Attached files
| file | filename |
|---|---|
| EX-32.2 - EXHIBIT 32.2 - COMMITTED CAPITAL ACQUISITION Corp II | s105881_ex32-2.htm |
| EX-32.1 - EXHIBIT 32.1 - COMMITTED CAPITAL ACQUISITION Corp II | s105881_ex32-1.htm |
| EX-31.2 - EXHIBIT 31.2 - COMMITTED CAPITAL ACQUISITION Corp II | s105881_ex31-2.htm |
| EX-31.1 - EXHIBIT 31.1 - COMMITTED CAPITAL ACQUISITION Corp II | s105881_ex31-1.htm |
| EX-10.10 - EXHIBIT 10.10 - COMMITTED CAPITAL ACQUISITION Corp II | s105881_ex10-10.htm |
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
☐
TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 333-192586
| Committed Capital Acquisition Corporation II |
(Exact name of registrant as specified in its charter)
| Delaware | 45-4345803 | ||||
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | ||||
| 370 Lexington Avenue, Suite 1208 |
| New York, New York 10017 |
(Address of principal executive offices)
| (212) 759-2020 |
(Registrant’s telephone number, including area code)
None.
Securities registered under Section 12(b)
of the Exchange Act:
N/A
Name of exchange on which registered:
None.
Securities registered under Section 12(g) of the Exchange Act:
None.
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☒ No ☐*
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒.*
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§229.405 of this chapter) contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐.
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter):
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
*The registrant has not been subject to the filing requirements of Section 13 or 15(d) of the Exchange Act since January 1, 2015; however, registrant filed all reports since that date that would have been required to be filed if it were subject to Section 13 or 15(d) of the Exchange Act.
The aggregate market value of the outstanding common stock held by non-affiliates, computed by reference to the closing sales price for the Registrant’s common stock on March 31, 2017, the last business day of the registrant’s most recently completed fiscal quarter, as reported on the OTCQB marketplace, was approximately $9,695,988.
As of May 17, 2017, there were 8,931,227 shares of the registrant’s common stock, par value $0.00001 per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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COMMITTED CAPITAL ACQUISITION CORPORATION II
- INDEX -
2
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward looking statements. Such forward-looking statements include statements regarding, among others, (a) our expectations about possible business transactions, (b) our growth strategies, (c) our future financing plans, and (d) our anticipated needs for expenses. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “approximate,” “estimate,” “believe,” “intend,” “plan,” “budget,” “could,” “forecast,” “might,” “predict,” “shall” or “project,” or the negative of these words or other variations on these words or comparable terminology.
Forward-looking statements are based on our current expectations and assumptions regarding our business, potential target businesses, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. You should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include changes in local, regional, national or global political, economic, business, competitive, market (supply and demand), and regulatory conditions and the following:
| ● | our ability to effect the proposals to amend our amended and restated certificate of incorporation to extend the date before which we must complete a business transaction from April 10, 2017 to April 10, 2019 and to provide that the date for cessation of our operations if we have not completed a business transaction would similarly be extended; |
| ● | if we were to consummate a business transaction prior to the Extended Termination Date, the decision of the Company’s board of directors to not require forfeiture and cancellation of certain founder shares held by the initial stockholders;the reduction of the proceeds held in the trust account due to third party claims; |
| ● | our selection of a prospective target business or asset for the initial business transaction and the inability of our stockholders to affect the determination of our board of directors in respect of such initial business transaction; |
| ● | our issuance of our capital shares or incurrence of debt to complete a business transaction; |
| ● | our ability to consummate an attractive business transaction due to our limited resources and the significant competition for business transaction opportunities; |
| ● | conflicts of interest of our officers, directors and initial stockholders; |
| ● | potential current or future affiliations of our officers and directors with competing businesses; |
| ● | our ability to obtain additional financing if necessary; |
| ● | our initial stockholders’ ability to control or influence the outcome of matters requiring stockholder approval due to their substantial interest in us; |
| ● | the adverse effect the outstanding warrants may have on the market price of our common stock; |
| ● | the adverse effect on the market price of our common stock due to the existence of registration rights with respect to the securities owned by our initial stockholders and private placement investors; |
| ● | the lack of a market for our securities; |
| ● | our dependence on our key personnel; |
| ● | the general business and market outlook; |
| ● | our stockholders’ lack of approval rights over our business transaction; |
| ● | the short exercise period of our warrants; |
| ● | stockholders’ lack of redemption rights in connection with the consummation of our initial business transaction; and |
| ● | the costs of complying with applicable laws. |
These risks and others described under “Risk Factors” in Item 1A are not exhaustive.
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Any forward-looking statement made by us in this Annual Report speaks only as of the date on which we make it, and is expressly qualified in its entirety by the foregoing cautionary statements. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
Unless otherwise provided in this Annual Report on Form 10-K, references to “the Company,” “the Registrant,” “we,” “us” and “our” refer to Committed Capital Acquisition Corporation II.
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| Item 1. | BUSINESS |
Overview
Committed Capital Acquisition Corporation II was incorporated in the state of Delaware on May 18, 2011. We are a blank check company whose purpose is to acquire, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, exchangeable stock transaction or other similar business transaction, one or more operating businesses or assets that we have not yet identified (an “initial business transaction”). We intend to use cash from the proceeds of our initial public offering in April 2014, our capital stock, incurred debt, or a combination of cash, capital stock and debt, in effecting our initial business transaction. We are not limited to a particular industry, geographic region or minimum transaction value for purposes of consummating the initial business transaction.
On April 16, 2014, we consummated our initial public offering (the “Offering”) pursuant to a registration statement that was declared effective on April 10, 2014 (the “registration statement”) and sold an aggregate of 7,000,000 units at a price of $5.00 per unit, for gross proceeds of $35,000,000 consisting of 7,000,000 shares of common stock and warrants to purchase an additional 3,500,000 shares of common stock. On April 17, 2014 the representative of the underwriters advised us that it planned to exercise its over-allotment option with respect to 1,000,000 Units (the “Option Units”) for gross proceeds of $5,000,000. On April 21, 2014, the closing of the Option Units occurred and we issued 1,000,000 additional units for gross proceeds of $5,000,000 consisting of 1,000,000 shares of common stock and warrants to purchase an additional 500,000 shares of common stock. As a result, an aggregate of $40,000,000 was deposited into the trust account for the benefit of our public stockholders. The common stock sold in the Offering as part of the units are referred to herein as the “public shares” and the warrants sold in the Offering as part of the units are referred to herein as the “public warrants.” At the closing of the Option Units, the underwriters also notified us they did not intend to exercise their over-allotment option with respect to the remaining 50,000 units. As a result of the unexercised 50,000 units, the initial shareholders forfeited 162,763 initial shares. The lead underwriter for the Offering was a related party.
Under the terms of the warrant agreement, we agreed to use our best efforts to file a post-effective amendment or new registration statement under the Securities Act of 1933, as amended (the “Securities Act”), following the completion of our initial business transaction. Each public warrant entitles the holder to purchase one half of one share of common stock at a price of $2.50 per half-share ($5.00 per whole share). Each public warrant will become exercisable upon effectiveness of such post-effective amendment or new registration statement and will expire on the date that is the earlier of (i) five years after the effective date of the registration statement registering the shares of common stock issuable upon the exercise of the warrants or (ii) the forty-fifth (45th) day following the date that our common stock closes at or above $8.00 per share for 20 out of 30 trading days commencing on the effective date. However, if we do not complete our initial business transaction on or prior to the 24-month period allotted to complete the initial business transaction as described in more detail below, the warrants will expire at the end of such period. If we are unable to deliver registered shares of common stock to the holder upon exercise of public warrants during the exercise period, there will be no cash settlement of the public warrants and the public warrants will expire worthless.
In connection with the Offering, our initial stockholders (“initial stockholders”) and their designees committed to purchase 1,000,000 shares of common stock (or securities convertible into common stock) (the “placement shares”) at a price of $5.00 per share in a private placement transaction for gross proceeds of $5,000,000, which will occur concurrently with the closing of our initial business transaction (the “private placement”).
We initially had only 24 months from April 10, 2014 to consummate our Business Combination. If we did not consummate a Business Combination within such 24-month period, we would (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably practicable, but not more than five business days thereafter, redeem our public shares for cash equal to their pro rata share of the aggregate amount then on deposit in the trust account, less taxes and amounts released to us for working capital purposes, subject to applicable law, and (iii) as promptly as reasonably practicable following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate as part of our plan of dissolution and liquidation.
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2016 Extension Amendment, Trust Amendment and Warrant Conversion Proposal
The Company held a special meeting of stockholders on April 8, 2016 to consider and vote upon two proposals to amend the Company’s amended and restated certificate to: (a) extend the date before which the Company must complete a Business Combination from April 10, 2016 to April 10, 2017, and provide that the date for cessation of operations of the Company if the Company has not completed a Business Combination would similarly be extended; and (b) allow holders of the Company’s public shares to redeem their public shares, in connection with the Extension Amendment, for a pro rata portion of the funds available in the trust account (the “trust account”) established in connection with the Company’s IPO, and authorize the Company and the trustee to disburse such redemption payments; and (c) a proposal to amend and restate the Company’s investment management trust agreement, dated April 10, 2014 (the “trust agreement”) by and between the Company and Continental Stock Transfer & Trust Company (the “trustee”) to permit distributions from the trust account to pay public stockholders properly demanding redemption in connection with the Extension Amendment and the Trust Amendment; and extend the date on which to commence liquidating the trust account in the event the Company has not consummated a Business Combination from the April 10, 2016 to April 10, 2017. Both amendments were approved by stockholders at the special meeting and 5,605,929 shares of the Company’s common stock were redeemed for $28,029,645 in connection with the approval of such amendments.
The Company also held a special meeting of its warrantholders on April 8, 2016 where our warrantholders considered and voted on a proposal to approve an amendment to the warrant agreement, dated as of April 10, 2014, between the Company and Continental Stock Transfer & Trust Company, to provide for the conversion of all of the 8,000,000 outstanding warrants into an aggregate of 80,000 shares of common stock (so that each warrant is converted into one-hundredth (1/100th) of one share) upon the consummation of a Business Combination, and terminate the warrant agreement in connection with such conversion, which the Company believes will increase its strategic opportunities and attractiveness to potential target businesses and future investors by eliminating the dilutive impact from the warrants. The warrant amendment was approved by our warrantholders at the special meeting.
2017 Extension Amendment and Trust Amendment
On April 10, 2017, the Company held a special meeting of stockholders pursuant to which the Company’s stockholders approved: (i) proposals to amend the Company’s amended and restated certificate of incorporation (the “Extension Amendment”) to (a) extend the date before which the Company must complete a business transaction to April 10, 2019 (the “Extended Termination Date”), and provide that the date for cessation of operations of the Company if the Company has not completed a business transaction would similarly be extended, and to (b) allow holders of the Company’s public shares to redeem their public shares, in connection with (y) the Extension Amendment, and (z) a second redemption opportunity on the earlier of July 10, 2017 and the consummation of a business transaction (the “Second Redemption”), for a pro rata portion of the funds available in the trust account and authorize the Company and the trustee to disburse such redemption payments; and (ii) a proposal to amend and restate the amended and restated investment management trust agreement, dated April 8, 2016, by and between the Company and Continental Stock Transfer & Trust Company (the “Trust Amendment”), to permit distributions from the trust account to pay public stockholders properly demanding redemption in connection with (a) the Extension Amendment, and (b) the Second Redemption; and extend the date on which to commence liquidating the trust account in the event the Company has not consummated a business transaction from April 10, 2017 to the Extended Termination Date (the “Proposals”).
Of the 2,394,071 shares that were eligible for redemption, 2,042,244 such shares were redeemed in connection with the Extension Amendment and the Second Redemption for a total of $10,211,220.
Effecting a Business Transaction
General
We are a blank check company formed for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, exchangeable share transaction or other similar business transaction, one or more operating businesses or assets that we have not yet identified. Except as described below, we are not limited to a particular industry, geographic region or minimum transaction value for purposes of consummating our initial business transaction.
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We have only until April 10, 2019, to consummate our initial business transaction. If we do not consummate our initial business transaction by such time, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably practicable, but not more than five business days thereafter, redeem our public shares for cash equal to their pro rata share of the aggregate amount then on deposit in the trust account, less taxes and amounts released to us for working capital purposes, subject to applicable law, and (iii) as promptly as reasonably practicable following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate as part of our plan of dissolution and liquidation.
We have virtually unrestricted flexibility in identifying and selecting a prospective transaction candidate. We anticipate structuring a business transaction to acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure a business transaction to acquire less than 100% of such interests or assets of the target business but will not acquire less than a controlling interest. We will acquire a controlling interest through the acquisition of at least 50.1% of the voting equity interests in the target.
Upon the completion of our initial business transaction, we will file a Form 8-K which will include disclosure responsive to the applicable items of Form 8-K, including Items 2.01 and 5.06, within the time periods required by such form.
We may seek to raise additional funds through a private offering of debt or equity securities in connection with the consummation of our initial business transaction. Subject to compliance with applicable securities laws, we would only consummate such financing simultaneously with the consummation of our initial business transaction. The Company’s IPO prospectus, previous filings with the SEC and insider letter agreements also contemplated a private placement of at least 1,000,000 shares of common stock (or securities convertible into common stock) at $5.00 per share in a private placement to occur concurrently with the closing of the Company’s initial business transaction for gross proceeds of $5,000,000. However, neither the Company nor the initial stockholders that had previously agreed to such placement may adhere to such agreement and accordingly, the size of the private placement will be determined by the board of directors in connection with the initial business transaction, which could result in a smaller or no private placement consummated in connection with the initial business transaction. There are no prohibitions on our ability to raise funds privately or through loans in connection with our initial business transaction. At this time, we are not a party to any arrangement or understanding with any third party with respect to raising any additional funds through the sale of securities or otherwise other than the private placement.
No stockholder vote or redemption rights on consummation of our business transaction.
Unlike most other blank check companies, we will not provide our stockholders with the opportunity to redeem their shares of our common stock for cash equal to their pro rata share of the aggregate amount then on deposit in the trust account upon the consummation of our initial business transaction. However, we provided the holders of public shares with the opportunity to elect to redeem their shares in connection with the vote on the Extension Amendment and the Trust Amendment, as well as an opportunity to redeem their shares in connection with the Second Redemption. The Company believes that such redemption rights protect our public stockholders from (i) having to sustain their investments for an unreasonably long period if the Company fails to find a suitable acquisition in the timeframe previously contemplated and (ii) continuing as an investor in the Company with material changes to the terms relating to the consummation of an initial business transaction. We will not provide our stockholders with the right to vote on our business transaction unless required by law. If a stockholder vote is required by law, we will conduct a proxy solicitation but will not offer our stockholders the opportunity to redeem their shares of common stock in connection with such vote. Our stockholders will not be provided with an opportunity to evaluate the specific merits or risks of one or more target businesses or assets, since our board of directors will have the sole discretion and authority to approve and consummate our initial business transaction without seeking stockholder approval.
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Sources of target businesses
Target business candidates have been, and we expect will continue to be, brought to our attention from members of our management team and various unaffiliated sources, including investment bankers, business brokers, venture capital funds, private equity funds, management teams we have worked with in the past, accountants, lawyers and other members of the financial community who are aware that we are seeking an initial business transaction partner via direct contact or other similar efforts. While we do not presently anticipate engaging the services of professional firms that specialize in acquisitions on any formal basis, we may decide to engage such firms in the future or we may be approached on an unsolicited basis, in which event their compensation may be paid upon the consummation of our initial business transaction. In no event will any of our initial stockholders, including our officers, directors, or any of our or their respective affiliates, be paid any finder’s fee, consulting fee or any other form of compensation, prior to, or for any services they render in connection with, the consummation of our initial business transaction. However, upon the closing of our initial business transaction, our board of directors will have the sole discretion to determine the number of initial shares to be forfeited by each of our initial stockholders. As a result, certain of our initial stockholders may forfeit a lesser number of their initial shares than other initial stockholders if our board of directors determines that such individuals played a more prominent role in identifying, evaluating and closing our initial business transaction. In no event will the total number of initial shares held by the initial stockholders exceed 20.0% of our total issued and outstanding shares of common stock after giving effect to (i) the private placement, (ii) any exercises of the public warrants, and (iii) any forfeitures of initial shares.
While we do not intend to pursue our initial business transaction with a target business that is affiliated with our initial stockholders, including our officers and directors, or any of our affiliates, we are not prohibited from pursuing such a transaction. In the event we seek to complete our initial business transaction with such a target business, we would obtain an opinion from an independent investment banking firm which is a member of FINRA that such an initial business transaction is fair to our stockholders from a financial point of view and require approval of a majority of the disinterested members of our board of directors. Generally, such opinion is rendered to a company’s board of directors and investment banking firms may take the view that stockholders may not rely on the opinion. Such view will not impact our decision on which investment banking firm to hire.
Selection of a target business and structuring of an initial business transaction
Except as described below, we are not limited to a particular industry, geographic region or minimum transaction value for purposes of consummating our initial business transaction. Management will attempt to analyze all factors and circumstances and make a determination based upon reasonable investigative measures and available data. Potentially available business opportunities may occur in many different industries, and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. Due to our limited capital available for investigation, we may not discover or adequately evaluate adverse facts about such opportunities. In evaluating a prospective initial business transaction, we will conduct as extensive a due diligence review of potential targets as possible given the lack of information which may be available regarding private companies, our limited personnel and financial resources and the potential inexperience of our management with respect to such activities to the extent that a target business is in an industry or area outside our management’s area of expertise, which is in investment banking and investing. We expect that our due diligence will encompass, among other things, meetings with the target business’s incumbent management and inspections of its facilities, as necessary, as well as a review of financial and other information which is made available to us. This due diligence review will be conducted either by our management or by unaffiliated third parties we may engage, including, but not limited to, attorneys, accountants, consultants or other professionals. The costs associated with hiring third parties to complete an initial business transaction target may be significant and are difficult to determine as such costs may vary depending on a variety of factors, including the amount of time it takes to complete an initial business transaction, the location of the target company and the size and the complexity of the target company.
As part of our intended processes, we may create a contact database indicating the materials received from any prospective target candidates, when such materials were evaluated, the parties primarily responsible for such evaluation and the reasons such candidate was either rejected or the issues that, upon initial evaluation, require further investigation. As the evaluation process progresses, numerous other factors, which are expected to vary with each potential candidate we evaluate, are expected to be relevant to a final determination of whether to move forward with any particular acquisition candidate.
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In the case of all possible acquisitions, we will seek to determine whether the transaction is advisable and in the best interests of us and our stockholders. We believe it is possible that our attractiveness as a potential buyer of businesses may increase after the consummation of an initial transaction and there may or may not be additional business transaction opportunities as we grow and integrate our acquisitions. We may or may not make future acquisitions. However, we believe that, following an initial transaction, we could learn of, identify and analyze acquisition targets in the same way after an initial transaction as we will before an initial transaction. To the extent we are able to identify multiple acquisition targets and options as to which business or assets to acquire as part of an initial transaction, we intend to seek to consummate the acquisition that provides the greatest opportunity for creating stockholder value. The determination of which entity is the most attractive would be based on our analysis of a variety of factors, including whether such acquisition would be in the best interests of our stockholders, the purchase price, the terms of the sale, the perceived quality of the assets and the likelihood that the transaction will close.
The time and costs required to select and evaluate a target business and to structure and complete an initial business transaction cannot presently be ascertained with any degree of certainty. The amount of time it takes to complete an initial business transaction, the location of the target company and the size and complexity of the business of the target company are all factors that determine the costs associated with completing an initial business transaction.
We could pursue a transaction, such as a reverse merger or other similar transaction, in which we issue a substantial number of new shares and, as a result, our stockholders immediately prior to such transaction could own less than a majority of our outstanding shares subsequent to such transaction.
No minimum fair market value of target business or businesses
We will have virtually unrestricted flexibility in identifying and selecting a prospective transaction candidate and are not required to set a minimum valuation on either the fair market value or the net assets of a target business.
We anticipate structuring our initial business transaction to acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our initial business transaction to acquire less than 100% of such interests or assets of the target business, but we intend to acquire no less than a controlling interest. We intend to acquire a controlling interest through the acquisition of at least 50.1% of the voting equity interests in the target, but may otherwise acquire an interest in the target sufficient for us not to be required to register as an investment company under the Investment Company Act.
In order to consummate such an initial business transaction, we may issue a significant amount of our debt, equity or other securities to the sellers of such business and/or seek to raise additional funds through a private offering of debt, equity or other securities. There are no limitations on our ability to incur debt or issue securities in order to consummate our initial business transaction. If we issue securities in order to consummate such an initial business transaction, our stockholders could end up owning a minority of the combined company’s voting securities, as there is no requirement that our stockholders own a certain percentage of our company (or, depending on the structure of the initial business transaction, the parent company that may ultimately be formed) after our initial business transaction. We have not entered into any such arrangement to issue our debt or equity securities and have no current intention of doing so. The Company’s IPO prospectus, previous filings with the SEC, and insider letter agreements, also contemplated a private placement of at least 1,000,000 shares of common stock (or securities convertible into common stock) at $5.00 per share in a private placement to occur concurrently with the closing of the Company’s initial business transaction, for gross proceeds of $5,000,000. However, neither the Company nor the initial stockholders that had previously agreed to such placement may adhere to such agreement and accordingly, the size of the private placement, if any, will be determined by the board of directors in connection with the initial business transaction, which could result in a smaller or no private placement consummated in connection with the initial business transaction.
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Possible lack of business diversification
We may seek to effect business transactions with more than one target business, and there is no required minimum valuation standard for any target at the time of such acquisition, as discussed above. We expect to complete only a single initial business transaction, although this process may entail the simultaneous acquisitions of several operating businesses. Therefore, at least initially, the prospects for our success may be entirely dependent upon the future performance of a single business operation. Unlike many other entities that may have the resources to complete several business transactions of entities or assets operating in multiple industries or multiple areas of a single industry, it is probable that we will not have the resources to diversify our operations or benefit from the possible spreading of risks or offsetting of losses. By consummating a business transaction with a single entity or asset, our lack of diversification may:
| ● | subject us to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to a business transaction; and |
| ● | result in our dependency upon the development or market acceptance of a single or limited number of products, processes or services. |
In the event we ultimately determine to simultaneously acquire several businesses or assets and such businesses or assets are owned by different sellers, we will need for each of such sellers to agree that our purchase of its business or assets is contingent on the simultaneous closings of the other acquisitions, which may make it more difficult for us, and delay our ability to, complete our initial business transaction. With multiple acquisitions, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent integration of the businesses or assets into a single operating business.
Limited ability to evaluate the target business’s management
Although we intend to closely scrutinize the incumbent management of a prospective target business when evaluating the desirability of effecting an initial business transaction, we cannot assure you that our assessment will prove to be correct. In addition, we cannot assure you that new members that join our management following an initial business transaction will have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of our officers and directors, if any, in the target business following an initial business transaction cannot presently be stated with any certainty. While our current officers and directors may remain associated in senior management or advisory positions with us following an initial business transaction, they may not devote their full time and efforts to our affairs subsequent to an initial business transaction. Moreover, they would only be able to remain with us after the consummation of an initial business transaction if they are able to negotiate employment or consulting agreements in connection with such initial business transaction. Such negotiations would take place simultaneously with the negotiation of our initial business transaction and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to us after the consummation of our initial business transaction. While the personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business, the ability of such individuals to remain with us after the consummation of an initial business transaction will not be the determining factor in our decision as to whether or not we will proceed with any potential initial business transaction. Additionally, we cannot assure you that our officers and directors will have significant experience or knowledge relating to the operations of the particular target business.
Prior to or following an initial business transaction, we may seek to recruit additional managers to supplement or replace the incumbent management of the target business. We cannot assure you that we will have the ability to recruit such managers, or that any such managers we do recruit will have the requisite skills, knowledge or experience necessary to enhance the incumbent management.
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Redemption of common stock and liquidation if no initial business transaction
Unlike most other blank check companies, we will not provide our stockholders with the opportunity to redeem their shares of our common stock for cash in connection with the consummation of our initial business transaction or the right to approve our business transaction. We have until April 10, 2019 to consummate our initial business transaction. Pursuant to certain letter agreements entered into at the time of the Offering, each of our officers, directors and initial stockholders have agreed not to take any action to amend or waive any provision of our amended and restated certificate of incorporation relating to our obligation to redeem the public shares if we fail to consummate an initial business transaction during such period in a manner that would limit our obligations to redeem the public shares. If we do not consummate an initial business transaction by April 10, 2019, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably practicable, but not more than five business days thereafter, redeem our public shares for cash equal to their pro rata share of the aggregate amount then on deposit in the trust account, less taxes and amounts released to us for working capital purposes, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably practicable following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate the balance of our net assets to our remaining stockholders, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. Such redemption of public shares from our funds in the trust account shall be done automatically by function of our amended and restated certificate of incorporation and prior to any voluntary winding up, although at all times subject to the Delaware General Corporation Law. Pursuant to the terms of our amended and restated certificate of incorporation, our powers following the expiration of the permitted time period for consummating an initial business transaction will automatically thereafter be limited to acts and activities relating to dissolving and winding up our affairs, including liquidation.
There will be no liquidating distribution with respect to our warrants, which will expire worthless in the event we do not consummate an initial business transaction.
We are not prohibited from selling any additional shares of common stock, units or other securities at a purchase price less than the Offering price. However, our amended and restated certificate of incorporation provides, among other things, that prior to our initial business transaction, we may not issue additional shares of capital stock that would entitle the holders thereof to (i) receive funds from the trust account or (ii) vote on any initial business combination.
If any of our officers, directors, initial stockholders or affiliates purchase shares in the aftermarket, they will be entitled to a pro rata share of the trust account with respect to only those shares upon our redemption in the event we do not consummate an initial business transaction within the required time period.
Without taking into account any accrued interest to date, we currently have $1,759,135 deposited in the trust account for the benefit of our public stockholders. In the event no initial business transaction is consummated and we are unable to redeem the shares sold in the Offering because such redemption would be in violation of Section 160 of the Delaware General Corporation Law or other applicable law, we intend to submit a plan of dissolution to our public stockholders, requiring a majority of shares voted for approval, in which (i) the proceeds held in our trust account, together with interest, less taxes and amounts released to us for working capital purposes, would be distributed to only our public stockholders on a per share pro rata basis and (ii) the remaining net assets of the company, if any, would be distributed on a per share pro rata basis to our stockholders. If we are required to submit such a plan of dissolution to our public stockholders for approval, the initial stockholders have agreed to vote their initial shares in accordance with the majority of the public stockholders. In such a case, we will also hire a proxy solicitor in order to maximize the number of public shares that vote on the plan of dissolution and increase the likelihood of dissolving the company and returning the pro rata portion of the proceeds held in the trust account. Although we believe it is unlikely that we would not be able to redeem the public shares due to the applicability of Section 160 of the Delaware General Corporation Law or other applicable law, if we were required to submit a plan of dissolution to our public stockholders for approval, our public stockholders may be forced to wait longer than 24 months before they receive their pro rata portion of the proceeds from our trust account. To the extent that the public stockholders did not approve such plan of dissolution, our public stockholders would not receive their pro rata portion of the proceeds from our trust account until such approval was obtained.
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If all of the net proceeds of the Offering were used for redemption, and without taking into account interest, if any, earned on the trust account, we anticipate that the (i) per share redemption price or (ii) per share liquidation price would be $5.00. The proceeds deposited in the trust account could, however, become subject to the claims of our creditors that have a higher priority than the claims of our public stockholders. We cannot assure you that the actual value of the (i) per share redemption price or (ii) per share liquidation price will not be less than $5.00. Under Section 281(b) of the Delaware General Corporation Law, our plan of distribution must provide for all claims against us to be paid in full or make provision for payments to be made in full, as applicable, if there are sufficient assets. These claims must be paid or provided for before we make any distribution of our remaining assets to our stockholders. While we intend to pay such amounts, if any, we cannot assure you that we will have funds sufficient to pay or provide for all creditors’ claims.
Although we will seek to have all vendors, service providers (other than our independent accountants), prospective target businesses or other entities which we engage execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the trust account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including the funds held in the trust account. If any third party refused to execute an agreement waiving such claims to the monies held in the trust account, our management would perform an analysis of the alternatives available to it and would only enter into an agreement with a third party that did not execute a waiver if management believed that such third party’s engagement would be significantly more beneficial to us than any alternative. Examples of possible instances where we may engage a third party that refused to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a provider of required services willing to provide the waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. In order to protect the amounts held in the trust account, Broadband Capital Management LLC, which was dissolved in 2016 (“BCM”), and Mr. Rapp have agreed that each will be liable to us jointly and severally, if and to the extent that any claims by a vendor for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amounts in the trust account to below $5.00 per share, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except as to any claims under our indemnity of the underwriters of the Offering against certain liabilities, including liabilities under the Securities Act. All referneces herein to BCM refer to the successors thereto, if any. In the event that an executed waiver is deemed to be unenforceable against a third party, BCM and Mr. Rapp will not be responsible to the extent of any liability for such third party claims. We have not, however, independently verified whether BCM and Mr. Rapp have sufficient funds to satisfy their indemnity obligations or asked BCM and Mr. Rapp to reserve for such indemnification obligations. As such, there is no assurance BCM and Mr. Rapp will be able to satisfy those obligations.
In the event that the proceeds in the trust account are reduced below $5.00 per share in the event we redeem our public shares for a per share pro rata portion of the trust account, or upon our liquidation and BCM and Mr. Rapp assert that they are unable to satisfy their obligations or that they have no indemnification obligations related to a particular claim, our directors would determine whether to take legal action against BCM and Mr. Rapp to enforce their indemnification obligations. It is possible that our directors in exercising their business judgment may choose not take legal action on our behalf against BCM and Mr. Rapp to enforce their indemnification obligations to us so in any particular instance. Accordingly, we cannot assure you that due to claims of creditors the actual value of the per share redemption price (or per share liquidation distribution if we are unable to effect our redemption) will not be less than $5.00 per share.
We will seek to reduce the possibility that BCM and Mr. Rapp will have to indemnify the trust account due to claims of creditors by endeavoring to have all vendors, service providers and prospective target businesses as well as other entities execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the trust account. BCM and Mr. Rapp will also not be liable as to any claims under our indemnity of the underwriters of the Offering against certain liabilities, including liabilities under the Securities Act. In the event that we liquidate and it is subsequently determined that the reserve for claims and liabilities is insufficient, stockholders who received a return of funds from the liquidation of our trust account could be liable for claims made by creditors.
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Under the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. The pro rata portion of our trust account distributed to our public stockholders upon our redemption of our public shares in the event we do not consummate our initial business transaction may be considered a liquidation distribution under Delaware law. If the corporation complies with certain procedures set forth in Section 280 of the Delaware General Corporation Law intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. However, as stated above, if we do not effect an initial business transaction within such required timeframe, we shall (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably practicable, but not more than five business days thereafter, redeem our public shares for cash equal to their pro rata share of the aggregate amount then on deposit in the trust account, less taxes and amounts released to us for working capital purposes, subject to applicable law, and (iii) as promptly as reasonably practicable following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate as part of our plan of dissolution and liquidation. Accordingly, it is our intention to make liquidating distributions to our stockholders as soon as reasonably possible following our 24th month and, therefore, we do not intend to comply with those procedures. Therefore, our stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of our stockholders may extend well beyond the third anniversary of such date.
Because we will not be complying with Section 280 of the Delaware General Corporation Law, Section 281(b) of the Delaware General Corporation Law requires us to adopt a plan, based on facts known to us at such time that will provide for our payment of all existing and pending claims or claims that may be potentially brought against us within the subsequent ten years. However, because we are a blank check company, rather than an operating company, and our operations will be limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as accountants, lawyers, investment bankers, etc.) or prospective target businesses. As described above, pursuant to the obligation contained in our underwriting agreement, we will seek to have all vendors, service providers (other than our independent accountants) and prospective target businesses execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account. As a result of this obligation, the claims that could be made against us are significantly limited and the likelihood that any claim would result in any liability extending to the trust account is remote. We have an obligation to pursue indemnification from BCM and Mr. Rapp pursuant to the terms of their agreement with us. Further, BCM and Mr. Rapp may be liable only to the extent necessary to ensure that the amounts in the trust account are not reduced below $5.00 per share less any per share amounts distributed from our trust account to our public stockholders in the event we are unable to consummate an initial business transaction and will not be liable as to any claims under our indemnity of the underwriters of the Offering against certain liabilities, including liabilities under the Securities Act. In the event that an executed waiver is deemed to be unenforceable against a third party, BCM and Mr. Rapp will not be responsible to the extent of any liability for such third party claims.
If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent that any bankruptcy claims deplete the trust account, we cannot assure you we will be able to return to our public stockholders an aggregate of at least $5.00 per share. Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. Furthermore, because we intend to distribute the proceeds held in the trust account to our public stockholders promptly after the termination of our corporate existence, this may be viewed or interpreted as giving preference to our public stockholders over any potential creditors with respect to access to or distributions from our assets. Furthermore, our board may be viewed as having breached its fiduciary duty to our creditors and/or as having acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.
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Competition
In identifying, evaluating and selecting a target business for our initial business transaction, we may encounter intense competition from other entities having a business objective similar to ours, including other blank check companies, private equity groups and leveraged buyout funds, and operating businesses seeking strategic acquisitions. Many of these entities are well established and have extensive experience identifying and effecting business transactions directly or through affiliates. Moreover, many of these competitors possess greater financial, technical, human and other resources than us. Our ability to acquire larger target businesses will be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. These factors may place us at a competitive disadvantage in successfully negotiating our initial business transaction.
Employees and Directors
Our employees currently consist solely of our two executive officers; however, from time to time we utilize the services of outside consultants and advisors in addition to other service providers. None of these individuals are obligated to devote any specific number of hours to our matters and intend to devote only as much time as they deem necessary to our affairs. The amount of time they will devote in any time period will vary based on whether a target business has been selected for the initial business transaction and the stage of the initial business transaction process we are in.
Periodic Reporting and Audited Financial Statements
We are a “voluntary filer” with the SEC and are not required by the rules and regulations of the SEC to continue filing current and periodic reports. In accordance with the terms of the underwriting agreement entered into with the underwriters in connection with our initial public offering, we file an annual report on Form 10-K that includes audited financial statements, quarterly reports on Form 10-Q and current reports on Form 8-K in a manner that complies in all material respects with the requirements specified in such form.
We are an emerging growth company as defined by the JOBS Act and will remain such for up to five years. However, if our non-convertible debt issued within a three-year period or our total revenues exceed $1 billion or the market value of our shares of common stock that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease to be an emerging growth company as of the following fiscal year. As an emerging growth company, we have elected, under Section 107(b) of the JOBS Act, to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards.
| Item 1A. | RISK FACTORS |
You should carefully consider the following risk factors and all other information contained in this Annual Report. If one or more of the following risks occur, our business, financial conditions or results of operations may be materially and adversely affected. This Annual Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements.
Unlike most other blank check companies, our public stockholders will likely have no control over the selection of a target business for our initial business transaction or the terms thereof, will not have the right to vote on the initial business transaction and will not have a redemption right if they are not satisfied with the choice of target business or the terms of the initial business transaction.
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Unlike most other blank check companies, our public stockholders will not be afforded an opportunity to vote on our initial business transaction. Although a vote of stockholders may be required in connection with our initial business transaction under state law, we believe that it is unlikely that such vote will be required. Accordingly, our board of directors will have complete control, subject to their fiduciary duties, to choose a target business and to set the terms of the initial business transaction. Our public stockholders will have no control over (i) what industry sector the target is involved in, (ii) whether the acquisition will be relatively large or small, (iii) the financial position of the target, including whether or not it is generating positive cash flow or is highly leveraged, (iv) the terms of the initial business transaction or (v) any other aspect relating to the target business or the initial business transaction.
Unlike most other blank check companies, the public stockholders will have no right to have their shares of common stock redeemed if they are not satisfied with the proposed initial business transaction. The only immediate means of exiting from the investment would be to sell their securities and there is no assurance that the market would be liquid enough to accommodate such sales or that the sale price would not be substantially below the public offering price.
We are an emerging growth company with no operating history and, accordingly, our stockholders will not have any basis on which to evaluate our ability to achieve our business objective.
We are an emerging growth company and have not conducted any active operations since inception. Since we do not have any operations or an operating history, our stockholders will have no basis upon which to evaluate our ability to achieve our business objective, the focus of which is to acquire through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, exchangeable share transaction or other similar business transaction, one or more operating businesses or assets that we have not yet identified. We have no present revenue and will not generate any revenues or income until, at the earliest, after the consummation of our initial business transaction. We do not know when or if our initial business transaction will occur. The financial statements do not include any adjustments that might result from this uncertainty.
If we are unable to consummate an initial business transaction, our public stockholders will be forced to wait until April 10, 2019 or longer, before receiving distributions from our trust account.
If we do not consummate our initial business transaction by April 10, 2019, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably practicable, but not more than five business days thereafter, redeem our public shares for cash equal to their pro rata share of the aggregate amount then on deposit in the trust account, less taxes and amounts released to us for working capital purposes, subject to applicable law, and (iii) as promptly as reasonably practicable following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate the balance of our net assets to our remaining stockholders. If we redeem such shares, such redemption must comply with the applicable provisions of the Delaware General Corporation Law, including Section 160 thereof, governing rights of redemption. Upon the termination of our corporate existence, the balance of our net assets will be distributed to our remaining stockholders. In the event we are unable to redeem the public shares in compliance with Section 160 of the Delaware General Corporation Law, compliance with Delaware law may require that we submit a plan of dissolution and liquidation to our then stockholders for approval prior to the distribution of the proceeds held in our trust account. In that case, investors may be forced to wait beyond 24 months from the date of effectiveness of the registration statement before the liquidation proceeds of our trust account become available to them, and they receive the return of their pro rata portion of the proceeds from our trust account. To the extent that the public stockholders did not approve such plan of dissolution, our public stockholders would not receive their pro rata portion of the proceeds from our trust account until such approval was obtained. Except for the above redemption, we have no obligation to return funds to investors prior to the date of our liquidation. Only upon our liquidation will public stockholders be entitled to liquidation distributions if we are unable to complete our initial business transaction.
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We may not be able to consummate our initial business transaction within the required timeframe, in which case we will be forced to redeem our public shares and liquidate.
We have until April 10, 2019 to consummate our initial business transaction. Pursuant to certain letter agreements entered into at the Offering, each of our officers, directors and initial stockholders have agreed not to take any action to amend or waive any provision of our amended and restated certificate of incorporation relating to our obligation to redeem the public shares if we fail to consummate an initial business transaction in a manner that would limit our obligations to redeem the public shares. We provided the holders of public shares with the opportunity to elect to redeem their shares in connection with the Extension Amendment and the Second Redemption. The Company believes that such redemption rights protect the Company’s public stockholders from (i) having to sustain their investments for an unreasonably long period if the Company failed to find a suitable acquisition in the timeframe contemplated by the proposed amended and restated certificate and (ii) continuing as an investor in the Company with material changes to the terms relating to the consummation of an initial business transaction. If we do not consummate our initial business transaction by April 10, 2019, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably practicable, but not more than five business days thereafter, redeem our public shares for cash equal to their pro rata share of the aggregate amount then on deposit in the trust account, less taxes and amounts released to us for working capital purposes, subject to applicable law, and (iii) as promptly as reasonably practicable following such redemption, subject to the approval our remaining stockholders and our board of directors, dissolve and liquidate the balance of our net assets to our remaining stockholders. We may not be able to find a suitable target business within the required time frame. In addition, our negotiating position and our ability to conduct adequate due diligence on any prospective target may be reduced as we approach the deadline for the consummation of our initial business transaction.
Public stockholders may receive less than their pro rata share of the trust account upon redemption due to claims of creditors.
Our placing of funds in the trust account may not protect those funds from third party claims against us. Although we will seek to have all vendors, service providers (other than our independent accountants), prospective target businesses or other entities we engage execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders, such parties may not execute such agreements, or even if they execute such agreements they may not be prevented from bringing claims against the trust account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against our assets, including the funds held in the trust account. If any third party refused to execute an agreement waiving such claims to the monies held in the trust account, we would perform an analysis of the alternatives available to us if we chose not to engage such third party and evaluate if such engagement would be in the best interest of our stockholders if such third party refused to waive such claims.
Examples of possible instances where we may engage a third party that refused to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, such entities may not agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and may seek recourse against the trust account for any reason. Upon redemption of our public shares if we are unable to complete our initial business transaction within the required timeframe, we will be required to provide for payment of claims of creditors which were not waived that may be brought against us within the subsequent ten years following redemption. Accordingly, the (i) per share redemption price or (ii) per share liquidation price could be less than the $5.00 per share held in the trust account, due to claims of such creditors. In addition, the company has entered into certain trust indemnification agreements, if and to the extent that any claims by a vendor for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amounts in the trust account to below $5.00 per share, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except as to any claims under our indemnity of the underwriters of the Offering against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the parties to such indemnification agreements not be responsible to the extent of any liability for such third party claims. We have not, however, independently verified whether any parties to such indemnification agreements have sufficient funds to satisfy their indemnity obligations As such, there is no assurance that they will be able to satisfy those obligations.
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Additionally, if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the funds held in our trust account could be subject to applicable bankruptcy law, and may be included as an asset in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent that any bankruptcy claims deplete the trust account, we may not be able to return $5.00 per share to our public stockholders.
Our directors may decide not to enforce the indemnification obligations, resulting in a reduction in the amount of funds in the trust account available for distribution to our public stockholders.
In the event that the proceeds in the trust account are reduced below $5.00 per share and the parties that have entered into indemnification agreements assert that they are unable to satisfy their obligations or that they have no indemnification obligations related to a particular claim, our directors, would determine whether to take legal action to enforce such indemnification obligations. It is possible that our directors in exercising their business judgment may choose not to take legal action on our behalf to enforce their indemnification obligations to us in any particular instance. If our directors choose not to enforce these indemnification obligations, the amount of funds in the trust account available for distribution to our public stockholders may be reduced below $5.00 per share.
Our stockholders will not have any rights or interests in funds from the trust account, except under certain limited circumstances.
Our public stockholders will be entitled to receive funds from the trust account only upon the earlier to occur of (i) our redemption of our public shares for a per share pro rata portion of the trust account (including interest but net of any taxes and amounts released to us for working capital purposes), subject to the requirements of applicable law, if we do not consummate our initial business transaction within the required time frame, or (ii) our liquidation (if redemption does not occur). In no other circumstances will a stockholder have any right or interest of any kind in the trust account.
Changes to material terms relating to the consummation of a business transaction are less advantageous to our public stockholders and may benefit the initial stockholders, including our officers and directors.
The Company previously changed certain material terms relating to the consummation of a business transaction. The Company’s IPO prospectus, previous filings with the SEC and insider letter agreements entered into with the initial stockholders all contemplated that the 28,375,000 shares of common stock issued to the initial stockholders included an aggregate of 25,106,250 shares of common stock that are subject to forfeiture pursuant to the terms of the insider letter agreements (of which 16,796,200 shares have been forfeited to date), so that the initial stockholders and their permitted transferees would own no more than 20% of the Company’s issued and outstanding shares after the business transaction based on certain assumptions as disclosed in the IPO prospectus. As previously disclosed, the Company will no longer be adhering to this agreement that the initial stockholders would own no more than 20% of the Company’s issued and outstanding shares after the business transaction. Accordingly, the board of directors of the Company may choose in its discretion to forfeit and cancel as many initial shares as it determines is appropriate in connection with the initial business transaction, which could include the forfeiture of none of the initial shares. Following a business transaction, the initial stockholders could continue to own all or substantially all of its shares and the public stockholders could own a significantly smaller portion of the total outstanding shares of common stock than as contemplated by the IPO prospectus, previous filings with the SEC and the insider letter agreements.
In addition, the Company’s IPO prospectus, previous filings with the SEC and insider letter agreements also contemplated a private placement of at least 1,000,000 shares of common stock (or securities convertible into common stock) at $5.00 per share in a private placement to occur concurrently with the closing of the Company’s initial business transaction for gross proceeds of $5,000,000. However, neither the Company nor the initial stockholders that had previously agreed to such placement may adhere to such agreement and accordingly, the size of the private placement will be determined by the board of directors in connection with the initial business transaction, which could result in a smaller or no private placement consummated in connection with the initial business transaction.
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We do not intend to establish an audit committee or a compensation committee until the consummation of our initial business transaction.
Our board of directors intends to establish an audit committee and a compensation committee upon consummation of our initial business transaction. Our board of directors intends to adopt charters for these committees at that time. Prior to such time, we do not intend to establish either committee. Accordingly, there will not be a separate committee comprised of some members of our board of directors with specialized accounting and financial knowledge to meet, analyze and discuss solely financial matters concerning prospective target businesses nor will there be a separate committee to review the reasonableness of expense reimbursement requests by anyone other than our board of directors, which includes persons who may seek such reimbursements.
Our stockholders will not be entitled to protections normally afforded to investors of blank check companies.
Since the net proceeds of the Offering were intended to be used to complete an initial business transaction with an unidentified target business, we may be deemed to be a “blank check” company under the United States securities laws. However, since we have net tangible assets in excess of $5,000,000 as a result of the successful consummation of the Offering and have filed a Current Report on Form 8-K with the SEC upon consummation of the Offering, including an audited balance sheet demonstrating this fact, we are exempt from rules promulgated by the SEC to protect investors of blank check companies, such as Rule 419 of the Securities Act. Accordingly, investors will not be afforded the benefits or protections of those rules.
If the loans provided to us and interest earned on the trust account balance are insufficient to allow us to operate, we may not be able to complete our initial business transaction.
On and after the time we consummated the Offering, any amounts that we need to pay our income or other tax obligations or to fund our expenses relating to investigating and selecting a target business and other working capital requirements have been and are expected to continue to be funded solely from loans and/or advances and interest earned on the trust account balance, net of taxes payable on such interest. Our board of directors will review and approve all of our significant expenditures. However, we cannot assure you that our estimates will be accurate. The Advancement Agreement (defined below) was terminated on April 10, 2017. If the transactions contemplated by the Expense Agreement (defined below) do not come to function, we will not have the resources required to fund our expenses relating to investing and selecting a target business, and other working capital requirements. If we do not have enough loans to fund our operations, we may not be able to complete our initial business transaction.
If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete an initial business transaction.
If we are deemed to be an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act, our activities may be restricted, including:
| ● | restrictions on the nature of our investments; and |
| ● | restrictions on the issuance of securities; |
each of which may make it difficult for us to complete our initial business transaction.
In addition, we may have imposed upon us burdensome requirements, including:
| ● | registration as an investment company; |
| ● | adoption of a specific form of corporate structure; and |
| ● | reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations. |
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In order not to be regulated as an investment company under the Investment Company Act, unless we can qualify for an exclusion, we must ensure that we are engaged primarily in a business other than investing, reinvesting or trading of securities and that our activities do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Our business will be to identify and consummate an initial business transaction and, thereafter, to operate the acquired business or assets for the long term. We do not plan to buy businesses or assets with a view to resale or profit from their resale. We do not plan to buy unrelated businesses or assets or to be a passive investor. We do not believe that our anticipated principal activities will subject us to the Investment Company Act. To this end, the proceeds held in the trust account may only be invested in United States “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 of the Investment Company Act. Pursuant to the trust agreement, the trustee is not permitted to invest in other securities or assets. By restricting the investment of the proceeds to these instruments, and by having a business plan targeted at acquiring, growing and operating businesses for the long term (rather than on buying and selling businesses in the manner of a merchant bank or private equity fund), we intend to avoid being deemed an “investment company” within the meaning of the Investment Company Act. The trust account is intended as a holding place for funds pending the earlier to occur of either: (i) the consummation of our primary business objective, which is an initial business transaction; or (ii) absent an initial business transaction, our return of the funds held in the trust account to our public stockholders as part of our redemption of public shares. If we do not invest the proceeds as discussed above, we may be deemed to be subject to the Investment Company Act. If we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would require additional expense for which we have not accounted.
In certain circumstances, our board of directors may be viewed as having breached their fiduciary duties to our creditors, thereby exposing itself and us to claims of punitive damages.
If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. Furthermore, because we intend to redeem our public shares for a per share pro rata portion of the trust account, in the event we do not consummate our initial business transaction, this may be viewed or interpreted as giving preference to our public stockholders over any potential creditors with respect to access to or distributions from our assets. Furthermore, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or as having acted in bad faith, thereby exposing itself and us to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors.
Our stockholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption of their shares.
If we do not consummate our initial business transaction, our officers and directors have agreed that we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably practicable, but not more than five business days thereafter, redeem our public shares for cash equal to their pro rata share of the aggregate amount then on deposit in the trust account, less taxes and amounts released to us for working capital purposes, subject to the requirements of Delaware General Corporation Law Section 160 and other applicable law, and (iii) as promptly as reasonably practicable following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate the balance of our net assets to our remaining stockholders, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. Under the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them pursuant to a dissolution, and our redemption of the shares sold in the Offering may be deemed a liquidating distribution. If a corporation complies with certain procedures set forth in Section 280 of the Delaware General Corporation Law intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. Because we will not be complying with certain procedures set forth in Section 280 of the Delaware General Corporation Law, as set forth above, a stockholder who received distributions in the redemption may be liable for the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder until the tenth anniversary of the dissolution.
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As we are not limited to a particular geographic area or industry and we have not yet selected a target business with which to complete a business transaction, our stockholders are unable to currently ascertain the merits or risks of the target business and will be relying on our management’s ability to identify a target business or businesses and complete a business transaction.
We are not limited to targeting a business transaction with a target business in a particular geographic area or industry, although we intend to focus on operating businesses in the United States. To the extent we complete our initial business transaction, we may be affected by numerous risks inherent in the business operations of those entities which our management may not properly ascertain. An investment in our units or common stock may ultimately prove to be less favorable than a direct investment, if an opportunity were available, in a target business. We will have virtually unrestricted flexibility in identifying and selecting a prospective acquisition candidate.
If we decide to complete a business transaction with a target business outside of the expertise of our officers and directors, we cannot assure you that our officers and directors will have sufficient knowledge relating to the target, the jurisdiction in which it operates or its industry to make an informed decision regarding such business transaction.
Our management’s expertise is concentrated in investment banking and investing. Should a favorable business opportunity present itself in an industry or area that is outside of our management’s expertise, our ability to assess the growth potential, financial condition, experience and skill of incumbent management, competitive position, regulatory environment and other criteria in evaluating such a business opportunity may be adversely affected. If we determine to enter into an initial business transaction with a prospective target business which is outside of the expertise of our management, no assurance can be given that we will be able to complete such an initial business transaction.
Unlike most other blank check companies, we are not required to consider a target’s valuation when entering into or consummating our initial business transaction. Management’s unrestricted flexibility in identifying and selecting a prospective acquisition candidate, along with management’s financial interest in consummating our initial business transaction, may lead management to enter into an acquisition agreement that is not in the best interest of our stockholders.
Unlike most blank check companies, we are not required to consummate our initial business transaction with a target whose value is equal to at least 80% of the amount of money deposited in the trust account of the blank check company at the time of entry into a materially definitive agreement. We will have virtually unrestricted flexibility in identifying and selecting a prospective acquisition candidate, which includes pursuing a target business for our initial business transaction with a very small or de minimis fair market value. Stockholders will be relying on our management’s ability to identify potential initial business transaction targets, evaluate their merits, conduct or monitor diligence and conduct negotiations. Management’s unrestricted flexibility in identifying and selecting a prospective acquisition candidate, along with management’s financial interest in consummating our initial business transaction, may lead management to enter into an acquisition agreement that is not in the best interest of our stockholders.
Public stockholders will not be afforded the opportunity to vote on our initial business transaction or redeem their shares in connection with the consummation of our initial business transaction, which may result in the consummation of an initial business transaction that would not have otherwise been approved by our public stockholders.
In most other blank check companies, the initial business transaction would not be consummated if the requisite number of stockholders disapproved of the transaction. Furthermore, in most other blank check companies, even if the transaction is consummated, disapproving stockholders would be able to redeem their shares of common stock. Unlike most blank check companies, our stockholders will not be afforded the opportunity to vote on our initial business transaction. Furthermore, we will not provide our stockholders with the opportunity to redeem their shares of common stock for cash equal to their pro rata share of the aggregate amount then on deposit in the trust account upon the consummation of our initial business transaction. This provides the sole discretion to our board of directors to select a target business and negotiate the terms of the initial business transaction.
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Although our board of directors is obligated to act in the best interest of the stockholders, the business judgment of our board of directors is given a wide range of latitude in discharging its fiduciary duties to the stockholders. As such, a target business that is selected by the board of directors to be in the best interest of the stockholders, or the terms of the initial business transaction, may be ones that would not have been otherwise approved by some or most of our stockholders. If our board of directors seeks to consummate a transaction that the stockholders and other potential investors view as unfavorable, or there is a perception that such a transaction may be pursued, it may make it more difficult for you to receive cash for your shares of common stock because your sole option would be to sell your shares. This may lead to a less liquid and more volatile trading market as compared to the market for the equity securities of similar investment vehicles.
We may issue shares of our capital stock to complete our initial business transaction, which would reduce the equity interest of our stockholders and likely cause a change in control of our ownership.
Our amended and restated certificate of incorporation authorizes the issuance of up to 250,000,000 shares of common stock, par value $0.00001 per share, and 10,000,000 shares of preferred stock, par value $0.00001 per share. As of March 30, 2017, there were ________ authorized but unissued shares of our common stock available for issuance. Although we have no commitment, we may issue a substantial number of additional shares of our common or preferred stock, or a combination of common and preferred stock, to complete our initial business transaction. In addition, we are not prohibited from selling any additional shares of common stock, units or other securities at a purchase price less than the Offering price. However, our amended and restated certificate of incorporation provides, among other things, that prior to our initial business transaction, we may not issue additional shares of capital stock that would entitle the holders thereof to (i) receive funds from the trust account or (ii) vote on any initial business combination. The issuance of additional shares of our common stock or any number of shares of our preferred stock:
| ● | may significantly reduce the equity interest of investors in the Offering; | |
| ● | may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded to the holders of our common stock; | |
| ● | may cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and may result in the resignation or removal of our present officers and directors; and | |
| ● | may adversely affect prevailing market prices for our common stock. |
Substantial resources could be expended in researching initial business transactions that are not consummated, which could materially adversely affect subsequent attempts to locate and consummate an initial business transaction.
We anticipate that the investigation of each specific target business and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and other third party fees and expenses. If we decide not to enter into an agreement with respect to a specific proposed initial business transaction we have investigated, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific target business, we may fail to consummate the initial business transaction for any number of reasons, many of which are beyond our control. Any such event will result in a loss to us of the related costs incurred which could materially adversely affect subsequent attempts to locate and consummate an initial business transaction.
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Our ability to successfully effect an initial business transaction and to be successful thereafter will be dependent in large part upon the efforts of our key personnel, including our officers and directors.
Our ability to successfully effect a business transaction is dependent upon the efforts of our key personnel. Our key personnel will also be officers, directors, key personnel and/or members of other entities, to whom we anticipate we will have access on an as needed basis, although such personnel may not be able to devote sufficient time, effort or attention to us when we need it. None of our key personnel, including our executive officers, will have entered into employment or consultant agreements with us.
Our officers and directors may allocate their time to other businesses, thereby causing conflicts of interest in their determination as to how much time to devote to our affairs. These conflicts could impair our ability to consummate an initial business transaction.
Our officers and directors are not required to commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and other businesses. Our executive officers and directors are engaged in several other business endeavors and are not obligated to contribute any specific number of hours per week to our affairs. If the other business affairs of our key personnel require them to devote more substantial amounts of time to such affairs, it could limit their ability to devote time to our affairs and could impair our ability to consummate an initial business transaction. These conflicts may not be resolved in our favor.
Our officers and directors owe fiduciary or similar duties to certain other entities and may be required to present a particular business opportunity to such other entities. Accordingly, our officers and directors may have conflicts of interest in determining to which entity a particular business opportunity should be presented.
Our officers and directors are affiliated with other entities, and hold positions in such other entities that give rise to fiduciary and other similar duties to such other entities. Due to these affiliations, and their obligations to such affiliated organizations, our officers and directors have obligations to present potential business opportunities to those entities prior to presenting them to us, which could cause conflicts of interest. Accordingly, our officers and directors may have conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in our favor. Furthermore, our amended and restated certificate of incorporation provides that the corporate opportunity doctrine will not apply to any of our officers or directors in respect of existing and future fiduciary duties or contractual obligations that they may owe to third parties due to relationships and agreements with such third parties that exist on the date on which the amended and restated certificate of incorporation is filed with the Secretary of State of the State of Delaware. Such conflicts may have an adverse effect on our ability to consummate an initial business transaction.
Our management may negotiate employment or consulting agreements with a target business in connection with our potential initial business transaction. These agreements may provide for them to receive compensation following our initial business transaction and, as a result, may cause them to have conflicts of interest in determining whether such initial business transaction is in the best interest of our public stockholders.
Our management may not be able to remain with the company after the consummation of our initial business transaction unless they are able to negotiate employment or consulting agreements in connection with our initial business transaction. If, as a condition to a potential initial business transaction, our existing officers negotiate to be retained after the consummation of our initial business transaction, such negotiations may result in a conflict of interest. Such negotiations would take place simultaneously with the negotiation of our initial business transaction and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to us after the consummation of our initial business transaction. While the personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business, the ability of such individuals to remain with us after the consummation of our initial business transaction will not be the determining factor in our decision as to whether or not we will proceed with any potential initial business transaction. In making the determination as to whether current management should remain with us following our initial business transaction, we will analyze the experience and skill set of the target business’s management and negotiate as part of our initial business transaction that our existing officers and directors remain if it is believed to be in the best interests of the combined company after the consummation of our initial business transaction.
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We will only have a limited ability to evaluate the management of the target business.
We intend to closely scrutinize the management of the target business; however, our assessment of these individuals may not prove to be correct. These individuals may be unfamiliar with the requirements of operating a public company which could cause us to have to expend time and resources helping them become familiar with such requirements. This could be expensive and time-consuming and could lead to various operational issues which may adversely affect our operations.
We may engage in an initial business transaction with one or more target businesses that have relationships or are affiliated with our initial stockholders, directors or officers, which may raise potential conflicts.
We may engage in an initial business transaction with one or more target businesses that have relationships or are affiliated (as defined in Rule 405 promulgated under the Securities Act) with our initial stockholders, directors or officers, which may raise potential conflicts. Also, the completion of our initial business transaction between us and an entity owned by a business in which one of our directors, officers or initial stockholders may have an interest could enhance their prospects for future business from such client. To minimize potential conflicts of interest, we have agreed not to consummate, and our amended and restated certificate of incorporation provides that we may not consummate, an initial business transaction with a target business that is affiliated with our initial stockholders, directors or officers or any of our or their affiliates unless we obtain an opinion from an independent investment banking firm that is a member of FINRA that our initial business transaction is fair to our stockholders from a financial point of view.
Since our initial stockholders will lose their entire investment in us if our initial business transaction is not consummated and may be required to pay costs associated with our liquidation and our officers and directors have significant financial interests in us, a conflict of interest may arise in determining whether a particular acquisition target is appropriate for our initial business transaction.
As of March 30, 2017, our initial stockholders, including our officers and directors, own an aggregate of 8,579,400 initial shares of common stock, a portion of which may be subject to forfeiture, including 19,745,600 initial shares that have been forfeited to date. The Company’s IPO prospectus, previous filings with the SEC and insider letter agreements entered into with the initial stockholders all contemplated that the 28,375,000 shares of common stock issued to the initial stockholders included an aggregate of 25,106,250 shares of common stock that are subject to forfeiture pursuant to the terms of the insider letter agreements (of which 19,745,600 shares have been forfeited to date), so that the initial stockholders and their permitted transferees would own no more than 20% of the Company’s issued and outstanding shares after the business transaction based on certain assumptions as disclosed in the IPO prospectus. As previously disclosed, the Company will no longer be adhering to this agreement that the initial stockholders would own no more than 20% of the Company’s issued and outstanding shares after the business transaction. Accordingly, the board of directors of the Company may choose in its discretion to forfeit and cancel as many initial shares as it determines is appropriate in connection with the initial business transaction, which could include the forfeiture of none of the initial shares. Following a business transaction, the initial stockholders could continue to own all or substantially all of its shares and the public stockholders could own a significantly smaller portion of the total outstanding shares of common stock than as contemplated by the IPO prospectus, previous filings with the SEC and the insider letter agreements.
Our initial stockholders have waived their rights to receive distributions with respect to the initial shares upon our liquidation if we are unable to consummate our initial business transaction. Accordingly, the initial shares will be worthless if we do not consummate our initial business transaction. The personal and financial interests of our officers and directors may influence their motivation in identifying and selecting a target for our initial business transaction and completing our initial business transaction. Consequently, the discretion of our officers and directors in identifying and selecting a suitable target for our initial business transaction may result in a conflict of interest when determining whether the terms, conditions and timing of a particular initial business transaction are appropriate and in the best interest of our public stockholders.
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The requirement that we complete our initial business transaction by April 10, 2019 may give potential target businesses leverage over us in negotiating an initial business transaction and may decrease our ability to conduct due diligence on potential initial business transaction targets as we approach our deadline, which could undermine our ability to consummate our initial business transaction on terms that would produce value for our stockholders.
Any potential target business with which we enter into negotiations concerning an initial business transaction will be aware that we must consummate our initial business transaction by April 10, 2019. Consequently, such target businesses may obtain leverage over us in negotiating an initial business transaction, knowing that if we do not complete our initial business transaction with that particular target business, we may be unable to complete an initial business transaction with any target business. This risk will increase as we get closer to the deadlines described above. In addition, we may have limited time to conduct due diligence and may enter into an initial business transaction on terms that we would have rejected upon a more comprehensive investigation.
The requirement that we complete an initial business transaction by April 10, 2019 may motivate our current or future officers and directors to approve an initial business transaction that is not in the best interests of stockholders.
Each of our current or future officers and directors may receive reimbursement for out-of-pocket expenses incurred by him in connection with activities on our behalf, such as identifying potential target businesses and performing due diligence on suitable initial business transactions targets. In the event that we do not effect an initial business transaction, then any expenses incurred by such individuals in excess of the interest earned on the amount held in trust and loans provided to us will not be repaid and we will liquidate. On the other hand, if we complete a business transaction within such time period, those expenses may be repaid by the target business from the funds in the trust account and/or by the target company. Consequently, our officers and directors may have a conflict of interest when determining whether the terms, conditions and timing of a particular initial business transaction are appropriate and in the best interest of our public stockholders.
An active market for our securities may not develop, which would adversely affect the liquidity and price of our securities.
We may never trade on a national securities exchange such as the Nasdaq Stock Market, which could limit the liquidity and price of our securities. The price of our securities may vary significantly due to our reports of operating losses, one or more potential business transactions, including our initial business transaction, the filing of periodic reports with the SEC, and general market and economic conditions. An active trading market for our securities may never develop or, if one does develop, it may not be sustained. In addition, the price of the securities can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Our stockholders may be unable to sell their securities unless a market can be established and sustained.
We cannot assure you that our common stock will become listed on a national securities exchange and the failure to do so may adversely affect your ability to dispose of our common stock in a timely fashion.
The New York Stock Exchange, the NYSE MKT and the Nasdaq Stock Market amended their listing rules to restrict the ability of companies that have completed reverse mergers to list their securities on such exchanges. In order to become eligible to list their securities on such exchanges, reverse merger companies must have had their securities traded on an over-the-counter market for at least one year, maintained a closing price of $4.00 or higher for not less than 30 of the most recent 60 days prior to the filing of an initial listing application and prior to listing, and timely filed with the SEC all required reports since the consummation of the reverse merger, including one annual report containing audited financial statements for a full fiscal year commencing after the date of the filing of the Form 8-K containing the company’s Form 10 information. As such, we may not be able to satisfy the initial listing standards of the New York Stock Exchange, NYSE MKT or Nasdaq exchanges in the foreseeable future or at all. Even if we are able to list our common stock on such exchanges, we may not be able to maintain a listing of the common stock on such stock exchange.
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We will likely complete only one business transaction with the proceeds of the Offering held in the trust account. As a result, our operations will depend on a single business and we will be exposed to higher risk than other entities that have the resources to complete several transactions.
We may not be able to acquire more than one target business because of various factors, including the existence of complex accounting issues and the requirement that we prepare and file pro forma financial statements with the SEC that present operating results and the financial condition of several target businesses as if they had been operated on a combined basis. Additionally, we may encounter numerous logistical issues if we pursue multiple target businesses, including the difficulty of coordinating the timing of negotiations, notice disclosure and closings. We may also be exposed to the risk that our inability to satisfy conditions to closing with one or more target businesses would reduce the fair market value of the remaining target businesses in the combination. Due to these added risks, we are more likely to choose a single target business with which to pursue an initial business transaction rather than multiple target businesses. Unless we combine with a target business in a transaction in which the purchase price consists substantially of common stock and/or preferred stock, it is likely we will complete only one business transaction with the proceeds of the Offering. Accordingly, the prospects for our success may depend solely on the performance of a single business. If this occurs, our operations will be highly concentrated and we will be exposed to higher risk than other entities that have the resources to complete several business transactions, or that operate in diversified industries or industry segments.
Unlike most other blank check companies, the provisions of our amended and restated certificate of incorporation may be amended with the approval of at least 65% of our outstanding common stock.
Most blank check companies have a provision in their charter which prohibits the amendment of certain of its provisions, including those which relate to a company’s pre-business transaction activity, without approval by a certain percentage of the company’s stockholders. Typically, an amendment of these provisions requires approval by between 90% and 100% of the company’s public stockholders. Our amended and restated certificate of incorporation provides that any of its provisions, including those related to pre-business transaction activity, may be amended if approved by at least 65% of our outstanding common stock.
As a result, we may be able to amend the provisions of our amended and restated certificate of incorporation which govern our pre-business transaction activities more easily than other blank check companies, and this may increase our ability to consummate an initial business transaction with which our stockholders do not agree. However, we and our initial stockholders have agreed not to take any action to amend or waive any provision of our amended and restated certificate of incorporation to allow us not to redeem our public shares if we do not complete our initial business transaction within 24 months from the date of effectiveness of the registration statement. However, we provided the holders of public shares with the opportunity to elect to redeem their shares in connection with the Extension Amendment and the Second Redemption. The Company believes that such redemption right protects the Company’s public stockholders from (i) having to sustain their investments for an unreasonably long period if the Company failed to find a suitable acquisition in the timeframe contemplated by the proposed amended and restated certificate and (ii) continuing as an investor in the Company with material changes to the terms relating to the consummation of an initial business transaction.
We may issue notes or other debt securities, or otherwise incur substantial debt, to complete an initial business transaction, which may adversely affect our leverage and financial condition.
Though we have no commitments to issue any other notes or other debt securities, or to otherwise incur outstanding debt, we may choose to incur substantial debt to complete an initial business transaction. The incurrence of debt could result in:
| ● | the default and foreclosure on our assets if our operating cash flow after an initial business transaction is insufficient to pay our debt obligations; |
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| ● | the acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt arrangement contains covenants that require the maintenance of certain financial ratios or reserves and any such covenant is breached without a waiver or renegotiation of that covenant; | |
| ● | our immediate payment of all principal and accrued interest, if any, if the debt is payable on demand; | |
| ● | covenants that limit our ability to acquire capital assets or make additional acquisitions; | |
| ● | our inability to obtain additional financing, if necessary, if the debt arrangement contains covenants restricting our ability to obtain additional financing while such debt is outstanding; | |
| ● | our inability to pay dividends on our common stock; | |
| ● | using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; | |
| ● | limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; | |
| ● | increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and | |
| ● | limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt. |
Our initial stockholders control a substantial interest in us and thus may influence certain actions requiring a stockholder vote.
It is possible that our initial stockholders will beneficially own a substantial proportion of our issued and outstanding shares of common stock at all times through the expiration of their lockup provisions. This ownership interest, together with any other acquisitions of our shares of common stock, could allow our initial stockholders to influence the outcome of matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions after the consummation of our initial business transaction. Depending on the circumstances, our initial stockholders may be able to continue to exert significant control over us even after we complete our initial business transaction.
We may not have an effective registration statement for the shares of common stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at the time when an investor desires to exercise warrants, thus precluding such investor from being able to exercise its warrants.
Under the terms of the warrant agreement, we have agreed to use our best efforts to file a post-effective amendment or new registration statement under the Securities Act covering the shares of common stock underlying the public warrants and maintain a current prospectus relating to such shares after the completion of our initial business transaction and to use our best efforts to take such action as is necessary to register or qualify for sale, in those states in which the warrants were initially offered by us, the shares issuable upon exercise of the warrants, to the extent an exemption is not available. We cannot assure you that we will be able to do so. No warrant will be exercisable and we will not be obligated to issue any shares to holders seeking to exercise their warrants, unless there is an effective registration statement and the issuance of the shares upon such exercise is registered and qualified under the securities laws of the state of the exercising holder, unless an exemption is available. In no event will we be required to issue cash, securities or other compensation in exchange for the warrants in the event that we are unable to register or qualify the shares underlying the warrants under the Securities Act or applicable state securities laws. If the issuance of the shares upon exercise of the warrants is not so registered or qualified, the holder of such warrant shall not be entitled to exercise such warrant and such warrant may have no value. In such event, holders who acquired their warrants as part of a purchase of units will have paid the full unit purchase price solely for the shares of common stock included in the units.
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We may be unable to obtain additional financing, if required, to complete an initial business transaction or to fund the operations and growth of the target business, which could compel us to restructure the transaction or abandon a particular initial business transaction.
We believe that the proceeds of the Offering currently held in trust, or $1,768,391, will be sufficient to allow us to consummate an initial business transaction. However, because we have not yet identified any prospective target business, we cannot ascertain the capital requirements for any particular transaction. If the net proceeds of the Offering and private placement prove to be insufficient, either because of the size of our initial business transaction or the depletion of the available net proceeds in search of a target business, and if we are unable to secure further loans, we will be required to seek additional financing. Such financing may not be available on acceptable terms, if at all. To the extent that additional financing proves to be unavailable when needed to consummate a particular business transaction, we would be compelled to either restructure the transaction or abandon that particular business transaction and seek an alternative target business candidate. None of our officers, directors or initial stockholders are required to provide any financing to us in connection with or after our initial business transaction. The Company’s IPO prospectus, previous filings with the SEC and insider letter agreements also contemplated a private placement of at least 1,000,000 shares of common stock (or securities convertible into common stock) at $5.00 per share in a private placement to occur concurrently with the closing of the Company’s initial business transaction for gross proceeds of $5,000,000. However, neither the Company nor the initial stockholders that had previously agreed to such placement may adhere to such agreement and accordingly, the size of the private placement will be determined by the board of directors in connection with the initial business transaction, which could result in a smaller or no private placement consummated in connection with the initial business transaction.
Since our initial stockholders have a lower cost basis in their investment in us than our public stockholders, a conflict of interest may arise in determining whether a particular target business is appropriate for our initial business transaction.
From May 19, 2011 to February 10, 2014, we sold an aggregate of 28,375,000 shares of common stock to our initial stockholders for an aggregate purchase price of $25,050, or an average of $0.001 per share. Since our public stockholders purchased our units in the Offering at a per-unit price of $5.00, a conflict of interest may arise because our initial stockholders have a lower cost basis in their investment. As a result, our initial stockholders could profit from our initial business transaction even though such initial business transaction may be unprofitable for public stockholders.
Provisions in our amended and restated certificate of incorporation and bylaws and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our common stock and could entrench management.
Our amended and restated certificate of incorporation and bylaws contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. Our board of directors will be divided into two classes, each of which will generally serve for a term of two years with only one class of directors being elected in each year. As a result, at a given annual meeting only a minority of the board of directors may be considered for election. Since our staggered board of directors may prevent our stockholders from replacing a majority of our board of directors at any given annual meeting, it may entrench management and discourage unsolicited stockholder proposals that may be in the best interests of stockholders. It is also unlikely that there will be an annual meeting of stockholders to re-elect existing directors or elect new directors prior to the consummation of a business transaction, in which case all of the current directors will continue in office until at least the consummation of the initial business transaction. Moreover, our board of directors has the ability to designate the terms of an issue new series of preferred stock without stockholder approval.
We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together, these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
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Compliance with the Sarbanes-Oxley Act of 2002 will require substantial financial and management resources and may increase the time and costs of completing an acquisition.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on our system of internal controls. If we fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or stockholder litigation. Any inability to provide reliable financial reports could harm our business. Sections 1-02 and 2-02 of Regulation S-X and Item 308 of Regulation S-K require the expression of a single opinion directly on the effectiveness of our internal control over financial reporting from our independent registered public accounting firm. Section 404 of the Sarbanes-Oxley Act also requires that our independent registered public accounting firm report on management’s evaluation of our system of internal controls. A target company may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. Furthermore, any failure to implement required new or improved controls, or difficulties encountered in the implementation of adequate controls over our financial processes and reporting in the future, could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our securities.
We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our securities less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. We will remain an “emerging growth company” for up to five years. However, if our non-convertible debt issued within a three-year period or revenues exceeds $1 billion, or the market value of our shares of common stock that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease to be an emerging growth company as of the following fiscal year. As an emerging growth company, we are not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act, we have reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and we are exempt from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Additionally, as an emerging growth company, we have elected to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As such, our financial statements may not be comparable to companies that comply with public company effective dates. We cannot predict if investors will find our shares of common stock less attractive because we may rely on these provisions. If some investors find our shares of common stock less attractive as a result, there may be a less active trading market for our shares and our share price may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have 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, we, as an emerging growth company, will not adopt the new or revised standard until the time private companies are required to adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.
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We do not currently intend to hold an annual meeting of stockholders until after our consummation of an initial business transaction.
We do not currently intend to hold an annual meeting of stockholders until after we consummate an initial business transaction, and thus may not be in compliance with Section 211(b) of the Delaware General Corporation Law, which requires an annual meeting of stockholders be held for the purposes of electing directors in accordance with a company’s bylaws unless such election is made by written consent in lieu of such a meeting. Therefore, if our stockholders want us to hold an annual meeting prior to our consummation of an initial business transaction, they may attempt to force us to hold one by submitting an application to the Delaware Court of Chancery in accordance with Section 211(c) of the Delaware General Corporation Law.
The grant of registration rights to our initial stockholders may make it more difficult to complete our initial business transaction, and the future exercise of such rights may adversely affect the market price of our common stock.
Pursuant to an agreement to be entered into concurrently with the issuance and sale of the securities in the Offering, our initial stockholders and private placement investors and their permitted transferees can demand that we register the initial shares and placement shares. The registration rights will be exercisable at any time commencing upon the date that such shares are released from transfer restrictions. We will bear the cost of registering these securities.
The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of our common stock. In addition, the existence of the registration rights may make our initial business transaction more costly or difficult to conclude. This is because the stockholders of the target business may increase the equity stake they seek in the combined entity or ask for more cash consideration to offset the negative impact on the market price of our common stock that is expected when the securities owned by our initial stockholders are registered.
Because of our limited resources and the significant competition for business transaction opportunities, it may be more difficult for us to complete an initial business transaction. If we are unable to complete our initial business transaction, our public stockholders may receive only $5.00 per share on our redemption, which may be less than such amount in certain circumstances, and our warrants will expire worthless.
We expect to encounter intense competition from other entities having a business objective similar to ours, including private investors (which may be individuals or investment partnerships), other blank check companies and other entities, domestic and international, competing for the types of businesses we intend to acquire. Many of these individuals and entities are well-established and have extensive experience in identifying and effecting, directly or indirectly, acquisitions of companies operating in or providing services to various industries. Many of these competitors possess greater technical, human and other resources, or more local industry knowledge than we do and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe there are numerous target businesses we could potentially acquire with the net proceeds of the Offering in the trust account, our ability to compete with respect to the acquisition of certain target businesses that are sizable will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Any of these obligations may place us at a competitive disadvantage in successfully negotiating an initial business transaction. If we are unable to complete our initial business transaction, our public stockholders may receive only $5.00 per share on our redemption, and our warrants will expire worthless. In certain circumstances, our public stockholders may receive less than $5.00 per share on the redemption of their shares. See “— Public stockholders may receive less than their pro rata share of the trust account upon redemption due to claims of creditors.”
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We are a “voluntary filer” with the SEC which may reduce the information you have access to regarding our company.
We are a “voluntary filer” with the SEC and are not required by the rules and regulations of the SEC to continue filing current and periodic reports. In accordance with the terms of the underwriting agreement entered into with the underwriters in connection with our initial public offering, we file an annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K in a manner that complies in all material respects with the requirements specified in such form. However, we are not a fully reporting company that is subject to review under Section 408 of the Sarbanes-Oxley Act of 2002 and are not subject to certain other statutory provisions. Furthermore, we are not subject to the going private rules and certain tender offer regulations, and the beneficial holders of our securities do not need to report on acquisitions or dispositions of our securities or their plans regarding their influence and control over our company, nor are we required to distribute proxy materials in connection with our annual meeting. In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act exempted issuers other than large accelerated filers and accelerated filers from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. Finally, our securities are not listed on an exchange and, accordingly, we are not subject to the corporate governance requirements set forth in the listing rules of The NASDAQ Stock Market, the New York Stock Exchange or any other exchange. Therefore, our status as a voluntary filer reduces investors’ rights to access significant information regarding us and our controlling stockholders and limits the governance requirements to which we are subject.
| Item 1B. | UNRESOLVED STAFF COMMENTS |
None.
| Item 2. | PROPERTIES |
We currently maintain our executive offices at 370 Lexington Avenue, Suite 1208, New York, New York 10017. We currently do not have a policy with respect to investments or interests in real estate, real estate mortgages or securities of, or interests in, persons primarily engaged in real estate activities.
| Item 3. | LEGAL PROCEEDINGS |
As of December 31, 2016, there was no material litigation, arbitration or governmental proceeding currently pending against us or any members of our management team in their capacity as such, and we and the members of our management team have not been subject to any such proceeding.
| Item 4. | MINE SAFETY DISCLOSURES |
None.
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| Item 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
Our common stock, warrants, and units are each traded on the OTC Bulletin Board and on the Pink Sheets under the symbols CCAQ, CCAQW and CCAQU, respectively. Our units commenced public trading on April 11, 2014, and our common stock and warrants commenced public trading on May 5, 2014. The following table includes the high and low bids for our units, common stock and warrants for the calendar quarter indicated:
| Fiscal Year 2016 | ||||||||||||||||||||||||
| Units | Common Stock | Warrants | ||||||||||||||||||||||
| High | Low | High | Low | High | Low | |||||||||||||||||||
| First Quarter | (1 | ) | (1 | ) | (2 | ) | (2 | ) | (3 | ) | (3 | ) | ||||||||||||
| Second Quarter | (1 | ) | (1 | ) | $ | 5.09 | $ | 4.05 | (3 | ) | (3 | ) | ||||||||||||
| Third Quarter | (1 | ) | (1 | ) | (2 | ) | (2 | ) | (3 | ) | (3 | ) | ||||||||||||
| Fourth Quarter (1) | (1 | ) | (1 | ) | (2 | ) | (2 | ) | (3 | ) | (3 | ) | ||||||||||||
| (1) | Our units did not trade during the indicated time period, therefore, pricing information is unavailable. |
| (2) | Our common stock did not trade during the indicated time period, therefore, pricing information is unavailable. |
| (3) | Our warrants did not trade during the indicated time period, therefore, pricing information is unavailable. |
Holders
As of March 30, 2017, there were 35 holders of record of our common stock, 8 holders of record of our warrants and 2 holder of record of our units.
Dividends
The Company has not declared or paid any cash dividends on its common stock and does not intend to declare or pay any cash dividend in the foreseeable future. The payment of dividends, if any, is within the discretion of the Board of Directors and will depend on the Company’s earnings, if any, its capital requirements and financial condition and such other factors as the Board of Directors may consider.
Securities Authorized for Issuance under Equity Compensation Plans
None.
Recent Sales of Unregistered Securities
The Company did not sell any equity securities that were not registered under the Securities Act during the three months ended December 31, 2016.
No securities have been issued for services. Neither the Registrant nor any person acting on its behalf offered or sold the securities by means of any form of general solicitation or general advertising. No services were performed by any purchaser as consideration for the shares issued.
Issuer Purchases of Equity Securities
None.
| Item 6. | SELECTED FINANCIAL DATA |
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
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| Item 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview
The following discussion should be read in conjunction with our financial statements, together with the notes to those statements, included elsewhere in this Report. Our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events.
We are a blank check company formed on May 18, 2011 for the purpose of acquiring one or more operating businesses or assets through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, exchangeable share transaction or other similar business transaction. We intend to use cash from the proceeds of the Offering, our capital stock, incurred debt, or a combination of cash, capital stock and debt, in effecting our initial business transaction. The issuance of additional shares of our capital stock:
| ● | may significantly reduce the equity interest of investors in the Offering; |
| ● | may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded to the holders of our common stock; |
| ● | may likely cause a change in control if a substantial number of our shares of common stock 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 common stock and/or warrants. |
Similarly, if we incur substantial debt, it could result in:
| ● | default and foreclosure on our assets if our operating cash flow after a business transaction is 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 require the maintenance of certain financial ratios or reserves and any such covenant is breached 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; |
| ● | covenants that limit our ability to acquire capital assets or make additional acquisitions; |
| ● | 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; |
| ● | our inability to pay dividends on our common stock; |
| ● | using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; |
| ● | limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; |
| ● | increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and |
| ● | limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt. |
Recent Events
2017 Extension Amendment and Trust Amendment
On April 10, 2017, the Company held a special meeting of stockholders pursuant to which the Company’s stockholders approved: (i) the Extension Amendment to (a) extend the date before which the Company must complete a business transaction to the Extended Termination Date, and provide that the date for cessation of operations of the Company if the Company has not completed a business transaction would similarly be extended, and to (b) allow holders of the Company’s public shares to redeem their public shares, in connection with (y) the Extension Amendment, and (z) the Second Redemption, for a pro rata portion of the funds available in the trust account and authorize the Company and the trustee to disburse such redemption payments; and (ii) the Trust Amendment, to permit distributions from the trust account to pay public stockholders properly demanding redemption in connection with (a) the Extension Amendment, and (b) the Second Redemption; and extend the date on which to commence liquidating the trust account in the event the Company has not consummated a business transaction from April 10, 2017 to the Extended Termination Date.
Of the 2,394,071 shares that were eligible for redemption, 2,042,244 such shares were redeemed in connection with the Extension Amendment and the Second Redemption for a total of $10,211,220.
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Expense Agreement
On April 10, 2017, Messrs. Rapp and Wagenheim and Committed Capital Holdings LLC, (the “Sellers”), as holders of certain of the Company’s founder shares (the “Founder Shares”), entered into an agreement with Notespac, LLC (“Notespac”), KASPAC, LLC (“KASPAC”) and KSSPAC, LLC (“KSSPAC”, and together with KASPAC, the “Purchasers”) (the “Expense Agreement”).
The Expense Agreement provides that the Purchasers will enter into definitive agreements with the Sellers, among other holders of Founder Shares, to purchase substantially all of the Founder Shares owned by the Sellers (the “Purchase”). Upon completion of the Purchase, the Purchasers shall have the right to (i) replace the Company’s Board of Directors (the “Board”) with one or more of the Purchasers’ designees, (ii) require the resignation of the Company’s Chief Executive Officer and President, respectively, as well as any other corporate officer, and for the new Board to replace such individuals, and (iii) either purchase, or be empowered to cause the Company to cause forfeiture of, all or substantially all of the Founder Shares not already purchased by the Purchasers, as permitted by those certain insider letter agreements by and between the Company and its initial shareholders. Additionally, upon completion of the Purchase, the Company shall take all appropriate action to cause the following agreements to be terminated: (i) the term sheet entered into by and between the Company and Serruya Private Equity on May 10, 2016 (the “SPE Term Sheet”), (ii) the expense advancement agreement entered into by and between the Company and Broadband Capital Management LLC (“BCM”) on April 11, 2014 (referred to herein as the “Advancement Agreement”, which was terminated on April 10, 2017, as described below) and (iii) the trust indemnification agreement entered into by and between the Company, BCM and Mr. Rapp on April 11, 2014. Upon termination of the SPE Term Sheet, Aaron Serruya will resign from the Board.
The Expense Agreement also provides: (i) upon the closing of the Purchase, Messrs. Rapp and Wagenheim will sell to Notespac for an aggregate sum of $1,000, the principal amount due under any loans and/or advances made to the Company, together with all accrued and unpaid interest thereunder and calculated as of April 10, 2017, subject to adjustment as described in the Expense Agreement, (ii) Notespac will loan sufficient funds to the Company to pay certain costs and expenses related to the Proposals, which costs and expenses shall not exceed, in the aggregate, $175,000, and (iii) Notespac shall enter into a trust indemnification agreement relating to only those expenses and liabilities of the Company arising between the approval of the Extension Amendment and the Second Redemption.
Termination of Advancement Agreement
On April 10, 2017, the Company and Messrs. Rapp and Wagenheim entered into an agreement to terminate the Advancement Agreement, effective immediately.
Resignation of Aaron Serruya from Board of Directors
On May 18, 2017, Aaron Serruya notified the Company of his intention to resign from the Board, effectively immediately.
Results of Operations
Through December 31, 2016, our efforts have been limited to organizational activities, activities relating to the Offering and our search for an initial business transaction. No revenue has been generated for the year ended December 31, 2016 and 2015. It is unlikely we will have any revenues unless we are able to effect an initial business transaction with an operating company, of which there can be no assurance. Our current plan of operation consists solely of our search to identify suitable candidates for our initial business transaction.
Since the closing of the Offering, the gross proceeds have been held in a trust account. The trust account may be invested in U.S. “government securities,” defined as any Treasury Bill or equivalent securities issued by the United States government having a maturity of one hundred and eighty (180) days or less or money market funds meeting the conditions specified in Rule 2a-7 under the Investment Company Act of 1940, until the earlier of (i) the consummation of an initial business transaction or (ii) the distribution of the trust account as described elsewhere in this Annual Report.
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Shortly after the closing of the Offering, the proceeds held in the trust account were invested in an Institutional Money Market Account that meets the conditions specified in Rule 2a-7 under the Investment Company Act of 1940. The value of the trust account was $12,025,493 as of December 30, 2016.
For the year ended December 31, 2016, we had a net loss of $135,000, consisting of expense due to our activities in relation to the search for an initial business transaction, expenses due to the preparation and filing of our reports with the SEC, franchise tax and the Offering. This compares with a net loss of $440,000 for the year ended December 31, 2015, consisting of expense due to our activities in relation to the search for an initial business transaction, expenses due to the preparation and filing of our reports with the SEC, franchise tax and the Offering.
We will not generate any operating revenues until after the consummation of our initial business transaction, at the earliest. We will continue to generate non-operating income in the form of interest income on cash and cash equivalents in the trust account. We expect to incur increased expenses throughout as a result of activities relating to our initial business transaction, including due diligence expenses. As we expect to continue to generate net losses, we do not anticipate incurring substantial income or other tax expense (other than state franchise taxes) until the consummation of our initial business transaction, at the earliest.
Liquidity and Capital Resources
As of December 31, 2016, we had assets equal to $12,074,000, comprised of cash, cash in the trust account and prepaid expenses. This compares with assets of $40,047,000, comprised of cash, cash in the trust account and prepaid expenses as of December 31, 2015. Our current liabilities as of December 31, 2016 totaled approximately $1,586,000, comprised of accounts payable and accrued expenses, accrued franchise taxes, promissory notes issued to BCM and advances from BCM and/or its affiliated persons. This compares to our current liabilities as of December 31, 2015 of $1,295,000, comprised of accounts payable and accrued expenses, accrued franchise taxes, promissory notes issued to BCM and advances from BCM and/or its affiliated persons.
As of December 31, 2016, we owed affiliates of BCM an aggregate of $898,000, comprised of promissory notes in the amount of $113,000 and advances of $785,000. The notes are payable upon the consummation of our initial business transaction, bear no interest and contain a waiver of any and all rights to the funds in the trust account. The advances bear no interest and are payable upon the consummation of our initial business transaction.
Cash flows provided by (used in) operating activities for the years ended December 31, 2016 and 2015, were approximately $(167,000) and $(183,000), respectively.
We intend to use substantially all of the funds held in the trust account (net of taxes and amounts released to us for working capital purposes) and proceeds from the private placement to consummate our initial business transaction. We estimate our annual Delaware and New York State and City franchise tax obligations, based on the number of shares of our authorized and outstanding capital stock to be approximately $490,000. Our annual income tax obligations will depend on the amount of interest and other income earned on the amounts held in the trust account. To the extent that our capital stock or debt is used, in whole or in part, as consideration to consummate our initial business transaction, 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.
We believe that interest earned on the funds in the trust account released to us for working capital purposes, if any, and proceeds from certain advances, and cooperation from our professional service providers will be sufficient to allow us to operate until April 10, 2019, assuming that a business combination is not consummated during that time. All advances received by the Company will be due and payable upon the completion of our initial business transaction and will be on terms that waive any and all rights to the funds in the trust account. We can provide no assurance that we can continue to satisfy our cash requirements for at least the next twelve months.
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The terms of such loans and advances will not have any recourse against the trust account nor pay any interest prior to the consummation of our business transaction and be no more favorable than could be obtained by a third party.
We do not believe we will need to raise additional funds other than the loans and advances provided by BCM and/or its affiliates and provided or to be provided by Notespac until the consummation of our initial business transaction to meet the expenditures required for operating our business. However, we may need to raise additional funds through a private offering of debt or equity securities if such funds are required to consummate a business transaction that is presented to us. Subject to compliance with applicable securities laws, we would only consummate such financing simultaneously with the consummation of our initial business transaction. The Company’s IPO prospectus, previous filings with the SEC and insider letter agreements also contemplated a private placement of at least 1,000,000 shares of common stock (or securities convertible into common stock) at $5.00 per share in a private placement to occur concurrently with the closing of the Company’s initial business transaction for gross proceeds of $5,000,000. However, neither the Company nor the initial stockholders that had previously agreed to such placement may adhere to such agreement and accordingly, the size of the private placement will be determined by the board of directors in connection with the initial business transaction, which could result in a smaller or no private placement consummated in connection with the initial business transaction.
In the event that we do not consummate an initial business transaction, the proceeds held in the trust account will be distributed to our public stockholders.
We have evaluated the appropriate accounting treatment for the warrants attached to the public units. As we are not required to net-cash settle such warrants under any circumstances, including if we are unable to maintain sufficient registered shares to settle such warrants, the terms of the warrants satisfy the applicable accounting guidance on identifying those contracts that should not be accounted for as derivative instruments. Accordingly, we have classified such instruments within permanent equity as additional paid-in capital.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on our financial statements.
Contractual Obligations
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
The net proceeds of the Offering, including amounts in the trust account, will be invested in U.S. government securities with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 of the Investment Company Act. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
| Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The information required by this item appears beginning on page F-1 of this Annual Report and is incorporated herein by reference.
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| Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
| Item 9A. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was completed under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, of the effectiveness of the design and operation our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based on that evaluation, our management concluded that our disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act was recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms.
Evaluation of Internal Controls and Procedures
Our management is also responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures that:
| ● | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of the company’s management and directors; and |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, uses or dispositions of our assets that could have a material effect on the financial statements. |
As of December 31, 2016 and 2015, we carried out an evaluation of the effectiveness of our internal control over financial reporting based on the framework in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2016 and 2015.
This annual report does not include an attestation report of our registered public accounting firm regarding our internal controls over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to Section 404(c) of the Sarbanes-Oxley Act that permits us to provide only management’s report in this annual report.
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Changes in Internal Controls
There have been no changes in our internal controls over financial reporting during our last fiscal quarter of the year ended December 31, 2016 and 2015, that materially affected, or were reasonably likely to materially affect, our internal controls over financial reporting.
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| Item 9B. | OTHER INFORMATION |
None.
| Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Directors and Executive Officers
Our directors and executive officers as of the date of this Annual Report are as follows:
| Name | Age | Position | Term | |||
| Michael Rapoport (a/k/a Michael Rapp) | 49 | Chief Executive Officer and Chairman | May 19, 2011 through present | |||
| Philip Wagenheim | 46 | President, Secretary and Director | May 19, 2011 through present |
Michael Rapp is our Chief Executive Officer and Chairman of our board of directors. Mr. Rapp has over 25 years of experience in the financial industry and is currently the managing partner of Broadband Capital Investments, LLC, a middle-market private equity investment firm. Prior to its dissolution in 2016, Mr. Rapp served as the co-founder and chairman of BCM, a boutique investment bank and broker-dealer. From February 2009, Mr. Rapp currently serves as non-executive chairman of Immunome, Inc. From March 2006 until October 2013, Mr. Rapp served as the president and chairman of Committed Capital Acquisition Corporation, a blank check company that consummated a business combination with The One Group, LLC and is quoted on NASDAQ under the symbol “STKS”. Prior to co-founding BCM in 2000, Mr. Rapp was a managing director and co-founder of Oscar Gruss & Son’s Private Client Group beginning in 1997. From 1994 through 1997, Mr. Rapp worked at PaineWebber serving as a senior vice president of investments. From 1990 to 1994, Mr. Rapp worked at Prudential Securities serving as a senior vice president of investments. Mr. Rapp received his Bachelor of Arts degree in psychology from the University of Michigan-Ann Arbor in 1989. Mr. Rapp’s given surname is Rapoport, however, he uses the alias “Rapp” because it is a short and convenient name to use for business purposes.
As our chairman, Mr. Rapp will have general supervision and control of our activities, including matters relating to the initial business transaction, subject to the ultimate authority of our board of directors, and shall be responsible for the execution of the policies of our board of directors with respect to such matters. Mr. Rapp’s experience, qualifications, attributes and skills that led to the conclusion that he should serve as chairman of our board of directors include his background of 25 years in the financial industry, and his substantial experience in identifying and investing in a wide variety of businesses.
Philip Wagenheim is our President, Secretary and a director. Mr. Wagenheim has over 20 years of experience in the financial industry and is currently the managing partner of Broadband Capital Partners, LLC (“BCP”), a middle-market private equity investment firm. Prior to founding BCP, Mr. Wagenheim served as the vice chairman of BCM prior to its dissolution in 2016. From March 2006 until October 2013, Mr. Wagenheim has served as the secretary and director of Committed Capital Acquisition Corporation, a blank check company that consummated a business combination with The One Group, LLC and is quoted on NASDAQ under the symbol “STKS”. Prior to co-founding BCM in 2000, Mr. Wagenheim was a managing director and co-founder of Oscar Gruss & Son’s Private Client Group in 1997. From 1994 to 1997, Mr. Wagenheim worked at PaineWebber and from 1992 to 1994, Mr. Wagenheim worked at Prudential Securities. Mr. Wagenheim served on the board of Zynerba Pharmaceuticals from February 2014 through its IPO in August 2015 and is currently on the board of Immunome, Inc. Mr. Wagenheim received his degree in Business Administration from the University of Miami in 1992. Mr. Wagenheim’s experience, qualifications, attributes and skills that led to the conclusion that he should serve on our board of directors include his experience as a co-founder and vice-chairman of BCM, his other business experience and education.
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Time Commitment of Executive Officers
Our two executive officers will provide their services to us only on a part time basis. These individuals are not obligated to devote any specific number of hours to our matters and intend to devote only as much time as they deem necessary to our affairs. However, we expect our executive officers to devote a reasonable amount of time to our business based on our circumstances at such time, though there is no guarantee that they will or will be able to make such commitment at any particular time. The amount of time they will devote in any time period will vary based on whether a target business has been selected for the initial business transaction and the stage of the initial business transaction process we are in. Accordingly, once our management locates a suitable target business to acquire, they will spend more time investigating such target business and negotiating and processing the initial business transaction (and consequently spend more time on our affairs) than they would prior to locating a suitable target business. We expect our executive officers to devote a reasonable amount of time to our business.
Number and Terms of Office of Directors
We currently have two members of our board of directors. Our board of directors is divided into two classes with only one class of directors being elected in each year and each class serving a two-year term. The term of office of the first class of directors, consisting of Philip Wagenheim, will expire at the first annual meeting of stockholders. The term of office of the second class of directors, consisting of Michael Rapp, will expire at the second annual meeting of stockholders. It has not yet been determined whether Aaron Serruya will serve as a Class I or Class II director. These individuals will play a key role in identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating our initial business transaction. Collectively, through their positions described above, our directors have extensive experience in the private equity businesses.
We do not currently intend to hold an annual meeting of stockholders until after we consummate our initial business transaction, and thus may not be in compliance with Section 211(b) of the Delaware General Corporation Law. Therefore, if our stockholders want us to hold an annual meeting prior to our consummation of an initial business transaction, they may attempt to force us to hold one by submitting an application to the Delaware Court of Chancery in accordance with Section 211(c) of the Delaware General Corporation Law.
Director Independence
We do not intend to establish a board of directors comprised of a majority of independent directors until after we consummate our initial business transaction.
Board Committees
Our board of directors intends to establish an audit committee and a compensation committee upon consummation of our initial business transaction. At that time, our board of directors intends to adopt charters for these committees. Prior to such time, we do not intend to establish either one. Accordingly, there will not be a separate committee comprised of some members of our board of directors with specialized accounting and financial knowledge to meet, analyze and discuss solely financial matters concerning prospective target businesses. Our whole board of directors acts as the audit committee. We do not believe a compensation committee is necessary prior to our initial business transaction as there will be no salary, fees or other compensation being paid to our officers or directors prior to our initial business transaction other than as disclosed in this Annual Report.
Code of Conduct
We have adopted a code of conduct and ethics applicable to our directors, officers and employees in accordance with applicable federal securities laws.
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Conflicts of Interest
Investors in our company should also be aware of the following potential conflicts of interest:
| ● | None of our officers or directors is required to commit his full time to our affairs and, accordingly, each may have conflicts of interest in allocating his time among various business activities. None of our other initial stockholders are obligated to commit any time to our affairs. |
| ● | Our officers and directors are affiliated with other entities, and hold positions in such entities that give rise to fiduciary and similar duties to such other entities. Accordingly, our officers and directors may have conflicts of interest in determining to which entity a particular business opportunity should be presented. Such officers and directors may become subject to conflicts of interest regarding us and other business ventures in which they may be involved, which conflicts may have an adverse effect on our ability to consummate an initial business transaction. |
| ● | As of March 30, 2017, our initial stockholders, including our officers and directors, own an aggregate of 8,579,400 initial shares of common stock, a portion of which may be subject to forfeiture, including 16,796,200 initial shares to be forfeited based on the exercise of less than 100% of the over-allotmentthat have been forfeited to date. The Company’s IPO prospectus, previous filings with the SEC and insider letter agreements entered into with the initial stockholders all contemplated that the 28,375,000 shares of common stock issued to the initial stockholders included an aggregate of 25,106,250 shares of common stock that are subject to forfeiture pursuant to the terms of the insider letter agreements (of which 16,796,200 shares have been forfeited to date), so that the initial stockholders and their permitted transferees would own no more than 20% of the Company’s issued and outstanding shares after the business transaction based on certain assumptions as disclosed in the IPO prospectus. The Company will no longer be adhering to this agreement that the initial stockholders would own no more than 20% of the Company’s issued and outstanding shares after the business transaction. Accordingly, the board of directors of the Company may choose in its discretion to forfeit and cancel as many initial shares as it determines is appropriate in connection with the initial business transaction, which could include the forfeiture of none of the initial shares. Following a business transaction, the initial stockholders could continue to own all or substantially all of its shares and the public stockholders could own a significantly smaller portion of the total outstanding shares of common stock than as contemplated by the IPO prospectus, previous filings with the SEC and the insider letter agreements. |
All of the initial shares not subject to forfeiture will be released from transfer restrictions if our initial business transaction is successfully completed. Since our officers and directors may own securities which will become worthless or be forfeited if our initial business transaction is not consummated, our officers and directors may have a conflict of interest in determining whether a particular target business is appropriate to effect an initial business transaction.
| ● | All of the expenses associated with the Offering, as well as certain other expenses to date, were funded via loans and advances to us. All such loans and advances from BCM and/or its affiliates were on terms that waived any and all rights to the funds in the trust account. As described herein, the Advancement Agreement was terminated on April 10, 2017, and it is contemplated that Notespac will purchase the principal amount due under any loans and/or advances made to the Company. However, if such transaction with Notespac is not consummated, affiliates of BCM may not be repaid unless our initial business transaction is consummated, and our directors may thus have a conflict of interest in determining whether a particular target business is appropriate to effect an initial business transaction. |
| ● | If our management negotiates to be retained post-initial business transaction as a condition to any potential initial business transaction, their financial interests, including compensation arrangements, could influence their motivation in selecting, negotiating and structuring a transaction with a target business, and such negotiations may result in a conflict of interest. |
In general, officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present business opportunities to a corporation if:
| ● | the corporation could financially undertake the opportunity; |
| ● | the opportunity is within the corporation’s line of business; and |
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| ● | it would not be fair to the corporation and its stockholders for the opportunity not to be brought to the attention of the corporation. |
As a result of multiple business affiliations, our officers or directors may have similar legal obligations relating to presenting business opportunities meeting the above-listed criteria to multiple entities. In addition, conflicts of interest may arise when our board evaluates a particular business opportunity with respect to the above-listed criteria. We cannot assure you that any of the above-mentioned conflicts will be resolved in our favor. Furthermore, our amended and restated certificate of incorporation provides that the corporate opportunity doctrine will not apply to any of our officers or directors in respect of existing and future fiduciary duties or contractual obligations that they owed to third parties due to relationships and agreements with such third parties that existed on the date on which the amended and restated certificate of incorporation was filed with the Secretary of State of the State of Delaware.
Below is a table summarizing the companies to which our officers and directors owe fiduciary obligations that would conflict with their fiduciary obligations to us, all of which would have to (i) be presented with appropriate potential target businesses by our officers or directors, and (ii) reject the opportunity to acquire such potential target business, prior to their presentation of such target business to us:
| Individual | Entity | Affiliation | ||
| Michael Rapp | Immunome Inc. | Non-Executive Chairman | ||
| Philip Wagenheim | Immunome, Inc. | Vice President, Secretary and Director |
Although we do not intend to enter into an initial business transaction with a target business that is affiliated with our initial stockholders, directors or officers, or any of our affiliates, we are not prohibited from doing so. In the event we enter into such a transaction, we will obtain an opinion from an independent investment banking firm that is a member of FINRA that such an initial business transaction is fair to our stockholders from a financial point of view. Furthermore, in no event will any of our initial stockholders, including our officers and directors, or any of their respective affiliates, be paid any finder’s fee, consulting fee or any other form of compensation, prior to, or for any services they render in connection with, the consummation of an initial business transaction. However, upon the closing of our initial business transaction, our board of directors will have the sole discretion to determine the number of initial shares to be forfeited by each of our initial stockholders. As a result, certain of our initial stockholders may forfeit a lesser number of their initial shares than other initial stockholders if our board of directors determines that such individuals played a more prominent role in identifying, evaluating and closing an initial business transaction.
Family Relationships
There are no family relationships among directors, executive officers, or persons nominated or chosen by the issuer to become directors or executive officers.
Involvement in Certain Legal Proceedings.
There is no litigation currently pending or, to our knowledge, contemplated against us, our initial stockholders or any of our officers or directors in their capacities as such.
Compliance with Section 16(a) of the Exchange Act
As a voluntary filer, we are not subject to compliance with Section 16(a) of the Exchange Act.
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| Item 11. | EXECUTIVE COMPENSATION |
Compensation for Officers and Directors
No initial stockholder, executive officer or director has received any cash payments of any kind for services rendered. Furthermore, in no event will any of our initial stockholders, including our officers or directors, or any of our or their respective affiliates be paid any finder’s fee, consulting fee or any other cash payments or issued any securities of our company, prior to, or for any services they render in connection with, the consummation of our initial business transaction. However, upon the closing of our initial business transaction, our board of directors will have the sole discretion to determine the number of initial shares to be forfeited by each of our initial stockholders. As a result, certain of our initial stockholders may forfeit a lesser number of their initial shares than other initial stockholders if our board of directors determines that such individuals played a more prominent role in identifying, evaluating and closing an initial business transaction. As we are unable to predict what industry our initial business transaction will be in, we are unable to make the determination of whose skills, contacts and knowledge base will be best suited to help us until after we consummate the initial business transaction. Our board of directors will determine which of our initial stockholders is most likely to be helpful in the future growth of our post-initial business transaction efforts going forward. Retention of initial shares will, in significant part, be based on the board’s assessment of the likely degree of future participation in such endeavors. The board will decide in its sole discretion which of the initial stockholders’ prospective contributions to the post-initial business transaction business will likely be most beneficial. There is no assurance that any such stockholders will have specific expertise in the industry in which our initial business transaction is consummated. In such case, the board will evaluate potential usefulness of broadly based business expertise and relationships. In no event will the total number of initial shares held by the initial stockholders exceed 20.0% of our total issued and outstanding shares of common stock after giving effect to (i) a private placement of $5,000,000, (ii) any exercises of the public warrants, and (iii) any forfeitures of initial shares.
Our initial stockholders, including our officers and directors, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying prospective target businesses and performing due diligence on suitable initial business transactions. There is no limit on the amount of these out-of-pocket expenses and there will be no review of the reasonableness of the expenses by anyone other than our board of directors, which includes persons who may seek reimbursement, or a court of competent jurisdiction if such reimbursement is challenged. Since none of our directors is deemed “independent”, we will not have the benefit of independent directors examining the propriety of expenses incurred on our behalf and subject to reimbursement.
After our initial business transaction, our executive officers and directors who remain with us may be paid consulting, management or other fees from the combined company. Any compensation to be paid to our executive officers will be determined, or recommended to the board of directors for determination, either by a compensation committee constituted solely of independent directors or by a majority of the independent directors on our board of directors, in accordance with the rules of any securities exchange on which our shares of common stock may then be listed.
| Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The following table sets forth information regarding the beneficial ownership of our common stock as of March 30, 2017 by:
| ● | each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; |
| ● | each of our officers and directors; and |
| ● | all our officers and directors as a group. |
Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
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| Name and Address of Beneficial Owners | Amount and nature of beneficial ownership | Percentage of outstanding common stock |
|||||
| Directors and Officers and 5% Beneficial Owners: | |||||||
| Michael Rapp(1,2) 712 Fifth Avenue New York, New York 10019 | % | 2,418,750 | 22.0 | % | |||
| Philip Wagenheim(1,2,3) 712 Fifth Avenue New York, New York 10019 | % | 956,250 | 8.7 | % | |||
| All directors and officers as a group (2 persons) | % | 3,375,000 | 30.7 | % |
| (1) | Based on 10,973,471 shares of common stock outstanding as of March 30, 2016. The initial shares held by the stockholders named above will be subject to forfeiture as described in this Annual Report. |
| (2) | Each of Messrs. Rapp and Wagenheim own 0.22% and 0.22%, respectively, of the membership interests of Committed Capital Holdings II LLC. Mr. Rapp is the managing member of Committed Capital Holdings II LLC, and the 450,000 shares of our common stock beneficially owned by Committed Capital Holdings II LLC are included in the ownership numbers of Mr. Rapp because he holds voting and investment control over such shares of common stock. Based on their membership interests in Committed Capital Holdings II LLC, Messrs. Rapp and Wagenheim each have a pecuniary interest in 1,000 and 1,000 shares of our common stock owned by Committed Capital Holdings II LLC, respectively. |
| (3) | 300,000 of such shares are held by BCM X5 Holdings, LLC, of which Mr. Wagenheim is the managing member |
Forfeiture of Initial Shares
As of March 30, 2017, our initial stockholders, including our officers and directors, own an aggregate of 8,579,400 initial shares of common stock, a portion of which may be subject to forfeiture, including 8,579,400 initial shares that have been forfeited to date. The Company’s IPO prospectus, previous filings with the SEC and insider letter agreements entered into with the initial stockholders all contemplated that the 28,375,000 shares of common stock issued to the initial stockholders included an aggregate of 25,106,250 shares of common stock that are subject to forfeiture pursuant to the terms of the insider letter agreements (of which 19,745,600 shares have been forfeited to date), so that the initial stockholders and their permitted transferees would own no more than 20% of the Company’s issued and outstanding shares after the business transaction based on certain assumptions as disclosed in the IPO prospectus. As previously disclosed, the Company will no longer be adhering to this agreement that the initial stockholders would own no more than 20% of the Company’s issued and outstanding shares after the business transaction. Accordingly, the board of directors of the Company may choose in its discretion to forfeit and cancel as many initial shares as it determines is appropriate in connection with the initial business transaction, which could include the forfeiture of none of the initial shares.
In determining the number of shares to be forfeited by each initial stockholder, our board of directors may take into account various factors including, but not limited to the individual effort that each initial stockholder provided in introducing us to the target of our initial business transaction, the role and involvement of each such person throughout the due diligence, negotiation and transaction process, and other contributions made by each such person in connection with our initial business transaction. As we are unable to predict what industry our initial business transaction will be in, we are unable to make the determination of whose skills, contacts and knowledge base will be best suited to help us until after we consummate the initial business transaction. Our board of directors will determine which of our initial stockholders is most likely to be helpful in the future growth of our post-initial business transaction efforts going forward. Retention of initial shares will, in significant part, be based on the board’s assessment of the likely degree of future participation in such endeavors. The board will decide in its sole discretion which of the initial stockholders’ prospective contributions to the post-initial business transaction business will likely be most beneficial. There is no assurance that any such stockholders will have specific expertise in the industry in which our initial business transaction is consummated. In such case, the board will evaluate potential usefulness of broadly based business expertise and relationships. The aggregate number of initial shares to be forfeited shall be determined by our board of directors.
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Following a business transaction, the initial stockholders could continue to own all or substantially all of its shares and the public stockholders could own a significantly smaller portion of the total outstanding shares of common stock than as contemplated by the IPO prospectus, previous filings with the SEC and the insider letter agreements.
Lockup of Initial Shares
All of the initial shares of common stock outstanding prior to the date of the Offering are subject to lockup provisions and, other than the initial shares subject to forfeiture based on the exercise of the public warrants, may not be transferred, sold or assigned, released from transfer restrictions until the earlier of (i) one year after the completion of our initial business transaction or earlier if, subsequent to our initial business transaction, the last sale price of our common stock equals or exceeds $7.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period after our initial business transaction, or (ii) the date on which we consummate a liquidation, merger, stock exchange or other similar transaction after our initial business transaction that results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property; provided, however, that all or any part of the initial shares may be transferred in a permitted transfer. The initial shares subject to forfeiture based on the exercise of the public warrants will be released from transfer restrictions when all public warrants either have been exercised or expired. “Permitted transfers” include transfers (i) to our officers or directors, the initial stockholders or the private placement investors, to any affiliate of our officers or directors, the initial stockholders or the private placement investors, or to any immediate family member of our officers or directors, the initial stockholders or the private placement investors or their respective affiliates; (ii) by gift to a member of the immediate family of an initial stockholder or, if the initial stockholder is an entity, a member of the immediate family of a Member, or a trust, the beneficiary of which is an immediate family member of the initial stockholder or an immediate family member of a Member of the initial stockholder, or to an affiliate of the initial stockholder or a Member of the initial stockholder, or to a charitable organization; (iii) by virtue of the laws of descent and distribution upon death of an initial stockholder or a Member of the initial stockholder; (iv) pursuant to a qualified domestic relations order; (v) if the initial stockholder is an entity, by virtue of the laws of the state of formation of the initial stockholder or the organizational documents of the initial stockholder upon dissolution of the initial stockholder; (vi) in the event of our liquidation prior to the completion of the initial business transaction; or (vii) in the event that we consummate a liquidation, merger, stock exchange or other similar transaction that results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property subsequent to the consummation of our initial business transaction; provided, however, that, in the case of clauses (i) through (v), such transferees enter into a written agreement with us agreeing to be bound by the transfer restrictions.
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During the lockup period, our officers, directors, and initial stockholders will not be able to sell or transfer such securities except in a permitted transfer. Our officers, directors, initial stockholders and private placement investors will retain all other rights as a stockholder, including, without limitation, the right to vote such initial shares and the right to receive cash dividends, if declared. If dividends are declared and payable in shares of common stock, such dividends will also be subject to the lockup and will be released pro rata, in accordance with the initial shares. If we are unable to effect an initial business transaction, our initial stockholders will not receive any portion of the liquidation proceeds with respect to shares of common stock owned by it prior to the Offering.
| Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Michael Rapp, our co-founder, Chief Executive Officer and Chairman, and Philip Wagenheim, our co-founder, President, Secretary and director, both served as management of BCM prior to its dissolution in 2016.
On May 19, 2011, we sold an aggregate of 3,590,000 (as adjusted for the stock splits on February 4, 2012 and March 1, 2012) shares of common stock to Mr. Rapp and Mr. Wagenheim for an aggregate purchase price of $50, or $0.000015 per share. On March 1, 2012, immediately after the effectiveness of the 1.0637037-for-1 forward stock split, Mr. Wagenheim forfeited 215,000 initial shares to us for cancelation; therefore, 3,375,000 shares of common stock were outstanding.
On February 10, 2012 and March 5, 2012, we entered into promissory notes for $15,000 each with BCM. On April 23, 2012 we entered into a promissory note for $82,500 with BCM. The notes are payable upon the consummation of our initial business transaction, bear no interest and contain a waiver of any and all rights to the funds in the trust account resulting from the consummation of the Offering. Accordingly, the notes will become worthless and will not be repaid unless and until the consummation of our initial business transaction.
All of the expenses associated with the Offering were funded to us by BCM. Following the consummation of the Offering and prior to the consummation of our initial business transaction, in order to fund all expenses relating to investigating and selecting a target business, negotiating an acquisition agreement and consummating such acquisition and our other working capital requirements, BCM and/or its affiliates had previously agreed to loan or advance us funds from time to time, or at any time, up to $2,000,000. In connection with the Extension Amendment, such agreement has since been terminated, and it is contemplated that any future funds loaned to the company will be so loaned by Notespac. All loans made by BCM will be due and payable upon the completion of our initial business transaction and will be on terms that waive any and all rights to the funds in the trust account.
In addition, in the event we are forced to liquidate, BCM had previously agreed to advance us the funds necessary to pay any and all costs involved or associated with the process of liquidation and the return of the funds in the trust account to our public stockholders (currently anticipated to be no more than approximately $30,000), which agreement has since been terminated.
BCM and Mr. Rapp have agreed that each will be liable to us jointly and severally, if and to the extent that any claims by a vendor for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amounts in the trust account to below $5.00 per share, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except as to any claims under our indemnity of the underwriters of the Offering against certain liabilities, including liabilities under the Securities Act. In the event that an executed waiver is deemed to be unenforceable against a third party, BCM and Mr. Rapp will not be responsible to the extent of any liability for such third party claims. In the event that the proceeds in the trust account are reduced below $5.00 per share in the event we redeem our public shares for a per share pro rata portion of the trust account, or upon our liquidation and BCM and Mr. Rapp assert that they are unable to satisfy their obligations or that they have no indemnification obligations related to a particular claim, our directors would determine whether to take legal action against BCM and Mr. Rapp to enforce their indemnification obligations. While we currently expect that our directors would take legal action on our behalf against BCM and Mr. Rapp to enforce their indemnification obligations to us, it is possible that our directors in exercising their business judgment may choose not to do so in any particular instance. We have not, however, independently verified whether BCM and Mr. Rapp have sufficient funds to satisfy their indemnity obligations or asked BCM and Mr. Rapp to reserve for such indemnification obligations. As such, there is no assurance BCM and Mr. Rapp will be able to satisfy those obligations. Accordingly, we cannot assure our stockholders that due to claims of creditors the actual value of the (i) per share redemption price or (ii) per share liquidation price will not be less than $5.00 per share.
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Our intial stockholders and/or their respective designees may purchase 1,000,000 shares of our common stock (or securities convertible into common stock) at $5.00 per share in a private placement to occur concurrently with the closing of our initial business transaction for gross proceeds of $5,000,000. Our board of directors will have the ability to increase the size of the private placement at their discretion.
Our initial stockholders, private placement investors and their permitted transferees will be entitled to registration rights. Such holders will be entitled to demand registration rights and certain “piggy-back” registration rights with respect to the initial shares and the placement shares, commencing, in the case of the initial shares, one year after the consummation of our initial business transaction and, in the case of the placement shares, 30 days after the consummation of our initial business transaction.
We will reimburse our initial stockholders, including our officers and directors, for any reasonable out-of-pocket business expenses incurred by them in connection with certain activities on our behalf such as identifying and investigating possible target businesses and business transactions. Reimbursable out-of-pocket expenses incurred by our initial stockholders, including our officers and directors, will not be repaid out of proceeds held in the trust account until these proceeds are released to us upon the completion of our initial business transaction, provided there are sufficient funds available for reimbursement after such consummation. The financial interest of such persons could influence their motivation in selecting a target business and thus, there may be a conflict of interest when determining whether a particular business transaction is in our public stockholders’ best interest.
Other than the reimbursable out-of-pocket expenses payable to our initial stockholders, including our officers and directors, no reimbursements, cash payments, issuances of our securities or fees of any kind, including finders, consulting fees or other similar compensation, will be paid to our initial stockholders, including our officers and directors, or to any of our or their respective affiliates prior to, or for any services they render in connection with, the consummation of our initial business transaction.
After the consummation of our initial business transaction, if any, some of our officers and directors may enter into employment agreements, the terms of which shall be negotiated and which we expect to be comparable to employment agreements with other similarly-situated companies. Further, after the consummation of our initial business transaction, if any, to the extent our directors remain as directors of the resulting business, we anticipate that they will receive compensation comparable to directors at other similarly-situated companies.
| Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
Withum Smith + Brown, PC is the Company’s independent registered public accounting firm. The following is a summary of fees paid or to be paid to Withum Smith + Brown, PC for services rendered.
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Audit and Audit-Related Fees
The aggregate fees billed by Withum Smith + Brown, PC for professional services rendered for the audit of our annual financial statements and review of financial statements included in our quarterly reports on Form 10-Q or services that are normally provided in connection with statutory and regulatory filings were $47,500 for the fiscal year ended December 31, 2016 and $52,000 for the fiscal year ended December 31, 2015.
Tax Fees
There were no fees billed by Withum Smith + Brown, PC for professional services for tax compliance, tax advice, and tax planning for the fiscal year ended December 31, 2016 and no fees for tax compliance, tax advice, and tax planning for the fiscal year ended December 31, 2015.
All Other Fees
There were no fees billed by Withum Smith + Brown, PC for other products and services during the fiscal year ended December 31, 2016 and the fiscal year ended December 31, 2015.
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| Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
We set forth below a list of our audited financial statements included in Item 8 of this annual report on Form 10-K.
Committed Capital Acquisition Corporation II
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Committed Capital Acquisition Corporation II:
We have audited the accompanying balance sheets of Committed Capital Acquisition Corporation II (the “Company”) as of December 31, 2016 and 2015, and the related statements of operations, changes in stockholders’ equity, and cash flows for each of the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Committed Capital Acquisition Corporation II as of December 31, 2016 and 2015 and the results of its operations and its cash flows for each of the years then ended in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company does not have a current agreement in place to provide the funds needed to continue to cover its current or future obligations. This uncertainty raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
WithumSmith+Brown, PC
Whippany, New Jersey
May 26, 2017
F-2
Committed Capital Acquisition Corporation II
BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2016 | 2015 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 48,000 | $ | 8,000 | ||||
| Prepaid expenses | 1,000 | 1,000 | ||||||
| Total Current Assets | 49,000 | 9,000 | ||||||
| Investment in Trust Account | 12,025,000 | 40,038,000 | ||||||
| Total Assets | $ | 12,074,000 | $ | 40,047,000 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 185,000 | $ | 112,000 | ||||
| Accrued offering expenses | 13,000 | 13,000 | ||||||
| Accrued franchise taxes | 490,000 | 420,000 | ||||||
| Notes payable, related party | 113,000 | 113,000 | ||||||
| Advances, related party | 785,000 | 637,000 | ||||||
| Total Current Liabilities | 1,586,000 | 1,295,000 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, $0.00001 par value, 10,000,000 shares authorized; no shares issued and outstanding | - | - | ||||||
| Common stock, $0.00001 par value, 250,000,000 shares authorized; 13,972,871 and 36,212,237 shares issued and outstanding at December 31, 2016 and 2015, respectively | - | - | ||||||
| Additional paid-in capital | 11,645,000 | 39,674,000 | ||||||
| Accumulated deficit | (1,157,000 | ) | (922,000 | ) | ||||
| Total Stockholders’ Equity | 10,988,000 | 38,752,000 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 12,074,000 | $ | 40,047,000 | ||||
The accompanying notes are an integral part of the financial statements
F-3
Committed Capital Acquisition Corporation II
STATEMENTS OF OPERATIONS
| Years ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Revenue | $ | - | $ | - | ||||
| General and Administrative Expenses and Franchise Taxes | 310,000 | 471,000 | ||||||
| Loss from Operations | (310,000 | ) | (471,000 | ) | ||||
| Interest and Dividend Income on Trust Account | 75,000 | 31,000 | ||||||
| Net Loss Attributable to Common Stockholders | $ | (235,000 | ) | $ | (440,000 | ) | ||
| Weighted Average Number of Common Shares Outstanding | 18,456,512 | 36,212,237 | ||||||
| Basic and Diluted Net Loss per Share Attributable to Common Stockholders | $ | (0.01 | ) | $ | (0.01 | ) | ||
The accompanying notes are an integral part of the financial statements
F-4
Committed Capital Acquisition Corporation II
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Years Ended December 31, 2016 and 2015
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders' | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| BALANCE, DECEMBER 31, 2014 | 36,212,237 | $ | 362 | $ | 39,674,087 | $ | (482,169 | ) | $ | 39,192,280 | ||||||||||
| Rounding dollars to thousands | (362 | ) | (87 | ) | 169 | (280 | ) | |||||||||||||
| Net loss | (440,000 | ) | (440,000 | ) | ||||||||||||||||
| BALANCE, DECEMBER 31, 2015 | 36,212,237 | $ | - | $ | 39,674,000 | $ | (922,000 | ) | $ | 38,752,000 | ||||||||||
| Shares forfeited by Founders in March 2016 | (16,633,437 | ) | - | - | - | - | ||||||||||||||
| Shares redeemed by stockholders in April 2016 | (5,605,929 | ) | - | (28,029,000 | ) | - | (28,029,000 | ) | ||||||||||||
| Net loss | (235,000 | ) | (235,000 | ) | ||||||||||||||||
| BALANCE, DECEMBER 31, 2016 | 13,972,871 | $ | - | $ | 11,645,000 | $ | (1,157,000 | ) | $ | 10,488,000 | ||||||||||
The accompanying notes are an integral part of the financial statements
F-5
Committed Capital Acquisition Corporation II
STATEMENTS OF CASH FLOWS
| Years ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | (235,000 | ) | $ | (440,000 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Interest and dividend income on Trust Account | (75,000 | ) | (31,000 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | - | 5,000 | ||||||
| Accounts payable and accrued expenses | 73,000 | 43,000 | ||||||
| Accrued franchise taxes | 70,000 | 240,000 | ||||||
| Net cash used in operating activities | (167,000 | ) | (183,000 | ) | ||||
| Net cash provided by Investing Activities | ||||||||
| Withdrawal from Trust Account | 59,000 | - | ||||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from related party advances | 148,000 | 162,000 | ||||||
| Net increase (decrease) in cash | 40,000 | (21,000 | ) | |||||
| Cash at beginning of the year | 8,000 | 29,000 | ||||||
| Cash at end of the year | $ | 48,000 | $ | 8,000 | ||||
| Supplemental disclosure of non-cash financing activities: | ||||||||
| Common stock redeemed in Extension | ||||||||
| Amendment with proceeds from Trust | $ | 28,029,000 | $ | - | ||||
| Related party advances directly paid to vendors | $ | - | $ | 30,000 | ||||
The accompanying notes are an integral part of the financial statements
F-6
Committed Capital Acquisition Corporation II
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Committed Capital Acquisition Corporation II (the “Company”) was incorporated in Delaware on May 18, 2011. The Company was formed for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, exchangeable share transaction or other similar business transaction, with one or more operating businesses or assets not yet identified (“Business Combination”). The Company has neither engaged in any operations nor generated revenue to date.
The Company filed a Form S-1 with the United States Securities and Exchange Commission (“SEC”) in connection with its offering to sell up to 7,000,000 units at a price of $5.00 per unit (the “Offering”). The underwriters for the Offering were granted an over-allotment option to purchase up to an additional 1,050,000 units for 45 days after the effectiveness of the registration statement for the Offering. Each unit consists of one share of common stock, par value $0.00001 per share (the "Common Stock"), and one warrant to purchase one half of one share of Common Stock at an exercise price of $2.50 per half-share ($5.00 per whole share). Under the terms of the warrant agreement, the Company has agreed to use their best efforts to file a post-effective or new registration statement under the Securities Act of 1933, as amended, following the completion of the Company's initial business transaction. Each warrant will become exercisable upon effectiveness of such post-effective amendment or new registration statement and will expire on the date that is the earlier of (i) five years after the effective date of the registration statement registering the shares of Common Stock issuable upon the exercise of the warrants or (ii) the forty-fifth (45th) day following the date that the Company’s Common Stock closes at or above $8.00 per share for 20 out of 30 trading days commencing on the effective date. If the Company is unable to deliver registered shares of Common Stock to the holder upon exercise of warrants during the exercise period, there will be no cash settlement of the warrants and the warrants will expire worthless. The lead underwriter for the Offering was a related party; see Note 4.
On April 10, 2014, the registration statement in connection with the Offering was declared effective. Additionally, on April 11, 2014, the Company filed with the Secretary of State of the State of Delaware its Amended and Restated Certificate of Incorporation. The Company has, as amended (see below), 60 months from April 10, 2014 to complete its Business Combination. If the Company does not consummate a Business Combination within such 60-month period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably practicable, but not more than five business days thereafter, redeem the Company’s public shares for cash equal to their pro rata share of the aggregate amount then on deposit in the trust account less taxes and amounts released to the Company for working capital purposes, subject to applicable law, and (iii) as promptly as reasonably practicable following such redemption, subject to the approval of the Company’s remaining stockholders and its board of directors, dissolve and liquidate the balance of the Company’s net assets to its remaining stockholders.
On April 16, 2014, the Company closed the Offering and issued 7,000,000 equity units for gross proceeds of $35,000,000 consisting of 7,000,000 shares of Common Stock and warrants to purchase an additional 3,500,000 shares of Common Stock (as described above).
On April 17, 2014, the representative of the underwriters advised the Company that it planned to exercise its over-allotment option with respect to 1,000,000 Units (the "Option Units") for gross proceeds of $5,000,000. On April 21, 2014, the closing of the Option Units occurred and the Company issued 1,000,000 equity units for gross proceeds of $5,000,000 consisting of 1,000,000 shares of Common Stock and warrants to purchase an additional 500,000 shares of Common Stock (as described above). The underwriters did not exercise their overallotment option for the remaining 40,000 Option Units, as a result the initial shareholders forfeited 162,763 initial shares. Subsequent to the closing of the Offering and the closing of the Option Units, the gross proceeds of $40,000,000 were placed in a trust account ("Trust Account," see below).
The costs of the Offering, including the overallotment, were approximately $351,000.
F-7
Committed Capital Acquisition Corporation II
NOTES TO FINANCIAL STATEMENTS
The Company held a special meeting of stockholders on April 8, 2016 to consider and vote upon two proposals to amend the Company’s amended and restated certificate to: (a) extend the date before which the Company must complete a business transaction from April 10, 2016 to April 10, 2017, and provide that the date for cessation of operations of the Company if the Company has not completed a business transaction would similarly be extended; and (b) allow holders of the Company’s public shares to redeem their public shares, in connection with the Extension Amendment, for a pro rata portion of the funds available in the trust account (the “trust account”) established in connection with the Company’s initial public offering (“IPO”), and authorize the Company and the trustee to disburse such redemption payments; and (c) a proposal to amend and restate the Company’s investment management trust agreement, dated April 10, 2014 by and between the Company and Continental Stock Transfer & Trust Company to permit distributions from the trust account to pay public stockholders properly demanding redemption in connection therewith; and extend the date on which to commence liquidating the trust account in the event the Company has not consummated a business transaction until April 10, 2017. Both the amendments were approved by stockholders at the special meeting and 5,605,929 shares of the Company’s common stock were redeemed for $28,029,645 in connection with the approval of the amendments. As of December 31, 2016, 2,394,071 shares of the Company’s stock issued in its IPO remain outstanding and approximately $12,008,000 remains in the trust account. In addition, prior to the extension meeting 16,633,437 shares were forfeited by founders.
The Company also held a special meeting of its warrantholders on April 8, 2016 where the Company’s warrantholders voted to approve an amendment (the “Warrant Amendment”) to the Warrant Agreement, dated as of April 10, 2014 (the “Warrant Agreement”), between the Company and Continental Stock Transfer & Trust Company, to provide for the conversion of all of the 8,000,000 outstanding warrants into an aggregate of 80,000 shares of common stock (so that each warrant is converted into one-hundredth (1/100th) of one share) upon the consummation of a business transaction, and terminate the Warrant Agreement in connection with such conversion. Both proposals were passed by the warrantholders.
On April 10, 2017, the Company held a special meeting of stockholders pursuant to which the Company’s stockholders approved: (i) proposals to amend the Company’s amended and restated certificate of incorporation (the “Extension Amendment”) to (a) extend the date before which the Company must complete a business transaction to April 10, 2019 (the “Extended Termination Date”), and provide that the date for cessation of operations of the Company if the Company has not completed a business transaction would similarly be extended, and to (b) allow holders of the Company’s public shares to redeem their public shares, in connection with (y) the Extension Amendment, and (z) a second redemption opportunity on the earlier of July 10, 2017 and the consummation of a business transaction (the “Second Redemption”), for a pro rata portion of the funds available in the trust account and authorize the Company and the trustee to disburse such redemption payments; and (ii) a proposal to amend and restate the amended and restated investment management trust agreement, dated April 8, 2016, by and between the Company and Continental Stock Transfer & Trust Company (the “Trust Amendment”), to permit distributions from the trust account to pay public stockholders properly demanding redemption in connection with (a) the Extension Amendment, and (b) the Second Redemption; and extend the date on which to commence liquidating the trust account in the event the Company has not consummated a business transaction from April 10, 2017 to the Extended Termination Date (the “Proposals”). Of the 2,394,071 shares that were eligible for redemption, 2,042,244 such shares were redeemed in connection with the Extension Amendment and the Second Redemption for a total of $10,211,220.
There will be no liquidating distribution with respect to the Company's warrants, which will expire worthless in the event the Company does not consummate an initial business transaction.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Offering, although substantially all of the net proceeds of the Offering are intended to be generally applied toward consummating a Business Combination. Furthermore, there is no assurance that the Company will be able to successfully affect a Business Combination.
The Company, after signing a definitive agreement for the acquisition of one or more target businesses or assets, will not submit the transaction for stockholder approval, unless otherwise required by law. The Company will proceed with a Business Combination if it is approved by the board of directors. The Company will not provide the stockholders with the opportunity to redeem their shares of Common Stock for cash equal to their pro rata share of the aggregate amount then on deposit in the trust account upon the consummation of the Company’s initial business transaction. If a stockholder vote is required by law, the Company will conduct a proxy solicitation pursuant to the proxy rules but will not offer its stockholders the opportunity to redeem their shares of Common Stock in connection with such vote.
The Company is not limited to a particular industry, geographic region or minimum transaction value for purposes of consummating its initial business transaction. The Company will have virtually unrestricted flexibility in identifying and selecting a prospective transaction candidate. The Company does not have any specific merger, capital stock exchange, asset acquisition, stock purchase, reorganization, exchangeable stock transaction or other similar business transaction under consideration or discussion.
F-8
Committed Capital Acquisition Corporation II
NOTES TO FINANCIAL STATEMENTS
The gross proceeds (and, as of today, the net proceeds after redemptions described above) are required to be invested in U.S. "government securities," defined as any Treasury Bill issued by the United States government having a maturity of one hundred and eighty (180) days or less or money market funds meeting the conditions specified in Rule 2a-7 under the Investment Company Act of 1940. Except for a portion of the interest income that may be released to the Company to pay income or other tax obligations and to fund its working capital requirements, none of the funds held in the trust account will be released until the earlier of (i) the consummation of a business transaction, (ii) the Company’s redemption of the public shares sold in the Offering if the Company is unable to consummate its initial business transaction within the 60-month period set forth above, or (iii) the Company’s liquidation (if no redemption occurs).
Following the closing of the Offering and prior to the consummation of the Business Combination, in order to fund all expenses relating to investigating and selecting a target business, negotiating an acquisition agreement and consummating such acquisition and the Company’s other working capital requirements, an affiliate of certain initial stockholders had previously committed to loan the Company funds from time to time of up to $2,000,000. In connection with the Extension Amendment, this agreement was terminated, and it is contemplated that any future funds loaned to the Company will be so loaned by Notespac. See Note 4 and 7. There are no agreements for facilities or services between the Company and its initial stockholders.
Going concern consideration
The Company does not have any sources of revenue nor does it have any plans to generate revenue until after a successful business combination. Currently the Company does not have an agreement in place to cover future or current obligations of the Company. While the Company contemplates entering into an Expense Agreement (see Note 7) for coverage of its current and future obligations it can not say with certainty that agreement will be executed. This uncertainty raises substantial doubt about the Company’s ability to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the SEC.
The financial statements as of December 31, 2016 and 2015 and for the years then ended have been rounded to the nearest thousands of dollars except share amounts and net loss per common share.
F-9
Committed Capital Acquisition Corporation II
NOTES TO FINANCIAL STATEMENTS
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 Securities Exchange Act of 1934, as amended, or the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but 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.
Net loss per common share
The Company complies with accounting and disclosure requirements of FASB ASC 260, “Earnings Per Share.” Net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding for the year. Diluted loss per share includes potentially dilutive securities such as outstanding options and warrants, using various methods such as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each reporting period. Because the Company reported a net loss in all years presented, the warrants to purchase 4,000,000 shares of common stock issued in connection with the Offering have not been included in the diluted net loss per share since these securities would reduce the loss per common share and become anti-dilutive. As a result, diluted loss per common share is the same as basic loss per common share for each year presented.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution which, at times may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Fair value of financial instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,” approximates their carrying amounts represented on the balance sheets.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires 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 period. Actual results could differ from those estimates.
Income taxes
The Company complies with the accounting and reporting requirements of FASB ASC, 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. At December 31, 2016 and 2015, the Company has a gross deferred tax asset of approximately $420,000 and $370,000, respectively, related to net operating loss carryforwards and start-up costs. Management has determined that a full valuation allowance of the deferred tax asset is appropriate at this time. Thus, no asset is recorded on the accompanying balance sheets.
F-10
Committed Capital Acquisition Corporation II
NOTES TO FINANCIAL STATEMENTS
There were no unrecognized tax benefits as of December 31, 2016 and 2015. 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. No amounts were accrued for the payment of interest and penalties at December 31, 2016 and 2015. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material change from its position. The Company is subject to income tax examinations by federal, New York State and New York City, and the earliest tax year the Company is subject to exam is 2013. The Company charges state franchise taxes to operations and such amounts were approximately $60,000 and $120,000 for the years ended December 31, 2016 and 2015, respectively, including an adjustment to more accurately reflect the actual liability in 2016. These amounts have not been paid and are accrued on the balance sheets.
General and administrative expenses
Included in general and administrative expenses are normal costs of operating as a special purpose acquisition company including professional fees associated with its corporate matters and public filings, insurance and franchise taxes and costs to explore business combination opportunities. In addition, once a business combination target is identified, general and administrative costs include consulting and professional costs for conducting due diligence and preparing agreements as well as costs associated with obtaining financing and shareholder approval for the proposed combination including printing and distribution costs.
Recently issued accounting standards
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.
3. INVESTMENT IN TRUST ACCOUNT
Since the closing of the Offering, the gross proceeds have been held in the Trust Account. During the year ended December 31, 2016, the Company withdrew approximately $59,000 of interest income from the Trust to fund tax obligations and working capital needs, as permitted in the Trust Agreement. As described in Note 1, the Trust Account may be invested in U.S. government securities, defined as any Treasury Bill or equivalent securities issued by the United States government having a maturity of one hundred and eighty (180) days or less or money market funds meeting the conditions specified in Rule 2a-7 under the Investment Company Act of 1940, until the earlier of (i) the consummation of its initial business transaction or (ii) the distribution of the Trust Account as described below.
Investment securities in the Trust Account at December 31, 2016 and 2015 consist of an Institutional Money Market Account that meets the conditions specified in Rule 2a-7 under the Investment Company Act of 1940 with an investment bank. The Institutional Money Market Account is classified as a Level 1 investment within the fair value hierarchy. There are no holding gains or losses to date and there has been approximately $75,000 and $31,000 of interest and dividend income earned for the years ended December 31, 2016 and 2015, respectively.
4. RELATED PARTY TRANSACTIONS
The Company issued an aggregate approximately $113,000 of unsecured promissory notes to Broadband Capital Management LLC (“BCM”), an affiliate of the Company, consisting of two, $15,000 unsecured promissory notes to BCM on February 10, 2012 and March 5, 2012 and an approximately $83,000 unsecured promissory note to BCM on April 23, 2012.
F-11
Committed Capital Acquisition Corporation II
NOTES TO FINANCIAL STATEMENTS
Following the closing of the Offering and prior to the consummation of the initial business transaction, BCM had previously committed to loan the Company from time to time of up to $2,000,000, under an Expense Advancement Agreement, also see Note 1. As of both December 31, 2016 and 2015, BCM and/or its principals has advanced approximately $785,000 and $637,000, respectively, which is included in the balance sheets including approximately $148,000 and $162,000, respectively, advanced in the years ended December 31, 2016 and 2015.
All of the notes, loans and /or advances are non-interest bearing and payable in full at the closing of the Business Combination. and are on terms that waive any and all rights to the funds in the Trust Account. Due to the possibility that the notes, loans and/or advances will be due in less than a year, they are classified as current liabilities on the balance sheets.
In addition, Michael Rapp, the Company’s co-founder, Chief Executive Officer and Chairman and Philip Wagenheim, the Company’s co-founder, President, Secretary and director, both served as management and were principals of BCM. BCM was also the lead underwriter of the offering. BCM was dissolved in 2016.
On April 10, 2017, the Company and Messrs. Rapp and Wagenheim entered into an agreement to terminate the Advancement Agreement, effective immediately.
See Note 5 for details on initial stockholders’ equity transactions, some of which are related parties.
5. STOCKHOLDERS’ EQUITY
The Company is authorized by its Certificate of Incorporation to issue an aggregate of 260,000,000 shares of capital stock, of which 250,000,000 are shares of Common Stock and 10,000,000 are shares of preferred stock, par value $0.00001 per share.
All outstanding shares of Common Stock are of the same class and have equal rights and attributes except differences for initial stockholders as described below. The holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of stockholders of the Company. All stockholders are entitled to share equally in dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available. In the event of liquidation, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of all liabilities. The stockholders do not have cumulative or preemptive rights.
As of December 31, 2016, our initial stockholders, including our officers and directors, own an aggregate of 11,578,800 initial shares of common stock, a portion of which may be subject to forfeiture. The Company’s IPO prospectus, previous filings with the SEC and insider letter agreements entered into with the initial stockholders all contemplated that the 28,375,000 shares of common stock issued to the initial stockholders included an aggregate of 25,106,250 shares of common stock that are subject to forfeiture pursuant to the terms of the insider letter agreements (of which 16,796,200 shares were forfeited as of December 31, 2016), so that the initial stockholders and their permitted transferees would own no more than 20% of the Company’s issued and outstanding shares after the business transaction based on certain assumptions as disclosed in the IPO prospectus. As previously disclosed, the Company will no longer be adhering to this agreement that the initial stockholders would own no more than 20% of the Company’s issued and outstanding shares after the business transaction. Accordingly, the board of directors of the Company may choose in its discretion to forfeit and cancel as many initial shares as it determines is appropriate in connection with the initial business transaction, which could include the forfeiture of none of the initial shares.
In determining the number of shares to be forfeited by each initial stockholder, our board of directors may take into account various factors including, but not limited to the individual effort that each initial stockholder provided in introducing us to the target of our initial business transaction, the role and involvement of each such person throughout the due diligence, negotiation and transaction process, and other contributions made by each such person in connection with our initial business transaction. As we are unable to predict what industry our initial business transaction will be in, we are unable to make the determination of whose skills, contacts and knowledge base will be best suited to help us until after we consummate the initial business transaction. Our board of directors will determine which of our initial stockholders is most likely to be helpful in the future growth of our post-initial business transaction efforts going forward. Retention of initial shares will, in significant part, be based on the board’s assessment of the likely degree of future participation in such endeavors. The board will decide in its sole discretion which of the initial stockholders’ prospective contributions to the post-initial business transaction business will likely be most beneficial. There is no assurance that any such stockholders will have specific expertise in the industry in which our initial business transaction is consummated. In such case, the board will evaluate potential usefulness of broadly based business expertise and relationships. The aggregate number of initial shares to be forfeited shall be determined by our board of directors.
F-12
Committed Capital Acquisition Corporation II
NOTES TO FINANCIAL STATEMENTS
Following a business transaction, the initial stockholders could continue to own all or substantially all of its shares and the public stockholders could own a significantly smaller portion of the total outstanding shares of common stock than as contemplated by the IPO prospectus, previous filings with the SEC and the insider letter agreements.
See also Notes 1 and 4.
6. COMMITMENTS & CONTINGENCIES
There is no compensation, commission or discounts payable to the underwriters except for $25,000, which was paid to Chardan as qualified independent underwriter, and an additional $25,000 which would be payable to Chardan at the close of the Business Combination.
On May 10, 2016, the Company received a non-binding term sheet (the “Term Sheet”) with Serruya Private Equity (“SPE”), pursuant to which SPE committed to invest an amount up to $50,000,000 in connection with the closing by the Company of an initial business transaction, which amount will be in the sole discretion of SPE. The Term Sheet requires that the Company appoint a designee of SPE to its board of directors, and that the Company further agree not to consummate a Transaction without the unanimous consent of the Board.
Pursuant to the Term Sheet, on May 16, 2016, the Company entered into a letter agreement in which it agreed not to consummate a Transaction without the unanimous consent of the Board.
7. SUBSEQUENT EVENTS
2017 Extension Amendment and Trust Amendment
On April 10, 2017, the Company held a special meeting of stockholders pursuant to which the Company’s stockholders approved: (i) the Extension Amendment to (a) extend the date before which the Company must complete a business transaction to the Extended Termination Date, and provide that the date for cessation of operations of the Company if the Company has not completed a business transaction would similarly be extended, and to (b) allow holders of the Company’s public shares to redeem their public shares, in connection with (y) the Extension Amendment, and (z) the Second Redemption, for a pro rata portion of the funds available in the trust account and authorize the Company and the trustee to disburse such redemption payments; and (ii) the Trust Amendment, to permit distributions from the trust account to pay public stockholders properly demanding redemption in connection with (a) the Extension Amendment, and (b) the Second Redemption; and extend the date on which to commence liquidating the trust account in the event the Company has not consummated a business transaction from April 10, 2017 to the Extended Termination Date.
Committed Capital Acquisition Corporation II
PRO FORMA STATEMENTS OF STOCKHOLDERS’ EQUITY
Below is a pro forma statement of stockholders’ equity reflecting the forfeiture of 2,999,600 initial shares and the redemption of 2,042,044 shares of common stock in connection with the Extension Amendment.
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders' | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| BALANCE, DECEMBER 31, 2016 | 13,972,871 | $ | - | $ | 11,645,000 | $ | (1,157,000 | ) | $ | 10,488,000 | ||||||||||
| Shares forfeited by Founders in March 2017 | (2,999,600 | ) | - | - | - | - | ||||||||||||||
| Shares redeemed by stockholders in April 2017 | (2,042,244 | ) | - | (10,211,000 | ) | - | (10,211,000 | ) | ||||||||||||
| Shares redeemable until July 10, 2017 | (351,827 | ) | - | (1,434,000 | ) | (325,000 | ) | (1,759,000 | ) | |||||||||||
| Founder shares remaining assuming full redemption | 8,579,200 | - | - | (1,482,000 | ) | (1,482,000 | ) | |||||||||||||
Expense Agreement
On April 10, 2017, Messrs. Rapp and Wagenheim and Committed Capital Holdings LLC, (the “Sellers”), as holders of certain of the Company’s founder shares (the “Founder Shares”), entered into an agreement with Notespac, LLC (“Notespac”), KASPAC, LLC (“KASPAC”) and KSSPAC, LLC (“KSSPAC”, and together with KASPAC, the “Purchasers”) (the “Expense Agreement”).
The Expense Agreement provides that the Purchasers will enter into definitive agreements with the Sellers, among other holders of Founder Shares, to purchase substantially all of the Founder Shares owned by the Sellers (the “Purchase”). Upon completion of the Purchase, the Purchasers shall have the right to (i) replace the Company’s Board of Directors (the “Board”) with one or more of the Purchasers’ designees, (ii) require the resignation of the Company’s Chief Executive Officer and President, respectively, as well as any other corporate officer, and for the new Board to replace such individuals, and (iii) either purchase, or be empowered to cause the Company to cause forfeiture of, all or substantially all of the Founder Shares not already purchased by the Purchasers, as permitted by those certain insider letter agreements by and between the Company and its initial shareholders. Additionally, upon completion of the Purchase, the Company shall take all appropriate action to cause the following agreements to be terminated: (i) the term sheet entered into by and between the Company and Serruya Private Equity on May 10, 2017 (the “SPE Term Sheet”), (ii) the expense advancement agreement entered into by and between the Company and Broadband Capital Management LLC (“BCM”) on April 11, 2014 (referred to herein as the “Advancement Agreement”, which was terminated on April 10, 2017, as described below) and (iii) the trust indemnification agreement entered into by and between the Company, BCM and Mr. Rapp on April 11, 2014. Upon termination of the SPE Term Sheet, Aaron Serruya will resign from the Board.
The Expense Agreement also provides: (i) upon the closing of the Purchase, Messrs. Rapp and Wagenheim will sell to Notespac for an aggregate sum of $1,000, the principal amount due under any loans and/or advances made to the Company, together with all accrued and unpaid interest thereunder and calculated as of April 10, 2017, subject to adjustment as described in the Expense Agreement, (ii) Notespac will loan sufficient funds to the Company to pay certain costs and expenses related to the Proposals, which costs and expenses shall not exceed, in the aggregate, $175,000, and (iii) Notespac shall enter into a trust indemnification agreement relating to only those expenses and liabilities of the Company arising between the approval of the Extension Amendment and the Second Redemption.
F-13
Termination of Advancement Agreement
On April 10, 2017, the Company and Messrs. Rapp and Wagenheim entered into an agreement to terminate the Advancement Agreement, effective immediately.
F-14
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| COMMITTED CAPITAL ACQUISITION CORPORATION | |||
| Dated: May 26, 2017 | By: | /s/ Michael Rapp | |
| Michael Rapp | |||
| Chief Executive Officer (principal executive officer), Chairman and Director | |||
| Dated: May 26, 2017 | By: | /s/ Philip Wagenheim | |
| Philip Wagenheim | |||
| President, Secretary and Director | |||
| Title | Date | |||
| /s/ Michael Rapp | Chief Executive Officer, Chairman and Director | May 26, 2017 | ||
| Michael Rapp | ||||
| /s/ Philip Wagenheim | President, Secretary and Director | May 26, 2017 | ||
| Philip Wagenheim |
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EXHIBITS
| Exhibit No. | Description | |
| 3.1 |
Amended and Restated Certificate of Incorporation (Incorporated by reference to Form 8-K filed on April 16, 2014).
| |
| 3.2 |
Amended and Restated Bylaws (Incorporated by reference to Form 8-K filed on April 16, 2014).
| |
| 4.1 |
Specimen Unit Certificate (Incorporated by reference to Amendment No. 5 to Registration Statement on Form S-1 (File No. 333-192586) filed on March 28, 2014).
| |
| 4.2 |
Specimen Common Stock Certificate (Incorporated by reference to Registration Statement on Form S-1 (File No. 333-192586) filed on November 27, 2013).
| |
| 4.3 |
Specimen Warrant Certificate (Incorporated by reference to Amendment No. 5 to Registration Statement on Form S-1 (File No. 333-192586) filed on March 28, 2014).
| |
| 4.4 |
Warrant Agreement, dated April 10, 2014, by and between the Registrant and Continental Stock Transfer & Trust Company (Incorporated by reference to Form 8-K filed on April 16, 2014).
| |
| 10.1 | Investment Management Trust Agreement, dated April 10, 2014, by and between the Registrant and Continental Stock Transfer & Trust Company (Incorporated by reference to Form 8-K filed on April 16, 2014). | |
| 10.2 |
Registration Rights Agreement, dated April 10, 2014, by and between the Registrant and the stockholders listed on the signature page thereto (Incorporated by reference to Form 8-K filed on April 16, 2014).
| |
| 10.3 |
Form of Letter Agreement by and between the Registrant and each of Michael Rapp and Philip Wagenheim (Incorporated by reference to Amendment No. 5 to Registration Statement on Form S-1 (File No. 333-192586) filed on March 28, 2014).
| |
| 10.4 |
Form of Letter Agreement by and between the Registrant and Committed Capital Holdings II LLC (Incorporated by reference to Amendment No. 5 to Registration Statement on Form S-1 (File No. 333-192586) filed on March 28, 2014).
| |
| 10.5 |
Form of Letter Agreement by and between the Registrant and each of the other initial stockholders (Incorporated by reference to Amendment No. 5 to Registration Statement on Form S-1 (File No. 333-192586) filed on March 28, 2014).
| |
| 10.6 |
Form of Promissory Note of the Registrant issued and to be issued to Broadband Capital Management LLC (Incorporated by reference to Amendment No. 5 to Registration Statement on Form S-1 (File No. 333-192586) filed on March 28, 2014).
| |
| 10.7 |
Form of Indemnity Agreement (Incorporated by reference to Amendment No. 4 to Registration Statement on Form S-1 (File No. 333-192586) filed on March 10, 2014).
| |
| 10.8 |
Expense Advance Agreement, dated April 10, 2014, by and between the Registrant and Broadband Capital Management LLC (Incorporated by reference to Form 8-K filed on April 16, 2014).
| |
| 10.9 |
Trust Indemnification Agreement, dated April 11, 2014, by and among the Registrant, Broadband Capital Management LLC and Michael Rapp (Incorporated by reference to Form 8-K filed on April 16, 2014). | |
| 10.10 | Trust Indemnification Agreement, dated May 2, 2017, by and among the Registrant and Notespac, LLC. | |
| 10.11 | Second Amended and Restated Investment Management Trust Agreement, dated April 10, 2017, by and between the Registrant and Continental Stock Transfer & Trust Company (Incorporated by reference to Form 8-K filed on April 14, 2017). |
49
| 31.1 | Certification of the Registrant’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016.
| |
| 31.2 |
Certification of the Registrant’s Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016.
| |
| 32.1 |
Certification of the Registrant’s Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
| |
| 32.2 |
Certification of the Registrant’s Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002. | |
| 101* | INS XBRL Instance Document | |
| 101* | SCH XBRL Taxonomy Extension Scheme Document | |
| 101* | CAL XBRL Taxonomy Extension Calculation Link base Document | |
| 101* | DEF XBRL Taxonomy Extension Definition Link base Document | |
| 101* | LAB XBRL Taxonomy Label Link base Document | |
| 101* | PRE XBRL Extension Presentation Link base Document |
| * | Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
50