(1) This number excludes an aggregate of 7,698,242 shares subject to possible redemption at September 30, 2016.
The
accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
Note 1 - Organization, Plan of Business Operations
KLR Energy Acquisition
Corp. (the “Company”) was incorporated in Delaware on September 21, 2015 as a blank check company for the purpose of
effecting a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business
combination with one or more businesses or entities (a “Business Combination”). The Company’s efforts to identify
a prospective target business are not limited to a particular industry or geographic region.
All activity through
September 30, 2016 relates to the Company’s formation, the initial public offering (“Initial Public Offering”)
and, since the closing of the Initial Public Offering, a search for a Business Combination candidate described below. The Company
is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage
and emerging growth companies.
The registration statement
for the Company’s Initial Public Offering was declared effective on March 10, 2016. The Company consummated the Initial Public
Offering of 8,000,000 units (“Units”) at $10.00 per unit on March 16, 2016, generating gross proceeds of $80.0 million
and incurred offering costs of approximately $2.6 million, inclusive of $2 million of underwriting commissions (Note 4).
Simultaneously with
the closing of the Initial Public Offering, the Company consummated the private placement (“Private Placement”) of
8,310,000 warrants (“Private Placement Warrants”) at a price of $0.75 per Private Placement Warrant, of which 7,776,667
Private Placement Warrants were sold to KLR Energy Sponsor LLC (the “Sponsor”), and 533,333 Private Placement Warrants
were sold to EarlyBirdCapital, Inc. (“EBC”), the representative of the underwriters in the Initial Public Offering,
and its designees, generating gross proceeds of approximately $6.2 million (Note 5).
On March 21, 2016,
the Company consummated the closing of the sale of 185,320 additional Units upon receiving notice of EBC’s election to partially
exercise its over-allotment option (“Over-Allotment Units”), generating additional gross proceeds of approximately
$1.85 million. Simultaneously with the exercise of the over-allotment, the Company consummated the Private Placement of an additional
98,838 Private Placement Warrants, among which 86,483 Private Placement Warrants were purchased by the Sponsor and 12,355 Private
Placement Warrants were purchased by EBC and its designees, generating gross proceeds of approximately $74,000. Underwriting commission
of approximately $46,000 were deferred until the completion of the Company’s initial Business Combination.
An aggregate of approximately
$85.1 million ($10.40 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering, the Over-Allotment
Units, and the Private Placement Warrants was placed in a United States-based trust account (“Trust Account”) at J.P.
Morgan Chase Bank maintained by Continental Stock Transfer & Trust Company, acting as trustee, and is invested in U.S.
government treasury bills, until the earlier of (i) the consummation of the Business Combination or (ii) the Company’s failure
to consummate a Business Combination by September 16, 2017. One of the Company’s officers has agreed to be personally liable
if the Company liquidates the Trust Account prior to the consummation of a Business Combination or upon mandatory liquidation to
ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or claims of vendors or other
entities that are owed money by the Company for services rendered or contracted for or products sold to the Company. However, such
officer may not be able to satisfy those obligations should they arise. The remaining net proceeds (not held in the Trust Account)
may be used to pay for business, legal and accounting due diligence on prospective merger or acquisition candidates and continuing
general and administrative expenses. Additionally, the interest earned on the Trust Account balance may be released to the Company
for any amounts that are necessary to pay the Company’s income tax obligations.
At September 30, 2016,
the Company has approximately $369,000 in cash held outside of the Trust Account. The Company’s management has broad discretion
with respect to the specific application of the net proceeds of the Initial Public Offering and Private Placement Warrants, although
substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination.
KLR ENERGY ACQUISITION CORP
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
Pursuant to the
NASDAQ Capital Markets listing rules, the Company’s initial Business Combination must be with a target business or
businesses whose collective fair market value is at least equal to 80% of the balance in the Trust Account at the time of the
execution of a definitive agreement for such Business Combination, although this may entail simultaneous mergers with, or
acquisitions of, several target businesses. The fair market value of the target will be determined by the Company’s
board of directors based upon one or more standards generally accepted by the financial community (such as actual and
potential sales, earnings, cash flow and/or book value). The target business or businesses that the Company merges with or
acquires may have a collective fair market value substantially in excess of 80% of the Trust Account balance. In order to
consummate such a Business Combination, the Company may issue a significant amount of its debt or equity securities to the
sellers of such business and/or seek to raise additional funds through a private offering of debt or equity securities. If
the Company’s securities are not listed on NASDAQ, the Company would not be required to satisfy the 80% requirement.
However, the Company intends to satisfy the 80% requirement even if the Company’s securities are not listed on NASDAQ
at the time of the initial Business Combination.
The Company will provide
the public stockholders, who are the holders of the shares of Class A common stock which were sold as part of the Units in the
Initial Public Offering, whether they were purchased in the Initial Public Offering or in the aftermarket (“Public Shares”),
including the Company’s stockholders prior to the Initial Public Offering (including the Sponsor) (the “Initial Stockholders”)
to the extent that they purchase such Public Shares (“Public Stockholders”), with an opportunity to redeem all or a
portion of their Public Shares, irrespective of whether they vote for or against the proposed transaction or if the Company conducts
a tender offer, upon the completion of the initial Business Combination either (1) in connection with a stockholder meeting called
to approve the Business Combination, or (ii) by means of a tender offer, at a per-share price, payable in cash, equal to the aggregate
amount then on deposit in the Trust Account including interest (net of income taxes payable) divided by the number of then outstanding
shares of Class A common stock. As of September 30, 2016, the amount in the Trust Account is approximately $10.42 per Public Share.
In such case, the Company will proceed with a Business Combination only if the Company has net tangible assets of at least $5,000,001
upon such consummation of a Business Combination and, in the case of a stockholder vote, a majority of the outstanding shares voted
are voted in favor of the Business Combination. The decision as to whether the Company will seek stockholder approval of a proposed
Business Combination or conduct a tender offer will be made by the Company, solely in its discretion, based on a variety of factors
such as the timing of the transaction and whether the terms of the transaction would otherwise require it to seek stockholder approval
by law or pursuant to a stock exchange listing requirement. If a stockholder vote is not required and the Company decides not to
hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its amended and restated certificate
of incorporation, (i) conduct the redemptions pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act (as defined below),
which regulate issuer tender offers, and (ii) file tender offer documents with the U.S. Securities and Exchange Commission (“SEC”)
prior to completing the initial Business Combination which contain substantially the same financial and other information about
the initial Business Combination and the redemption rights as is required under Regulation 14A of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), which regulates the solicitation of proxies. If, however, stockholder approval
of a transaction is required by law or stock exchange listing requirement, or the Company decides to obtain stockholder approval
for business or other legal reasons, the Company will conduct the redemptions in conjunction with a proxy solicitation pursuant
to Regulation 14A of the Exchange Act, which regulates the solicitation of proxies, and not pursuant to the tender offer rules,
and file materials with the SEC. If the Company is required, or otherwise decides, to seek stockholder approval, the Company
will complete the initial business combination only if a majority of the outstanding shares of common stock voted are voted in
favor of the business combination.
The Initial Stockholders
have agreed to vote their Founder Shares (as described in Note 7) and any Public Shares purchased during or after the Initial Public
Offering in favor of the initial Business Combination, and the Company’s executive officers and directors have also agreed
to vote any Public Shares purchased during or after the Initial Public Offering in favor of the initial Business Combination. In
addition, the Initial Stockholders and executive officers have entered into letter agreements, pursuant to which they agree to
waive their redemption rights with respect to the Founder Shares and Public Shares in connection with the completion of the initial
Business Combination.
KLR ENERGY ACQUISITION CORP
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
If the Company has
not completed a Business Combination by September 16, 2017, the automatic liquidation of the Trust Account and the voluntary liquidation
of the Company will be triggered. In such event, holders of Public Shares will share ratably in the Trust Account, including
any interest not previously released to the Company, and any net assets remaining available for distribution to them after payment
of liabilities. The Initial Stockholders and executive officers have agreed to waive their rights to liquidating distributions
from the Trust Account with respect to the Founder Shares if the Company fails to complete the initial Business Combination within
the prescribed time frame. However, if the Initial Stockholders (or any of the Company’s executive officers, directors or
affiliates) acquire Public Shares in or after the Initial Public Offering, they will be entitled to liquidating distributions from
the Trust Account with respect to such Public Shares in the event the Company does not complete the initial Business Combination
within such applicable time period.
On March 28, 2016,
the Company announced that the holders of the Company’s Units may elect to separately trade the shares of Class A Common
Stock and warrants included in the Units commencing on or about March 29, 2016. Those Units not separated continue to trade
on the NASDAQ Capital Market under the symbol “KLREU,” and each of the shares and warrants trade separately on the
NASDAQ Capital Market under the symbols “KLRE” and “KLREW,” respectively. Holders of Units need to have
their brokers contact Continental Stock Transfer & Trust Company, the Company’s transfer agent, in order to separate
the holders’ Units into shares and warrants.
Note 2 - Basis of Presentation
The accompanying unaudited
condensed financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S.
GAAP”) for interim financial information and pursuant to rules and regulations of the SEC. Accordingly, they do not include
all of the information and footnotes required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal
accruals) considered for a fair presentation have been included. Operating results for the nine months ended September 30, 2016
are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. For further information,
refer to the Balance Sheet included in the Company’s Form 8-K as of March 16, 2016, filed with the SEC on March 22, 2016.
Liquidity
As of September 30,
2016, the Company had approximately $369,000 in its operating bank account, approximately $85.3 million in cash and cash equivalents
held in the Trust Account and working capital of approximately $266,000.
In order to meet its
working capital needs, the Sponsor, its affiliates, or certain executive officers and directors, may, but are not obligated to,
loan the Company funds as may be required. The loans would either be repaid upon consummation of the Company’s initial Business
Combination, or, at the lender’s discretion, up to $1.5 million of such loans (including $275,000 in loans currently outstanding
as of September 30, 2016) may be converted upon consummation of the Company’s initial Business Combination into additional
Private Placement Warrants at a price of $0.75 per Warrant. If the Company does not complete a Business Combination, the loans
would be repaid only out of funds held outside of the Trust Account, if any.
Based on the foregoing,
management believes that the Company will have sufficient working capital to meet the Company's needs through the earlier of consummation
of a Business Combination or September 16, 2017. Over this time period, the Company will be using these funds for paying existing
accounts payable, identifying and evaluating prospective merger or acquisition candidates, performing due diligence on prospective
target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating
and consummating the Business Combination. The Company anticipates that its uses of cash for the next twelve months will be approximately
$400,000 of expenses for the search for target businesses and for the legal, accounting and other third-party expenses attendant
to the due diligence investigations, structuring and negotiating of a Business Combination.
KLR ENERGY ACQUISITION CORP
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
Note 3 - Significant Accounting Policies
Emerging growth company
The Company is an
“emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities
Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage
of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth
companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404
of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements,
and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of
any golden parachute payments not previously approved.
Further, Section 102(b)(1)
of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards
until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not
have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt
out of such extended transition period, which means that when a standard is issued or revised and it has different application
dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the
time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements
with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using
the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Cash and Marketable Securities Held
in Trust Account
The amounts held in
the Trust Account represent substantially all of the proceeds of the Initial Public Offering and are classified as restricted assets
since such amounts can only be used by the Company in connection with the consummation of a Business Combination. At September
30, 2016, cash and cash equivalents held in the Trust Account consisted of approximately $85.3 million in United States Treasury
Bills and approximately $600 in cash. At September 30, 2016, there was approximately $144,000 of interest income held in the Trust
Account available to be released to the Company to pay its income tax obligations.
Cash and cash equivalents
The Company considers
all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
Common stock subject to possible redemption
The Company accounts
for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”)
Topic 480 “
Distinguishing Liabilities from Equity
.” Common stock subject to mandatory redemption (if any) is
classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock
that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of
uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock
is classified as stockholders’ equity. The Company’s common stock feature certain redemption rights that is considered
to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at September 30,
2016, the Class A common stock that is subject to possible redemption at the redemption value is presented as temporary equity,
outside of the stockholders’ equity section of the Company’s Balance Sheet.
KLR ENERGY ACQUISITION CORP
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
Concentration of credit risk
Financial instruments
that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution which,
at times may exceed the Federal depository insurance coverage of $250,000. At September 30, 2016, the Company had not experienced
losses on this account and management believes the Company is not exposed to significant risks on such account.
Use of Estimates
The preparation of
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Subsequent Events
The Company evaluates
events that have occurred after the balance sheet date through the date hereof, which these financial statements were issued.
Fair value of financial instruments
The fair value of
the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “
Fair Value Measurements
and Disclosures
”, approximates the carrying amounts represented in the accompanying Balance Sheet, primarily due to their
short-term nature.
Offering Costs
Offering costs consist
principally of legal, underwriting commissions and other costs incurred through the balance sheet date that are directly related
to the Initial Public Offering. Offering costs amounting to approximately $2.6 million were charged to shareholders’ equity
upon completion of the Initial Public Offering, including $2 million of underwriting commissions paid upon closing of the
Initial Public Offering and approximately $46,000 of underwriting commissions related to the consummation of the Over-Allotment
Units deferred until the completion of the Company’s initial Business Combination and recorded as a liability in the accompanying
condensed Balance Sheet.
Net Loss per Share
Loss per share is
computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. An aggregate
of 7,698,242 shares of Class A common stock subject to possible redemption at September 30, 2016, have been excluded from the calculation
of basic loss per ordinary share since such shares, if redeemed, only participate in their pro rata share of the trust earnings.
The Company has not considered the effect of the warrants sold in the Public Offering (including the consummation of the over-allotment)
and Private Placement to purchase 16,594,158 shares of the Company’s Class A common stock in the calculation of diluted loss
per share, since the exercise of the warrants is contingent on the occurrence of future events.
Recent Accounting Pronouncements
Management does not
believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material
effect on the accompanying financial statements.
Note 4 - Initial Public Offering
In March 2016, the
Company consummated the Initial Public Offering of 8,185,320 Units (including the Over-Allotment Units) at $10.00 per Unit, generating
gross proceeds of approximately $81.9 million. Offering costs associated with the Initial Public Offering was approximately $2.6
million, inclusive of $2 million of underwriting commissions paid upon closing of the Initial Public Offering and approximately
$46,000 of underwriting commissions deferred until the completion of the initial Business Combination. Each Unit consists of one
share of the Company’s Class A common stock and one warrant to receive one share of Class A common stock at a price of $11.50
per share, subject to adjustment (“Warrants”). The Warrants will become exercisable on the later of (i) 30 days after
the completion of the initial Business Combination and (ii) March 16, 2017, and will expire five years after the completion of
the initial Business Combination or earlier upon redemption or liquidation.
KLR ENERGY ACQUISITION CORP
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
The Company may redeem
the Warrants, in whole and not in part, at a price of $0.01 per Warrant upon 30 days’ notice (“30-day redemption period”),
only in the event that the last sale price of the Class A common stock equals or exceeds $21.00 per share for any 20 trading days
within a 30-trading day period ending on the third trading day prior to the date on which notice of redemption is given, provided
there is an effective registration statement with respect to the shares of common stock underlying such Warrants and a current
prospectus relating to those shares of common stock is available throughout the 30-day redemption period. If the Company calls
the Warrants for redemption as described above, the Company’s management will have the option to require all holders that
wish to exercise Warrants to do so on a “cashless basis.” In determining whether to require all holders to exercise
their warrants on a “cashless basis,” the management will consider, among other factors, the Company’s cash position,
the number of Warrants that are outstanding and the dilutive effect on the Company’s stockholders of issuing the maximum
number of shares of Class A common stock issuable upon the exercise of the Warrants.
There will be no redemption
rights or liquidating distributions with respect to the Warrants, which will expire worthless if the Company fails to complete
the initial Business Combination by September 16, 2017.
Note 5 - Private Placement
Simultaneously with
the closing of the Initial Public Offering, the Company consummated the Private Placement of 8,310,000 Private Placement Warrants
at a price of $0.75 per Private Placement Warrant, of which 7,776,667 Private Placement Warrants were sold to the Sponsor, and
533,333 Private Placement Warrants were sold to EBC and its designees, generating gross proceeds of approximately $6.2 million.
Following the exercise of the over-allotment, the Company consummated the Private Placement of an additional 98,838 Private Placement
Warrants, among which 86,483 Private Placement Warrants were purchased by the Sponsor and 12,355 Private Placement Warrants were
purchased by EBC and its designees, generating gross proceeds of approximately $74,000.
The Placement Warrants
are similar to the warrants sold in the Initial Public Offering, except that if held by the original holders or their permitted
assigns, they (i) may be exercised for cash or on a cashless basis, (ii) are not subject to being called for redemption and
(iii) subject to certain limited exceptions, will be subject to transfer restrictions until 30 days following the consummation
of the Company’s initial Business Combination. EBC has agreed that EBC (and its designees) will not be permitted
to exercise any Private Placement Warrants after the five year anniversary of the effective date of the Registration Statement.
If the Private Placement Warrants are held by holders other than its initial holders, the Private Placement Warrants will be redeemable
by the Company and exercisable by holders on the same basis as the warrants sold in the Initial Public Offering.
The proceeds from
the private placement of the Private Placement Warrants were added to the net proceeds of the Initial Public Offering and placed
in the Trust Account. If the Company fails to consummate the initial Business Combination by September 16, 2017, the proceeds of
the sale of the Private Placement Warrants will be used to fund the redemption of the Public Shares, and the Private Placement
Warrants will expire worthless.
Note 6 - Related Party Transactions
Initial Shares
In connection with
the organization of the Company, a total of 4,312,500 shares of Class F common stock were sold to the Sponsor at a price of approximately
$0.006 per share for an aggregate of $25,000 (‘‘Founder Shares’’). In December 2015 and February and March
2016, the Sponsor and the Company’s officers returned an aggregate of 575,000, 862,500, and 575,000 Founder Shares, respectively,
at no cost. Also in March 2016, the Sponsor forfeited an aggregate of 253,670 Founder Shares at no cost upon receiving the underwriters’
notice of only a partial exercise of their over-allotment option. All of the Founder Shares forfeited were canceled by the Company.
KLR ENERGY ACQUISITION CORP
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
Subject to certain
limited exceptions, 50% of the Founder Shares will not be transferred, assigned, sold until the earlier of: (i) one year after
the date of the consummation of the initial Business Combination or (ii) the date on which the closing price of the Company’s
common stock equals or exceeds $12.00 per share (as adjusted) for any 20 trading days within any 30-trading day period commencing
150 days after the initial Business Combination, and the remaining 50% of the Founder Shares will not be transferred, assigned,
sold until six months after the date of the consummation of the initial Business Combination, or earlier, in either case, if, subsequent
to the Company’s initial Business Combination, the Company consummates a subsequent liquidation, merger, stock exchange,
reorganization or other similar transaction which results in all of shareholders having the right to exchange their common stock
for cash, securities or other property.
Note Payable – Related Party
As of September 30,
2016, the Sponsor has loaned to the Company an aggregate of $275,000 to cover expenses related to the Company’s formation
and the Initial Public Offering. This note, as amended on February 29, 2016, is payable without interest on the consummation of
the initial Business Combination and convertible, at the lender’s discretion, into additional Private Placement Warrants
at $0.75 per Warrant.
Other General and Administrative Services
The Sponsor, executive
officers and directors, or any of their respective affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection
with activities on the Company’s behalf, including but not limited to identifying potential target businesses and performing
due diligence on suitable Business Combinations. The Company’s audit committee reviews on a quarterly basis all payments
that were made to the Sponsor, executive officers, directors or affiliates and determines which expenses and the amount of
expenses that may be reimbursed. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons
in connection with activities on the Company’s behalf, provided, however, that to the extent such expenses exceed the available
proceeds not deposited in the Trust Account, such expenses may not be reimbursed by the Company unless the Company consummates
an initial Business Combination.
In connection
with the consummation of the Business Combination, or thereafter, the Company may retain KLR Group, LLC to provide certain financial
advisory, underwriting, capital raising, and other services for which they may receive fees. The amount of fees the Company may
pay to KLR Group, LLC will be based upon the prevailing market for similar services rendered by comparable investment banks for
such transactions at such time, and will be subject to the review of the Company’s audit committee pursuant to the audit
committee’s policies and procedures relating to transactions that may present conflicts of interest.
The Company also pays
Ms. Thom, the Chief Financial Officer, an annual salary of $200,000 until December 31, 2016. Upon the consummation of the Business
Combination, Ms. Thom will be eligible to receive a bonus equal to the amount of salary from January 2017 through the Business
Combination date. In addition, the Company agreed to reimburse an affiliate of the Sponsor for certain expenses incurred in connection
with the employment of Mr. Hanna, the Company’s Chief Executive Officer, and Ms. Thom, including employment related taxes
(paid in connection with Ms. Thom’s annual salary) and health benefits.
Note 7 - Commitments and Contingencies
Underwriting Agreement
The Company granted
the underwriters a 45-day option to purchase up to 1,200,000 additional Units to cover the over-allotment at the Initial Public
Offering price less the underwriting discounts and commissions. On March 21, 2016, the Company consummated the closing of the sale
of an additional of 185,320 Over-Allotment Units at $10.00 per Unit upon receiving notice of EBC’s election to partially
exercise its over-allotment option. In addition, the underwriters were entitled to an underwriting discount of $2 million, paid
in cash at the closing of the Initial Public Offering, plus an additional underwriting commission of approximately $46,000 in connection
with the partial exercise of the over-allotment, deferred until the consummation of the Company’s initial Business Combination.
No discounts or commissions will be paid on the sale of the Private Placement Warrants.
KLR ENERGY ACQUISITION CORP
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
The Company has also
engaged the underwriter as an advisor with the Company’s Business Combination to assist the Company in holding meetings with
the shareholders to discuss the potential Business Combination and the target business’ attributes, introduce the Company
to potential investors that are interested in purchasing the Company’s securities, assist the Company in obtaining shareholder
approval for the Business Combination, and assist the Company with the press releases and public filings in connection with the
Business Combination. The Company will pay the underwriter a cash fee for such services upon the consummation of the initial Business
Combination in an amount equal to 3.5% of the gross proceeds of the Initial Public Offering and the partial exercise of over-allotment
option (or approximately $2.9 million) (exclusive of any applicable finders’ fees which might become payable). Of such amount,
the Company may allocate 1% of the gross proceeds of the Initial Public Offering to other firms that assist the Company with the
initial Business Combination.
Registration Rights
The holders of the
Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of working capital loans (and any shares
of common stock issuable upon the exercise of the Private Placement Warrants or warrants that may be issued upon conversion of
working capital loans) are entitled to registration rights pursuant to a registration rights agreement dated March 10, 2016. Notwithstanding
the foregoing, EBC may not exercise its demand and “piggy-back” registration rights after five (5) and seven (7) years
after March 10, 2016 and may not exercise its demand rights on more than one occasion. The holders of these securities are entitled
to make up to three demands, excluding short form demands, that the Company registers such securities. In addition, the holders
have certain “piggy-back” registration rights with respect to registration statements filed subsequent to completion
of the initial Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415
under the Securities Act. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
The Company did not
register the shares of Class A common stock issuable upon exercise of the Warrants. However, the Company has agreed that as soon
as practicable, but in no event later than 30 days after the closing of the initial Business Combination, the Company will use
the best efforts to file with the SEC and have an effective registration statement covering the shares of common stock issuable
upon exercise of the Warrants no later than 90 days after the closing of the Company’s initial Business Combination, and
to maintain a current prospectus relating to those shares of common stock until the Warrants expire or are redeemed. Notwithstanding
the forgoing, if a registration statement covering the shares of Class A common stock issuable upon exercise of the Warrants included
in the Units offered in the Initial Public Offering is not effective within 90 days following the consummation of the Company’s
initial Business Combination, holders of Warrants may, until such time as there is an effective registration statement and during
any period when we shall have failed to maintain an effective registration statement, exercise Warrants on a cashless basis pursuant
to an available exemption from registration under the Securities Act. In such event, each holder would pay the exercise price by
surrendering the Warrants for that number of shares of Class A common stock equal to the quotient obtained by dividing (x) the
product of the number of shares of Class A common stock underlying the Warrants, multiplied by the difference between the exercise
price of the Warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market
value” shall mean the average reported last sale price of the shares of Class A common stock for the 10 trading days ending
on the day prior to the date of exercise. If an exemption from registration is not available, holders will not be able to exercise
their Warrants on a cashless basis.
Note 8 - Shareholder Equity
Preferred Stock
The Company is authorized
to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designation, rights and preferences
as may be determined from time to time by the Company’s board of directors. As of September 30, 2016, no preferred stock
is issued or outstanding.
KLR ENERGY ACQUISITION CORP
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
Common Stock
The Company is authorized
to issue 41,000,000 shares of common stock, par value $0.0001 per share, including (i) 35,000,000 shares of Class A common stock,
and (ii) 6,000,000 shares of Class F common stock.
Each share of Class
F common stock is automatically convertible into its pro rata number of shares of Class A common stock on the business
day following the closing of the initial Business Combination, determined as follows: each share of Class F common stock shall
convert into such number of shares of Class A common stock that equals to the product of 1 multiplied by a fraction, the numerator
of which shall be the total number of shares of Class A common stock into which all of the issued and outstanding shares of Class
F common stock shall be converted and the denominator of which shall be the total number of issued and outstanding shares of Class
F common stock at the time of conversion.
In the case that additional
shares of Class A common stock, or equity-linked securities convertible or exercisable for Class A common stock, are issued or
deemed issued in excess of the amounts offered in the Initial Public Offering and related to the closing of the Business Combination,
the conversion ratio will be adjusted so that the number of shares of Class A common stock issuable upon conversion of all shares
of Class F common stock will equal, in the aggregate, on an as-converted basis, 20% of the total number of all shares of common
stock outstanding upon completion of the Initial Public Offering plus all shares of Class A common stock and equity-linked securities
issued or deemed issued in connection with the Business Combination, excluding any shares or equity-linked securities issued, or
to be issued, to any seller in the Business Combination or pursuant to Private Placement Warrants issued to Sponsor upon conversion
of working capital loans, after taking into account any Class A common stock redeemed in connection with the Business Combination.
As of September 30,
2016, the Company has issued an aggregate of 8,185,320 shares of Class A common stock and 2,046,330 shares of Class F common stock,
inclusive of 7,698,242 shares of Class A common stock subject to possible redemption classified as temporary equity in the accompanying
condensed Balance Sheet.