iv)
upon Allegro's liquidation. Additionally, the initial stockholders have agreed
to vote their private shares in favor of the initial business combination.
Promissory Notes
Allegro issued two notes totaling $30,000 in unsecured promissory notes to Eric
S. Rosenfeld, Allegro's Chief Executive Officer, in 2017. On February 5, 2018,
Allegro issued a $35,000 principal amount unsecured promissory note to Eric S.
Rosenfeld. The notes were non-interest bearing. Due to the short-term nature of
these notes, the fair value of the notes approximated their carrying amount.
Allegro fully repaid these amounts on July 13, 2018.
In connection with the Extension Amendment, Allegro's initial stockholders and
their affiliates contributed to Allegro, pro rata in accordance with their
purchases of private placement units, a Contribution in the form of a loan for
each public share that is not converted in connection with the stockholder vote
to approve the Extension Amendment in an amount of $0.02 as a prorated amount
for the partial month of January 2020 and $0.025 for each of February 2020 and
March 2020, for an aggregate Contribution of $781,699. The obligation of the
insiders to make each Contribution shall be subject to the continued
effectiveness of the Merger Agreement as of the Contribution date, or, if the
Merger Agreement is earlier terminated, the affirmative majority vote of the
board of directors of Allegro requiring such Contribution. If the board of
directors determined not to require the Contribution, Allegro would distribute
the remaining amounts in the trust account to the then holders of public shares.
Subject to the foregoing proviso, each Contribution will be deposited in the
trust account established in connection with Allegro's initial public offering.
The first Contribution of $223,343 and a second Contribution of $279,178 was
deposited into the trust account on January 6, 2020 and January 31, 2020,
respectively. Allegro will deposit the third Contribution on or before February
29, 2020, to the same trust account.
The Contributions will not bear any interest and will be repayable by Allegro to
the insiders or their affiliates upon consummation of an initial business
combination. The loans will be forgiven if Allegro is unable to consummate an
initial business combination except to the extent of any funds held outside of
Allegro's trust account.
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Administrative Service Fee
The Company presently occupies office space provided by Crescendo Advisors II,
LLC an entity controlled by Eric Rosenfeld, the Company's Chief Executive
Officer. Such entity has agreed that until the Company consummates a business
combination, it will make such office space, as well as general and
administrative services including utilities and administrative support,
available to the Company as may be required by the Company from time to time.
The Company has agreed to pay an aggregate of $12,500 per month for such
services commencing on the effective date of the initial public offering. The
Company paid $150,000 and $71,786, for such services for the years ended
December 31, 2019 and 2018, respectively.
Private Placement Units
Simultaneous with the consummation of the initial public offering, Allegro
consummated the private placement of 372,500 private placement units at a price
of $10.00 per private placement unit, generating total proceeds of $3,725,000.
The private placement units were purchased by the initial stockholders, Cantor,
and Chardan.
Allegro's initial stockholders, Cantor, and Chardan have the right to require
Allegro to register the private placement units for resale, as described below
under "-Registration Rights". Allegro will bear the costs and expenses of filing
any such registration statements. The private placement rights are identical to
the rights that were sold as part of the units in Allegro's initial public
offering. The private placement warrants are non-redeemable so long as they are
held by the initial stockholders or their permitted transferees. The private
placement warrants may also be exercised by the initial stockholders or their
permitted transferees, for cash or on a cashless basis. Other than as stated
above, the private placement warrants have terms and provisions that are
identical to those of the warrants sold as part of the units in Allegro's
initial public offering. The private placement units are not transferrable until
30 days after the consummation of Allegro's initial business combination;
provided, however, that the transfer restrictions will lapse earlier if
following the completion of Allegro's initial business combination Allegro
completes a liquidation, merger, stock exchange or other similar transaction
that results in all of Allegro's stockholders having the right to exchange their
shares of common stock for cash, securities or other property.
Off-balance sheet financing arrangements
We did not have any off-balance sheet arrangements as of December 31, 2019 and
2018.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities.
As discussed above, we entered into an agreement to pay an affiliate of our
Chief Executive Officer an aggregate monthly fee of $12,500 for office space and
office and administrative support provided to the Company. We began incurring
these fees upon the consummation of our initial public offering and will
continue to incur these fees monthly until the earlier of the completion of a
business combination and the Company's liquidation.
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We have engaged our underwriters as advisors in connection an initial business
combination to assist us in holding meetings with our shareholders to discuss
the potential business combination and the target business' attributes,
introduce us to potential investors that are interested in purchasing our
securities, assist us in obtaining shareholder approval for the business
combination and assist us with our press releases and public filings in
connection with the business combination. The Company will pay the underwriters
a cash fee for such services upon the consummation of our initial business
combination in an amount of $5,622,500. In connection with the proposed business
combination with TGI Fridays, we engaged Piper Jaffray as an investment advisor
to assist us in in identifying and communicating with potential new investors in
the combined company and performing other related services. Upon consummation of
the proposed business combination we will pay Piper Jaffray an aggregate of $1.1
million which we are permitted to allocate from the deferred underwriting fee.
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