Notes
to Condensed Financial Statements
(Unaudited)
Note
1 - Organization and Plan of Business Operations, Liquidity and Going Concern
Arowana
Inc. (the “Company”) was incorporated in the Cayman Islands on October 1, 2014 as a blank check company whose objective
is to acquire, through a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other
similar business combination, one or more businesses or entities (a “Business Combination”).
At
August 31, 2016, the Company had not yet commenced any operations. All activity for the three and the six month period ended August
31, 2016 relates to the Company’s search for a business combination target and general and administrative expenses.
The
registration statement for the Company’s initial public offering was declared effective on April 30, 2015. The Company consummated
a public offering of 7,200,000 units (“Units”) on May 6, 2015 (the “Offering”), received gross proceeds
of $72,000,000 and net proceeds of $69,545,186 after deducting $2,454,814 of transaction costs. Each Unit consists of one ordinary
share (“Public Share”) in the Company, one right (“Right”) and one redeemable warrant (“Warrant”).
In addition, the Company generated proceeds of $4,550,000 from the private placement of 455,000 Units (the “Private Placement”)
to certain initial shareholders of the Company. The Units sold pursuant to the Offering and the Private Placement were sold at
an offering price of $10.00 per Unit. The Company also granted EarlyBirdCapital, Inc. (“EarlyBird”), the representative
of the underwriters in the Offering, an over-allotment option to purchase an additional 1,080,000 Units. On May 12, 2015, the
Company consummated the closing of the full over-allotment option to purchase the additional 1,080,000 Units. The Units sold pursuant
to the over-allotment option were sold at an offering price of $10.00 per Unit, generating gross proceeds of $10,800,000 and net
proceeds of $10,476,000. In a private sale that took place simultaneously with the consummation of the exercise of the over-allotment
option, the Company’s initial shareholders prior to the Offering and their affiliates purchased an additional 54,000 Private
Placement Units at $10.00 per Private Placement Unit generating gross proceeds of $540,000.
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the Offering and
Private Placement, although substantially all of the net proceeds are intended to be generally applied toward consummating a Business
Combination. The Company’s Units are listed on the Nasdaq Capital Market (“NASDAQ”). Pursuant to the NASDAQ
listing rules, the Company’s initial Business Combination must be with a target business or businesses whose collective
fair market value is at least equal to 80% of the balance in the trust account at the time of the execution of a definitive agreement
for such Business Combination, although this may entail simultaneous acquisitions of several target businesses. There is no assurance
that the Company will be able to effect a Business Combination successfully.
Following
the closing of the Offering, the Private Placement and the exercise of the over-allotment options, an amount of $84,456,000 or
$10.20 per share sold in the Offering including shares sold in the overallotment is being held in a trust account (“Trust
Account”) and may be invested in money market funds meeting the applicable conditions of Rule 2a-7 promulgated under the
Investment Company Act of 1940, as amended, and that invest solely in U.S. treasuries or United States bonds, treasuries or notes
having a maturity of 180 days or less. The funds placed into the Trust Account may not be released until the earlier of (i) the
consummation of the Company’s initial Business Combination and (ii) the Company’s failure to consummate a Business
Combination within the prescribed time. The remaining net proceeds (not held in the Trust Account) may be used to pay for business,
legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. However, the
interest earned on the Trust Account balance may be released to the Company (i) to pay any tax obligations and (ii) any remaining
interest earned on the funds in the Trust Account that the Company needs for its working capital requirements. Placing funds in
the Trust Account may not protect those funds from third party claims against the Company. Although the Company will seek to have
all vendors, service providers, prospective target businesses or other entities it engages, execute agreements with the Company
waiving any claim of any kind in or to any monies held in the Trust Account, there is no guarantee that such persons will execute
such agreements.
Note
1 - Organization and Plan of Business Operations, Liquidity and Going Concern (Continued)
The
Company will either seek shareholder approval of any Business Combination at a meeting called for such purpose at which the holders
of shares included in Units sold in the Offering (“Public Shareholders’), may seek to convert their Public Shares
into their pro rata share of the aggregate amount then on deposit in the Trust Account, less any taxes then due but not yet paid
or provide shareholders with the opportunity to sell their Public Shares to the Company by means of a tender offer for an amount
equal to their pro rata share of the aggregate amount then on deposit in the Trust Account, less any taxes then due but not yet
paid (See “
Recent Developments
” below). The Company will proceed with a Business Combination only if it will
have net tangible assets of at least $5,000,001 upon consummation of the Business Combination and, solely if shareholder approval
is sought, a majority of the outstanding ordinary shares of the Company voted, are voted in favor of the Business Combination.
Notwithstanding the foregoing, a Public Shareholder, together with any affiliate of his or any other person with whom he is acting
in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking conversion
rights with respect to 20% or more of the ordinary shares sold in the Offering. Accordingly, all shares purchased by a holder
in excess of 20% of the shares sold in the Offering will not be converted to cash.
In
connection with any shareholder vote required to approve any Business Combination, the holders of the founders shares and shares
purchased in the Private Placement (collectively, the “Initial Shareholders”) have agreed (i) to vote any of their
respective shares, including the 2,070,000 ordinary shares sold to the Initial Shareholders in connection with the organization
of the Company (the “Initial Shares”), 509,000 units sold in the Private Placement (“Private Units”),
and any ordinary shares which were initially issued in connection with the Offering, whether acquired in or after the effective
date of the Offering, in favor of the initial Business Combination and (ii) not to convert such shares into a pro rata portion
of the Trust Account or seek to sell their shares in connection with any tender offer the Company engages in.
Pursuant
to the Company’s Memorandum and Articles of Association, if the Company is unable to complete its initial Business Combination
by November 6, 2016, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably
possible but not more than ten business days thereafter, redeem 100% of the outstanding Public Shares and (iii) as promptly as
reasonably possible following such redemption, subject to the approval of the remaining holders of ordinary shares and the Company’s
board of directors, dissolve and liquidate (See “
Recent Developments
” below). If the Company is unable to consummate
an initial Business Combination and is forced to redeem 100% of the outstanding Public Shares for a pro rata portion of the funds
held in the Trust Account, each holder will receive a full pro rata portion of the amount then in the Trust Account, plus any
pro rata interest earned on the funds held in the Trust Account and not released to the Company to pay any of its taxes and working
capital requirements. Holders of Rights (see Note 3) and Warrants (see Note 3) will receive no proceeds in connection with the
liquidation. The Initial Shareholders will not participate in any redemption distribution with respect to their Initial Shares
and Private Units, including the ordinary shares included in the Private Units.
If
the Company is unable to complete its initial Business Combination and expends all of the net proceeds of the Offering not deposited
in the Trust Account, without taking into account any interest earned on the Trust Account, the Company expects that the initial
per-share redemption price for ordinary shares will be $10.20. The proceeds deposited in the Trust Account could, however, become
subject to claims of the Company’s creditors that are in preference to the claims of the Company’s shareholders. In
addition, if the Company is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against it that is not
dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy law, and may be included in its bankruptcy
estate and subject to the claims of third parties with priority over the claims of the Company’s ordinary shareholders.
Therefore, the actual per-share redemption price may be less than $10.20.
Note
1 - Organization and Plan of Business Operations, Liquidity and Going Concern (Continued)
Kevin
Chin, the Chairman and Chief Executive Officer of the Company, has contractually agreed pursuant to a written agreement with the
Company that, if the Company liquidates the Trust Account prior to the consummation of a business combination, he will be personally
liable to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or claims of vendors
or other entities that are owed money by the Company for services rendered or contracted for or products sold to the Company.
Accordingly, if a claim brought by a target business or vendor did not exceed the amount of funds available to the Company outside
of the Trust Account or available to be released to the Company from interest earned on the Trust Account balance, Mr. Chin would
not have any obligation to indemnify such claims as they would be paid from such available funds. However, if a claim exceeded
such amounts, the only exceptions to Mr. Chin’s obligations to pay such claim would be if the party executed an agreement
waiving any right, title, interest or claim of any kind they have in or to any monies held in the Trust Account. The Company cannot
assure you that Mr. Chin will be able to satisfy these obligations if he is required to do so. Therefore, the Company cannot assure
the shareholders that the per-share distribution from the Trust Account, if the Company liquidates the Trust Account because the
Company has not completed a business combination within the required time period, will not be less than $10.20.
Liquidity
and Going Concern
As
of August 31, 2016, the Company had working capital deficit of $183,728, cash of $63,860 in its operating bank accounts and $84,469,106
in marketable securities held in the Trust Account to be used for an initial Business Combination or to convert its ordinary shares.
As of August 31, 2016, $13,106 of the amount on deposit in the Trust Account was available to be withdrawn as described above.
Until
consummation of its initial Business Combination, the Company will be using the funds not held in the Trust Account, plus the
interest earned on the Trust Account balance (net of income, and other tax obligations) that may be released to the Company to
fund its working capital requirements, for identifying and evaluating prospective acquisition candidates, performing business
due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective
target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target
business to acquire and structuring, negotiating and consummating the Business Combination.
The
Company will need to raise additional capital through loans or additional investments from its shareholders, officers, directors,
or third parties. None of the shareholders, officers or directors are under any obligation to advance funds to, or to invest in,
the Company. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional
capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited
to, curtailing operations, suspending the pursuit of its business plan, and reducing overhead expenses. The Company cannot provide
any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
Recent
Developments
On
August 11, 2016, the Company entered into a Contribution Agreement (the “Contribution Agreement”) by and among the
Company, Arowana International Limited, an Australian company affiliated with certain of the Company’s officers, directors
and shareholders (“AWN”), and VivoPower International PLC, an England and Wales public limited company and wholly-owned
subsidiary of AWN (“VivoPower”). Pursuant to the Contribution Agreement, the Company will contribute to VivoPower
the funds held in the trust account that holds the proceeds of the Company’s initial public offering, less certain transaction
expenses, amounts used to pay the Company’s public shareholders who properly exercise their conversion rights in connection
with the vote to approve the transactions contemplated by the Contribution Agreement (the “Transactions”) and reserves
for liquidation and dissolution expenses (the “Contribution Amount”), in exchange for ordinary shares of VivoPower. To
the extent that fewer than the maximum number of the Company’s public shareholders seeking conversion of their public shares
permitted under the Contribution Agreement actually seek conversion, the Company will use the excess funds held in the trust account
to purchase additional shares of VivoPower from VivoPower, who will in turn utilize those funds to repurchase a like number of
VivoPower shares from AWN.
Following
consummation of the Transactions, the Company intends to distribute the VivoPower shares it receives to its shareholders and warrant
holders and thereafter dissolve and liquidate.
VivoPower
is a global next generation solar power company that operates a build, transfer, operate (“BTO”) model to establish
an installed solar power asset base in a capital efficient manner. VivoPower intends to leverage this asset base to sell distributed
generation (“DG”) power and manage data driven energy services for commercial, industrial and government (“CIG”)
customers.
The
proposed Transactions are expected to be consummated during the fourth quarter 2016, after the required approval by the Company’s
shareholders and warrantholders and the fulfillment of certain other conditions, as described in the Company’s Current Report
on Form 8-K filed on August 16, 2016.
On October 11, 2016,
the Company filed a definitive proxy statement with the Securities and Exchange Commission asking shareholders to approve, among
other matters, an extension of the time in which the Company has to consummate a business combination from November 6, 2016 to
January 9, 2017. The shareholder meeting for such actions has been scheduled for November 3, 2016.
Note
2 - Significant Accounting Policies
Basis
of presentation
The
accompanying unaudited condensed financial statements are presented in U.S. dollars in conformity with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”) for interim financial information and the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by U.S. GAAP. In the opinion of management, all adjustments
(consisting of normal accruals) considered for a fair presentation have been included. The Company has evaluated subsequent events
through the issuance of this Form 10-Q. Operating results for the quarter ended August 31, 2016 are not necessarily indicative
of the results that may be expected for any future interim period. The accompanying unaudited condensed financial statements should
be read in conjunction with the Company’s financial statements and notes thereto included in the Company’s Form 10-K
filed with the Securities and Exchange Commission on June 10, 2016.
Cash
and Cash Equivalents
The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
Marketable
securities held in Trust Account
The
amounts held in the Trust Account represent substantially all of the proceeds of the Initial Public Offering of $84,456,000 which
were invested in United States Treasury Bills (“U.S. treasury bills”) with original maturities of six months or less
and are classified as restricted assets since such amounts can only be used by the Company in connection with the consummation
of a Business Combination.
On
November 19, 2015, upon maturity of these U.S. treasury bills, the Company received proceeds of $84,485,000 yielding interest
of $29,072 which was released to the Company’s operating account. On November 19, 2015, the Company purchased $84,560,000
face value of U.S. treasury bills, which matured on May 12, 2016, for $84,455,928. Upon maturity of the U.S. treasury bills on
May 12, 2016, the Company withdrew interest income totaling $104,814 to be utilized for working capital needs. On May 13, 2016,
the Company purchased $84,504,000 face value of U.S. treasury bills that mature on August 11, 2016. Upon maturity of the U.S.
treasury bills on August 11, 2016, the Company withdrew interest income totaling $49,434 to be utilized for working capital needs.
On August 11, 2016, the Company purchased $84,514,000 face value of U.S. treasury bills that mature on November 10, 2016.
As
of August 31, 2016, marketable securities held in the Trust Account had a fair value of $84,469,106. At August 31, 2016, there
was $13,106 of interest income held in the Trust Account available to be released to the Company. For the three and six months
ended August 31, 2016, the recorded an unrealized gain on securities of $10,049 and $16,489, respectively. For the three months
ended August 31, 2016 and 2015, the Company recorded $48,431 and $23,656 of interest income, respectively. For the six months
ended August 31, 2016 and 2015, the Company recorded $93,833 and $28,227 of interest income, respectively.
Fair
value of financial instruments
The
fair value of the Company’s assets and liabilities, which qualify as financial instruments under Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,”
approximates the carrying amounts represented in the condensed balance sheet, primarily due to their short-term nature.
Net
loss per ordinary share
The Company complies
with accounting and disclosure requirements of ASC 260, “Earnings Per Share.” Net loss per ordinary share is computed
by dividing net loss applicable to ordinary shareholders by the weighted average number of ordinary shares outstanding for the
period. There were 7,771,870 and 7,803,546 ordinary shares subject to possible conversion at August 31, 2016 and 2015, respectively,
which were excluded from the calculation of basic loss per ordinary share since such shares, if redeemed, only participate in their
pro rata share of the Trust Account earnings. The Company has not considered the effect of (i) warrants sold in the Initial Public
Offering to purchase 4,140,000 ordinary shares of the Company, (ii) warrants sold in the Private Units to purchase 254,500 ordinary
shares of the Company, and (iii) rights to acquire 878,900 shares of the Company resulting from the Offering and Private Placement,
in the calculation of diluted loss per share, since the exercise of the warrants and conversion of the rights is contingent on
the occurrence of future events. In addition, the Company has not considered the effect of the unit purchase option to purchase
up to a total of 720,000 units consisting of 792,000 ordinary shares (which include 72,000 ordinary shares to be issued for the
rights included in the units) and 720,000 Warrants to purchase 360,000 ordinary shares, in the calculation of diluted loss per
share, since the exercise of the unit purchase option and warrants as well as the conversion of rights is contingent on the occurrence
of future events.
Ordinary
shares subject to possible conversion
The
Company accounts for its ordinary shares subject to possible conversion in accordance with the guidance enumerated in ASC 480
“Distinguishing Liabilities from Equity”. Ordinary shares subject to mandatory conversion are classified as a
liability instrument and are measured at fair value. Conditionally convertible ordinary shares (including common shares that feature
conversion rights that are either within the control of the holder or subject to conversion upon the occurrence of uncertain events
not solely within the Company’s control) are classified as temporary equity. At all other times, ordinary shares are classified
as shareholders’ equity. The Company’s ordinary shares feature certain conversion rights that are considered by the
Company to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, at
August 31, 2016 and February 29, 2016, the ordinary shares subject to possible conversion are presented as temporary equity, outside
of the shareholders’ equity section of the Company’s condensed balance sheet.
Note
2 - Significant Accounting Policies (Continued)
Use
of Estimates
The
preparation of condensed financial statements in conformity with accounting principles generally accepted in the United States
of America 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 condensed financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from those estimates.
Concentration
of credit risk
Financial
instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution
which, at times may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these
accounts and management believes the Company is not exposed to significant risks on such accounts.
Income
Taxes
The
Company accounts for income taxes under ASC Topic 740 “Income Taxes” (“ASC 740”). ASC 740 requires the
recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement
and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carryovers.
ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of
deferred tax assets will not be realized. The income tax provision was deemed to be immaterial as of August 31, 2016.
ASC
740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and
prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on de-recognition, classification, interest
and penalties, accounting in interim periods, disclosure and transition. The Company determined that the Cayman Islands and Australia
are its only major tax jurisdictions. Based on the Company’s evaluation, it has been concluded that there are no significant
uncertain tax positions requiring recognition in the Company’s financial statements as of August 31, 2016. Since the Company
was incorporated on October 1, 2014, the evaluation was performed for the 2014 and 2015 tax years, which will be the only periods
subject to examination. The Company believes that its income tax positions and deductions would be sustained on audit and does
not anticipate any adjustments that would result in material changes to its financial position.
The
Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of
income tax expense. There were no amounts accrued for penalties or interest as of or during the period from March 1, 2016 through
August 31, 2016. Management is currently unaware of any issues under review that could result in significant payments, accruals
or material deviations from its position.
Related
Parties
The
Company follows subtopic ASC 850-10 for the identification of related parties and disclosure of related party transactions.
Pursuant
to Section 850-10-20, the related parties include: (a.) affiliates of the Company (“Affiliate” means, with respect
to any specified Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled
by or is under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act);
(b.) entities for which investments in their equity securities would be required, absent the election of the fair value option
under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity;
(c.) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship
of management; (d.) principal owners of the Company; (e.) management of the Company; (f.) other parties with which the Company
may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that
one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g.) other parties that
can significantly influence the management or operating policies of the transacting parties or that have an ownership interest
in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties
might be prevented from fully pursuing its own separate interests.
Note
2 - Significant Accounting Policies (Continued)
The
financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall
include: (a.) the nature of the relationship(s) involved; (b.) a description of the transactions, including transactions to which
no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other
information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c.) the dollar
amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the
method of establishing the terms from that used in the preceding period; and (d.) amounts due from or to related parties as of
the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Reclassification
Certain
prior period amounts have been reclassified to conform to current period presentation. The reclassifications did not have an impact
on net loss as previously reported
.
Subsequent
Events
The
Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the financial
statements were issued for potential recognition or disclosure. Any material events that occur between the balance sheet date
and the date that the financial statements were issued are disclosed as subsequent events, while the financial statements are
adjusted to reflect any conditions that existed at the balance sheet date.
Recent
Accounting Pronouncements
Management
does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material
effect on the accompanying financial statements.
Note
3 - Initial Public Offering
In
May 2015, the Company sold a total of 8,280,000 Units at a price of $10.00 per Unit in the Offering and over-allotment. Each Unit
consists of one ordinary share in the Company, one Right and one Warrant. Each Right will entitle the holder to receive one-tenth
(1/10) of an ordinary share on the consummation of an initial Business Combination. The Company will not issue fractional shares.
Each Warrant entitles the holder to purchase one-half of one ordinary share at a price of $12.50 per full ordinary share commencing
on the later of the Company’s completion of its initial Business Combination or April 30, 2016 and expiring five years from
the completion of the Company’s initial Business Combination. The Company will not issue fractional shares. As a result,
investors must exercise Warrants in multiples of two Warrants, at a price of $12.50 per full share, subject to adjustment, to
validly exercise the Warrants. The Company may redeem the Warrants, in whole and not in part, at a price of $0.01 per Warrant
upon 30 days’ notice, only in the event that the last sale price of the ordinary shares is at least $17.50 per share for
any 20 trading days within a 30-trading day period (“30-Day Trading Period”) ending on the third day prior to the
date on which notice of redemption is given, provided there is a current registration statement in effect with respect to the
ordinary shares underlying such Warrants commencing five business days prior to the 30-Day Trading Period and continuing each
day thereafter until the date of redemption. If the Company redeems the Warrants as described above, management will have the
option to require all holders that wish to exercise Warrants to do so on a “cashless basis.” In accordance with the
warrant agreement relating to the Warrants to be sold and issued in the Offering the Company is only required to use its best
efforts to maintain the effectiveness of the registration statement covering the Warrants. If a registration statement is not
effective within 90 days following the consummation of a Business Combination, Warrant holders may, until such time as there is
an effective registration statement and during any period when the Company shall have failed to maintain an effective registration
statement, exercise Warrants on a cashless basis pursuant to an available exemption from registration under the Securities Act
of 1933, as amended. In the event that a registration statement is not effective at the time of exercise or no exemption is available
for a cashless exercise, the holder of such Warrant shall not be entitled to exercise such Warrant for cash and in no event (whether
in the case of a registration statement being effective or otherwise) will the Company be required to net cash settle the Warrant
exercise. Additionally, in no event will the Company be required to net cash settle the Rights. If an initial Business Combination
is not consummated, the Rights and Warrants will expire and will be worthless.
Note
4 - Private Units
Simultaneously
with the Offering, certain of the Initial Shareholders of the Company purchased an aggregate of 509,000 Private Units at $10.00
per Private Unit (for an aggregate purchase price of $5,090,000) from the Company. All of the proceeds received from these
purchases were placed in the Trust Account.
The
Private Units are identical to the units sold in the offering except the warrants included in the private units will be non-redeemable
and may be exercised on a cashless basis, in each case so long as they continue to be held by the initial purchasers or their
permitted transferees. Additionally, because the warrants underlying the private units were issued in a private transaction, the
holders and their transferees will be allowed to exercise such warrants for cash even if a registration statement covering the
ordinary shares issuable upon exercise of such warrants is not effective and receive unregistered ordinary shares. Furthermore,
the purchasers have agreed (A) to vote their private shares in favor of any proposed business combination, (B) not to propose,
or vote in favor of, an amendment to the amended and restated memorandum and articles of association with respect to the pre-business
combination activities prior to the consummation of such a business combination unless the Company provides dissenting public
shareholders with the opportunity to convert their public shares into the right to receive cash from the Trust Account in connection
with any such vote, (C) not to convert any private shares into the right to receive cash from the Trust Account in connection
with a shareholder vote to approve our proposed initial business combination (or sell any private shares they hold to the Company
in a tender offer in connection with a proposed initial business combination) or a vote to amend the provisions of the amended
and restated memorandum and articles of association relating to shareholders’ rights or pre-business combination activity
and (D) that the private shares shall not participate in any liquidating distribution upon winding up if a business combination
is not consummated. The purchasers have also agreed not to transfer, assign or sell any of the private units or underlying securities
(except to the same permitted transferees as the insider shares and provided the transferees agree to the same terms and restrictions
as the permitted transferees of the insider shares must agree to, each as described above) until the completion of the Company’s
initial business combination.
Note
5 - Related Party Transactions
Note
Payable to Related Party
On
March 1, 2016, the Company issued a $130,000 principal amount unsecured promissory note to an affiliate of the Company’s
executive officers. The note is non-interest bearing and shall be repaid on the consummation of an initial business combination.
If a business combination is not consummated, the note will not be repaid by the Company and all amounts owed there under by the
Company will be forgiven except to the extent that the Company had funds available to it outside of its Trust Account established
in connection with the Initial Public Offering.
Note
6 - Commitments
Underwriting
Agreement
The
Company entered into an agreement with the underwriters of the Offering (“Underwriting Agreement”). The Underwriting
Agreement required the Company to pay an underwriting discount of 3% of the gross proceeds of the Offering as an underwriting
discount. The Company has further engaged EarlyBird to assist the Company with its initial Business Combination. Pursuant to this
arrangement, the Company anticipates that EarlyBird will assist the Company in holding meetings with shareholders to discuss the
potential Business Combination and the target business’ attributes, introduce the Company to potential investors that are
interested in purchasing the Company’s securities, assist the Company in obtaining shareholder approval for the Business
Combination and assist the Company with its press releases and public filings in connection with the Business Combination. The
Company will pay the EarlyBird a cash fee of 4% of the gross proceeds of the Offering for such services upon the consummation
of its initial Business Combination (exclusive of any applicable finders’ fees which might become payable).
Registration
Rights
The
Initial Shareholders of the Private Units will be entitled to registration rights with respect to their initial shares, the Private
Units (and underlying securities) and any additional units (and underlying securities) issued upon conversion of working capital
loans made by such parties to the Company (“Working Capital Units”). The holders of the majority of the initial shares
are entitled to demand that the Company register these shares at any time commencing three months prior to the first anniversary
of the consummation of a Business Combination. The holders of the Private Units (or underlying securities) or Working Capital
Units (or underlying securities) are entitled to demand that the Company register these securities at any time after the Company
consummates a Business Combination. In addition, the holders have certain “piggy-back” registration rights on registration
statements filed after the Company’s consummation of a Business Combination.
Purchase
Option
The
Company sold to the Representative, for $100, a unit purchase option to purchase up to a total of 720,000 units exercisable at
$10.00 per Unit (or an aggregate exercise price of $7,200,000) commencing on the later of the consummation of a Business Combination
and one year from May 1, 2015. The unit purchase option expires five years from May 1, 2015. The Units issuable upon exercise
of this option are identical to the Units sold in the Offering. Accordingly, after the Business Combination, the purchase option
will be to purchase 792,000 ordinary shares (which include 72,000 ordinary shares to be issued for the rights included in the
Units) and 720,000 Warrants to purchase 360,000 ordinary shares. The Company has agreed to grant to the holders of the unit purchase
option, demand and “piggy back” registration rights for periods of five and seven years, respectively, from the effective
date of this Offering, including securities directly and indirectly issuable upon exercise of the unit purchase option.
The
Company accounted for the fair value of the unit purchase option, inclusive of the receipt of a $100 cash payment, as an expense
of the Offering resulting in a charge directly to shareholders’ equity. The Company estimated that the fair value of this
unit purchase option on the grant date was approximately $4,872,306 (or $6.77 per unit) using a Black-Scholes option-pricing model.
The fair value of the unit purchase option was estimated as of the date of grant using the following assumptions: (1) expected
volatility of 86%, (2) risk-free interest rate of 1.58% and (3) expected life of five years. The unit purchase option may be exercised
for cash or on a “cashless” basis, at the holder’s option (except in the case of a forced cashless exercise
upon the Company’s redemption of the Warrants, as described in Note 3), such that the holder may use the appreciated value
of the unit purchase option (the difference between the exercise prices of the unit purchase option and the underlying Warrants
and the market price of the Units and underlying ordinary shares) to exercise the unit purchase option without the payment of
any cash. The Company will have no obligation to net cash settle the exercise of the unit purchase option or the Warrants underlying
the unit purchase option. The holder of the unit purchase option will not be entitled to exercise the unit purchase option or
the Warrants underlying the unit purchase option unless a registration statement covering the securities underlying the unit purchase
option is effective or an exemption from registration is available. If the holder is unable to exercise the unit purchase option
or underlying Warrants, the unit purchase option or Warrants, as applicable, will expire worthless.
Note
6 - Commitments (Continued)
Administrative
Service Fee
The
Company, commencing on the effective date of the registration statement relating to the Offering, has agreed to pay, an affiliate
of the Company’s executive officers, a monthly fee of $10,000 for general and administrative services. This arrangement
will terminate upon completion of a Business Combination or the Company's liquidation. During the three months ended August 31,
2016 and 2015, the Company recorded its affiliate management fees of $30,000 and $30,000, respectively, which is included in operating
costs in the unaudited condensed statement of operations. During the six months ended August 31, 2016 and 2015, the Company recorded
its affiliate management fees of $60,000 and $38,387, respectively, which is included in operating costs in the unaudited condensed
statement of operations. As of August 31, 2016 and February 29, 2016, $121,440 and $61,440, respectively, was due to the affiliate
and are presented as Accounts payable – related party on the Company’s condensed balance sheet.
Amended
and Restated Memorandum and Articles of Association
The
Company’s Memorandum and Articles of Association were amended in connection with the Offering to prohibit the Company, prior
to a Business Combination, from issuing (i) any ordinary shares or any securities convertible into ordinary shares or (ii) any
other securities (including preferred shares) which participate in or are otherwise entitled in any manner to any of the proceeds
in the Trust Account or which vote as a class with the ordinary shares on a Business Combination.
Note
7 - Shareholder’s Equity
Preferred
Shares
The
Company is authorized to issue 1,000,000 preferred shares with a par value of $0.0001 per share with such designation, rights
and preferences as may be determined from time to time by the Company’s board of directors.
As
of August 31, 2016 and February 29, 2016, there are no preferred shares issued or outstanding.
Ordinary
Shares
The
Company is authorized to issue 100,000,000 ordinary shares with a par value of $0.0001 per share.
In
October 2014, 1,725,000 ordinary shares were sold to the Initial Shareholders at a price of approximately $0.01 per share for
an aggregate of $25,000. On February 22, 2015, the Company issued an aggregate of 345,000 ordinary shares to the Initial Shareholders
by way of capitalization under Cayman Islands law, resulting in the Initial Shareholders owning an aggregate of 2,070,000 ordinary
shares. This number included an aggregate of up to 270,000 shares that were subject to compulsory repurchase by the Company; however,
due to the full exercise of the over-allotment by the underwriters, no shares were repurchased. All of these shares were placed
in escrow with Continental Stock Transfer & Trust Company, as escrow agent, until (1) with respect to 50% of the shares, the
earlier of one year after the date of the consummation of an initial Business Combination and the date on which the closing price
of the Company’s ordinary shares equals or exceeds $12.50 per share (as adjusted for share splits, share dividends, reorganizations
and recapitalizations) for any 20 trading days within any 30-trading day period commencing after our initial business combination
and (2) with respect to the remaining 50% of the insider shares, one year after the date of the consummation of an initial Business
Combination, or earlier, in either case, if, subsequent to an initial Business Combination, the Company consummates a liquidation,
merger, share exchange or other similar transaction which results in all of the Company’s shareholders having the right
to exchange their shares for cash, securities or other property.
As
of August 31, 2016 and February 29, 2016, 3,087,130 and 3,073,411 shares of ordinary shares were issued and outstanding which
excludes 7,771,870 and 7,785,589 shares subject to possible conversion, respectively.
Note
8 - Fair Value Measurements
The
Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value
at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The
fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company
would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an
orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets
and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and
to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).
The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable
inputs used in order to value the assets and liabilities:
Level 1:
|
Quoted
prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which
transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing
basis.
|
|
|
Level 2:
|
Observable
inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or
liabilities and quoted prices for identical assets or liabilities in markets that are not active.
|
|
|
Level 3:
|
Unobservable
inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
|
The
following table presents information about the Company’s assets that are measured at fair value on a recurring basis at
August 31, 2016 and February 29, 2016, and indicates the fair value hierarchy of the valuation inputs the Company utilized to
determine such fair value:
Description
|
|
Level
|
|
|
August 31,
2016
|
|
|
February 29,
2016
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash and securities held in Trust Account
|
|
|
1
|
|
|
$
|
84,469,106
|
|
|
$
|
84,511,769
|
|