The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
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 former 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, including reductions in our employee headcount, facilities and other expenses. Headcount has been
reduced from 52 in June 2016 to 29 as of September 30, 2016. The Company expects to undertake additional cost-cutting
measures in the future to the extent consistent with the provision of full performance under the Company’s contracts
with customers. In addition, the Company continues to explore possibilities for raising both working capital and longer-term
capital from outside sources in various possible transactions. As of the date of this filing, the Company expects its cash
flows to cover its costs of operations through approximately the end of January 2017, and thereafter to more than cover its
costs of operations, provided in all events that the $5,500,000 purchase obligation regarding the G-IV aircraft (see Note 14
below) is satisfied using lender financing. However, there can be no assurance that the Company’s cash flows or costs
of operations will develop as currently expected. 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 nine months ended September 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 nine months ended
September 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 September 30, 2015
for Chart, the predecessor company, and for Tempus Holdings for the period commencing January 1, 2016 through September 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. The tax returns for the year ended December 31,
2015 have not yet been filed and this point are late. While there should be no income taxes due with the filings, some jurisdictions
may impose late filing penalties. The Company is in the process of filing the tax returns as soon as possible, and has not accrued
for any late filing penalties.
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 $195,423 at September 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 $0 and $48,130 at September 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 $205,442 and $334,134 at September
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 September
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 September 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 September 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 nine months ended September 30, 2016, the Company recognized depreciation
of fixed assets in the amount of $40,313; $3,577 of depreciation was recognized for the nine months ended September 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. Costs incurred to obtain STCs are capitalized and subsequently amortized against revenue being generated from aircraft
modifications associated with the STC. The costs are expensed as services are rendered on each aircraft through cost of sales using
the units of production method. The legal life of an STC is indefinite. We believe we have enough future sales to fully amortize
our STC development costs. As of September 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 nine months ended September 30, 2016, the Company
recognized amortization expense of computer software in the amount of $20,649. For the nine months ended September 30, 2015 the
company recognized amortization expense of $2,146. 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 September 30, 2016, and December 31, 2015, the Company held $256,449 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 $620,829 and $335,459 for the nine
months ended September 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 $0 and $24,999 in inventory recorded
at September 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 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 August 2014, the FASB issued ASU No. 2014-15, “Presentation
of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue
as a Going Concern.” This ASU is intended to define management’s responsibility to evaluate whether there is substantial
doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures, and provides
guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing
and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. Until the issuance
of this ASU, U.S. GAAP lacked guidance about management’s responsibility to evaluate whether there is substantial doubt about
the organization’s ability to continue as a going concern or to provide related footnote disclosures. The amendments are
effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December
15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously
been issued. The Company does not expect that the adoption of this amendment will have a material impact on its consolidated financial
statements or disclosures.
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 nine months ended September 30, 2016 and 2015 was:
|
|
Nine months ended
September 30, 2016
|
|
|
Nine months ended
September 30, 2015
|
|
|
|
Revenue
|
|
|
Revenue
|
|
Customer A
|
|
$
|
3,242,239
|
|
|
|
24
|
%
|
|
$
|
2,951,434
|
|
|
|
34
|
%
|
Customer B
|
|
|
4,310,714
|
|
|
|
32
|
%
|
|
|
3,923,423
|
|
|
|
45
|
%
|
Customer C
|
|
|
1,395,658
|
|
|
|
10
|
%
|
|
|
104,389
|
|
|
|
1
|
%
|
Customer D
|
|
|
2,088,692
|
|
|
|
15
|
%
|
|
|
-
|
|
|
|
-
|
%
|
Other customers
|
|
|
2,554,828
|
|
|
|
19
|
%
|
|
|
1,828,818
|
|
|
|
21
|
%
|
|
|
$
|
13,592,131
|
|
|
|
100
|
%
|
|
$
|
8,808,064
|
|
|
|
100
|
%
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Accounts Receivable
|
|
|
Accounts Receivable
|
|
Customer A
|
|
$
|
369,573
|
|
|
|
36
|
%
|
|
$
|
392,453
|
|
|
|
46
|
%
|
Customer B
|
|
|
395,541
|
|
|
|
38
|
%
|
|
|
442,885
|
|
|
|
52
|
%
|
Customer C
|
|
|
-
|
|
|
|
0
|
%
|
|
|
-
|
|
|
|
0
|
%
|
Customer D
|
|
|
94,841
|
|
|
|
9
|
%
|
|
|
-
|
|
|
|
0
|
%
|
Other customers
|
|
|
173,602
|
|
|
|
17
|
%
|
|
|
20,625
|
|
|
|
2
|
%
|
|
|
$
|
1,033,557
|
|
|
|
100
|
%
|
|
$
|
855,963
|
|
|
|
100
|
%
|
Vendor concentration as of and for the nine months ended
September 30, 2016 and 2015 was:
|
|
Nine months ended
September 30, 2016
|
|
|
Nine months ended
September 30, 2015
|
|
|
|
Cost of Revenue
|
|
|
Cost of Revenue
|
|
Vendor A
|
|
$
|
2,605,512
|
|
|
|
18
|
%
|
|
$
|
2,046,534
|
|
|
|
25
|
%
|
Vendor B
|
|
|
1,610,070
|
|
|
|
11
|
%
|
|
|
914,045
|
|
|
|
11
|
%
|
Vendor C
|
|
|
1,424,456
|
|
|
|
10
|
%
|
|
|
752,220
|
|
|
|
9
|
%
|
Other
|
|
|
8,649,795
|
|
|
|
61
|
%
|
|
|
4,552,628
|
|
|
|
55
|
%
|
|
|
$
|
14,289,833
|
|
|
|
100
|
%
|
|
$
|
8,265,427
|
|
|
|
100
|
%
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Accounts Payable
|
|
|
Accounts Payable
|
|
Vendor A
|
|
$
|
312,510
|
|
|
|
10
|
%
|
|
$
|
195,511
|
|
|
|
20
|
%
|
Vendor B
|
|
|
121,508
|
|
|
|
4
|
%
|
|
|
33,270
|
|
|
|
3
|
%
|
Vendor C
|
|
|
190,678
|
|
|
|
6
|
%
|
|
|
91,355
|
|
|
|
9
|
%
|
Other vendors
|
|
|
2,590,511
|
|
|
|
80
|
%
|
|
|
674,969
|
|
|
|
68
|
%
|
|
|
$
|
3,215,207
|
|
|
|
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 assessment of its cumulative loss position, to determine if valuation allowances are required. A significant
negative 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
nine months ended September 30, 2016 and year ended December 31, 2015:
|
|
September 30,
2016
|
|
|
December 31, 2015
|
|
Federal income tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Income tax benefit at the federal statutory rate
|
|
$
|
(1,045,166
|
)
|
|
$
|
(2,558,779
|
)
|
State benefit, net of federal benefit
|
|
|
(172,193
|
)
|
|
|
(176,615
|
)
|
Permanent differences net
|
|
|
(418,462
|
)
|
|
|
1,057,550
|
|
Tax attributes from business combination
|
|
|
-
|
|
|
|
(434,725
|
)
|
Changes in valuation allowances
|
|
|
1,635,821
|
|
|
|
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 September 30, 2016 and December 31, 2015 were as follows:
|
|
September 30,
2016
|
|
|
December 31, 2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
-
|
|
|
$
|
5,548
|
|
Other reserves
|
|
|
35,406
|
|
|
|
7,554
|
|
Standby letter of credit reserve
|
|
|
-
|
|
|
|
285,000
|
|
Start-up costs
|
|
|
363,210
|
|
|
|
382,902
|
|
Net operating loss carryforwards
|
|
|
3,392,329
|
|
|
|
1,474,121
|
|
Total deferred tax assets
|
|
|
3,790,945
|
|
|
|
2,155,125
|
|
Less: valuation allowances
|
|
|
(3,790,945
|
)
|
|
|
(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 September
30, 2016. 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 September 30, 2016.
At September 30, 2016 approximately $8,900,000 in federal
and state net operating losses were available to be carried forward, expiring at various dates through 2036.
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 and March 2016; 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. The tax returns for the tax year ended December 31, 2015 have not been filed yet and at this point
are late. While there should be no income taxes due with the filings, some jurisdictions may impose late filing penalties. The
Company is in the process of filing the tax returns as soon as possible, and has not accrued for any late filing penalties.
6.
|
BASIC AND DILUTED SHARES OUTSTANDING
|
Basic common shares outstanding as of September 30, 2016
are 11,064,664. Our weighted average basic shares outstanding for the nine months ended September 30, 2016 is calculated based
on the average number of basic common shares outstanding over the period in question and is calculated as 10,024,972 shares. Our
weighted average basic shares outstanding for the three months ended September 30, 2016 is calculated based on the average number
of basic common shares outstanding over the period in question and is calculated as 11,064,664 shares.
Our weighted average diluted common shares outstanding as
of September 30, 2016 would normally be calculated based on the sum of the weighted average basic shares outstanding for the nine
months ended September 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 nine months ended September
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:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Contract A earnings in excess of billings
|
|
$
|
160,000
|
|
|
$
|
-
|
|
Other earnings in excess of billings
|
|
|
35,423
|
|
|
|
-
|
|
Other receivable
|
|
|
660
|
|
|
|
21,697
|
|
Total
|
|
$
|
196,083
|
|
|
$
|
21,697
|
|
Other assets consist of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Pre-contract costs
|
|
$
|
205,442
|
|
|
$
|
334,134
|
|
Other prepaid expenses
|
|
|
44,492
|
|
|
|
38,940
|
|
Total
|
|
$
|
249,934
|
|
|
$
|
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
former 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 $21,942 as of September 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 September 30, 2016, the Company had a net outstanding receivable from JRA of $12,726. Total purchases by the Company from
JRA for the nine months ended September 30, 2016 were $196,035. Billings by the Company to JRA for the nine months ended September
30, 2016 were $57,053.
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 has been limited to certain shared information technology and marketing expenses, which are incurred at cost. Total
purchases by the Company from TIH for the nine months ended September 30, 2016 were $1,125,246. Total billings from the Company
to TIH for the nine months ended September 30, 2016 were $136,482. The net outstanding payable from Tempus to TIH at September
30, 2016 was $946,355.
Southwind Capital, LLC (“Southwind”) is controlled
by R. Lee Priest, Jr., the Company’s Executive Vice President. Southwind owns certain aircraft used by Tempus to provide
services to certain customers. Total purchases by the Company from Southwind for the nine months ended September 30, 2016 were
$116,545. The net outstanding payable from Tempus to Southwind at September 30, 2016 was $116,545.
As of August 31, 2016, as part of the cost-cutting initiatives
instituted by Tempus, the Company gave up its lease on its previous office headquarters at 133 Waller Mill Road, Williamsburg,
Virginia, and relocated to office premises at 471 McLaws Circle, Suite A, Williamsburg, Virginia. The premises have been made available
to the Company by JRA, which holds them under a lease. The Company uses the entire space and has begun paying JRA’s full
monthly rent amount. The move has reduced the Company’s monthly office lease expense from approximately $10,000 to approximately
$5,000.
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, Joseph Wright, are on our board of directors.
For the nine months ended September 30, 2016 Tempus billed $39,646 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 September 30, 2016 and December 31, 2015, the net payable
to CAF was $62,520 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:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Office equipment
|
|
$
|
168,055
|
|
|
$
|
131,389
|
|
Furniture and fixtures
|
|
|
456
|
|
|
|
456
|
|
Total
|
|
|
168,511
|
|
|
|
131,845
|
|
Accumulated depreciation
|
|
|
(54,758
|
)
|
|
|
(14,447
|
)
|
Property and equipment, net
|
|
$
|
113,753
|
|
|
$
|
117,398
|
|
Intangibles, net consists of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Infinite-lived intangible assets:
|
|
|
|
|
|
|
FAA licenses
|
|
$
|
550,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
STC costs
|
|
|
455,901
|
|
|
|
414,226
|
|
Accumulated amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
|
455,901
|
|
|
|
414,226
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
90,275
|
|
|
|
82,240
|
|
Accumulated amortization
|
|
|
(29,232
|
)
|
|
|
(8,582
|
)
|
|
|
|
61,043
|
|
|
|
73,658
|
|
Total intangible assets, net
|
|
$
|
1,066,944
|
|
|
$
|
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 fourth quarter of 2016. Estimated amortization of this STC will be as follows:
|
|
Estimated STC Amortization
|
|
2017
|
|
$
|
18,236
|
|
2018
|
|
|
45,590
|
|
2019
|
|
|
136,770
|
|
2020
|
|
|
255,305
|
|
Total
|
|
$
|
455,901
|
|
For the nine months ended September 30, 2016, recognized
amortization of software was $20,649, all associated with software purchases. Future amortization schedules associated with existing
software is as follows:
|
|
Software Amortization
|
|
October 1, 2016 – December 31, 2016
|
|
$
|
12,106
|
|
2017
|
|
|
28,425
|
|
2018
|
|
|
20,066
|
|
2019
|
|
|
446
|
|
Total
|
|
$
|
61,043
|
|
Accrued liabilities at September 30, 2016 and December 31,
2015 include the following:
|
|
September 30,
2016
|
|
|
December 31, 2015
|
|
Reserve for standby letter of credit
|
|
$
|
-
|
|
|
$
|
750,000
|
|
Accrued employment costs
|
|
|
343,090
|
|
|
|
185,567
|
|
Aircraft maintenance reserves
|
|
|
102,250
|
|
|
|
110,000
|
|
Other
|
|
|
125,651
|
|
|
|
268,403
|
|
Total
|
|
$
|
570,991
|
|
|
$
|
1,313,970
|
|
Customer Deposits consists of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Project A
|
|
$
|
-
|
|
|
$
|
750,000
|
|
Other customer deposits
|
|
|
256,449
|
|
|
|
4,545
|
|
Total
|
|
$
|
256,449
|
|
|
$
|
754,545
|
|
14.
|
COMMITMENTS AND CONTINGENCIES
|
The Company incurred lease expense for real office and hangar
space for the nine months ended September 30, 2016, of $351,795. Lease expense for aircraft and simulators was $4,238,694 for the
nine months ended September 30, 2016. Lease expenses for real office space and hangar space was $87,446 and lease expense for aircraft
and simulators was $2,120,336 for the nine months ended September, 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 vacated the space August
31, 2016.
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 September 30, 2016 total $40,500.
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 September 30, 2016 is $0. Unpaid lease invoices at September 30,
2016 totaled $14,000.
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 September 30, 2016 total $0; the lease has reverted
to a month to month agreement. Unpaid lease invoices at September 30, 2016 totaled $115,054.
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. As of November 4, 2016, the lessor has exercised its option
to sell the aircraft to the Company. The Company currently expects the sale to close in approximately 60 days.
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, Joseph Wright, are on our board of directors.
For the nine months ended September 30, 2016 Tempus generated $39,646 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 September 30, 2016 and December 31, 2015, the net payable
to CAF was $62,520 and $0, respectively.
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 $350,000 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 September 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
|
|
|
$
|
-
|
|
|
|
September 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
|
|
|
63,750
|
|
|
|
-
|
|
|
|
63,750
|
|
|
|
-
|
|
Series B Warrant Liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Warrant Liability
|
|
$
|
851,250
|
|
|
$
|
787,500
|
|
|
$
|
63,750
|
|
|
$
|
-
|
|
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 September 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
$0.001 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 September 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 September
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 nine months ended September 30,
2016 and 2015 there were 499,000 and 0 stock options granted, respectively, under the Company’s option plan. The Company
recognized $175,677 and $0 in stock-based compensation expense for the nine months ended September 30, 2016 and 2015, respectively.
Stock options to purchase 499,000 and 0 shares of common
stock were outstanding as of September 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, September 30, 2016
|
|
|
499,000
|
|
|
|
2.05
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, September 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
Compensation cost is recognized over the required service
period which is three years for all granted options. As of September 30, 2016, $527,032 of total unrecognized compensation cost
related to stock options was expected to be recognized over the remaining 9 quarters.
Preferred Stock
As of September 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 September 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 former 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.