NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.
|
DESCRIPTION
OF ORGANIZATION AND BUSINESS OPERATIONS
|
Tempus
Applied Solutions Holdings, Inc. (“we”, the “Company” or “Tempus Holdings”) is a Delaware
corporation organized on December 19, 2014 as a direct, wholly owned subsidiary of Chart Acquisition Corp. (“Chart”).
We were formed solely for the purpose of effecting a business combination between Chart and Tempus Applied Solutions, LLC (“Tempus”).
Tempus was organized under the laws of Delaware on December 4, 2014 and provides turnkey flight operations, customized design,
engineering and modification solutions and training services that support critical aviation missions of the United States Department
of Defense (the “DoD”), the U.S. intelligence community, foreign governments, heads of state and high net worth individuals
worldwide. Tempus currently has the following eight subsidiaries: four wholly owned operating subsidiaries, Tempus Manx Aviation
Limited, Global Aviation Support, LLC, Proflight Aviation Services LLC and Tempus Jets, Inc., and four recently formed, wholly
owned entities that do not yet have any operations, Tempus Applied Solutions, Inc., Tempus Aero Solutions AG, Tempus Applied Solutions
Limited, and Tempus Training Solutions. The Company has its headquarters in Williamsburg, Virginia. The Company’s activities
are subject to significant risks and uncertainties, including without limitation the risks of deadline and budget overruns and
risks specific to government and international contracting businesses.
On
July 31, 2015, pursuant to an Agreement and Plan of Merger dated as of January 5, 2015, as amended (the “Merger Agreement”),
by and among Tempus Holdings, Chart, Tempus, the holders of Tempus’ membership interests named in the Merger Agreement (the
“Members”), Benjamin Scott Terry and John G. Gulbin III (together, in their capacity under the Merger Agreement as
the representative of the Members for the purposes set forth therein, the “Members’ Representative”), Chart
Merger Sub Inc. (“Chart Merger Sub”), Chart Financing Sub Inc. (“Chart Financing Sub”), TAS Merger Sub
LLC (“Tempus Merger Sub”), TAS Financing Sub Inc. (“Tempus Financing Sub”), Chart Acquisition Group LLC
(“CAG”), in its capacity under the Merger Agreement as the representative of the equity holders of Chart and Tempus
Holdings (other than the Members and their successors and assigns) for the purposes set forth therein and, for the limited purposes
set forth therein, CAG, Joseph Wright and Cowen Investments LLC, the following was effected: (i) Chart Financing Sub and Chart
Merger Sub merged with and into Chart, with Chart continuing as the surviving entity; (ii) Tempus Financing Sub and Tempus Merger
Sub merged with and into Tempus, with Tempus continuing as the surviving entity; and (iii) each of Chart and Tempus became wholly
owned subsidiaries of the Company. We refer to the transactions contemplated by the Merger Agreement as the “Business Combination.”
The
consummation of the Business Combination was preceded by a series of privately negotiated transactions, referred to collectively
herein as the “Financing”, involving aggregate cash investments of $10.5 million by three outside investor entities
(or affiliates thereof) that had not previously invested in Chart or Tempus (the “New Investors”), aggregate cash
investments of $5.0 million by the Sponsor, Mr. Joseph Wright and Cowen (collectively, the “Chart Affiliate Investors”)
and a cash investment of $500,000 by the Chief Financial Officer of Tempus (through his individual retirement account) (the “Tempus
Affiliate Investor”, and together with the Chart Affiliate Investors, the “Affiliate Investors”, and together
with the New Investors, the “Investors”).
Historically,
the Company has experienced operating losses and negative cash flows from operations, and it currently has a working capital deficit,
due principally to delays in the commencement of contracts that have already been won or are expected to be won, combined with
the recognition of start-up costs in excess of recognized revenue for contracts that have already commenced. Management expects
that these start-up costs will be recovered within the next 12 months of operations and, assuming the timely commencement of new
contracts, that the Company will reverse its working capital deficit over the coming 12 months. Nevertheless, whether, and when,
the company can attain positive operating cash flows from operations is highly dependent on the commencement of these new contracts
and the timing of their commencement. Management believes that the uncertainties regarding these contracts and their timing cast
substantial doubt upon the Company’s ability to continue as a going concern, especially in the near term and prior to the
passage of the next 12 months.
In
light of the foregoing, the Company has implemented cost cutting initiatives and continues to explore possibilities for raising
both working capital and longer-term capital from outside sources in various possible transactions. Our cash flows and liquidity
plans remain subject to a number of risks and uncertainties. See “Item 1A. Risk Factors” of our Annual Report on Form
10-K (the “Form 10-K”).
3.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Presentation
The
Company has prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America for interim financial information. In our opinion, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended
June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
The
accompanying consolidated financial statements are presented in U.S. dollars in conformity with accounting principles generally
accepted in the United State of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”).
Because
Tempus was deemed the accounting acquirer in the Business Combination, which was consummated on July 31, 2015, the historical
financial information for the six months ended June 30, 2016 and 2015 reflects the financial information and activities of Tempus
only. In conjunction with the Business Combination, all outstanding membership interests of Tempus were exchanged for shares of
the Company’s common stock. The historical members’ equity of Tempus (which is a limited liability company) has been
retroactively adjusted to reflect the stockholders’ equity structure of Tempus Holdings (which is a corporation), using
the respective exchange ratios established in the Business Combination. This reflects the number of shares Tempus Holdings issued
to the members of Tempus upon the consummation of the Business Combination. Accordingly, all shares and per share amounts for
all periods presented in these consolidated financial statements and the notes thereto have been adjusted retrospectively, where
applicable, to reflect the respective exchange ratios established in the Business Combination. For details on the conversion of
Tempus’ membership interests into Company common stock, see the Company’s Current Report on Form 8-K filed with the
SEC on August 6, 2015 in connection with the Business Combination.
The
Company manages, analyzes and reports on its business and results of operations on the basis of one operating segment, flight
operations and support. Our chief executive officer is the primary decision maker.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Tempus Holdings and its subsidiaries. Significant inter-entity accounts
and transactions have been eliminated.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
Income
Tax
The
Company follows the reporting requirements of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 740 “Income Taxes”, which requires an asset and liability approach to financial accounting and
reporting for income taxes. The Company recognizes deferred tax assets or liabilities based on differences between the financial
statement and tax basis of assets and liabilities that will result in future taxable or deductible amounts calculated on enacted
tax laws and rates applicable to the periods in which the differences are expected to be ultimately realized.
FASB
ASC 740, Income Taxes, sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain
tax positions. This interpretation uses a two-step approach wherein a tax benefit is recognized if a position is more-likely-than-not
to be sustained upon examination by taxing authorities. The amount of the benefit is then measured to be the highest tax benefit
that is greater than 50% likely to be realized.
Tempus,
a limited liability company, was the acquiror in the Business Combination; therefore, Tempus’ taxable income or loss for
the period commencing January 1, 2015 through July 31, 2015 (the effective date of the Business Combination) is allocated to its
members in accordance with its operating agreement and is reflected in the members’ income taxes. The members' income tax
filings are subject to audit by various taxing authorities depending on their physical residence. All members reside in the United
States of America.
Tempus’
consolidated financial statements reflect a provision or liability for Federal and state income taxes for the period commencing
January 1, 2015 through June 30, 2015 for Chart, the predecessor company, and for Tempus Holdings for the period commencing January
1, 2016 through June 30, 2016.
The
Company’s tax returns are subject to possible examination by the taxing authorities. For income tax purposes, the tax returns
essentially remain open for possible examination for a period of three years after the respective filing of those returns.
Revenue
Recognition
The
Company uses the percentage-of-completion method for accounting for long-term aircraft maintenance and modification fixed-price
contracts to recognize revenues and receivables for financial reporting purposes. Revenues from firm fixed price contracts
are measured by the percentage of costs incurred to date to estimated total costs for each contract. Revenues from time-and-material
line items are measured by direct labor hours or flight hours incurred during the period at the contracted hourly rates plus the
cost of materials, if applicable. To the extent this earned revenue is not invoiced, it is recognized as earnings in excess of
billings and is represented in other accounts receivable on the consolidated balance sheets. Earnings in excess of billings were
$352,025 at June 30, 2016. There were no earnings in excess of billings at December 31, 2015.
The
Company records payments received in advance for services to be performed under contractual agreements and billings in excess
of costs on uncompleted fixed-price contracts as deferred revenue until such related services are provided. Deferred revenue was
$16,663 and $48,130 at June 30, 2016 and December 31, 2015, respectively.
Revenue
on leased aircraft and equipment representing rental fees and financing charges are recorded on a straight line basis over the
term of the leases.
Currently,
the Company’s consolidated revenues consist principally of revenues earned under aircraft management contracts (which are
based on fixed expenses and fees plus variable expenses and fees tied to actual aircraft flight hours) and revenues earned from
the provision of leased aircraft.
Pre-contract
Costs
We
capitalize the pre-contract costs we incur, excluding start-up costs which are expensed as incurred, if we determine that it is
probable that we will be awarded a specific anticipated contract. These capitalized costs are recognized as a cost of revenue
ratably across flight hours that are expected to be flown, as they are actually flown, for that particular contract. Capitalized
pre-contract costs of $615 and $334,134 at June 30, 2016 and December 31, 2015, respectively, are included in other current assets
in the accompanying consolidated balance sheets. Should future orders not materialize or should we determine that the costs are
no longer probable of recovery, the associated capitalized costs would be written off.
Cash
and Cash Equivalents
For
purposes of cash flow, the Company considers all cash accounts that are not subject to withdrawal restrictions or penalties, and
highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash balances usually
do exceed federally insured limits.
Restricted
Cash
The
Company considers cash or highly liquid debt instruments on deposit with financial institutions that are held to secure an obligation
by the Company to be restricted cash. As of June 30, 2016 and December 31, 2015, the Company had restricted cash balances of $200,000
and $1,100,000 respectively. This balance consists of a certificate of deposit that secures the Company’s credit card borrowings
in the amount of $200,000 and $350,000 at June 30, 2016 and December 31, 2015, respectively, and a $750,000 certificate of deposit
that secured a standby letter of credit in support of the Company’s response to a formal contract bid at December 31, 2015.
Standby
Letters of Credit
As
of December 31, 2015, the Company had deposited $750,000 into a certificate of deposit to secure a standby letter of credit in
support of the Company’s response to a formal contract bid. The standby letter of credit was included in restricted cash
and cancellable only by the beneficiary in certain circumstances, to draw drafts on the issuing bank up to the face amount of
the standby letter of credit under the rules relating to the contract billing process in which the $750,000 served as a bid bond.
On February 18, 2016, the Company was notified that the beneficiary was terminating contract negotiations and liquidating the
bid bond. The Company retrospectively took a full reserve against the standby letter of credit for the full amount of $750,000,
which was included in accrued liabilities at December 31, 2015.
Accounts
Receivable
Trade
accounts receivable are recorded at the invoiced amount and do not bear interest.
The
Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical
trends and other relevant information. Management believes that its contract acceptance, billing and collection policies
are adequate to minimize the potential credit risk associated with accounts receivable. The Company had $0 and $14,600 allowance
for doubtful accounts as of June 30, 2016 and December 31, 2015, respectively.
Property
and Equipment
Property
and equipment is stated at cost, less accumulated depreciation. Maintenance and repairs, including replacement of minor items
of physical properties, are charged to expense; major additions to physical properties are capitalized.
It
is the Company’s policy to commence depreciation upon the date that assets are placed into service. For the six months ended
June 30, 2016, the Company recognized depreciation of fixed assets in the amount of $26,285. There was no recognized depreciation
as of June 30, 2015. Depreciation is computed on a straight-line basis over the estimated service lives of the assets as follows:
|
|
Years
|
Computer equipment
|
|
3-5
|
Furniture and fixtures
|
|
3-5
|
Intangibles
Intangibles
are stated at cost, less accumulated amortization. Intangibles consist of computer software, Federal Aviation Administration (the
“FAA”) licenses and independent research and development costs associated with the development of supplemental type
certificates (“STCs”).
STCs
are authorizations granted by the FAA for specific modifications of a certain aircraft. An STC authorizes us to perform modifications,
installations, and assemblies on applicable customer-owned aircraft. While the legal life of an STC is indefinite, we intend to
fully amortize STC development costs on a straight line basis over the expected economic life of the STC. It is the Company’s
policy to commence amortization of STCs in the period following the date that the STC is formally granted by the FAA. As of June
30, 2016, we have recognized no amortization of these costs.
On
October 1, 2015, the Company purchased Proflight Aviation Services, LLC, which provides flight training services under a Federal
Aviation Regulations (“FAR”) Part 141 certificate. The total purchase price of $50,000 was allocated to intangibles
and is considered to be indefinite-lived.
On
March 15, 2016, the Company purchased Tempus Jets, Inc. (“TJI”) from our CEO B. Scott Terry for non-cash consideration
of $500,000, paid in the form of 242,131 shares of common stock of the Company. TJI owns an operating certificate issued
by the FAA in accordance with the requirements of Parts 119 and 135 of the FAR (the “Operating Certificate”). The
total purchase price of $500,000 was allocated to intangibles and is considered to be indefinite-lived. The Company intends to
file an election under I.R.C. Section 338(h)(10) to treat this qualified acquisition of stock as an acquisition of assets for
tax purposes.
It
is the Company’s policy to commence amortization of computer software upon the date that assets are placed into service.
For the six months ended June 30, 2016, the Company recognized amortization expense of computer software in the amount of $13,543.
For the six months ended June 30, 2015 there was no amortization expense. Amortization is computed on a straight-line basis over
the estimated service lives of the assets as follows:
|
|
Years
|
Computer
software
|
|
3
|
Long-Lived
Assets
The
Company reviews its long-lived assets and certain related intangibles for impairment whenever changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. As a result of its review, the Company does not believe that
any such change has occurred. If such changes in circumstance are present, a loss is recognized to the extent the carrying value
of the asset is in excess of the fair value of cash flows expected to result from the sale of the asset and amounts expected to
be realized upon its eventual disposition.
Customer
Deposits
In
the normal course of business, the Company receives cash as security for certain contractual obligations, which are held on deposit
until termination of the contract. Customer deposits are returned to the customer at contract termination or taken into income
if the customer fails to perform under the contract. At June 30, 2016, and December 31, 2015, the Company held $361,181 and $754,545,
respectively, in customer deposits.
Sales
and Marketing
The
Company records costs for general advertising, promotion and marketing programs at the time those costs are incurred. Sales and
Marketing expense was $485,617 and $219,561 for the six months ended June 30, 2016 and 2015, respectively.
Inventory
The
Company values its inventory at the lower of average cost, first-in-first-out (“FIFO”) or net realizable value. Any
identified excess, slow moving, and obsolete inventory is written down to its market value through a charge to income from operations.
There was $17,706 and $24,999 in inventory recorded at June 30, 2016 and December 31, 2015, respectively.
Stock
Based Compensation
The
Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors based
upon fair value at the date of award using a fair value based option pricing model. The compensation expense is recognized on
a straight-line basis over the requisite service period.
Fair
Value of Financial Instruments
The
Company complies with ASC Topics 820, “Fair Value Measurement”, and 815, “Derivatives and Hedging” for
its liabilities, which are re-measured and reported at fair value for each reporting period. The fair value of the Company’s
assets and liabilities, which qualify as financial instruments under ASC Topic 820, approximates the carrying amounts represented
in the accompanying consolidated balance sheets.
Reclassification
Certain
prior period amounts have been reclassified to conform to the current period presentation in the accompanying consolidated financial
statements. These reclassifications had no material effect on the previously reported results of operations or accumulated deficit.
Recent
Accounting Pronouncements
In
June 2014, the Financial Accounting Standards Board issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination
of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the definition of a development stage entity in
U.S accounting standards and removes all disclosure requirements, including the elimination of inception-to-date information
on the consolidated statements of operations, cash flows and member’s equity related to the financial reporting distinction
between development stage enterprises and other reporting entities. The amendments in ASU 2014-10 will be effective prospectively
for annual reporting periods commencing after December 15, 2014, and interim periods within those annual periods, however,
early adoption is permitted. The Company evaluated and adopted ASU 2014-10 effective December 4, 2014 (date of inception)
and therefore eliminated all incremental disclosures related to the six months ended June 30, 2016 and 2015.
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under the update, revenue will be recognized
based on a five-step model. The core principle of the model is that revenue will be recognized when the transfer of promised goods
or services to customers is made in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. In the third quarter of 2015, the FASB deferred the effective date of the standard to annual and
interim periods beginning after December 15, 2017. Early adoption will be permitted for annual and interim periods beginning after
December 15, 2016. The Company is currently evaluating the impact that adopting this ASU will have on its financial position,
results of operations and cash flows.
In
September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805). Under the update, an acquirer in a business combination
is no longer required to account for measurement-period adjustments retrospectively, and, instead, will recognize a measurement-period
adjustment during the period in which it determines the amount of the adjustment. The ASU is effective for financial statements
issued after December 15, 2017, and interim periods within those years. Early adoption will be permitted for annual and interim
periods beginning after December 15, 2016. The Company does not expect the impact of adopting this ASU to be material to the Company's
financial statements and related disclosures.
In
November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes. Under the
update, deferred taxes would be classified as noncurrent in the statement of financial position instead of being separated into
current and non-current amounts. The ASU is effective for financial statements issued after January 1, 2017 with early adoption
permitted. Additionally, the Company may apply the standard either prospectively or retrospectively. The Company is currently
evaluating the impact that adopting this ASU will have on its financial position, results of operations and cash flows.
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires the lessee to recognize assets and liabilities
for leases with lease terms of more than twelve months. For leases with a term of twelve months or less, the Company is permitted
to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Further,
the lease requires a finance lease to recognize both an interest expense and an amortization of the associated expense. Operating
leases generally recognize the associated expense on a straight line basis. ASU 2016-02 requires the Company to adopt the standard
using a modified retrospective approach and adoption beginning on January 1, 2019. The Company is currently evaluating the impact
that ASU 2016-02 will have on its financial position, results of operations and cash flows.
In
March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). The update amends the guidelines for share-based
payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification
on the statement of cash flows. The standard is effective for annual and interim periods beginning January 1, 2017, and early
adoption is permitted. The Company is currently evaluating the impact that ASU 2016-09 will have on its consolidated financial
position, results of operations and cash flows.
Other
accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.
4.
|
CUSTOMER
AND VENDOR CONCENTRATION
|
We
have significant customer and vendor concentration. Customer concentration as of and for the six months ended June 30, 2016 and
2015 was:
|
|
Six months ended
June 30, 2016
|
|
|
Six months ended
June 30, 2015
|
|
|
|
Revenue
|
|
|
Revenue
|
|
Customer A
|
|
$
|
2,149,984
|
|
|
|
23
|
%
|
|
$
|
1,849,637
|
|
|
|
31
|
%
|
Customer B
|
|
|
2,811,982
|
|
|
|
31
|
%
|
|
|
2,857,580
|
|
|
|
49
|
%
|
Customer C
|
|
|
1,387,518
|
|
|
|
15
|
%
|
|
|
104,389
|
|
|
|
2
|
%
|
Customer D
|
|
|
1,456,044
|
|
|
|
16
|
%
|
|
|
-
|
|
|
|
-
|
%
|
Other customers
|
|
|
1,376,814
|
|
|
|
15
|
%
|
|
|
1,047,500
|
|
|
|
18
|
%
|
|
|
$
|
9,182,342
|
|
|
|
100
|
%
|
|
$
|
5,859,106
|
|
|
|
100
|
%
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Accounts Receivable
|
|
|
Accounts Receivable
|
|
Customer A
|
|
$
|
408,814
|
|
|
|
30
|
%
|
|
$
|
392,453
|
|
|
|
46
|
%
|
Customer B
|
|
|
505,363
|
|
|
|
38
|
%
|
|
|
442,885
|
|
|
|
52
|
%
|
Customer C
|
|
|
-
|
|
|
|
0
|
%
|
|
|
-
|
|
|
|
0
|
%
|
Customer D
|
|
|
200,000
|
|
|
|
15
|
%
|
|
|
-
|
|
|
|
0
|
%
|
Other customers
|
|
|
230,255
|
|
|
|
17
|
%
|
|
|
20,625
|
|
|
|
2
|
%
|
|
|
$
|
1,344,732
|
|
|
|
100
|
%
|
|
$
|
855,963
|
|
|
|
100
|
%
|
Vendor
concentration as of and for the six months ended June 30, 2016 and 2015 was:
|
|
Six months ended
June 30, 2016
|
|
|
Six months ended
June 30, 2015
|
|
|
|
Cost of Revenue
|
|
|
Cost of Revenue
|
|
Vendor A
|
|
$
|
1,695,299
|
|
|
|
17
|
%
|
|
$
|
1,167,557
|
|
|
|
23
|
%
|
Vendor B
|
|
|
1,179,399
|
|
|
|
12
|
%
|
|
|
541,289
|
|
|
|
11
|
%
|
Vendor C
|
|
|
892,718
|
|
|
|
9
|
%
|
|
|
372,006
|
|
|
|
7
|
%
|
Other vendors
|
|
|
6,118,225
|
|
|
|
62
|
%
|
|
|
2,927,280
|
|
|
|
59
|
%
|
|
|
$
|
9,885,641
|
|
|
|
100
|
%
|
|
$
|
5,008,132
|
|
|
|
100
|
%
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Accounts Payable
|
|
|
Accounts Payable
|
|
Vendor A
|
|
$
|
307,956
|
|
|
|
12
|
%
|
|
$
|
195,511
|
|
|
|
20
|
%
|
Vendor B
|
|
|
205,142
|
|
|
|
8
|
%
|
|
|
33,270
|
|
|
|
3
|
%
|
Vendor C
|
|
|
184,902
|
|
|
|
7
|
%
|
|
|
91,355
|
|
|
|
9
|
%
|
Other vendors
|
|
|
1,893,213
|
|
|
|
73
|
%
|
|
|
674,969
|
|
|
|
68
|
%
|
|
|
$
|
2,591,213
|
|
|
|
100
|
%
|
|
$
|
995,105
|
|
|
|
100
|
%
|
The
Company follows the reporting requirements of FASB ASC 740 “Income Taxes”, which requires an asset and liability approach
to financial accounting and reporting for income taxes. The Company recognizes deferred tax assets or liabilities based on differences
between the financial statement and tax basis of assets and liabilities that will result in future taxable or deductible amounts
calculated on enacted tax laws and rates applicable to the periods in which the differences are expected to be ultimately realized.
These differences arose principally from the valuation of stock warrants, net operating loss carryovers, and temporary differences
in deprecation methods between financial reporting and income tax basis.
GAAP
requires companies to assess whether valuation allowances should be recorded to offset deferred tax assets based on the consideration
of all available evidence using a “more likely than not” standard. In making such assessments, significant weight
is given to evidence that can be objectively verified. A company’s current and previous losses are given more weight than
its future projections. A cumulative loss position is considered a significant factor that is difficult to overcome.
The
Company evaluates its deferred tax assets each reporting period, including assessing its cumulative loss position, to determine
if valuation allowances are required. A significant factor is the Company’s cumulative loss position. This, combined with
uncertain near-term economic conditions, reduces the Company’s ability to rely on projections of future taxable income in
establishing its deferred tax assets valuation allowance. Due to the weight of the significant negative evidence, GAAP requires
that a valuation allowance be established on all of the Company’s net deferred tax assets.
The
following table reconciles the income tax (benefit) provision from continuing operations computed at the U.S. federal statutory
income tax rates to the income tax (benefit) provision for the six months ended June 30, 2016 and year ended December 31, 2015:
|
|
June 30,
2016
|
|
|
December 31, 2015
|
|
Federal income tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Income tax benefit at the federal statutory rate
|
|
$
|
(875,703
|
)
|
|
$
|
(2,558,779
|
)
|
State benefit, net of federal benefit
|
|
|
(137,880
|
)
|
|
|
(176,615
|
)
|
Permanent differences net
|
|
|
105,614
|
|
|
|
1,057,550
|
|
Tax attributes from business combination
|
|
|
-
|
|
|
|
(434,725
|
)
|
Changes in valuation allowances
|
|
|
1,309,862
|
|
|
|
2,112,569
|
|
Income tax (benefit) provision
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant
components of the Company’s deferred tax assets and liabilities as of June 30, 2016 and December 31, 2015 were as follows:
|
|
June 30,
2016
|
|
|
December 31, 2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
-
|
|
|
$
|
5,548
|
|
Other reserves
|
|
|
47,192
|
|
|
|
7,554
|
|
Standby letter of credit reserve
|
|
|
-
|
|
|
|
285,000
|
|
Start-up costs
|
|
|
369,773
|
|
|
|
382,902
|
|
Net operating loss carryforwards
|
|
|
3,048,021
|
|
|
|
1,474,121
|
|
Total deferred tax assets
|
|
|
3,464,986
|
|
|
|
2,155,125
|
|
Less: valuation allowances
|
|
|
(3,464,986
|
)
|
|
|
(2,155,125
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
FASB
ASC 740, Income Taxes, sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain
tax positions. This interpretation uses a two-step approach wherein a tax benefit is recognized if a position is more-likely-than-not
to be sustained upon examination by taxing authorities. The amount of the benefit is then measured to be the highest tax benefit
that is greater than 50% likely to be realized. Based on its analysis, the Company has determined that it has not incurred any
liability for unrecognized tax benefits as of December 31, 2015. The Company’s conclusions may be subject to review and
adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations
and interpretations thereof. The Company files an income tax return in the U.S. federal jurisdiction, and may file income tax
returns in various U.S. states and foreign jurisdictions. The Company recognizes interest and penalties related to
unrecognized tax benefits in interest expense and other expenses, respectively. No interest expense or penalties have been recognized
as of June 30, 2016.
At
June 30, 2016 approximately $8,000,000 in federal and state net operating losses were available to be carried forward, expiring
at various dates through 2035.
Pursuant
to Sections 382 and 383 of the Internal Revenue Code, annual use of net operating loss carryforwards may be limited in the
event a cumulative change in ownership of more than 50% occurs within a three-year period. We had a Business Combination in 2015;
however, we have not completed a Section 382 study to determine the limitations resulting from any ownership changes. Accordingly,
the timing or amount of our net operating loss carryforwards that are available for utilization in the future may be limited in
any given year.
The
Company’s tax returns are subject to possible examination by the taxing authorities. In general, tax returns remain open
for possible examination for a period of three years after the respective filing of those returns.
6.
|
BASIC
AND DILUTED SHARES OUTSTANDING
|
Basic
common shares outstanding as of June 30, 2016 are 11,064,664. Our weighted average basic shares outstanding for the six months
ended June 30, 2016 is calculated based on the average number of basic common shares outstanding over the period in question and
is calculated as 9,470,851 shares. Our weighted average basic shares outstanding for the three months ended June 30, 2016 is calculated
based on the average number of basic common shares outstanding over the period in question and is calculated as 9,808,863 shares.
Our
weighted average diluted common shares outstanding as of June 30, 2016 would normally be calculated based on the sum of the weighted
average basic shares outstanding for the six months ended June 30, 2016 and the weighted average of the shares that would convert
into common stock from our preferred stock and warrants over the period in question. This conversion would be calculated on a
treasury method basis based on the average closing share price of our common stock over the period in question as compared to
the conversion rate of the preferred stock, and the strike price of the particular warrants. The number of warrants outstanding
along with their respective strike prices can be found in Note 16, below. However, due to the fact that the Company experienced
a net loss for the six months ended June 30, 2016 and diluted earnings per share would otherwise be higher than basic earnings
per share, our diluted common shares outstanding are represented to be the same as our basic common shares outstanding.
Other
receivables consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Contract A earnings in excess of billings
|
|
$
|
256,044
|
|
|
$
|
-
|
|
Other earnings in excess of billings
|
|
|
95,981
|
|
|
|
-
|
|
Other receivable
|
|
|
660
|
|
|
|
21,697
|
|
Total
|
|
$
|
352,685
|
|
|
$
|
21,697
|
|
Other
assets consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Pre-contract costs
|
|
$
|
615
|
|
|
$
|
334,134
|
|
Other prepaid expenses
|
|
|
48,745
|
|
|
|
38,940
|
|
Total
|
|
$
|
49,360
|
|
|
$
|
373,074
|
|
9.
|
RELATED
PARTY TRANSACTIONS
|
In
the Business Combination, the members of Tempus received 3,642,084 shares of the Company’s common stock in exchange for
all of the issued and outstanding membership interests of Tempus. The members have the right to receive up to an additional 6,300,000
shares of the Company’s common stock upon the achievement of certain financial milestones.
In
connection with the formation of Tempus, the Company’s Chief Financial Officer, R. Lee Priest, Jr., loaned Tempus $500,000.
Of this amount, $10,101 was allocated to the purchase of 1.0% of the membership interests of Tempus, and $489,899 took the form
of a loan from an officer. The loan was unsecured and bears interest monthly at a rate of 5.0% per annum. Accrued interest totaled
$0 and $9,654 as of June 30, 2016 and 2015, respectively.
On
March 15, 2016, the Company purchased Tempus Jets, Inc. (“TJI”) from our CEO B. Scott Terry for non-cash consideration
of $500,000, paid in the form of 242,131 shares of common stock of the Company. The purchase price was based on an independent
valuation of similar operations and approved by the independent directors of the board. The number of shares issued to Mr. Terry
was calculated based on the volume weighted average market price of the Company’s common stock for the previous 20 trading
days.
TJI
owns an operating certificate issued by the FAA in accordance with the requirements of Parts 119 and 135 of the FAR (the “Operating
Certificate”). Prior to the Company’s purchase of TJI, TJI divested itself of substantially all of its assets other
than the Operating Certificate, and settled or transferred all of its liabilities. As a result of the acquisition of TJI, the
Company owns, and can operate under, the Operating Certificate. Under the Agreement, Mr. Terry and Jackson River Aviation, an
affiliate of Mr. Terry’s, have indemnified the Company against liabilities that may arise from the acquisition. The transaction
was approved by the independent directors of the Company after a review to determine that (a) the terms of the transaction were
on an arm’s length basis; and (b) the transaction was effected by the issuance of Company securities to a person who is
an owner of an asset in a business synergistic with the business of the Company, the transaction provided benefits to the Company
in addition to the investment of funds and the transaction was not one in which the Company was issuing securities primarily for
the purpose of raising capital or to an entity whose primary business was investing in securities.
Jackson
River Aviation (“JRA”) is controlled by B. Scott Terry, the Company’s CEO and a member of the Company’s
Board of Directors. JRA (through its subsidiary, TJI) prior to the acquisition of TJI by Tempus on March 15, 2016, provided FAR
Part 135 aircraft charter services to the Company. As of June 30, 2016, the Company had a net outstanding payable to JRA of $5,597.
Total purchases by the Company from JRA for the six months ended June 30, 2016 were $162,576. Billings by the Company to JRA for
the six months ended June 30, 2016 were $53,302.
TIH
is controlled by John G. Gulbin III, a member of our Board of Directors. TIH owns certain aircraft used by Tempus to provide services
to certain customers. (see Note 14 below). In addition, Tempus, through its wholly owned subsidiary Global Aviation Support, LLC,
provides flight planning, fuel handling and travel services to TIH. Prior to the close of the Business Combination, TIH provided
administrative support, including human resources, financial, legal, contracts and other general administrative services to Tempus.
Subsequent to the Business Combination, any administrative relationship is limited to certain shared information technology and
marketing expenses, which are incurred at cost. Total purchases by the Company from TIH for the six months ended June 30, 2016
were $947,011. Total billings from the Company to TIH for the six months ended June 30, 2016 were $118,294. The net outstanding
payable from Tempus to TIH at June 30, 2016 was $807,596.
Southwind
Capital, LLC (“Southwind”) is controlled by R. Lee Priest, Jr., the Company’s CFO. Southwind owns certain aircraft
used by Tempus to provide services to certain customers. Total purchases by the Company from Southwind for the six months ended
June 30, 2016 were $98,226. The net outstanding payable from Tempus to Southwind at June 30, 2016 was $98,226.
In
2015, the Company entered into an aircraft purchase agreement with Pilatus Business Aircraft, Ltd. for the purchase of a Pilatus
PC-12 with certain special mission modifications for approximately $7.3 million. The Company entered into this agreement pursuant
to a contract with a government law enforcement agency whereby Tempus would lease the aircraft to the agency. Tempus subsequently
assigned the lease contract and the purchase obligation to Cowen Aviation Finance Holdings, Inc. (“CAF”) for no consideration
and has entered into a services agreement with CAF whereby it will provide certain administrative, servicing and marketing services
for this and other aircraft owned by CAF. CAF is owned by Cowen Group, Inc., (“Cowen”) whose CEO and Chairman, Peter
Cohen, and board member, Joe Wright, are on our board of directors. For the six months ended June 30, 2016 Tempus billed $40,480
to CAF under the services agreement. Based on the assignment of the lease contract and purchase obligation to CAF, a $750,000
customer deposit received from the law enforcement agency customer and the $500,000 deposit Tempus paid to Pilatus was transferred
to CAF. At June 30, 2016 and December 31, 2015, the net receivable from CAF was $3,302 and $0, respectively.
All
related party transactions are entered into and performed under commercial terms consistent with what might be expected from a
third party service provider. Certain sales and marketing, and information technology functions of the Company are supported by
TIH and are expensed to the Company on a time and materials basis.
10.
|
PROPERTY
AND EQUIPMENT, NET
|
Property
and equipment, net consists of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Office equipment
|
|
$
|
168,055
|
|
|
$
|
131,389
|
|
Furniture and fixtures
|
|
|
456
|
|
|
|
456
|
|
Total
|
|
|
168,511
|
|
|
|
131,845
|
|
Accumulated depreciation
|
|
|
(40,731
|
)
|
|
|
(14,447
|
)
|
Property and equipment, net
|
|
$
|
127,780
|
|
|
$
|
117,398
|
|
Intangibles,
net consists of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Infinite-lived intangible assets:
|
|
|
|
|
|
|
FAA licenses
|
|
$
|
550,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
STC costs
|
|
|
438,390
|
|
|
|
414,226
|
|
Accumulated amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
|
438,390
|
|
|
|
414,226
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
90,274
|
|
|
|
82,240
|
|
Accumulated amortization
|
|
|
(22,125
|
)
|
|
|
(8,582
|
)
|
|
|
|
68,149
|
|
|
|
73,658
|
|
Total intangible assets, net
|
|
$
|
1,056,539
|
|
|
$
|
537,884
|
|
FAA
licenses includes the $50,000 purchase price for Proflight Aviation Services, LLC, which provides flight training services under
a FAR Part 141 certificate, and the $500,000 purchase price for TJI, which owns an Operating Certificate issued by the FAA in
accordance with the requirements of Parts 119 and 135 of the Federal Aviation Regulations (“FAR”).
STC
costs relate to our efforts to gain approval from the FAA for modifications to Gulfstream III, IV and V business jets to upgrade
them for Future Air Navigation System (“FANS”) and Automatic Dependent Surveillance Broadcast (“ADS-B”)
capabilities. Regulatory mandates in the U.S and abroad will require FANS / ADS-B compliance on certain preferred air routes on
a rolling basis over the next five years. Tempus was awarded this STC in the second quarter of 2016. Estimated amortization of
this STC will be over its estimated economic life of five years is as follows:
|
|
Estimated
STC Amortization
|
|
July
1, 2016 – December 31, 2016
|
|
$
|
43,839
|
|
2017
|
|
|
87,678
|
|
2018
|
|
|
87,678
|
|
2019
|
|
|
87,678
|
|
2020
|
|
|
87,678
|
|
2021
|
|
|
43,839
|
|
Total
|
|
$
|
438,390
|
|
For
the six months ended June 30, 2016, recognized amortization of software was $13,543, all associated with software purchases. Future
amortization schedules associated with existing software is as follows:
|
|
Software Amortization
|
|
July 1, 2016 – December 31, 2016
|
|
$
|
21,904
|
|
2017
|
|
|
27,413
|
|
2018
|
|
|
18,832
|
|
Total
|
|
$
|
68,149
|
|
Accrued
liabilities at June 30, 2016 and December 31, 2015 include the following:
|
|
June 30,
2016
|
|
|
December 31, 2015
|
|
Reserve for standby letter of credit
|
|
$
|
-
|
|
|
$
|
750,000
|
|
Accrued employment costs
|
|
|
419,914
|
|
|
|
185,567
|
|
Aircraft maintenance reserves
|
|
|
134,972
|
|
|
|
110,000
|
|
Other
|
|
|
274,661
|
|
|
|
268,403
|
|
Total
|
|
$
|
829,547
|
|
|
$
|
1,313,970
|
|
Customer
Deposits consists of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Project A
|
|
$
|
-
|
|
|
$
|
750,000
|
|
Other customer deposits
|
|
|
361,181
|
|
|
|
4,545
|
|
Total
|
|
$
|
361,181
|
|
|
$
|
754,545
|
|
14.
|
COMMITMENTS
AND CONTINGENCIES
|
The
Company incurred lease expense for real office and hangar space for the six months ended June 30, 2016, of $219,526. Lease expense
for aircraft and simulators was $2,891,633 for the six months ended June 30, 2016. Lease expenses for real office space and hangar
space was $51,978 and lease expense for aircraft and simulators was $1,200,130 for the six months ended June, 30, 2015.
The
Company leases office space in Williamsburg, Virginia to support its operations. The Company occupied the premises as of January
1, 2015 under a one-year lease, which was subsequently extended to February 28, 2016, after which the lease reverted to a month
to month agreement.
The
Company leases office space in San Marcos, TX to support its training operations. The Company occupied the premises as of October,
1, 2015 under a fifteen (15) month lease at a rate of $10,500 per month. The Company also leases simulators used in its training
operations at this location. The simulator lease commenced on October, 1, 2015 and extends to December 31, 2016 at a rate of $3,000
per month. The future minimum lease payments associated with these leases at San Marcos, TX as of June 30, 2016 total $81,000.
The
Company leases hangar space in Newport News, VA to support its operations. The Company occupied the premises as of October 1,
2015 under a one-year lease at a rate of $2,000 per month. The future minimum lease payments associated with this lease as of
June 30, 2016 total $6,000.
The
Company leases office and hangar space in Brunswick, ME to support its operations. The Company occupied the premises as of March
1, 2016 under a six-month lease at a rate of $16,673 per month. The future minimum lease payments associated with this lease as
of June 30, 2016 total $50,019, after which time the lease will revert to a month to month agreement.
Effective
as of February 25, 2016, we entered into an agreement to lease a Gulfstream G-IV, at a rate of $70,000 a month for a period of
40 months. The lease permits the lessor to exercise an option to sell the aircraft to the Company at any time after November 30,
2016, or the Company to purchase the aircraft from the lessor, in either case at a value of $5,500,000. We have modified this
aircraft for a government customer and are providing it to this customer at an hourly and daily rate, based on this customer’s
usage of the aircraft. The monthly lease rate we are paying for this aircraft is capitalized as pre contract costs (see Note 3
above) and is fully expensed as cost of revenue upon each event whereby we recognize revenue with this government customer.
In
2015, the Company entered into an aircraft purchase agreement with Pilatus Business Aircraft, Ltd. for the purchase of a Pilatus
PC-12 with certain special mission modifications for approximately $7.3 million. The Company entered into this agreement pursuant
to a contract with a government law enforcement agency whereby Tempus would lease the aircraft to the agency. Tempus subsequently
assigned the lease contract and the purchase obligation to Cowen Aviation Finance Holdings, Inc. (“CAF”) for no consideration
and has entered into a services agreement with CAF whereby it will provide certain administrative, servicing and marketing services
for this and other aircraft owned by CAF. CAF is owned by Cowen Group, Inc., (“Cowen”) whose CEO and Chairman, Peter
Cohen, and board member, Joe Wright, are on our board of directors. For the six months ended June 30, 2016 Tempus generated $40,480
of billings in support of CAF. Based on the assignment of the lease contract and purchase obligation to CAF, a $750,000 customer
deposit received from the law enforcement agency customer and the $500,000 deposit Tempus paid to Pilatus was transferred to CAF.
At June 30, 2016, the net receivable from CAF was $3,302.
The
Company has employment agreements with certain key executives with terms that expire in 2018, with provisions for termination
obligations, should termination occur prior thereto, of up to 12 months’ severance. The Company expects to pay total aggregate
base compensation of approximately $550,000 annually through 2018, plus other normal customary fringe benefits and bonuses.
15.
|
FAIR
VALUE MEASUREMENTS
|
The
Company complies with ASC Topics 820, “Fair Value Measurement”, and 815, “Derivatives and Hedging” for
its liabilities, which are re-measured and reported at fair value for each reporting period.
The
following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis
as of December 31, 2015, and June 30, 2016, and indicates the fair value hierarchy of the valuation techniques the Company has
used to determine such fair value. In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active
markets for identical assets or liabilities. Fair values determined by Level 2 inputs use data points that are observable, such
as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs use unobservable data points for the
asset or liability, and include situations where there is little, if any, market activity for the asset or liability:
|
|
December 31,
|
|
|
Quoted Prices
In Active
Markets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Other
Unobservable
Inputs
|
|
Description
|
|
2015
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
IPO and Placement Warrant Liability
|
|
$
|
1,575,000
|
|
|
$
|
1,575,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Series A Warrant Liability
|
|
|
4,215,600
|
|
|
|
-
|
|
|
|
4,215,600
|
|
|
|
-
|
|
Series B Warrant Liability
|
|
|
5,452,200
|
|
|
|
-
|
|
|
|
5,452,200
|
|
|
|
-
|
|
Total Warrant Liability
|
|
$
|
11,242,800
|
|
|
$
|
1,575,000
|
|
|
$
|
9,667,800
|
|
|
$
|
-
|
|
|
|
June 30,
|
|
|
Quoted
Prices
In Active
Markets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Other
Unobservable
Inputs
|
|
Description
|
|
2016
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
IPO and Placement Warrant Liability
|
|
$
|
787,500
|
|
|
$
|
787,500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Series A Warrant Liability
|
|
|
446,250
|
|
|
|
-
|
|
|
|
446,250
|
|
|
|
-
|
|
Series B Warrant Liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Warrant Liability
|
|
$
|
1,233,750
|
|
|
$
|
787,500
|
|
|
$
|
446,250
|
|
|
$
|
-
|
|
The
fair values of the Company’s warrant liabilities are determined through market, observable and corroborated sources.
The Company engaged an independent valuation firm (the “Valuation Firm”) to perform valuations of the warrant liabilities
as of July 31, 2015, the date of the Business Combination and related Financing, and December 31, 2015. The Valuation Firm used
a multi-stage process to determine the fair value of the warrants of the Company, which involved several types of analyses and
calculations of value for the Company’s securities as follows:
IPO
and Placement Warrants – For December 31, 2015, the value of the IPO and Placement Warrants was calculated based upon the
quoted price of the warrants that trade on the OTC markets under the ticker symbol TMPSW, which was $0.20 as of that date. For
June 30, 2016, the value of the IPO and Placement Warrants was calculated based upon the quoted price of the warrants that trade
on the OTC markets under the ticker symbol TMPSW, which was $0.10 as of that date.
Series
A Warrants – The value of these warrants was calculated using a Black-Scholes option pricing model based on the value of
the common stock, the assumed volatility of such shares and the risk free rate at the time of valuation.
Series
B Warrants – The Valuation Firm determined the impact of various common stock values as of the expiration date of the Series
B Warrants after considering the exercise features, including the alternate cashless exercise of those warrants. The Valuation
Firm then used a Monte Carlo simulation to determine the probability of common stock values as of the expiration date and calculated
the value of the Series B Warrants in each trial. The weighted average value of the Series B Warrants as of the valuation date
was then calculated.
Observable
inputs used in the calculation of the valuations include the implied valuation of the Company’s securities based on prior
sales, specifically the Financing associated with the Business Combination. Other inputs include a risk-free rate as of the valuation
date and implied volatility derived from comparable publicly traded companies, as well as the quoted price of Tempus’ common
shares and the quoted price of Tempus’ IPO and Placement Warrants.
IPO
and Placement Warrants
Upon
the consummation of the Business Combination, each outstanding Chart warrant was exchanged for a warrant to purchase one share
of our common stock, and as of the date of this filing, there were 7,875,000 such warrants outstanding, of which 7,500,000 warrants
were originally sold as part of the units in Chart’s initial public offering (the “IPO Warrants”) and 375,000
warrants were originally issued as part of placement units issued to CAG, Mr. Wright and Cowen in a private placement simultaneously
with the consummation of Chart’s initial public offering, (“the Placement Warrants”).
Each
IPO and Placement Warrant entitles the holder to purchase one share of common stock at an exercise price of $11.50 per share,
subject to adjustment. The IPO Warrants became exercisable on August 30, 2015, and expire at 5:00 p.m., New York time, on July
31, 2020 or earlier upon redemption or liquidation. Once the IPO Warrants become exercisable, we may redeem the outstanding IPO
Warrants at a price of $0.01 per warrant, if the last sale price of the common stock equals or exceeds $17.50 per share for any
20 trading days within a 30 trading day period ending on the third trading day before we send the notice of redemption to the
warrant holders. The Placement Warrants, however, are non-redeemable so long as they are held by the initial holders or their
permitted transferees.
Series
A Warrants and Series B Warrants
In
connection with the Financing, upon the consummation of the Business Combination on July 31, 2015, we issued a total of 3,000,000
Series A-1 Warrants and Series A-2 Warrants and 1,000,000 Series B-1 Warrants and Series B-2 Warrants. Pursuant to the Securities
Purchase Agreement, on August 14, 2015, we issued an additional 187,500 Series A-3 Warrants and 62,500 Series B-3 Warrants. The
Series A-1 Warrants, Series A-2 Warrants and Series A-3 Warrants are referred to collectively as the Series A Warrants, the Series
B-1 Warrants, Series B-2 Warrants and Series B-3 Warrants are referred to collectively as the Series B Warrants, and the Series
A Warrants and the Series B Warrants are referred to collectively as the Investor Warrants.
Each
Investor Warrant is immediately exercisable in cash and entitles the holder to take delivery of the shares purchased through the
exercise, at the sole election of the holder, in the form of either common stock or preferred stock, subject to the Maximum Warrant
Percentage, with the number of shares of preferred stock issued based on the conversion price, as described in Note 18, below,
under the heading “Preferred Stock”.
The
Series A Warrants have an exercise price of $4.80 per share purchased and expire on July 31, 2020. As of June 30, 2016 there are
no Series B Warrants outstanding.
The
Investor Warrants contain customary “cashless exercise” terms, pursuant to which holder of an Investor Warrant, at
any time after October 31, 2015, may choose to exercise such Investor Warrant (at a time when such Investor Warrant is otherwise
exercisable according to its terms) without paying cash, by effectively submitting in exchange for shares a greater number of
warrants than the number of shares purchased, rather than a number of warrants equal to the number of shares purchased plus cash.
The Series B Warrants (but not the Series A Warrants) also contain an additional alternative cashless exercise feature, pursuant
to which, beginning from December 31, 2015 and until the expiration of such Series B Warrant, on October 31, 2016, as applicable,
if 90% of the average of the four lowest volume-weighted average prices of common stock for the preceding 10 trading days (the
“Alternative Market Price”) is less than $4.00 (subject an Alternative Market Price floor of $1.80), the holder of
a Series B Warrant can exercise such Series B Warrant to acquire on a cashless basis a number of shares of common stock or preferred
stock equal to (depending on the Market Price) up to 488.9% of the number of shares that could otherwise be purchased under such
Series B Warrant pursuant to a cash exercise, with the lower the Alternative Market Price, the more shares being available for
acquisition by the Series B Warrant holder pursuant to this alternative cashless exercise.
The
Investor Warrants also include “full ratchet” anti-dilution protection provisions, which provide that if any shares
of common stock are issued at a price less than then current exercise price of such Investor Warrant, or if any warrants, options
or other securities with the right to acquire or that are convertible into or exchangeable for shares of common stock are issued
with an exercise price less than the then current exercise price of such Investor Warrant, then the exercise price of such Investor
Warrant will automatically be reduced to the issuance price of such new shares of common stock or the exercise price of such warrants,
options or other securities with the right to acquire or that are convertible into or exchangeable for shares of common stock.
These anti-dilution provisions do not apply in the case of an issuance of “Excluded Securities”, including certain
option and other equity incentive awards to directors and officers, and securities issued pursuant to acquisitions or strategic
transactions approved by a majority of our disinterested directors, but does not include a transaction in which we are issuing
securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
Under
the terms of the Investor Warrants, we may not enter into or be party to a “Fundamental Transaction” unless the successor
entity assumes in writing all of our obligations under such Investor Warrants. A “Fundamental Transaction” means,
among other things, a transaction in which we, directly or indirectly, including through subsidiaries, affiliates or otherwise,
in one or more related transactions, (i) consolidate or merge with or into (whether or not we are the surviving corporation) another
entity; (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of our properties or assets of or
any of our “significant subsidiaries” (as defined in Rule 1-02 of Regulation S-X) to one or more entities; (iii) make,
or allow one or more entities to make, or allow us to be subject to or have its common stock be subject to or party to one or
more entities making, a purchase, tender or exchange offer that is accepted by at least 50% of the outstanding shares of common
stock; (iv) consummate a stock or share purchase agreement or other business combination (including a reorganization, recapitalization,
spin-off or scheme of arrangement) with one or more entities whereby all such entities, individually or in the aggregate, acquire
at least 50% of the outstanding shares of common stock; or (v) reorganize, recapitalize or reclassify its common stock. The foregoing
provisions will not apply to a Fundamental Transaction where the purchaser or other successor entity, after giving effect to such
Fundamental Transaction, does not have any equity securities that are then listed or designated for quotation on a national securities
exchange or automated quotation system. Moreover, a holder of an Investor Warrant may choose, in connection with any Fundamental
Transaction, to have us or the successor entity purchase such Investor Warrant from the holder by paying the holder cash in an
amount equal to the “Black Scholes Value” (as defined in such Investor Warrant) of such Investor Warrant.
Under
the terms of the Investor Warrants, if we shall declare or make any dividend or other distribution of its assets (or rights to
acquire its assets) to holders of shares of common stock, then, in each such case, holders of such Investor Warrants shall be
entitled to participate in such distribution to the same extent that they would have participated if they had held the number
of shares of common stock acquirable upon complete exercise of such Investor Warrants (without regard to any limitations or restrictions
on exercise of such Investor Warrants) immediately before the date on which a record is taken for such distribution.
Under
the terms of the Investor Warrants, if we grant, issue or sell any options, convertible securities or rights to purchase stock,
warrants, securities or other property pro rata to all or substantially all of the record holders of any class of common stock,
which are referred to with respect to the warrants as Warrant Purchase Rights, then each holder of an Investor Warrant will be
entitled to acquire, upon the terms applicable to such Warrant Purchase Rights, the aggregate Warrant Purchase Rights which such
holder could have acquired if such holder had held the number of shares of common stock acquirable upon complete excise of all
Investor Warrants (without taking into account any limitations or restrictions on exercise of such Investor Warrants) held by
such holder immediately prior to the date on which a record is taken for the grant, issuance or sale of such Warrant Purchase
Rights.
Under
the terms of the Series A Warrants (but not the Series B Warrants), until July 31, 2016, the holders have pre-emptive rights pursuant
to which we must offer them the right to purchase at least 56.3% (with the Series A-1 entitled to purchase 35%, the Series A-2
entitled to purchase 18% and the Series A-3 entitled to purchase 3.3%) of any additional issuances by us or our subsidiaries of
equity securities or securities that are convertible into, exercisable or exchangeable for, or which give the holder the right
to acquire any of our equity securities or the securities of our subsidiaries, except for certain “Excluded Securities”
as described above.
Under
the terms of the Investor Warrants, if a holder exercises an Investor Warrant and we fail to deliver common stock or preferred
stock in response within the time periods and in the manner specified in the terms of such Investor Warrant, we may suffer substantial
penalties.
Under
the terms of the Series A-1 Warrants (but not the other Investor Warrants), we may not effect the exercise of any such Investor
Warrants and the exercise shall be null and void and treated as if never made, to the extent that after giving effect to such
exercise, the holder would beneficially own in excess of either 4.99% or 9.99% (the “Maximum Warrant Percentage”)
(as elected in writing by the holder on or prior to the initial issuance date of the warrants) of the shares of common stock outstanding
immediately after giving effect to such exercise. For purposes of the foregoing sentence, beneficial ownership shall be calculated
in accordance with Section 13(d) of the Exchange Act, and the shares of common stock issuable to a holder pursuant to the terms
of the warrants in excess of the Maximum Warrant Percentage shall not be deemed to be beneficially owned by such holder for any
purpose including for purposes of Section 13(d) or Rule 16a-1(a)(1) of the Exchange Act. All of the holders of the outstanding
Series A-1 Warrants as of the date of this filing have elected a Maximum Warrant Percentage of 4.99%.
Between
February 2, 2016 and February 3, 2016, the Company issued an aggregate of 1,680,557 shares of preferred stock valued at $3,361,114
to certain holders of Series B-1 Warrants who exercised their Series B-1 Warrants using the alternative cashless exercise feature
and elected to receive their shares in the form of preferred stock rather than common stock (see Note 18 below for an explanation
of this feature). These shares were issued pursuant to exemptions from the registration requirements of the Securities Act of
1933, as amended (the “Securities Act”) under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated
thereunder.
On
February 24, 2016 the Company issued an aggregate of 641,666 shares of common stock valued at $1,251,249 to certain holders of
Series B-2 and Series B-3 Warrants who exercised their warrants using the alternative cashless exercise feature. These shares
were issued pursuant to exemptions from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities
Act and Rule 506 of Regulation D promulgated thereunder.
On
February 29, 2016 the Company issued an aggregate of 1,527,778 shares of preferred stock valued at $2,979,167 to certain holders
of Series B-1 Warrants who exercised their warrants using the alternative cashless exercise feature and elected to receive their
shares in the form of preferred stock rather than common stock (see Note 18 below for an explanation of this feature). These shares
were issued pursuant to exemptions from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities
Act and Rule 506 of Regulation D promulgated thereunder.
On
June 23, 2016, the Company issued an aggregate of 1,344,446 shares of common stock valued at $1,546,113 to certain holders of
Series B-2 and Series B-3 Warrants who exercised their warrants using the alternative cashless exercise feature. These shares
were issued pursuant to exemptions from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities
Act and Rule 506 of Regulation D promulgated thereunder.
The
quantity of issued and outstanding warrants as of June 30, 2016 and respective strike prices for are outlined in the table below:
Security
|
|
Quantity
|
|
|
Strike
Price
|
|
IPO & Placement Warrants
|
|
|
7,875,000
|
|
|
$
|
11.50
|
|
Series A Warrants
|
|
|
3,187,500
|
|
|
$
|
4.80
|
|
Series B Warrants
|
|
|
-
|
|
|
$
|
5.00
|
|
17.
|
STOCK
BASED COMPENSATION
|
The
Company maintains a stock option plan under which the Company may grant incentive stock options and non-qualified stock options
to employees and non-employee directors. Stock options have been granted with exercise prices at or above the fair market value
of the underlying shares of common stock on the date of grant. Options vest and expire according to terms established at the grant
date.
The
Company records compensation expense for the fair value of stock-based awards determined as of the grant date, including employee
stock options. For the six months ended June 30, 2016 and 2015 there were 499,000 and 0 stock options granted, respectively, under
the Company’s option plan. The Company recognized $117,118 and $0 in stock-based compensation expense for the six months
ended June 30, 2016 and 2015, respectively.
Stock
options to purchase 499,000 and 0 shares of common stock were outstanding as of June 30, 2016 and December 31, 2015, respectively.
The
Company uses the Black-Scholes option-pricing model to value options. The life of the option is equivalent to the expiration of
the option award. The risk-free interest rate was assumed at 1.77%. The estimated volatility is based on management’s expectations
of future volatility and is assumed at 60%. Estimated dividend payout is zero, as the Company has not paid dividends in the past
and, at this time, does not expect to do so in the future.
|
|
Shares
|
|
|
Weighted Average Exercise Price Per Option
|
|
Options outstanding, December 31, 2015
|
|
|
-
|
|
|
$
|
-
|
|
Granted to employees and non-employee directors
|
|
|
499,000
|
|
|
|
2.05
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Canceled/expired/forfeited
|
|
|
-
|
|
|
|
-
|
|
Options outstanding, June 30, 2016
|
|
|
499,000
|
|
|
|
2.05
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, June 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
Compensation
cost is recognized over the required service period which is three years for all granted options. As of June 30, 2016, $585,590
of total unrecognized compensation cost related to stock options was expected to be recognized over the remaining 10 quarters.
Preferred
Stock
As
of June 30, 2016, we had 4,578,070 shares of preferred stock issued and outstanding. Additionally, there are a total of 3,187,500
Series A Warrants outstanding that are convertible into common stock or preferred stock.
The
rights and obligations of the holders of the preferred stock are set forth in the certificate of designations relating thereto.
At
any time after its initial issuance date, each share of preferred stock is convertible into validly issued, fully paid and non-assessable
shares of common stock based on a conversion price of $4.00 per share, subject to adjustment for unpaid dividends and any accrued
charges, as well as equitable adjustments for stock splits, recapitalizations and similar transactions. However, it will affect
the conversion of any preferred stock and any such conversion shall be null and void and treated as if never made, to the extent
that after giving effect to such conversion, the holder would beneficially own in excess of either 4.99% or 9.99% (the “Maximum
Percentage”) (as elected in writing by the holder on or prior to the initial issuance date of the preferred stock) of the
shares of common stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence,
beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act, and the shares of common stock
issuable to a holder pursuant to the terms of the preferred stock in excess of the Maximum Percentage shall not be deemed to be
beneficially owned by such holder for any purpose including for purposes of Section 13(d) or Rule 16a-1(a)(1) of the Exchange
Act. All of the holders of the issued and outstanding preferred stock as of the date of this filing have elected a Maximum Percentage
of 4.99%.
Under
the certificate of designations, we may not enter into or be party to a “Fundamental Transaction” unless the successor
entity assumes in writing all of our obligations under the certificate of designations. A “Fundamental Transaction”
means, among other things, a transaction in which we, directly or indirectly, including through subsidiaries, affiliates or otherwise,
in one or more related transactions, (i) consolidate or merge with or into (whether or not we are the surviving corporation) another
entity; (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of our properties or assets or any
of our “significant subsidiaries” (as defined in Rule 1-02 of Regulation S-X) to one or more entities; (iii) make,
or allow one or more entities to make, or allow us to be subject to or have our common stock be subject to or party to one or
more entities making, a purchase, tender or exchange offer that is accepted by at least 50% of the outstanding shares of common
stock; (iv) consummate a stock or share purchase agreement or other business combination (including a reorganization, recapitalization,
spin-off or scheme of arrangement) with one or more entities whereby all such entities, individually or in the aggregate, acquire
at least 50% of the outstanding shares of common stock; or (v) reorganize, recapitalize or reclassify our common stock. The foregoing
provisions will not apply to a Fundamental Transaction where the purchaser or other successor entity provides cash consideration
and such Fundamental Transaction does not involve the issuance of any securities to the holders of our securities or securities
of our affiliates.
If
at any time we grant, issue or sell any options, convertible securities or rights to purchase stock, warrants, securities or other
property pro rata to all or substantially all of the record holders of any class of common stock, which is referred to as Purchase
Rights, then each holder of preferred stock will be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of common stock acquirable
upon complete conversion of all preferred stock (without taking into account any limitations or restrictions on the convertibility
of the shares of preferred stock) held by such holder immediately prior to the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights.
Holders
of preferred stock have no voting rights with respect to their preferred stock, except as required by law.
Shares
of preferred stock rank pari passu to the shares of common stock in respect of preferences as to dividends, distributions and
payments upon our liquidation, dissolution and winding up, except that in a liquidation event, the holders of preferred stock
shall be entitled to receive in cash out of our assets an amount per share of preferred stock equal to the greater of $4.00 (plus
any unpaid dividends and accrued charges, as equitably adjusted for stock splits, recapitalizations and similar transactions)
and the amount per share such holder would receive if such holder converted such preferred stock into common stock immediately
prior to the date of such payment (without regard to any limitations on conversion), provided that if the liquidation funds are
insufficient to pay the full amount due to the holders, then each holder shall receive a percentage of the liquidation funds equal
to the full amount of liquidation funds payable to such holder, as a percentage of the full amount of liquidation funds payable
to all holders (on an as-converted basis, without regard to any limitations on conversion set forth herein) and all holders of
common stock.
Under
the terms of the preferred stock, if holders convert their preferred stock and we fail to deliver common stock in response within
the time periods and in the manner specified in the certificate of designations, we may suffer substantial penalties.
Our
Amended Charter and related Certificate of Incorporation also provides that additional shares of preferred stock may be issued
from time to time in one or more series. Our board of directors will be authorized to fix the voting rights, if any, designations,
powers, preferences, the relative, participating, optional or other special rights and any qualifications, limitations and restrictions,
applicable to such additional shares of each series. Our board of directors will be able to, without stockholder approval, issue
preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the
common stock and could have anti-takeover effects, but subject to the rights of the holders of the preferred stock. The ability
of our board of directors to issue preferred stock without stockholder approval could have the effect of delaying, deferring or
preventing a change of control of us or the removal of existing management.
Between
February 2, 2016 and February 3, 2016, the Company issued an aggregate of 1,680,557 shares of preferred stock at a value of $3,361,114
to certain holders of Series B-1 Warrants who exercised their Series B-1 Warrants using the alternative cashless exercise feature
and elected to receive their shares in the form of preferred stock rather than common stock. These shares were issued pursuant
to exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”)
under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
On
February 29, 2016 the Company issued an aggregate of 1,527,778 shares of preferred stock at a value of $2,979,167 to certain holders
of Series B-1 Warrants who exercised their warrants using the alternative cashless exercise feature and elected to receive their
shares in the form of preferred stock rather than common stock. These shares were issued pursuant to exemptions from the registration
requirements of the Securities Act under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
Common
Stock
As
of June 30, 2016, we had 11,064,664 shares of common stock issued and outstanding. Additionally, there are 4,578,070 issued and
outstanding shares of preferred stock convertible into common stock, outstanding warrants exercisable into 7,875,000 shares of
common stock that were issued in exchange for former Chart warrants, and 3,187,500 Series A Warrants outstanding that are convertible
into common stock or preferred stock.
Additionally,
pursuant to the terms of the Merger Agreement, we may be obligated to issue additional shares of common stock thereunder to the
Members (or the Members may be required to forfeit certain of their shares of common stock) as a result of (i) adjustments to
the merger consideration payable to the Members as a result of Tempus’ working capital and/or debt as of the completion
of the Business Combination varying from the estimates that were made at the time of the consummation of the Business Combination,
(ii) Tempus meeting certain financial milestones pursuant to the earn-out provisions of the Merger Agreement, up to a total of
6,300,000 shares and (iii) any indemnification payments that are made under the Merger Agreement by delivery of shares of common
stock. The shares of common stock issued to the Members under the Merger Agreement are subject to certain lock-up restrictions
as set forth in the Tempus Registration Rights Agreement to which the Members are subject.
Additionally,
we may issue awards for up to a maximum of 640,616 shares of common stock under our 2015 Omnibus Equity Incentive Plan. On January
22, 2016 our compensation committee awarded 499,000 options to purchase our common stock at a price of $2.05, to our employees
and our board of directors. These options are subject to a minimum vesting period of three years.
Holders
of common stock have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions
applicable to the common stock. Holders of common stock are entitled to receive such dividends, if any, as may be declared from
time to time by the board of directors in its discretion out of funds legally available therefor.
Common
stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. Our board of
directors is divided into three classes, each of which will generally serve for a term of three years (with a shorter period for
the initial directors upon the Business Combination, where they continue until their class is up for election) with only one class
of directors being elected in each year and with directors only permitted to be removed for cause. There is no cumulative voting
with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election
of directors can elect all of the directors up for election at such time.
Certain
shares of common stock that were issued in the Business Combination in exchange for Chart’s common stock held by certain
of its initial stockholders, which we refer to as Founder Shares, are subject to forfeiture upon certain conditions. With certain
limited exceptions, the Founder Shares are not transferable, assignable or salable (except to our officers and directors and other
persons or entities affiliated with the Chart’s initial stockholders, each of whom will be subject to the same transfer
restrictions) until the earlier of (i) July 31, 2016 or earlier if the last sales price of our common stock equals or exceeds
$12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading
days within any 30-trading day period commencing at least 150 days after July 31, 2015, or (ii) the date on which we consummate
a liquidation, merger, stock exchange or other similar transaction that results in all of our stockholders having the right to
exchange their shares of common stock for cash, securities or other property. In addition, 234,375 Founder Shares are subject
to forfeiture pro rata by Chart’s initial stockholders in the event the last sales price of our common stock does not equal
or exceed $11.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for
any 20 trading days within any 30-trading day period within 60 months following July 31, 2015. An additional 234,375 Founder Shares,
will be subject to forfeiture pro rata by Chart’s initial stockholders in the event the last sales price of our common stock
does not equal or exceed $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and
the like) for any 20 trading days within any 30-trading day period prior to July 31, 2020. Chart’ s initial stockholders
have agreed that such shares will be subject to lockup and will not sell or transfer Founder Shares that remain subject to forfeiture
as described above, until such time as the related forfeiture provisions no longer apply. The securities held by Chart’s
initial stockholders are also subject to certain other lock-up restrictions under the terms of the Founders’ Registration
Rights Agreement, to which such stockholders are subject.
We
have made an adjustment to our capital contributed in excess of par to account for the fact that the Financing and Business Combination
expenses, along with the valuation of the warrant liabilities associated with the warrants issued pursuant thereto, caused capital
contributed in excess of par to go below zero. Any excess negative amount due to these transactions that would otherwise have
been allocated to capital contributed in excess of par has now been recognized as a negative retained earnings amount.
On
February 24, 2016 the Company issued an aggregate of 641,666 shares of common stock at a value of $1,251,249 to certain holders
of Series B-2 and Series B-3 Warrants who exercised their warrants using the alternative cashless exercise feature. These shares
were issued pursuant to exemptions from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities
Act and Rule 506 of Regulation D promulgated thereunder.
On
March 15, 2016, the Company purchased Tempus Jets, Inc. (“TJI”) from our CEO B. Scott Terry for consideration of $500,000,
paid in the form of 242,131 shares of common stock of the Company. The number of shares issued to Mr. Terry was calculated based
on the volume weighted average market price of the Company’s common stock for the previous 20 trading days. (See Note
9 above).
On
June 23, 2016, the Company issued an aggregate of 1,344,446 shares of common stock valued at $1,546,113 to certain holders of
Series B-2 and Series B-3 Warrants who exercised their warrants using the alternative cashless exercise feature. These shares
were issued pursuant to exemptions from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities
Act and Rule 506 of Regulation D promulgated thereunder.
The
Business Combination was approved by Chart’s stockholders at a special meeting of stockholders held on July 31, 2015 (the
“Special Meeting”). At the Special Meeting, 4,985,780 shares of Chart common stock were voted in favor of the proposal
to approve the Business Combination and no shares of Chart common stock were voted against that proposal. In connection with the
stockholders’ approval of the Business Combination, Chart redeemed a total of 2,808,329 shares of its common stock pursuant
to the terms of Chart’s amended and restated certificate of incorporation.
The
consummation of the Business Combination was preceded by a series of privately negotiated transactions, referred to collectively
herein as the “Financing”, involving aggregate cash investments of $10.5 million by three outside investor entities
(or affiliates thereof) that had not previously invested in Chart or Tempus (the “New Investors”), aggregate cash
investments of $5.0 million by the Sponsor, Mr. Joseph Wright and Cowen (collectively, the “Chart Affiliate Investors”)
and a cash investment of $500,000 by the Chief Financial Officer of Tempus (through his individual retirement account) (the “Tempus
Affiliate Investor”, and together with the Chart Affiliate Investors, the “Affiliate Investors”, and together
with the New Investors, the “Investors”).
In
the Business Combination, the Members received 3,642,084 shares of Tempus Holdings’ common stock (the “Merger Shares”)
in exchange for all of the issued and outstanding membership interests of Tempus. The number of Merger Shares received reflected
a downward merger consideration adjustment (in accordance with the Merger Agreement) of 57,916 shares of Tempus Holdings common
stock, based on Tempus’ estimated working capital and debt as of the closing of the Business Combination. Such merger consideration
adjustment is subject to a post-closing true-up based on Tempus’ actual working capital and debt as of the closing of the
Business Combination. In addition, pursuant to the earn-out provisions of the Merger Agreement, the Members have the right to
receive up to an additional 6,300,000 shares of Tempus Holdings’ common stock upon the achievement of certain financial
milestones.
In
connection with the Business Combination, Chart stockholders and warrant holders received shares of Tempus Holdings common stock
and warrants to purchase shares of Tempus Holdings common stock in exchange for their existing shares of Chart common stock and
existing Chart warrants. In connection with the Business Combination, (i) the Affiliate Investors received an aggregate of 1,375,000
shares of Tempus Holdings common stock, 1,031,250 Series A-2 Warrants and 343,750 Series B-2 Warrants (collectively, the “Affiliate
Investor Securities”) and (ii) the New Investors received an aggregate of 1,255,265 shares of Tempus Holdings common stock,
1,369,735 shares of Tempus Holdings preferred stock, 1,968,750 Series A-1 Warrants and 656,250 Series B-1 Warrants (collectively,
the “New Investor Securities,” and collectively with the Affiliate Investor Securities, the “Financing Securities”).
The terms and provisions of the Financing Securities are described in more detail in the Form S-4 (as defined below), in the section
therein entitled “Description of Tempus Holdings’ Securities,” which section is incorporated herein by reference.
In connection with the closing of the Business Combination, the parties to the Merger Agreement waived certain conditions to closing,
which waivers were consented to by the New Investors pursuant to their rights under the New Investor Purchase Agreements. The
waivers made (and consented to by the New Investors) included, in substantial part: (i) the waiver of the condition that a final
warrant tender offer for outstanding public warrants of Chart be concluded prior to the closing of the Business Combination; and
(ii) the waiver of the condition that, immediately prior to the closing of the Business Combination, but after giving effect to
the Business Combination, there be sufficient capital in Tempus and Chart, including to cover certain post-closing commitments.
The
issuance of the Company’s common stock and warrants to former holders of Chart common stock and warrants in connection with
the Business Combination was registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant
to a registration statement on Form S-4 (File No. 333-201424), filed with the United States SEC and declared effective on July
17, 2015 (the “Form S-4”). The Form S-4 contains additional information about the Merger Agreement, the Business Combination,
the Financing and the related transactions. The Merger Shares and the Financing Securities were issued pursuant to exemptions
from the registration requirements of the Securities Act, pursuant to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation
D promulgated thereunder.
Prior
to the closing of the Business Combination, Chart was a shell company with no operations, formed as a special purpose acquisition
company to effect a business combination with one or more operating businesses. After the closing of the Business Combination,
Chart is now a subsidiary of Tempus Holdings.
The
following table presents the assets acquired and the liabilities assumed in the Business Combination as of July 31, 2015 as recorded
by the Company on the acquisition date and the initial fair value adjustments.
|
|
As
Recorded by Chart Acquisition Corp
|
|
|
Adjustments
|
|
|
As
Recorded
by the Company
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,128,746
|
(C)
|
|
$
|
-
|
|
|
$
|
4,128,746
|
|
Due from Sponsor
|
|
|
660
|
(B)
|
|
|
-
|
|
|
|
660
|
|
Total assets
|
|
|
4,129,406
|
|
|
|
-
|
|
|
|
4,129,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
100,027
|
(B)
|
|
$
|
-
|
|
|
$
|
100,027
|
|
Payable to affiliates of the Sponsor
|
|
|
6,614
|
(B)
|
|
|
-
|
|
|
|
6,614
|
|
Accrued expenses
|
|
|
25,000
|
(B)
|
|
|
-
|
|
|
|
25,000
|
|
Warrant liability
|
|
|
1,808,176
|
|
|
|
(336,276
|
)(A)
|
|
|
1,471,900
|
|
Total liabilities
|
|
|
1,939,817
|
|
|
|
(336,276
|
)
|
|
|
1,603,541
|
|
Net assets acquired over liabilities assumed
|
|
$
|
2,189,589
|
|
|
$
|
336,276
|
|
|
$
|
2,525,865
|
|
|
(A)
|
Based
on the valuation report of the Valuation Firm, (see Note 15 above) valuing the warrants as of July 31, 2015, the date of the
Business Combination, the warrant liability carried on the balance sheet of Chart has been adjusted to the value calculated
by the Valuation Firm.
|
|
(B)
|
As
part of the Business Combination, Tempus assumed the working capital (liabilities) of Chart, net of cash and warrant liability,
in the amount of ($130,981). Please see the consolidated statements of cash flows.
|
|
(C)
|
Pursuant
to the Business Combination and the Financing, the Company received $16,000,000 in cash related to the sale of common stock,
preferred stock and warrants. The use of the proceeds is summarized as follows:
|
Sale of common stock, preferred stock and warrants pursuant to the Business Combination and Financing
|
|
$
|
16,000,000
|
|
Payment of costs related to the Business Combination and Financing
|
|
|
(12,214,875
|
)
|
Cash from business acquired pursuant to the Business Combination
|
|
|
212,640
|
|
Net cash proceeds related to Business Combination
|
|
$
|
3,997,765
|
|
The
Company allocated the $16,000,000 in proceeds among common stock, preferred stock and warrants based on the third party valuation
by the Valuation Firm as of July 31, 2015, the date of the Business Combination. The valuation of the warrants, which are classified
as liabilities on the consolidated balance sheets, resulted in an adjustment to additional paid in capital, as shown in the consolidated
statement of stockholders’ equity (deficit), of $6,675,200 to record the underlying value of the warrants at the estimated
redemption value.