References in this quarterly report on Form 10-Q (the "Quarterly Report") to
"we," "us" or the "Company" refer to Avalon Acquisition Inc. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to Avalon Acquisition Holdings LLC. 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, 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 Quarterly Report
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 this Quarterly Report and the Risk Factors section of our
Form 10-K filed with the SEC on March 30, 2022. 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 formed on October 12, 2020, under the laws of the
State of Delaware. We were incorporated for the purpose of effecting a merger,
capital stock exchange, asset acquisition, stock purchase, reorganization or
other similar business combination with one or more businesses or (the "Business
Combination").
As of September 30, 2022, we have not yet commenced operations. All activity for
the period from October 12, 2020 (inception) through September 30, 2022, relates
to our formation, our initial public offering (the "Initial Public Offering"),
which is described below, and our search for a prospective initial business
combination. We do not expect to generate any operating revenues until after the
completion of our Business Combination, at the earliest. We generate
non-operating income in the form of income from the proceeds derived from the
Initial Public Offering.
21
Our sponsor is Avalon Acquisition Holdings LLC, a Delaware limited liability
company (the "Sponsor"). The registration statement for our Initial Public
Offering was declared effective by the SEC on October 5, 2021. On October 8,
2021, we consummated our Initial Public Offering of 20,700,000 units (the
"Units" and, with respect to the Class A common stock included in the Units
being offered, the "Public Shares"), at $10.00 per Unit, including 2,700,000
Units sold as part of the exercise of the underwriter's over-allotment option in
full, generating gross proceeds of $207,000,000. We incurred $11,648,816 in
transaction costs, including $3,708,007 of underwriting fees, $7,245,000 of
deferred underwriting fees and $695,809 of other costs.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 8,100,000 warrants (each, a "Private Placement Warrant" and,
collectively, the "Private Placement Warrants") at a price of $1.00 per Private
Placement Warrant in a private placement to our Sponsor, generating gross
proceeds of $8,100,000.
Following the Initial Public Offering, the exercise of the over-allotment option
and the sale of the Private Placement Warrants, a total of $210,105,000 was
placed in a trust account ("Trust Account"), located in the United States with
Continental Stock Transfer & Trust Company acting as trustee, and is invested
only in an 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, until the earlier of (i) the completion of a Business
Combination or (ii) the distribution of the funds in the Trust Account, as
described below.
Our units, shares of Class A common stock, and public warrants are each traded
on the Nasdaq Global Market under the symbols "AVACU," "AVAC," and "AVACW,"
respectively. Our units commenced public trading on October 6, 2021, and our
shares of Class A common stock and public warrants commenced separate public
trading on December 3, 2021.
Our 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 we will be able to complete a Business Combination successfully.
If we do not complete a Business Combination within the Combination Period, we
will (i) cease all operations except for the purpose of winding up, (ii) as
promptly as reasonably possible but not more than ten business days thereafter,
redeem the Public Shares, at a per-share price, payable in cash, equal to the
aggregate amount then on deposit in the Trust Account including interest earned
on the funds held in the Trust Account and not previously released to the
Company to pay taxes (less up to $100,000 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.
22
Proposed Business Combination
On September 21, 2022, we entered into a Business Combination Agreement (as it
may be amended, supplemented or otherwise modified from time to time, the
"Business Combination Agreement") with The Beneficient Company Group, L.P., a
Delaware limited partnership ("BCG"), Beneficient Merger Sub I, Inc., a Delaware
corporation and direct, wholly-owned subsidiary of BCG ("Merger Sub I"), and
Beneficient Merger Sub II, LLC, a Delaware limited liability company and direct,
wholly-owned subsidiary of BCG ("Merger Sub II" and together with Merger Sub I,
the "Merger Subs"). The Business Combination Agreement and transactions
contemplated therein (the "Transactions") were unanimously approved by Avalon's
Board of Directors and the board of directors of the general partner of BCG. In
connection with the Business Combination Agreement, following receipt of the
necessary approval from equityholders, (i) BCG will convert from a Delaware
limited partnership to a Nevada corporation (the "Conversion", and such entity
following the conversion, the "Company"), (ii) immediately following
confirmation of the Conversion, Merger Sub I will merge with and into Avalon
(the "Avalon Merger"), with Avalon surviving the Avalon Merger (the "Avalon
Merger Surviving Company") as a wholly-owned subsidiary of the Company, and
(iii) within two weeks following confirmation of the Avalon Merger, the Avalon
Merger Surviving Company will merge with and into Merger Sub II (the "LLC
Merger," together with the Avalon Merger, the "Mergers") with Merger Sub II
surviving the LLC Merger as a wholly-owned subsidiary of the Company. For more
information about the Business Combination Agreement and the Transactions, see
our Current Report on Form 8-K filed with the SEC on September 21, 2022. Unless
specifically stated, this Quarterly Report does not give effect to the proposed
Business Combination and does not contain the risks associated with the proposed
Business Combination. The consummation of the proposed Business Combination is
subject to certain conditions as further described in the Business Combination
Agreement.
23
Liquidity and Going Concern
As of September 30, 2022, we had $369,860 in our operating bank account,
$211,276,158 in securities held in the Trust Account, and working capital of
$503,153 which excludes franchise and income taxes payable as such amounts can
be paid from income earned in the Trust Account. We intend to use the funds held
in the Trust Account, including any amounts representing income earned on the
Trust Account (less taxes payable), to complete our Business Combination. To the
extent that our share capital or debt is used, in whole or in part, as
consideration to complete our Business Combination, the remaining proceeds held
in the Trust Account will be used as working capital to finance the operations
of the target business or businesses, make other acquisitions and pursue our
growth strategies.
For the nine months ended September 30, 2022, net cash used in operating
activities was $752,833. Net income for the period of $7,075,447 was impacted by
income earned on investments held in Trust Account of $1,253,071 and change in
fair value of derivative warrant liabilities of $6,907,950. Net changes in
operating assets and liabilities provided $332,741 of cash from operating
activities.
For the nine months ended September 30, 2021, net cash used in operating
activities was $2,822. Net loss for the period of $1,325 was impacted by net
changes in operating assets and liabilities of $1,497.
Our liquidity needs prior to the consummation of our Initial Public Offering
were satisfied through the payment of $25,000 from the Sponsor to cover certain
expenses on behalf of the Company in exchange for the issuance of 5,175,000 of
Class B common stock, par value $0.0001 per share (the "Founder Shares"), and a
$197,000 loan from our Sponsor, under an unsecured promissory note, which was
repaid in full on October 15, 2021. Subsequent to the consummation of the
Initial Public Offering, the Company's liquidity has been satisfied through the
net proceeds of $1.18 million from the consummation of the Initial Public
Offering (including the Over-Allotment) and the Private Placement held outside
of the Trust Account. In addition, in order to finance transaction costs in
connection with a Business Combination, our Sponsor or an affiliate of our
Sponsor, or certain of our officers and directors may, but are not obligated to,
provide us the funds as may be required ("Working Capital Loans"). As of
September 30, 2022, there were no amounts outstanding under any Working Capital
Loans.
Based on the foregoing, our management believes that we will have sufficient
working capital and borrowing capacity to meet our needs through the earlier of
the consummation of a Business Combination or one year from this filing. Over
this time period, we will be using the funds held outside of the Trust Account
for paying existing accounts payable, identifying and evaluating prospective
initial Business Combination candidates, performing due diligence on prospective
target businesses, paying for travel expenditures, selecting the target business
to merge with or acquire, and structuring, negotiating and consummating the
Business Combination.
24
In connection with the Company's assessment of going concern considerations in
accordance with Financial Accounting Standards Board ("FASB") 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 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 January 8, 2023. The financial statements do not
include any adjustment that might be necessary if the Company is unable to
continue as a going concern. Management plans to complete a business combination
prior to the mandatory liquidation.
Results of Operations
Our entire activity from October 12, 2020 (inception) through October 7, 2021
was in preparation for an Initial Public Offering, and since our Initial Public
Offering, our activity has been limited to the search for a prospective initial
Business Combination. We will not generate any operating revenues until the
closing and completion of our initial Business Combination.
For the three months ended September 30, 2022, we had a net income of $200,344,
which consisted of operating costs of $341,114, franchise tax expense of
$35,000, change in fair value of derivative warrant liabilities of $167,737 and
income tax provision of $204,000, offset by income earned on investments held in
the Trust Account of $948,195.
For the three months ended September 30, 2021, we had a net loss of $875, which
consisted of formation costs.
For the nine months ended September 30, 2022, we had a net income of $7,075,447,
which consisted of operating costs of $633,910, franchise tax expense of
$247,664 and income tax provision of $204,000, offset by income earned on
investments held in the Trust Account of $1,253,071 and change in fair value of
derivative warrant liabilities of $6,907,950.
For the nine months ended September 30, 2021, we had a net loss $1,325, which
consisted of formation costs and general and administrative expenses.
Contractual Obligations
Registration and Stockholder Rights
The holders of the Founder Shares, Private Placement Warrants and warrants that
may be issued upon conversion of Working Capital Loans (and any Class A common
stock issuable upon the exercise of the Private Placement Warrants and warrants
that may be issued upon conversion of Working Capital Loans) are entitled to
registration rights pursuant to a registration rights agreement. The holders of
these securities are entitled to make up to three demands, excluding short form
demands, that we register such securities. In addition, the holders have certain
"piggy-back" registration rights with respect to registration statements filed
subsequent to the completion of the initial Business Combination. We will bear
the expenses incurred in connection with the filing of any such registration
statements.
Underwriting Agreement
The underwriter was paid an underwriting discount of $0.125 per unit, or
$2,587,500 in the aggregate, upon the closing of our Initial Public Offering. In
addition, $0.35 per unit, or $7,245,000 in the aggregate, will be payable to the
underwriter for deferred underwriting commissions from the amounts held in the
Trust Account solely in the event that that we complete a Business Combination,
subject to the terms of the underwriting agreement.
We granted the underwriter a 45-day option from the date of our Initial Public
Offering to purchase up to 2,700,000 additional Units at the Initial Public
Offering price less the underwriting discounts and commissions. The underwriter
exercised the over-allotment option in full on October 8, 2021, generating gross
proceeds of $27 million.
Administrative Support Agreement
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay the Sponsor
a monthly fee of $10,000 for office space, administrative and support services
to the Company. We began incurring these fees on October 8, 2021 and will
continue to incur these fees monthly until the earlier of the completion of the
Business Combination and our liquidation. For the three and nine months ended
September 30, 2022, we incurred $30,000 and $90,000, respectively, for these
services. As of September 30, 2022 and December 31, 2021, we prepaid $30,000 and
$10,000, respectively, of these fees.
25
Critical Accounting Policies and Estimates
This management's discussion and analysis of our financial condition and results
of operations is based on our unaudited condensed financial statements, which
have been prepared in accordance with GAAP. The preparation of these unaudited
condensed financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and
the disclosure of contingent assets and liabilities in our financial statements.
On an ongoing basis, we evaluate our estimates and judgments, including those
related to fair value of financial instruments and accrued expenses. We base our
estimates on historical experience, known trends and events and various other
factors that we believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions. There
have been no significant changes in our critical accounting policies as
discussed in the Form 10-K filed by us with the SEC on March 30, 2022.
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, "Debt - Debt with Conversion
and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity" ("ASU 2020-06"), which simplifies
accounting for convertible instruments by removing major separation models
required under current GAAP. ASU 2020-06 removes certain settlement conditions
that are required for equity contracts to qualify for the derivative scope
exception and it also simplifies the diluted earnings per share calculation in
certain areas. ASU 2020-06 is effective for fiscal years beginning after
December 15, 2023, including interim periods within those fiscal years, with
early adoption permitted. We are currently evaluating the impact on our
unaudited condensed financial statements.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our unaudited condensed financial statements.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as defined in Item
303(a)(4)(ii) of Regulation S-K as of September 30, 2022.
26
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" and
under the JOBS Act are allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for non-emerging growth companies. As such, our financial statements may not be
comparable to companies that comply with public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company," we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404 of the JOBS
Act, (ii) provide all of the compensation disclosure that may be required of
non-emerging growth public companies under the Dodd-Frank Wall Street Reform and
Consumer Protection Act, (iii) comply with any requirement that may be adopted
by the Public Company Accounting and Oversight Board regarding mandatory audit
firm rotation or a supplement to the auditor's report providing additional
information about the audit and the financial statements (auditor discussion and
analysis) and (iv) disclose certain executive compensation related items such as
the correlation between executive compensation and performance and comparisons
of our Chief Executive Officer's compensation to median employee compensation.
These exemptions will apply for a period of five years following the completion
of our Initial Public Offering or until we are no longer an "emerging growth
company," whichever is earlier.
© Edgar Online, source Glimpses
AVAN ACQU 
