Item 1A. Risk Factors
Statements in this Annual Report on Form 10-K that are not strictly historical in nature and are forward-looking statements. These statements may include, but are not limited to, statements about the timing of a potential business transaction; our financial strength, our business strategy; and our estimates for future performance, anticipated operating losses, future revenues, capital requirements, and our needs for additional financing. In some cases, you can identify forward-looking statements by terms such as
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anticipates,
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believes,
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could,
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estimates,
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expects,
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intends,
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may,
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plans,
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potential,
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predicts,
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projects,
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should,
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will,
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would,
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goal,
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or other variations of these terms (including their use in the negative) or by discussions of strategies, plans or intentions. These statements are only predictions based on current information and expectations and involve a number of risks and uncertainties. The underlying information and expectations are likely to change over time.
Factors that could cause actual results to differ materially from what is expressed or forecasted in our forward-looking statements include, but are not limited to, the following:
Risks Related to Our Business
We are a shell company with no operating history and, accordingly, you will not have any basis on which to evaluate our ability to achieve our business objective.
We are a shell company incorporated on June 25, 2010 with no operating results to date. Since we do not have any operations or an operating history, you 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, share capital exchange, asset acquisition, share 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 a business transaction. We do not know when or if a business transaction will occur. The report of our independent registered public accountants on our financial
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statements includes an explanatory paragraph stating that our ability to continue as a going concern is dependent on the consummation of the business combination or raising substantial additional funds.
Our officers and directors currently have no obligation to present us with business transaction opportunities, which may have the effect of decreasing the number and, potentially, the quality of potential business targets we evaluate.
On October 24, 2012, FlatWorld and Rodman & Renshaw, LLC (
“
Rodman
”
) (i) terminated the Underwriting Agreement with the exception of certain indemnification provisions and (ii) provided Rodman & Renshaw
’
s consent to terminate the various insider letters between the insiders (the
“
Insiders
”
) and the Company (the
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Insider Letters
”
) and the FWAC Letter Agreement. Among other things, these letter agreements required our officers and directors to present to us for our consideration, prior to presentation to any other entity, any potential transaction opportunities which may reasonably be required to be presented to us under British Virgin Islands law, taking into account any other fiduciary obligations they might have. Because our officers and directors currently have no obligation to present us with such business transaction opportunities, the number and, potentially, the quality of potential business targets we will have the opportunity to evaluate could be impaired. Additionally, we cannot guarantee that conflicts of interest may not arise from the multiple corporate affiliations of our sponsor, officers and directors.
We do not intend to establish an audit committee or a compensation committee until the consummation of a business transaction.
Our board of directors intends to establish an audit committee and a compensation committee upon the consummation of a 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 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.
If we are deemed to be an investment company under the United States 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 a business transaction.
If we are deemed to be an investment company under the Investment Company Act of 1940, as amended, our activities may be restricted, including:
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restrictions on the nature of our investments; and
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restrictions on the issuance of securities, each of which may make it difficult for us to complete a business transaction.
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In addition, we may have imposed upon us burdensome requirements, including:
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registration as an investment company;
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adoption of a specific form of corporate structure; and
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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 a 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. By restricting the investment of cash to these instruments, and by having a business plan targeted at acquiring, growing and 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. If we were deemed to be subject to the Investment Company Act,
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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 our company to claims of punitive damages.
If we are forced to enter into insolvent liquidation or a petition for winding up is filed against us which is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/or insolvency laws as either a
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preferential transfer
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or a
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fraudulent conveyance.
”
As a result, a court could seek to recover all amounts received by our shareholders. Furthermore, because we have distributed the proceeds held in the trust account to our public shareholders, this may be viewed or interpreted as giving preference to our public shareholders 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 may have acted in bad faith, thereby exposing itself and our company to claims of punitive damages, by paying public shareholders 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.
We are not required to consider a target
’
s valuation when entering into or consummating our business transaction. Our officers
’
, directors
’
and advisors
’
unrestricted flexibility in identifying and selecting a prospective acquisition candidate, along with management
’
s financial interest in consummating an initial business transaction, may lead management to enter into an acquisition agreement that is not in the best interest of the our shareholders.
We will have virtually unrestricted flexibility in identifying and selecting a prospective acquisition candidate. Investors will be relying on our management
’
s ability to identify business transactions, 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 an initial business transaction, may lead management to enter into an acquisition agreement that is not in the best interest of our shareholders.
We may not obtain an opinion from an independent investment banking firm as to the fair market enterprise value of the target business or that the price we are paying for the business is fair to our shareholders.
We are not required to obtain an opinion from an independent investment banking firm that either the target business we select has a certain fair market enterprise value at the time of our signing a definitive agreement in connection with our initial business transaction or that the price we are paying is fair to our shareholders. The fair market enterprise value of such business will be determined by our board of directors based upon standards generally accepted by the financial community, such as actual and potential sales, earnings and cash flow and book value, and the price for which comparable businesses have recently been sold. If no opinion is obtained, our shareholders will be relying on the judgment of our board of directors.
We may issue additional ordinary shares to complete our initial business transaction which would reduce the equity interest of our shareholders and likely cause a change in control of our ownership.
Our ninth amended and restated memorandum and articles of association authorizes the issuance of an unlimited number of ordinary shares, no par value per share, and 5,000,000 preferred shares of no par value per share. There are unlimited numbers of authorized but unissued ordinary shares available for issuance and 5,000,000 preferred shares all of which will be available for issuance. Although we have no commitment as of the date of this Annual Report on Form 10-K, we may issue a substantial number of additional ordinary or preferred shares, or a combination of ordinary and preferred shares, to complete a business transaction. The issuance of additional ordinary shares or any number of preferred shares:
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may significantly reduce the equity interest of investors in the offering;
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may subordinate the rights of holders of ordinary shares if preferred shares are issued with rights senior to those afforded to the holders of our ordinary shares;
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may cause a change in control if a substantial number of our ordinary shares are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and may result in the resignation or removal of our present officers and directors; and
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may adversely affect prevailing market prices for our ordinary shares.
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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 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 business transaction for any number of reasons including those 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 a business transaction.
Our ability to successfully effect a business transaction and to be successful thereafter will be dependent in large part upon the background, experience and effort of our key personnel, including our officers and directors.
Our ability to successfully effect a business transaction is dependent upon the background, experience and effort 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 a 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. We do not intend to have any full time employees prior to the consummation of a business transaction. Certain of our executive officers are engaged in several other business endeavors and are not obligated to contribute any specific number of hours per week to our affairs. If our executive officers
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other business affairs 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 a business transaction. These conflicts may not be resolved in our favor.
Our officers, directors, advisors and their respective affiliates currently are, and may in the future become, affiliated with entities engaged in business activities that are similar to those intended to be conducted by us and, accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented.
Certain of our officers, directors, advisors and their respective affiliates have been principals of, or affiliated or associated with, other blank check companies, and/or may in the future become, affiliated with additional entities engaged in business activities similar to those intended to be conducted by us. Due to these existing affiliations, our officers and directors may have fiduciary obligations to present potential business opportunities to those entities prior to presenting them to us, which could cause additional conflicts of interest. Accordingly, they 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.
Our management may negotiate fees, employment, consulting or similar types of agreements with a target business in connection with a particular business transaction. These agreements may provide for them to receive compensation following a business transaction and, as a result, may cause them to have conflicts of interest in determining whether a particular business transaction is in the best interest of our public shareholders.
Our management may not be able to remain with the company after the consummation of a business transaction unless they are able to negotiate employment or consulting agreements in connection with a business transaction. If, as a condition to a potential initial business transaction, our existing officers negotiate to be retained after the consummation of the business transaction, or to be paid fees, such negotiations may result in a conflict of interest. Such negotiations would take place simultaneously with the negotiation of the business transaction and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services
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they would render to us after the consummation of the 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 a business transaction will not be the determining factor in our decision as to whether or not we will proceed with any potential business transaction. In making the determination as to whether current management should remain with us following the business transaction, we will analyze the experience and skill set of the target business
’
s management and negotiate as part of the 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 the business transaction.
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 a business transaction with one or more target businesses that have relationships or are affiliated with our sponsor, directors or officers, which may raise potential conflicts.
We may engage in a business transaction with one or more target businesses that have relationships or are affiliated (as defined in Rule 405 of the Securities Act) with our sponsor, directors or officers, which may raise potential conflicts. Also, the completion of a business transaction between us and an entity owned by a business in which one of our directors or officers may have an interest could enhance their prospects for future business from such client.
We will not be limited to a particular industry or geographic area and may acquire a business operating in an industry that is beyond the expertise of our management.
Our efforts in identifying a prospective target business will not be limited to any particular industry or geographic area, although we initially intend to focus our efforts on acquiring a target business having its primary operations in the United States. Our management will not rule out pursuing attractive business opportunities in any geographic location or industry, even if such location or industry is outside our areas of expertise, if our management determines that such business transaction is in the best interests of our company and shareholders.
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 acquire 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 acquisition.
Our officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that conflict with our interests.
We have not adopted a policy that expressly prohibits our directors, officers, securityholders or affiliates from having a direct or indirect pecuniary interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest. Nor do we have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours.
We may not be able to maintain control of a target business after our initial business transaction.
We may structure a business transaction to acquire less than 100% of the equity interests or assets of a target business, but will seek to acquire no less than a controlling interest. We will seek to acquire a controlling interest either through the acquisition of at least 50.1% of the voting equity interests in the target or through the acquisition of a significant voting equity interest that enables us to exercise a greater degree of control over the target than any other person or group. However, other minority shareholders may subsequently combine their holdings resulting in a single person or group obtaining a larger share of the company
’
s issued shares than we initially acquired. Accordingly, this may make it more likely that we will not be able to maintain our control of the target business.
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In order to effectuate a business transaction, blank check/shell companies have, in the recent past, amended various provisions of their charters and modified governing instruments. We cannot assure you that we will not seek to amend our memorandum and articles of association or governing instruments in order to effectuate our initial business transaction.
In order to effectuate a business transaction, blank check/shell companies have, in the recent past, amended various provisions of their constitutional documents and modified governing instruments. For example, blank check/shell companies have amended the definition of business transaction, increased redemption thresholds and changed industry focus. We cannot assure you that we will not seek to amend our memorandum and articles of association in order to effectuate our initial business transaction.
Unlike most other blank check/shell companies, the provisions of our ninth amended and restated memorandum and articles of association may be amended with the approval of a majority of our shareholders.
Most blank check/shell companies have a provision in their constitutional documents 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 shareholders. Typically, amendment of these provisions requires approval by between 90% and 100% of the company
’
s public shareholders. Our ninth amended and restated memorandum and articles of association provides that any of its provisions, including those related to pre-business transaction activity, may be amended if approved by a majority of our shareholders. As a result, we may be able to amend the provisions of our ninth amended and restated memorandum and articles of association more easily that other blank check companies and this may increase our ability to consummate a business transaction with which you do not agree.
We may issue notes or other debt securities, or otherwise incur substantial debt, to complete a business transaction, which may adversely affect our leverage and financial condition.
Although we have no commitments as of the date of the prospectus to issue any notes or other debt securities, or to otherwise incur outstanding debt, we may choose to incur substantial debt to complete a business transaction. The incurrence of debt could result in:
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default and foreclosure on our assets if our operating cash flow after a business transaction is insufficient to pay our debt obligations;
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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;
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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;
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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;
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our inability to pay dividends on our ordinary shares;
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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 ordinary shares if declared, expenses, capital expenditures, acquisitions and other general corporate purposes;
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limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
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increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and
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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.
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Our sponsor controls a substantial interest in us and thus may influence certain actions requiring a shareholder vote.
Our sponsor owns 20% of our issued and outstanding ordinary shares. This ownership interest, together with any other acquisitions of our ordinary shares, could allow our sponsor to influence the outcome of matters requiring shareholder approval, including the business transaction and election of directors. Unlike other blank check/shell companies, our sponsor has no requirement to vote with the majority of the public shareholders which are entitled to vote and, therefore, may have a significant influence on the approval of an initial business transaction, which may not be in your best interest.
Additionally, our board of directors is 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.
It is unlikely that there will be an annual meeting of shareholders 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 business transaction. If there is an annual meeting, as a consequence of our
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staggered
”
board of directors, only a minority of the board of directors will be considered for election and our sponsor, because of its ownership position, will have considerable influence regarding the outcome of an election of directors. The interests of our sponsor and your interests may not always align and taking actions which require approval of a majority of our shareholders which are entitled to vote, such as selling the company, may be more difficult to accomplish.
We may be unable to obtain additional financing, if required, to complete a 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 business transaction.
As of December 31, 2015, we had cash of $41 and therefore have little capacity to offer cash consideration as part of a business transaction. If a business transaction requires cash, we will be required to seek 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 shareholders are required to provide any financing to us in connection with or after a business transaction.
As a shell company we are subject to certain special rules under the federal securities laws which may limit our ability to raise additional financing to fund our operations.
We are a
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shell company
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under the federal securities laws. A
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shell company
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is a public reporting company that has no or nominal assets (other than cash), and no or nominal operations. Shell companies are subject to certain special rules under the federal securities laws, including: (i) specific disclosure requirements on Form 8-K (or its equivalent for foreign issuers) upon the consummation of a transaction that effects a change in control or changes the shell company into a non-shell company; (ii) limitations in the use of certain short-form registration statements under the Securities Act of 1933 (the
“
Securities Act
”
) while a shell company, including Form S-8 registration statements used in connection with employee benefit plans; (iii) ineligibility for certain streamlined procedures and publicity rules in connection with public offerings while a shell company and for a period of three years thereafter; and (iv) unavailability of the resale provisions of Rule 144 of the Securities Act until one year following the Form 8-K disclosure described above.
Compliance with the Sarbanes-Oxley Act of 2002 could 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. As a company with a market capitalization less than $75 million, per Section 404(b) of the Sarbanes-Oxley Act (added as part of the Dodd-Frank Act), we will be permanently exempt from the requirement that we have such system of internal controls audited. If no further action is taken by Congress or the SEC, at such time as we exceed a market capitalization of $75 million, we will be required to comply with such audit requirement. Further, if we generally fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or shareholder litigation and any inability to provide reliable financial reports could harm our business.
Regardless of value and sophistication (if privately held) or market capitalization (if public), there can be no assurances a target company will be in compliance with all such applicable provisions of the Sarbanes-Oxley Act
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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.
Because any target business with which we attempt to complete a business transaction may be required to provide our shareholders with financial statements prepared in accordance with and reconciled to United States generally accepted accounting principles, or International Financial Reporting Standards, prospective target businesses may be limited.
In accordance with requirements of United States federal securities laws, in order to consummate a business transaction, a proposed target business may be required to have certain financial statements which are prepared in accordance with, or which can be reconciled to, U.S. generally accepted accounting principles, or GAAP, or International Financial Reporting Standards, as issued by the International Accounting Standards Board, or International GAAP, and audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB. Thus, to the extent that a proposed target business does not have financial statements which have been prepared with, or which can be reconciled to, GAAP, or International GAAP, and audited in accordance with the standards of the PCAOB, we may not be able to complete a business transaction with that proposed target business.
These financial statement requirements may limit the pool of potential target businesses with which we may complete a business transaction. Furthermore, to the extent that we seek to acquire a target business that does not have financial statements prepared in accordance with GAAP, or International GAAP, it could make it more difficult for our management to analyze such target business.
We do not currently intend to hold an annual meeting of shareholders until after our consummation of a business transaction.
We do not currently intend to hold an annual meeting of shareholders until after we consummate our initial business transaction. Therefore, if our shareholders want us to hold a meeting prior to such consummation, they may requisition the directors to hold one upon the written request of members entitled to exercise at least 30 percent of the voting rights in respect of the matter for which the meeting is requested. Under British Virgin Islands law, we may not increase the required percentage to call a meeting above 30 percent.
The grant of registration rights to our sponsor 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 ordinary shares.
Pursuant to a registration rights agreement, our sponsor and its permitted transferees can demand that we register the initial shares. We will bear the cost of registering these securities. If our sponsor exercises its registration rights in full, there will be an additional 573,875 ordinary shares. 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 ordinary shares. In addition, the existence of the registration rights may make our initial business transaction more costly or difficult to conclude. This is because the shareholders 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 ordinary shares that is expected when the securities owned by our sponsor are registered.
Because of our limited resources and the significant competition for business transaction opportunities, it may be more difficult for us to complete a business transaction.
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/shell companies and other entities, domestic and international, competing for the type 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
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proceeds of the offering, 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.
Our securities are quoted on the OTC Bulletin Board, which may limit the liquidity and price of our securities more than if our securities were quoted or listed on the Nasdaq Stock Market or another national exchange.
Our ordinary shares are traded in the over-the-counter market and are quoted on the OTC Bulletin Board, a FINRA-sponsored and operated inter-dealer automated quotation system for equity securities not included in the Nasdaq Stock Market, which we refer to as NASDAQ. Quotation of our securities on the OTC Bulletin Board may limit the liquidity and price of our securities more than if our securities were quoted or listed on Nasdaq or a national exchange. Lack of liquidity may limit the price at which you may be able to sell our securities or your ability to sell our securities at all.
We will be quoted on the OTC Bulletin Board for the immediate future.
We currently do not meet the eligibility requirements for listing on NASDAQ. Until we meet those standards and are accepted into NASDAQ, or unless we are successful in securing a listing on the NYSE MKT (formerly the American Stock Exchange) or some other exchange, our ordinary shares will be quoted only on the OTC Bulletin Board. Such a listing is considered less prestigious than a NASDAQ or an exchange listing, and many brokerage firms will not recommend Bulletin Board stocks to their clients. This situation may limit the liquidity of your shares.
Our ordinary shares are subject to the SEC
’
s penny stock rules, brokerdealers may experience difficulty in completing customer transactions and trading activity in our securities may be adversely affected.
Our ordinary shares are subject to the
“
penny stock
”
rules promulgated under the Exchange Act, brokerdealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected. As a result, the market price of our securities may be depressed, and you may find it more difficult to sell our securities.
Since we currently have net tangible assets of less than $5,000,000 and our ordinary shares have a market price per share of less than $5.00, transactions in our ordinary shares are subject to these
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penny stock
”
rules. Under these rules, brokerdealers who recommend such securities to persons other than institutional accredited investors must:
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make a special written suitability determination for the purchaser;
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receive the purchaser
’
s written agreement to the transaction prior to sale;
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provide the purchaser with risk disclosure documents which identify certain risks associated with investing in
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penny stocks
”
and which describe the market for these
“
penny stocks
”
as well as a purchaser
’
s legal remedies;
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obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a
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penny stock
”
can be completed; and
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cancel
the purchase transaction in violation of the
“
penny stock
”
rules and return the investor
’
s money.
We may qualify as a passive foreign investment company, or
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PFIC,
”
which could result in adverse U.S. federal income tax consequences to U.S. investors
.
In general, we will be treated as a PFIC for any taxable year in which either (1) at least 75% of our gross income (looking through certain 25% or more-owned corporate subsidiaries) is passive income or (2) at least 50% of the average value of our assets (looking through certain 25% or more-owned corporate subsidiaries) is attributable to assets that produce, or are held for the production of, passive income. Passive income generally includes, without limitation, dividends, interest, rents, royalties, and gains from the disposition of passive assets. If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder of our ordinary shares or warrants, the U.S. Holder may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements. We intend to elect a fiscal year ending on June 30 of each year as our taxable year for U.S. federal income tax purposes. Our actual PFIC status for our taxable year ending June 30, 2011 may depend on whether we qualify for the PFIC start-up exception. We likely will be a PFIC for our taxable year ending June 30, 2011 unless we complete a business transaction in our taxable year ending June 30, 2012 and
12
are not treated as a PFIC for either of our taxable years ending June 30, 2012 or June 30, 2013. Our actual PFIC status for any taxable year, however, will not be determinable until after the end of such taxable year. Accordingly, there can be no assurance with respect to our status as a PFIC for our current taxable year or any subsequent taxable year. We urge U.S. investors to consult their own tax advisors regarding the possible application of the PFIC rules.
International and political events could adversely affect our results of operations and financial condition.
We may enter into an initial business transaction with a non-U.S. entity and, accordingly, a significant portion of our post business transaction revenue may be derived from non-U.S. operations, which exposes us to risks inherent in doing business in each of the countries in which we transact business. The occurrence of any of the risks described below could have a material adverse effect on our results of operations and financial condition.
Operations in countries other than the U.S. are subject to various risks peculiar to each country. With respect to any particular country, these risks may include:
·
expropriation and nationalization of our assets in that country;
·
political and economic instability;
·
civil unrest, acts of terrorism, force majeure, war, or other armed conflict;
·
natural disasters, including those related to earthquakes and flooding;
·
inflation;
·
currency fluctuations, devaluations, and conversion restrictions;
·
confiscatory taxation or other adverse tax policies;
·
governmental activities that limit or disrupt markets, restrict payments, or limit the movement of funds;
·
governmental activities that may result in the deprivation of contract rights; and
·
governmental
activities that may result in the inability to obtain or retain licenses required for operation.
Uninsured claims and litigation could adversely impact our operating results.
After a business transaction, we expect to secure insurance coverage against operating hazards. However, we may not be able to procure insurance for the particular risks associated with our target business on favorable economic terms if at all, and the nature and amount of that insurance may not be sufficient to fully indemnify us against liabilities arising out of pending and future claims and litigation. This insurance typically has deductibles or self-insured retentions and contains certain coverage exclusions. In addition, this insurance typically does not cover damages from breach of contract by us or based on alleged fraud, gross
negligence
,
misrepresentation
or other
deceptive trade practices. Insurance and customer agreements do not provide complete protection against losses and risks, and our results of operations could be adversely affected by unexpected claims not covered by insurance.
We may re-incorporate in another jurisdiction in connection with a business transaction, and the laws of such jurisdiction will likely govern all of our material agreements and we may not be able to enforce our legal rights.
In connection with a business transaction, we may relocate the home jurisdiction of our business from the British Virgin Islands to another jurisdiction. If we determine to do this, the laws of such jurisdiction would likely govern all of our material agreements. We cannot assure you that the system of laws and the enforcement of existing laws in such jurisdiction would be as certain in implementation and interpretation as in the United States. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities or capital. Any such reincorporation and the international nature of our business will likely subject us to foreign regulation.
You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because we are incorporated under British Virgin Islands law.
We are a company incorporated under the laws of the British Virgin Islands, and substantially all of our assets are located outside the United States. In addition, certain of our directors and officers are nationals or residents of jurisdictions other than the United States, such as Canada and India, and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within
13
the United States upon our directors or executive officers, or enforce judgments obtained in the United States courts against our directors or officers.
Our corporate affairs will be governed by our ninth amended and restated memorandum and articles of association, the Companies Act and the common law of the British Virgin Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under British Virgin Islands law are to a large extent governed by the Act and the common law of the British Virgin Islands. The common law of the British Virgin Islands is derived from English common law, and the decisions of the English courts are of persuasive authority, but are not binding on a court in the British Virgin Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law may not be as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United States, and some states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law. In addition, while statutory provisions do exist in British Virgin Islands law for derivative actions to be brought in certain circumstances, shareholders in British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred.
The British Virgin Islands courts are also unlikely:
·
to recognize or enforce against us judgments of courts of the United States based on certain civil liability provisions of U.S. securities laws; and
·
to
impose liabilities against us, in original actions brought in the British Virgin Islands, based on certain civil liability provisions of U.S. securities laws that are penal in nature.
There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits provided that in respect of the U.S. judgment:
·
the U.S. court issuing the judgment had jurisdiction in the matter and the company either submitted to such jurisdiction or was resident or carrying on business within such jurisdiction and was duly served with process;
·
the judgment given by the U.S. court was not in respect of penalties, taxes, fines or similar fiscal or revenue obligations of the company;
·
in obtaining judgment there was no fraud on the part of the person in whose favor judgment was given or on the part of the court;
·
recognition or enforcement of the judgment in the British Virgin Islands would not be contrary to public policy; and
·
the
proceedings pursuant to which judgment was obtained were not contrary to natural justice.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a U.S. company.
Our ninth amended and restated memorandum and articles of association permit the board of directors to create additional classes of securities, including shares with rights, preferences, designations and limitations as they determine which may have an anti-takeover effect.
Our ninth amended and restated memorandum and articles of association permits the board of directors to designate rights, preferences, designations and limitations attaching to the preferred shares as they determine in their discretion, without shareholder approval with respect the terms or the issuance. If issued, the rights, preferences, designations and limitations of the preferred shares would be set by the board of directors and could operate to the
14
disadvantage of the outstanding ordinary shares. Such terms could include, among others, preferences as to dividends and distributions on liquidation, or could be used to prevent possible corporate takeovers.
Existing shareholders may experience significant dilution from our issuance of shares to repay amounts due to affiliates if such obligations are converted into loans that are convertible into our common stock.
If we choose to repay amounts due to our affiliates by issuing convertible debentures, the possible issuance of shares on conversion of such convertible debentures will have a dilutive impact on our shareholders. As a result, our net income per share could decrease in future periods, and the market price of our common stock could decline. In addition, the lower our stock price is, the more shares of common stock we will have to issue as the debentures are converted on the basis of the contemporaneous market price. If our stock price is lower, then our existing shareholders would experience greater dilution.
Future sales of shares of our ordinary shares or the issuance of securities senior to our ordinary shares could adversely affect the trading price of our ordinary shares and our ability to raise funds in new equity offerings.
We may issue additional ordinary shares, preferred shares or securities convertible into or exchangeable for ordinary shares, in the future. Future sales of substantial amounts of our ordinary shares or equity-related securities in the public market or privately, or the perception that such sales could occur, could adversely affect prevailing trading prices of our ordinary shares and could impair our ability to raise capital through future offerings of equity or equity-related securities. No prediction can be made as to the effect, if any, that future sales of shares of ordinary shares or the availability of shares of ordinary shares for future sale will have on the trading price of our ordinary shares.
There are relatively low barriers to becoming a blank check company or shell company, thereby increasing the competitive market for a small number of business opportunities.
There are relatively low barriers to becoming a blank check company or shell company. A newly incorporated company with a single stockholder and sole officer and director may become a blank check company or shell company by voluntarily subjecting itself to the SEC reporting requirements by filing and seeking effectiveness of a Form 10 with the SEC, thereby registering its ordinary shares pursuant to Section 12(g) of the Exchange Act. Assuming no comments to the Form 10 have been received from the SEC, the registration statement is automatically deemed effective 60 days after filing the Form 10 with the SEC. The relative ease and low cost with which a company can become a blank check or shell company can increase the already highly competitive market for a limited number of private businesses that seek to consummate a business combination with a public company.
Our stockholders may be held liable for claims by third parties against us to the extent of distributions received by them.
Our stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in the distribution of the Trust Account. Because we are a blank check company, the claims that could be made against us are significantly limited and the likelihood that any claim that would result in any liability extending to the trust is minimal. However, our public stockholders could potentially be liable for any claims to the extent of distributions received by them in the Trust Account liquidation and any such liability of our stockholders will likely extend beyond the third anniversary of such dissolution. Accordingly, we cannot assure you that third parties will not seek to recover from our public stockholders amounts owed to them by us.
We may issue shares of our capital stock or debt securities to complete an acquisition, which would reduce the equity interest of our stockholders and likely cause a change in control of our ownership.
Our ninth amended and restated memorandum and articles of association authorizes the issuance of (i) an unlimited number of ordinary shares of no par value ("Ordinary Shares
”
), (ii) 1,000,000 Class A preferred shares of no par value each ("Class A Preferred Shares"), (iii) 1,000,000 Class B preferred shares of no par value each ("Class B Preferred Shares"), (iv)1,000,000 Class C preferred shares of no par value each ("Class C Preferred Shares"), (v) 1,000,000 Class D preferred shares of no par value each ("Class D Preferred Shares") and (vi) 1,000,000 Class E preferred shares of no par value each ("Class E Preferred Shares"), Class A
–
E Preferred shares together being
“
Preferred Shares
”
. As of December 31, 2015, we had outstanding 2,869,375 Ordinary Shares, and no Preferred Shares issued and outstanding. The issuance of additional ordinary shares or Class A preferred shares or any number of shares of our preferred shares:
·
may significantly reduce the equity interest of our stockholders;
15
·
will likely cause a change in control if a substantial number of our ordinary shares are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and most likely also result in the resignation or removal of our present officers and directors; and
·
may
adversely affect prevailing market prices for our ordinary shares.
Additionally, if we finance the purchase of assets or operations through the issuance of debt securities, it could result in
·
default and foreclosure on our assets if our operating revenues after an acquisition were 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 contained covenants that required the maintenance of certain financial ratios or reserves and any such covenant were breached without a waiver or renegotiation of that covenant;
·
our immediate payment of all principal and accrued interest, if any, if the debt security was payable on demand; and
·
our
inability to obtain additional financing, if necessary, if the debt security contained covenants restricting our ability to obtain additional financing while such security was outstanding.
We may have insufficient resources to cover our operating expenses and the expenses of consummating an acquisition.
Following the distribution of the Trust Account, we are in need of additional financing to fund our operating expenses. If we do not have sufficient funds available to fund our expenses, we may be forced to obtain additional financing, either from our management or the existing stockholders or from third parties. We may not be able to obtain additional financing and our existing stockholders and management are not obligated to provide any additional financing. If we do not have sufficient proceeds and cannot find additional financing, we may be forced to dissolve and liquidate prior to consummating a business combination.
Our external auditors have included an explanatory paragraph in their audit report raising substantial doubt as to the Company
’
s ability to continue as a going concern due to the Company
’
s history of losses, working capital deficiency and cash position.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of December 31, 2015, the Company had $41 in cash, and current liabilities exceeded current assets by about $422,111. These matters raise substantial doubt about the Company
’
s ability to continue as a going concern.
Our independent registered public accounting firm
’
s report contains and explanatory paragraph which has expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing
An acquisition of an operating company may not require the approval of our shareholders, so you may not be entitled to vote on such a business combination.
In the event the Company enters into a definitive agreement to acquire an operating company, the acquisition may not require stockholder approval, even if it constitutes a change in control of the Company, provided the Company
’
s ordinary shares is not then listed on a national exchange and the acquisition is structured so as not to require a stockholder vote. Accordingly, shareholders may not be entitled to vote on any future acquisition by, or of, the Company.
There has been a very limited public trading market for our securities, and the market for our securities may continue to be limited and may be sporadic and highly volatile.
Prior to September 9, 2012, there was a limited public market for our ordinary shares, which was quoted on the Over the Counter Bulletin Board (
“
OTCBB
”
). Following the liquidation of our Trust Account, there has been limited public trading in the ordinary shares. We cannot assure you that an active market for our ordinary shares will be established or maintained in the future. If we are unable to establish a public market for our ordinary shares,
16
holders will have no or limited liquidity. Holders of our ordinary shares may have to bear a complete loss of the value of their investment in us.
If we are able to establish a public market, the market price of our ordinary shares may be volatile, which could cause the value of our ordinary shares to decline. Securities markets experience significant price and volume fluctuations. This market volatility, as well as general economic conditions, could cause the market price of our ordinary shares to fluctuate substantially. Many factors beyond our control may significantly affect the market price of our shares. These factors include:
·
price and volume fluctuations in the stock markets;
·
changes in our earnings or variations in operating results;
·
any shortfall in revenue or increase in losses from levels expected by securities analysts;
·
changes in regulatory policies or law;
·
operating performance of companies comparable to us; and
·
general
economic trends and other external factors.
Even if an active market for our ordinary shares is established, stockholders may have to sell their shares at prices substantially lower than the price they paid for the shares or might otherwise receive than if an active public market existed.
Risks Associated with the Business Services Industry
While we may consummate a business transaction with a target in any industry, one of the sectors on which we will initially focus is the global business services sector. If we are successful in completing a business transaction with a target business in the business services sector, we will be subject to, and possibly adversely affected by, the following risks:
There is intense competition in the market for outsourcing services.
We believe that the principal competitive factors in business services markets are price, service quality, sales and marketing skills, and industry expertise. Certain factors may affect the competitive landscape in the outsourcing industry, including divestitures and acquisitions that result in consolidation within the industry. In addition, we may face competition from a client
’
s or potential client
’
s own in-house employees. We will also face competition from onshore and offshore business process outsourcing and information technology services companies. In addition, the trend toward offshore outsourcing, international expansion by foreign and domestic competitors and continuing technological changes will result in new and different competitors entering the outsourcing market. These competitors may include entrants from the communications, software and data networking industries or entrants in geographic locations with lower costs than those in which we intend to operate.
Some of these competitors will have greater financial, human and other resources, longer operating histories, greater technological expertise, more recognizable brand names and more established relationships. In addition, some of our potential competitors may enter into strategic or commercial relationships among themselves or with larger, more established companies in order to increase their ability to address client needs, or enter into similar arrangements with potential clients. Increased competition, our inability to compete successfully against competitors, or pricing pressures could harm our business.
Our business may not develop in ways that we currently anticipate due to negative public reaction to offshore outsourcing.
Upon a business transaction with a target in the business services industry, our strategy may be based on certain assumptions regarding our industry. The trend to outsource business services, however, may not continue and could reverse. In particular, offshore outsourcing is a politically sensitive topic in the United States, Europe and elsewhere. For example, many organizations and public figures in the United States and the U.K. have publicly expressed concern about a perceived association between offshore outsourcing providers and the loss of jobs in their home countries.
Wage pressures in our proposed offshore destinations may prevent target businesses from sustaining a competitive advantage and may reduce their profit margins.
Wage costs in offshore locations such as India, China, Malaysia and the Philippines have historically been significantly lower than wage costs in the United States for comparably skilled professionals, which we expect will
17
be one of the competitive strengths of offshoring the business services operations of a target business. However, if, following a business transaction, wages for skilled professionals increase in the country in which we have established a business services facility, we may not be able to sustain this competitive advantage, which could negatively affect profit margins.
Business service providers often encounter long sales and implementation cycles and require significant resource commitments by us and potential clients, which they may be unwilling or unable to make.
Providing business services will involve significant resource commitments by a company and its potential clients. Potential clients may require that we expend substantial time and money educating them as to the value of our services and assessing the feasibility of integrating our systems and processes with theirs. Decisions relating to engaging business service providers generally involve the evaluation of the service by our clients
’
senior management and a significant number of client personnel in various functional areas, each having specific and often conflicting requirements. We may expend significant funds and management resources during the sales cycle and ultimately the potential client may not engage our services. Our sales cycle for all of our services may be subject to significant risks and delays over which we have little or no control, including:
·
potential clients
’
alternatives to our services, including their willingness to replace their internal solutions or existing vendors;
·
potential clients
’
budgetary constraints, and the timing of our clients
’
budget cycles and approval process;
·
potential clients
’
willingness to expend the time and resources necessary to integrate their systems with our systems and network; and
·
the
timing and expiration of potential clients
’
current outsourcing agreements for similar services.
If we are unsuccessful in closing sales after expending significant funds and management resources, or if we experience delays in the sales cycle, it could have a negative impact on our revenues and margins. The sales and implementation process occupies important personnel resources that could otherwise be assisting other new clients. Moreover, after being engaged by a client after the sales process, it frequently takes an additional period of time to integrate the client
’
s systems with ours, and to thereafter ramp-up our services to the client
’
s requirements.
Unauthorized disclosure of sensitive or confidential client and customer data, whether through breach of our computer systems or otherwise, could expose us to protracted and costly litigation and cause us to lose clients.
Business service providers sometimes are required to collect and store sensitive data in connection with their services, including names, addresses, social security numbers, credit card account numbers, checking and savings account numbers and payment history records, such as account closures and returned checks. If any person, including any of our employees, penetrates our network security or otherwise misappropriates any sensitive data that we may have, we could be subject to liability for breaching contractual confidentiality provisions or privacy laws. Penetration of the network security of our data centers could have a negative impact on our reputation and could lead our present and potential clients to choose other service providers.
Our revenues may be highly dependent on a limited number of major clients and any loss of business from a target business
’
s major clients would reduce our revenues and growth.
Some business services companies derive a substantial portion of their revenues from a limited number of customers. Post business transaction, if we fail to renew or extend contracts with major clients, or if these contracts are terminated for cause or convenience, these clients will have no further obligation to purchase services from us. The loss of, or any significant decline in business from, one or more major clients could lead to a significant decline in revenues and operating margins, particularly if we are unable to make corresponding reductions in our expenses in the event of any such loss or decline. We may not be able to retain a target business
’
major clients following a business transaction if we were to lose any of a target business
’
major clients, we may not be able to timely replace the revenue generated by the lost clients. In addition, the revenue we generate from major clients may decline or grow at a slower rate in future periods than it has in the past. If we lose any major clients, or if they reduce the volume of services contracted from us, we may suffer from the costs of underutilized capacity because of our inability to eliminate all of the costs associated with conducting business with them, which could exacerbate the harm that any such loss or reduction would have on our operating results and financial condition.
18
Our clients may adopt technologies that decrease the demand for our services, which could reduce our revenues and threaten our ability to compete.
Our business will likely depend on our customers continued need for our services, especially major clients who generate the substantial majority of our revenues. However, over time, clients may adopt new technologies that streamline or automate business processes. The adoption of such technologies could reduce the demand for our services, pressure our pricing, cause a reduction in our revenues and threaten our ability to compete.
Post business transaction, we may fail to attract and retain enough sufficiently trained employees to support our operations, as competition for highly skilled personnel is intense and we experience significant employee attrition. These factors could have a material adverse effect on our business, results of operations, financial condition and cash flows.
The business services outsourcing industry relies on large numbers of skilled employees, and, following a business transaction, our success will depend to a significant extent on our ability to attract, hire, train and retain qualified employees. The business services outsourcing industry experiences high employee attrition. Following a business transaction, increased competition for these professionals, in the business services outsourcing industry or otherwise, could have an adverse effect on us. A significant increase in the attrition rate among employees with specialized skills could decrease our operating efficiency and productivity and could lead to a decline in demand for the services we intend to provide.
In addition, our ability to maintain and renew then-existing engagements and obtain new businesses will depend, in large part, on our ability to attract, train and retain personnel with skills that enable us to keep pace with growing demands for outsourcing, evolving industry standards and changing client preferences. Our failure either to attract, train and retain personnel with the qualifications necessary to fulfill the needs of our future clients or to assimilate new employees successfully could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Our operations may suffer from telecommunications or technology failure, disruptions or increased costs.
Our businesses may be highly dependent on our computer and telecommunications equipment and software systems. They may need to record and process significant amounts of data quickly and accurately to access, maintain and expand the databases used for the provision of business services. We may also be dependent on the continuous availability of voice and electronic communication with customers. If we experience an interruption of our telecommunications network as a result of errors by technology suppliers, clients or third parties, or electronic or physical attacks by persons seeking to disrupt our operations resulting in the temporary or permanent loss of telecommunications equipment and software systems, this would likely impede our ability to provide services to our clients. A significant interruption of service could damage our reputation and, ultimately, result in the loss of clients and revenue.
New technologies or processes may be adopted which could reduce a target businesses
’
revenues, increase costs and/or threaten their ability to compete.
New technologies or processes may be introduced by competitors that streamline or automate business processes in a manner that a target business may not have the resources to replicate. The adoption of such technologies could reduce the demand for target businesses
’
services, place pressure on pricing, cause a reduction in their revenues and/or threaten their ability to compete.
Risks Associated with Acquiring and Operating a Business in Emerging Market Countries
If we effect an initial business transaction with a company located outside of the United States, we would be subject to a variety of additional risks that may negatively impact our operations.
If we effect an initial business transaction with a company located outside of the United States, we would be subject to any special considerations or risks associated with companies operating in the target business
’
home jurisdiction, including any of the following:
·
rules and regulations or currency redemption or corporate withholding taxes on individuals;
·
laws governing the manner in which future business transactions may be effected;
·
exchange listing and/or delisting requirements;
·
tariffs and trade barriers;
19
·
regulations related to customs and import/export matters;
·
longer payment cycles;
·
tax issues, such as tax law changes and variations in tax laws as compared to the United States;
·
currency fluctuations and exchange controls;
·
rates of inflation;
·
challenges in collecting accounts receivable;
·
cultural and language differences;
·
employment regulations;
·
crime, strikes, riots, civil disturbances, terrorist attacks and wars; and
·
deterioration
of political relations with the United States.
We cannot assure you that we would be able to adequately address these additional risks. If we were unable to do so, our operations might suffer.
Because of the costs and difficulties inherent in managing cross-border business operations, our results of operations may be negatively impacted.
Managing a business, operations, personnel or assets in another country is challenging and costly. Any management that we may have (whether based abroad or in the U.S.) may be inexperienced in cross-border business practices and unaware of significant differences in accounting rules, legal regimes and labor practices. Even with a seasoned and experienced management team, the costs and difficulties inherent in managing cross-border business operations, personnel and assets can be significant (and much higher than in a purely domestic business) and may negatively impact our financial and operational performance.
If social unrest, acts of terrorism, regime changes, changes in laws and regulations, political upheaval, or policy changes or enactments occur in a country in which we may operate after we effect a business transaction, it may result in a negative impact on our business.
Political events in another country may significantly affect our business, assets or operations. Social unrest, acts of terrorism, regime changes, changes in laws and regulations, political upheaval, and policy changes or enactments could negatively impact our business in a particular country.
Because many countries have difficult and unpredictable legal systems and underdeveloped laws and regulations that are unclear and subject to corruption and inexperience, it may adversely impact our results of operations and financial condition.
Many countries have difficult and unpredictable legal systems and underdeveloped laws and regulations that are unclear and subject to corruption and inexperience. Our ability to seek and enforce legal protections, including with respect to intellectual property and other property rights, or to defend ourselves with regard to legal actions taken against us in a given country, may be difficult or impossible, which could adversely impact our operations, assets or financial condition.
Rules and regulations in many countries are often ambiguous or open to differing interpretation by responsible individuals and agencies at the municipal, state, regional and federal levels. The attitudes and actions of such individuals and agencies are often difficult to predict and inconsistent.
Delay with respect to the enforcement of particular rules and regulations, including those relating to customs, tax, environmental and labor, could cause serious disruption to operations abroad and negatively impact our results.
If relations between the United States and a foreign government deteriorate, it could cause potential target businesses or their goods and services to become less attractive.
The relationship between the United States and foreign governments could be subject to sudden fluctuation and periodic tension. For instance, the United States may announce its intention to impose quotas on certain imports.
20
Such import quotas may adversely affect political relations between the two countries and result in retaliatory countermeasures by the foreign government in industries that may affect our ultimate target business. Changes in political conditions in foreign countries and changes in the state of U.S. relations with such countries are difficult to predict and could adversely affect our operations or cause potential target businesses or their goods and services to become less attractive. Because we are not limited to any specific industry, there is no basis for investors in this offering to evaluate the possible extent of any impact on our ultimate operations if relations are strained between the United States and a foreign country in which we acquire a target business or move our principal manufacturing or service operations.
If we acquire control of a target business through contractual arrangements with one or more operating businesses in, for example, China or India, such contracts may not be as effective in providing operational control as direct ownership of such business and may be difficult to enforce.
While our efforts in identifying a prospective target business for our initial business transaction will not be limited to a particular industry or geographic region, we will focus our search on identifying a prospective target business in either (i) the global business services sector or (ii) emerging Asian markets, China or India. Certain governments such as the People
’
s Republic of China and India have restricted or limited foreign ownership of certain kinds of assets and companies operating in certain industries. The industry groups that are restricted are wide ranging, including, for example, certain aspects of telecommunications, food production, and heavy equipment manufacturers. In addition there can be restrictions on the foreign ownership of businesses that are determined from time to time to be in
“
important industries
”
that may affect the national economic security or having
“
famous brand names
”
or
“
well-established brand names.
”
Subject to the review and approval requirements of the relevant agencies for acquisitions of assets and companies in the relevant jurisdictions and subject to the various percentage ownership limitations that exist from time to time, acquisitions involving foreign investors and parties in the various restricted categories of assets and industries may nonetheless sometimes be consummated using contractual arrangements with permitted local parties. To the extent that such agreements are employed, they may be for control of specific assets such as intellectual property or control of blocks of the equity ownership interests of a company which may provide exceptions to the restrictions mentioned above since these types of arrangements typically do not involve a change of equity ownership in the operating company. The agreements would be designed to provide our company with the economic benefits of and control over the subject assets or equity interests similar to the rights of full ownership, while leaving the technical ownership in the hands of local parties who would be our nominees and, therefore, may exempt the transaction from certain regulations, including the application process required thereunder. However, since there has been limited implementation guidance provided with respect to such regulations, the relevant government agency might apply them to a business transaction effected through contractual arrangements. If such an agency determines that such an application should have been made or that our potential future target businesses are otherwise in violation of local laws or regulations, consequences may include confiscating relevant income and levying fines and other penalties, revoking business and other licenses, requiring restructure of ownership or operations, requiring discontinuation or restriction of the operations of any portion or all of the acquired business, restricting or prohibiting our use of the proceeds of this offering to finance our businesses and operations and imposing conditions or requirements with which we or potential future target businesses may not be able to comply. These agreements likely also would provide for increased ownership or full ownership and control by us when and if permitted under local laws and regulations. If we choose to effect a business transaction that employs the use of these types of control arrangements, we may have difficulty in enforcing our rights. Therefore, these contractual arrangements may not be as effective in providing us with the same economic benefits, accounting consolidation or control over a target business as would direct ownership. For example, if the target business or any other entity fails to perform its obligations under these contractual arrangements, we may have to incur substantial costs and expend substantial resources to enforce such arrangements, and rely on legal remedies under local law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure will be sufficient to off-set the cost of enforcement and may adversely affect the benefits we expect to receive from the business transaction.
If any dividend is declared in the future and paid in a foreign currency, you may be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.
If you are a U.S. holder of our ordinary shares, you will be taxed on the U.S. dollar value of your dividends, if any, at the time you receive them, even if you actually receive a smaller amount of U.S. dollars when the payment is in fact converted into U.S. dollars. Specifically, if a dividend is declared and paid in a foreign currency, the amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the payments made in the foreign currency, determined at the spot rate of the foreign currency to the U.S. dollar on the
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date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Thus, if the value of the foreign currency decreases before you actually convert the currency into U.S. dollars, you will be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.
If our management following a business transaction is unfamiliar with United States securities laws, they may have to expend time and resources becoming familiar with such laws which could lead to various regulatory issues.
Following a business transaction, our management will likely resign from their positions as officers of the company and the management of the target business at the time of the business transaction will remain in place. We cannot assure you that management of the target business will be familiar with United States securities laws. If new management is unfamiliar with our laws, they may have to expend time and resources becoming familiar with such laws. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect our operations.
After a business transaction, substantially all of our assets will likely be located in a foreign country and substantially all of our revenue will be derived from our operations in such country. Accordingly, our results of operations and prospects will be subject, to a significant extent, to the economic, political and legal policies, developments and conditions in the country in which we operate.
The economic, political and social conditions, as well as government policies, of the country in which our operations are located could affect our business. The economies of China, India and Southeast Asia differ from the economies of most developed countries in many respects. For the most part, such economies have grown at a rate in excess of the United States; however, (i) such economic growth has been uneven, both geographically and among various sectors of the economy and (ii) such growth may not be sustained in the future. If in the future such country
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s economy experiences a downturn or grows at a slower rate than expected, there may be less demand for spending in certain industries. A decrease in demand for spending in certain industries could materially and adversely affect our ability to find an attractive target business with which to consummate a business transaction and if we effect a business transaction, the ability of that target business to become profitable.
Currency policies may cause a target business
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ability to succeed in the international markets to be diminished.
Because our initial objective is to acquire a target business having its primary operating facilities located within China, India or Southeast Asia and because substantially all revenues and income would likely be received in a foreign currency, the dollar equivalent of our net assets and distributions, if any, could be adversely affected by reductions in the value of the local currency. The value of the currencies in our target regions fluctuate and are affected by, among other things, changes in political and economic conditions. Any change in the relative value of such currency against our reporting currency may affect the attractiveness of any target business or, following consummation of our initial business transaction, our financial condition and results of operations. Additionally, if a currency appreciates in value against the dollar prior to the consummation of a business transaction, the cost of a target business as measured in dollars will increase, which may make it less likely that we are able to consummate such transaction.
Because foreign law could govern almost all of our material agreements, we may not be able to enforce our rights within such jurisdiction or elsewhere, which could result in a significant loss of business, business opportunities or capital.
Foreign law could govern almost all of our material agreements. We cannot assure you that the target business will be able to enforce any of its material agreements or that remedies will be available outside of such foreign jurisdiction
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s legal system. The system of laws and the enforcement of existing laws and contracts in such jurisdiction may not be as certain in implementation and interpretation as in the United States. The judiciaries in China, India and Southeast Asia are relatively inexperienced in enforcing corporate and commercial law, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. As a result, the inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business and business opportunities.
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Many of the economies in China, India and Southeast Asia are experiencing substantial inflationary pressures which may prompt the governments to take action to control the growth of the economy and inflation that could lead to a significant decrease in our profitability following a business transaction.
While many of the economies in China, India and Southeast Asia have experienced rapid growth over the last two decades, they currently are experiencing inflationary pressures. As governments take steps to address the current inflationary pressures, there may be significant changes in the availability of bank credits, interest rates, limitations on loans, restrictions on currency conversions and foreign investment. There may also be imposition of price controls. If prices for the products of our ultimate target business rise at a rate that is insufficient to compensate for the rise in the costs of supplies, it may have an adverse effect on our profitability. If these or other similar restrictions are imposed by a government to influence the economy, it may lead to a slowing of economic growth. Because we are not limited to any specific industry, the ultimate industry that we operate in may be affected more severely by such a slowing of economic growth.
Many industries in China, India and Southeast Asia are subject to government regulations that limit or prohibit foreign investments in such industries, which may limit the potential number of acquisition candidates.
Governments in China and India and many governments in Southeast Asia have imposed regulations that limit foreign investors
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equity ownership or prohibit foreign investments altogether in companies that operate in certain industries. As a result, the number of potential acquisition candidates available to us may be limited or our ability to grow and sustain the business which we ultimately acquire will be limited.
If China, India or a country in Southeast Asia enacts regulations in industry segments that forbid or restrict foreign investment, our ability to consummate a business transaction could be severely impaired.
Many of the rules and regulations that companies face concerning foreign ownership are not explicitly communicated. If new laws or regulations forbid or limit foreign investment in industries in which we want to complete a business transaction, they could severely impair our candidate pool of potential target businesses. Additionally, if the relevant central and local authorities find us or the target business with which we ultimately complete a business transaction to be in violation of any existing or future laws or regulations, they would have broad discretion in dealing with such a violation, including, without limitation:
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levying fines;
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revoking our business and other licenses;
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requiring that we restructure our ownership or operations; and
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requiring
that we discontinue any portion or all of our business.
Any of the above could have an adverse effect on our company post-business transaction and could materially reduce the value of your investment.
Corporate governance standards in China, India and Southeast Asia may not be as strict or developed as in the United States and such weakness may hide issues and operational practices that are detrimental to a target business.
General corporate governance standards in some countries are weak in that they do not prevent business practices that cause unfavorable related party transactions, over-leveraging, improper accounting, family company interconnectivity and poor management. Local laws often do not go far enough to prevent improper business practices. Therefore, shareholders may not be treated impartially and equally as a result of poor management practices, asset shifting, conglomerate structures that result in preferential treatment to some parts of the overall company, and cronyism. The lack of transparency and ambiguity in the regulatory process may also result in inadequate credit evaluation and weakness that may precipitate or encourage financial crisis. In our evaluation of a business transaction we will have to evaluate the corporate governance of a target and the business environment, and in accordance with United States laws for reporting companies take steps to implement practices that will cause compliance with all applicable rules and accounting practices. Notwithstanding these intended efforts, there may be endemic practices and local laws that could add risk to an investment we ultimately make and that result in an adverse effect on our operations and financial results.
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