The accompanying
notes are an integral part of these unaudited condensed financial statements
(1) Excludes an aggregate of up to 13,319,798 shares subject to redemption at September 30, 2018. Excludes an aggregate of 450,000 shares for the 2017 periods that were subject to forfeiture at September 30, 2017 to the extent the underwriters' over-allotment was not exercised in full.
The accompanying notes are an integral part of these unaudited condensed financial statements
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
Note 1 – Description of Organization
and Business Operations
Black Ridge Acquisition
Corp. (“BRAC” or the “Company”, “we”, “us” and ”our”) was incorporated
in Delaware on May 9, 2017 as a blank check company for the purpose of effecting a merger, share exchange, asset acquisition, share
purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities (a “Business
Combination”). The Company’s efforts to identify a prospective target business are not limited to a particular industry
or geographic region. The Company is focusing its search on businesses in the energy or energy-related industries with an emphasis
on opportunities in the upstream oil and gas industry in North America.
All activity through
September 30, 2018 relates to the Company’s formation, its Initial Public Offering, described below, and identifying a target
company for a Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject
to all of the risks associated with early stage and emerging growth companies.
The registration statement
for the Company’s initial public offering (“Initial Public Offering”) was declared effective on October 4, 2017.
The registration statement was initially declared effective for 10,000,000 units (“Units” and, with respect to the
common stock included in the Units being offered, the “Public Shares”), but the offering was increased to 12,000,000
Units pursuant to Rule 462(b) under the Securities Act of 1933, as amended. On October 10, 2017, the Company consummated the Initial
Public Offering of 12,000,000 units, generating gross proceeds of $120,000,000.
Simultaneous with
the closing of the Initial Public Offering, the Company consummated the sale of 400,000 units (the “Placement Units”)
at a price of $10.00 per Unit in a private placement to the Company’s sponsor and sole stockholder prior to the Initial Public
Offering, Black Ridge Oil & Gas, Inc. (the “Sponsor”), generating gross proceeds of $4,000,000.
Following the closing
of the Initial Public Offering on October 10, 2017, an amount of $120,600,000 ($10.05 per Public Share) from the net proceeds of
the sale of the Units in the Initial Public Offering and the Placement Units was placed in a trust account (“Trust Account”)
and was invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act
of 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment
company that holds itself out as a money market fund selected by the Company meeting the conditions of paragraphs (d)(2), (d)(3)
and (d)(4) of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the consummation
of a Business Combination or (ii) the distribution of the Trust Account, as described below.
On October 18, 2017,
in connection with the underwriters’ exercise of their over-allotment option in full, the Company consummated the sale of
an additional 1,800,000 Units, and the sale of an additional 45,000 Placement Units at $10.00 per Unit, generating total proceeds
of $18,450,000. Transaction costs for underwriting fees on the sale of the over-allotment Units were $360,000. Following the closing,
an additional $18,090,000 of the net proceeds ($10.05 per Public Share) was placed in the Trust Account, bringing the total aggregate
proceeds placed in the Trust Account to $138,690,000 ($10.05 per Public Share).
BLACK RIDGE ACQUISITION CORP.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
The Company’s
management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and
private placement, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business
Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. Upon the closing
of the Initial Public Offering, $10.05 per Public Share sold in the Initial Public Offering, including a portion of the proceeds
of the Private Placements was deposited in a Trust Account to be held until the earlier of (i) the consummation of its initial
Business Combination or (ii) the Company’s failure to consummate a Business Combination within 21 months from the consummation
of the Initial Public Offering (the “Combination Period”). 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. The Trust Account is maintained
by a third party trustee. 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. Additionally, the interest
earned on the Trust Account balance may be released to the Company for any amounts that are necessary to pay the Company’s
income and other tax obligations and up to $50,000 that may be used to pay for the costs of liquidating the Company. The Sponsor
has agreed that it will be liable to ensure that the proceeds in the Trust Account are not reduced below $10.05 per share 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, but there is no assurance that the Sponsor will be able to satisfy its indemnification
obligations if it is required to do so. Additionally, the agreement entered into by the Sponsor specifically provides for two exceptions
to the indemnity it has given: it will have no liability (1) as to any claimed amounts owed to a target business or vendor or other
entity who has executed an agreement with the Company waiving any right, title, interest or claim of any kind they may have in
or to any monies held in the Trust Account, or (2) as to any claims for indemnification by the underwriters of the Initial Public
Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended.
Initial Business
Combination
Pursuant to the Nasdaq
Capital Markets listing rules, the Company’s initial Business Combination must be with a target business or businesses whose
collective fair market value is at least equal to 80% of the balance in the Trust Account, net of tax obligations, at the time
of the execution of a definitive agreement for such Business Combination, although this may entail simultaneous acquisitions of
several target businesses. The fair market value of the target will be determined by the Company’s board of directors based
upon one or more standards generally accepted by the financial community (such as actual and potential sales, earnings, cash flow
and/or book value). The target business or businesses that the Company acquires may have a collective fair market value substantially
in excess of 80% of the Trust Account balance, net of tax obligations. In order to consummate such a Business Combination, the
Company may issue a significant amount of its debt or equity securities to the sellers of such business and/or seek to raise additional
funds through a private offering of debt or equity securities. If the Company’s securities are not listed on NASDAQ after
the Initial Public Offering, the Company would not be required to satisfy the 80% requirement. However, the Company intends to
satisfy the 80% requirement even if the Company’s securities are not listed on NASDAQ at the time of the initial Business
Combination.
The Company will provide
the stockholders, who are the holders of the Public Shares, whether they are purchased in the Initial Public Offering or in the
aftermarket (“Public Stockholders”) with an opportunity to redeem all or a portion of their Public Shares, irrespective
of whether they vote for or against the proposed Business Combination or if the Company conducts a tender offer, upon the completion
of the initial Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination,
or (ii) by means of a tender offer, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the
Trust Account including interest (net of franchise and income taxes payable), divided by the number of then outstanding Public
Shares. The amount in the Trust Account, net of franchise and income taxes payable, currently amounts to approximately $10.17 per
Public Share. The common stock subject to redemption was recorded at a redemption value and classified as temporary equity upon
the completion of the Initial Public Offering, in accordance with Accounting Standards Codification (“ASC”) Topic 480
“Distinguishing Liabilities from Equity”. The Company will proceed with a Business Combination only if the Company
has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and solely in the case of a stockholder
vote, a majority of the outstanding shares voted are voted in favor of the Business Combination. The decision as to whether the
Company will seek stockholder approval of a proposed Business Combination or conduct a tender offer will be made by the Company,
solely in its discretion, based on a variety of factors such as the timing of the transaction and whether the terms of the transaction
would otherwise require it to seek stockholder approval under the law or stock exchange listing requirement. If a stockholder vote
is not required and the Company decides not to hold a stockholder vote for business or other legal reasons, the Company will, pursuant
to the proposed amended and restated certificate of incorporation, (i) conduct the redemptions pursuant to Rule 13e-4 and Regulation
14E of the Exchange Act, which regulate issuer tender offers, and (ii) file tender offer documents with the Securities and Exchange
Commission (“SEC”) prior to completing the initial Business Combination which contain substantially the same financial
and other information about the initial Business Combination and the redemption rights as is required under Regulation 14A of the
Exchange Act, which regulates the solicitation of proxies.
BLACK RIDGE ACQUISITION CORP.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
The Sponsor has agreed
to vote its Founder Shares (as described in Note 4), Placement Shares and any Public Shares purchased after the Initial Public
Offering in favor of the initial Business Combination, and the Company’s executive officers and directors have also agreed
to vote any Public Shares purchased after the Initial Public Offering in favor of the Initial Business Combination. The Sponsor
entered into a letter agreement, pursuant to which it agreed to waive its redemption rights with respect to the Founder Shares,
shares included in the Placement Units and Public Shares in connection with the completion of the initial Business Combination.
In addition, the Sponsor has agreed to waive its rights to liquidating distributions from the Trust Account with respect to the
Founder Shares and shares included in the Placement Units if the Company fails to complete the initial Business Combination within
the prescribed time frame. However, if the Sponsor (or any of the Company’s executive officers, directors or affiliates)
acquires Public Shares after the Initial Public Offering, it (and they) will be entitled to liquidating distributions from the
Trust Account with respect to such Public Shares in the event the Company does not complete the initial Business Combination within
such applicable time period.
Failure to Consummate a Business Combination
If the Company is unable to complete the
initial Business Combination within the Combination Period, the Company must: (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 the public shares, at
a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest (which
interest shall be net of franchise and income taxes payable and up to $50,000 for liquidation expenses) divided by the number of
then outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including
the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably
possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s
Board of Directors, dissolve and liquidate, subject in the case of clauses (ii) and (iii) to the Company’s obligations under
Delaware law to provide for claims of creditors and the requirements of other applicable law.
Note 2 – Significant Accounting Policies
Basis of Presentation
The accompanying unaudited
condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article
10 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared
in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial
reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial
position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements
include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial
position, operating results and cash flows for the periods presented.
The accompanying unaudited
condensed financial statements should be read in conjunction with the Company's Form 10-K as filed with the SEC on March 22, 2018.
Interim results are not necessarily indicative of results for a full year or for future interim periods.
Going concern
The accompanying financial
statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the
realization of assets and satisfaction of liabilities in the normal course of business. As of September 30, 2018, the Company had
$65,946 in cash and cash equivalents held outside of the Trust Account, $387,612 in interest income available from the Company's
investments in the Trust Account to pay its franchise and income taxes payable, and liabilities of $403,196. Further, the
Company has incurred and expects to continue to incur significant costs in pursuit of its acquisition plans. The Company’s
plans to consummate an initial Business Combination may not be successful. These matters, among others, raise substantial
doubt about the Company’s ability to continue as a going concern.
BLACK RIDGE ACQUISITION CORP.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
Based on the foregoing,
the Company may not have sufficient funds available to operate its business through the mandatory liquidation date or until it
closes an initial business combination and may need to obtain additional financing in order to meet its obligations. The
Company cannot be certain that additional funding will be available on acceptable terms, or at all.
The accompanying financial
statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Emerging growth company
The Company is an “emerging
growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”),
as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies
including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute
payments not previously approved.
Further, section 102(b)(1)
of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards
until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not
have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt
out of such extended transition period which means that when a standard is issued or revised and it has different application dates
for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time
private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with
another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using
the extended transition period difficult or impossible because of the potential differences in accountant standards used.
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. The Company
did not have any cash equivalents as of September 30, 2018 or December 31, 2017.
Cash and securities held in Trust Account
As of September 30,
2018, $623 of cash and $140,579,824 of marketable securities were held in the Trust Account. As of December 31, 2017, $39,742 of
cash and $138,940,611 of marketable securities were held in the Trust Account. The Company withdrew $187,773 of interest income
from the Trust Account to pay franchise and income taxes.
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 carry forwards. 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.
BLACK RIDGE ACQUISITION CORP.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
ASC Topic 740 prescribes
a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions 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. The Company recognizes accrued interest and penalties related to unrecognized
tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as
of September 30, 2018. The Company is currently not aware of any issues under review that could result in significant payments,
accruals or material deviation from its financial position.
The Company may be
subject to potential examination by federal, state and city taxing authorities in the areas of income taxes. These potential examinations
may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance
with federal, state and city tax laws. The Company’s management does not expect that the total amount of unrecognized tax
benefits will materially change over the next twelve months.
On December 22, 2017
the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Reform”) was signed into law. As a result of Tax Reform, the U.S. statutory
rate was lowered from 35% to 21% effective January 1, 2018, among other changes. ASC Topic 740 requires companies to recognize
the effect of tax law changes in the period of enactment; therefore, the Company was required to value its deferred tax assets
and liabilities at September 30, 2018 and December 31, 2017 at the new rate.
Common Stock subject to possible redemption
The Company accounts
for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”)
Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption (if any) is classified
as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features
redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events
not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified
as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outside
of the Company’s control and subject to occurrence of uncertain future events. Accordingly, as of September 30, 2018 and
December 31, 2017, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of
the stockholders’ equity section of the Company’s balance sheet.
Concentration of credit risk
Financial instruments
that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution which,
at times may exceed the Federal depository insurance coverage of $250,000. At September 30, 2018, the Company had not experienced
losses on this account and management believes the Company is not exposed to significant risks on such account.
BLACK RIDGE ACQUISITION CORP.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
Net income (loss) per share
Net income (loss)
per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during
the period. An aggregate of 13,319,798 shares of common stock subject to possible redemption at September 30, 2018 have been excluded
from the calculation of basic income (loss) per share since such shares, if redeemed, only participate in their pro rata share
of the trust earnings. Additionally, an aggregate of 450,000 shares for the 2017 periods that were subject to forfeiture at September
30, 2017 to the extent the underwriters’ over-allotment was not exercised in full.
The Company's net income (loss) is also
shown adjusted for the portion of income attributable to shares subject to redemption, as these shares only participate in the
income of the trust account and not the operating losses of the Company. Accordingly, basic and diluted net income (loss) per share
attributable to shares not subject to redemption is as follows:
|
|
|
Three Months Ended September 30, 2018
|
|
|
Nine Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
384,649
|
|
|
$
|
988,489
|
|
|
Less income attributable to shares subject to redemption
|
|
|
(480,584
|
)
|
|
|
(1,276,746
|
)
|
|
Adjusted net loss
|
|
|
(95,935
|
)
|
|
|
(288,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
4,365,666
|
|
|
|
4,357,041
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share attributable to remaining shares
|
|
$
|
(0.02
|
)
|
|
$
|
(0.07
|
)
|
For
the period from May 9, 2017 (date of inception) to September 30, 2017, there was no portion of net income (loss) that was attributable
to common stock subject to redemption.
The Company has not
considered the effect of 1) warrants to purchase 14,845,000 shares of common stock, 2) rights that convert to 1,484,500 shares
and 3) 600,000 shares included in the underwriters’ unit option sold in Public Offering, Private Placement or underlying
the unit option sold to the underwriter in the calculation of diluted loss per share, since the exercise of the warrants, receipt
of rights and shares is contingent on the occurrence of future events.
Use of estimates
The preparation of financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of expenses during the reporting period. Actual results could differ from those estimates.
Fair value of financial instruments
The fair value of the
Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements
and Disclosures”, approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their
short-term nature.
BLACK RIDGE ACQUISITION CORP.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
Recent Accounting Pronouncements
Management does not
believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material
effect on the Company’s condensed financial statements.
Note 3 — Public Offering and Private Placement
Initial Public Offering
Pursuant to the Initial
Public Offering, the Company sold 13,800,000 Units (including 1,800,000 Units subject to the underwriters’ over-allotment
option) at a purchase price of $10.00 per Unit. Each Unit consists of one share of common stock, one right (“Public Right”)
and one warrant (“Public Warrant”). Each Public Right will convert into one-tenth (1/10) of one share of common stock
upon consummation of a Business Combination (see Note 6). Each Public Warrant entitles the holder to purchase one share of common
stock at an exercise price of $11.50 (see Note 6).
Private Placement
Simultaneous with
the closing of the Initial Public Offering and over-allotment option exercise, the Sponsor purchased an aggregate of 445,000 Placement
Units at a price of $10.00 per Unit (or an aggregate purchase price of $4,450,000). Each Placement Unit consists of one share of
common stock (“Placement Share”), one right (“Placement Right”) and one warrant (each, a “Placement
Warrant”) to purchase one share of the common stock at an exercise price of $11.50 per share. A portion of the proceeds from
the Placement Units, $690,000 or $0.05 per unit sold in the Initial public Offering, were added to the proceeds from the Initial
Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period,
that portion of the proceeds of the sale of the Placement Units will be used to fund the redemption of the Public Shares (subject
to the requirements of applicable law) and the Placement Rights and Placement Warrants will expire worthless.
The Placement Units
are identical to the Units sold in the Initial Public Offering except that the Placement Warrants (i) are not redeemable by the
Company and (ii) may be exercised for cash or on a cashless basis, so long as they are held by the Sponsor or any of its permitted
transferees. In addition, the Placement Units and their component securities may not be transferable, assignable or salable until
after the consummation of a Business Combination, subject to certain limited exceptions.
Note 4 — Related Party Transactions
Founder Shares
In connection
with the organization of the Company, a total of 2,875,000 shares of common stock were sold to the Sponsor at a price of
approximately $0.0087 per share for an aggregate of $25,000 (“Founder Shares”). On October 4, 2017, the Company
effected a stock dividend of 0.2 shares for each of the then outstanding Founder Shares, resulting in the issuance of an
additional 575,000 Founder Shares, bringing the total to 3,450,000 Founder Shares including an aggregate of up to 450,000
Founder Shares that had been subject to forfeiture to the extent that the over-allotment option was not exercised by the
underwriters in full or in part. The Sponsor would have been required to forfeit only a number of Founder Shares necessary to
continue to maintain the 20.0% ownership interest in our shares of common stock after giving effect to the offering and
exercise, if any, of the underwriters’ over-allotment option (excluding the Placement Shares and any shares included in
units acquired in the Initial Public Offering). As a result of the underwriters’ election to exercise their
over-allotment option in full on October 18, 2017, the 450,000 Founders Shares previously subject to forfeiture are no longer
subject to forfeiture.
BLACK RIDGE ACQUISITION CORP.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
Subject to certain
limited exceptions, 50% of the Founder Shares will not be transferred, assigned, or sold until the earlier of: (i) one year after
the date of the consummation of the initial Business Combination or (ii) the date on which the closing price of the Company’s
common stock equals or exceeds $12.50 per share (as adjusted) for any 20 trading days within any 30-trading day period commencing
150 days after the initial Business Combination, and the remaining 50% of the Founder Shares will not be transferred, assigned,
sold until one year after the date of the consummation of the initial Business Combination, or earlier, in either case, if, subsequent
to the Company’s initial Business Combination, the Company consummates a subsequent liquidation, merger, stock exchange,
reorganization or other similar transaction which results in all of shareholders having the right to exchange their common stock
for cash, securities or other property.
Accounts Payable - Related Party
Accounts payable – related party
represents balances due to the Sponsor for general expenses paid by the Sponsor on behalf of the Company.
Administrative Service Agreement
Commencing on the
effective date of the Initial Public Offering through the earlier of our consummation of our initial business combination or our
liquidation, the Sponsor makes available to us certain general and administrative services, including office space, utilities and
administrative support, as we may require from time to time. The Company agreed to pay the Sponsor $10,000 per month for these
services. Management fee expense of $30,000 and $90,000 was recognized by the Company for the three and nine month periods ended
September 30, 2018, respectively, and is included in the general and administrative expenses. No management fee was recognized
by the Company in the 2017 periods.
Note 5 — Commitments and Contingencies
Registration Rights
Pursuant to a registration
rights agreement entered into on October 4, 2017, the holders of the Founders’ Shares, as well as the holders of the Placement
Units and any units our Sponsor, officers, directors or their affiliates may be issued in payment of working capital loans made
to us (and all underlying securities), are entitled to registration rights. The holders of a majority of these securities are entitled
to make up to two demands that we register such securities. The holders of the majority of the Founders’ Shares can elect
to exercise these registration rights at any time commencing three months prior to the date on which these shares of common stock
are to be released from escrow. The holders of a majority of the Placement Units and units issued to our Sponsor, officers, directors
or their affiliates in payment of working capital loans made to us (or underlying securities) can elect to exercise these registration
rights at any time after we consummate a Business Combination. In addition, the holders have certain “piggy-back” registration
rights with respect to registration statements filed subsequent to our consummation of a Business Combination. We will bear the
expenses incurred in connection with the filing of any such registration statements.
Agreement with Underwriters
The Company engaged
the underwriters as advisors in connection with our Initial Business Combination to assist us in holding meetings with our shareholders
to discuss the potential business combination and the target business’ attributes, introduce us to potential investors that
are interested in purchasing our securities, assist us in obtaining shareholder approval for the business combination and assist
us with our press releases and public filings in connection with the business combination. The Company will pay the underwriters
a cash fee for such services upon the consummation of our initial business combination in an amount equal to 3.5% of the gross
proceeds of the Initial Public Offering or $4,830,000 (exclusive of any applicable finders’ fees which might become payable).
Note 6 — Stockholders’ Equity
Preferred Stock
The Company is authorized
to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designation, rights and preferences
as may be determined from time to time by the Company’s board of directors. As of September 30, 2018 and December 31, 2017,
no preferred stock is issued or outstanding.
Common Stock
The Company is authorized
to issue 35,000,000 shares of common stock, par value $0.0001 per share. As of September 30, 2018 and December 31, 2017, the Company
has issued an aggregate of 17,695,000 shares of common stock, inclusive of 13,319,798 and 13,348,443 shares of common stock, respectively,
subject to possible redemption classified as temporary equity in the accompanying Balance Sheets.
Rights
Each holder of a right
will receive one-tenth (1/10) of one share of common stock upon consummation of a Business Combination, even if a holder of such
right converted all ordinary shares held by it in connection with a Business Combination. No fractional shares will be issued upon
exchange of the rights. No additional consideration will be required to be paid by a holder of rights in order to receive its additional
shares upon consummation of a Business Combination as the consideration related thereto has been included in the Unit purchase
price paid for by investors in the Initial Public Offering. If the Company enters into a definitive agreement for a Business Combination
in which the Company will not be the surviving entity, the definitive agreement will provide for the holders of rights to receive
the same per share consideration the holders of the shares of common stock will receive in the transaction on an as-converted into
shares of common stock basis and each holder of rights will be required to affirmatively covert its rights in order to receive
1/10 of a share of common stock underlying each right (without paying additional consideration). The shares of common stock issuable
upon exchange of the rights will be freely tradable (except to the extent held by affiliates of the Company).
If the Company is unable
to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account,
holders of rights will not receive any of such funds with respect to their rights, nor will they receive any distribution from
the Company’s assets held outside of the Trust Account with respect to such rights, and the rights will expire worthless.
Further, there are no contractual penalties for failure to deliver securities to the holders of the rights upon consummation of
a Business Combination. In no event will the Company be required to net cash settle the rights. Accordingly, the rights may expire
worthless.
The Placement Rights
are identical to the rights included in the Units sold in the Initial Public Offering, except that, among others, the Placement
Rights and Placement Shares were purchased pursuant to an exemption from the registration requirements of the Securities Act and
will become tradable only after certain conditions are met or the resale of such rights (including underlying securities) is registered
under the Securities Act.
Warrants
The Warrants will
become exercisable on the later of (a) 30 days after the consummation of a Business Combination or (b) 12 months from the effective
date of the registration statement relating to the Initial Public Offering. No Warrants will be exercisable for cash unless the
Company has an effective and current registration statement covering the shares of common stock issuable upon exercise of the Warrants
and a current prospectus relating to such shares. Notwithstanding the foregoing, if a registration statement covering the shares
of common stock issuable upon the exercise of the Warrants is not effective within 30 days from the consummation of a Business
Combination, the 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 the Warrants on a cashless basis pursuant to an available
exemption from registration under the Securities Act. If an exemption from registration is not available, holders will not be able
to exercise their Warrants on a cashless basis. The Warrants will expire five years from the consummation of a Business Combination
or earlier upon redemption or liquidation.
BLACK RIDGE ACQUISITION CORP.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
The Placement Warrants
are identical to the Warrants underlying the Units being sold in the Initial Public Offering, except the Placement Warrants are
exercisable for cash (even if a registration statement covering the shares of common stock issuable upon exercise of such Placement
Warrants is not effective) or on a cashless basis, at the holder’s option, and will not be redeemable by the Company, in
each case so long as they are still held by the Sponsor or its affiliates.
The Company may call
the Warrants for redemption (excluding the Placement Warrants, but including any outstanding Warrants issued upon exercise of the
unit purchase option issued to its underwriter), in whole and not in part, at a price of $.01 per Warrant:
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at any time while the Warrants are exercisable,
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·
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upon not less than 30 days’ prior written notice of redemption to each Warrant holder,
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·
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if, and only if, the reported last sale price of the shares of common stock equals or exceeds $18.00 per share, for any 20 trading days within a 30 trading day period ending on the third business day prior to the notice of redemption to Warrant holders, and
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if, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying such Warrants at the time of redemption and for the entire 30-day redemption period and continuing each day thereafter until the date of redemption.
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If the Company calls the Warrants for redemption,
management will have the option to require all holders that wish to exercise the Warrants to do so on a “cashless basis,”
as described in the warrant agreement.
The exercise price
and number of shares of common stock issuable upon exercise of the Warrants may be adjusted in certain circumstances including
in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However,
the Warrants will not be adjusted for issuances of shares of common stock at a price below its exercise price. Additionally, in
no event will the Company be required to net cash settle the Warrants. If the Company is unable to complete a Business Combination
within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of Warrants will not receive
any of such funds with respect to their Warrants, nor will they receive any distribution from the Company’s assets held outside
of the Trust Account with respect to such Warrants. Accordingly, the Warrants may expire worthless.
Unit Purchase Option
On October 10, 2017,
the Company sold to its underwriter (and/or its designees), for $100, an option to purchase up to 600,000 Units exercisable at
$11.50 per Unit (or an aggregate exercise price of $6,900,000) commencing on the later of the first anniversary of the effective
date of the registration statement related to the Initial Public Offering and the consummation of a Business Combination. The unit
purchase option may be exercised for cash or on a cashless basis, at the holder’s option, and expires five years from the
effective date of the registration statement related to the Initial Public Offering. The Units issuable upon exercise of this option
are identical to those offered in the Initial Public Offering. The Company accounted for the unit purchase option, inclusive of
the receipt of $100 cash payment, as an expense of the Initial Public Offering resulting in a charge directly to stockholders’
equity. The Company estimated the fair value of this unit purchase option to be approximately $1,778,978 (or $2.97 per Unit) using
the Black-Scholes option-pricing model. The fair value of the unit purchase option granted to the underwriters was estimated as
of the date of grant using the following assumptions: (1) expected volatility of 35%, (2) risk-free interest rate of 1.94% and
(3) expected life of five years. The option and such units purchased pursuant to the option, as well as the common stock underlying
such units, the rights included in such units, the common stock that is issuable for the rights included in such units, the warrants
included in such units, and the shares underlying such warrants, have been deemed compensation by FINRA and are therefore subject
to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA’s NASDAQ Conduct Rules. Additionally, the option may not be sold,
transferred, assigned, pledged or hypothecated for a one-year period (including the foregoing 180-day period) following the date
of Initial Public Offering except to any underwriter and selected dealer participating in the Initial Public Offering and their
bona fide officers or partners. The option grants to holders demand and “piggy back” rights for periods of five and
seven years, respectively, from the effective date of the registration statement with respect to the registration under the Securities
Act of the securities directly and indirectly issuable upon exercise of the option. The Company will bear all fees and expenses
attendant to registering the securities, other than underwriting commissions which will be paid for by the holders themselves.
The exercise price and number of units issuable upon exercise of the option may be adjusted in certain circumstances including
in the event of a stock dividend, or the Company’s recapitalization, reorganization, merger or consolidation. However, the
option will not be adjusted for issuances of ordinary shares at a price below its exercise price.
BLACK RIDGE ACQUISITION CORP.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
Note 7 – Income Taxes
We account for income taxes under the provisions
of ASC Topic 740, Income Taxes, which provides for an asset and liability approach for income taxes. Under this approach, deferred
tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted laws, attributable
to temporary differences between the carrying value amounts of assets and liabilities for financial reporting purposes and the
amounts calculated for income tax purposes.
The Company’s net deferred tax assets
(liabilities) as of September 30, 2018 and December 31, 2017 are as follows:
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September
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December
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30, 2018
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31, 2017
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Deferred tax assets:
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Unrealized loss on marketable securities held in Trust Account
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$
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–
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$
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18,678
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Total deferred tax assets
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–
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18,678
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Deferred tax liabilities:
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Unrealized gain on marketable securities held in Trust Account
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182
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–
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Total deferred tax liabilities
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182
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–
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Valuation allowance
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–
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–
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Net deferred tax assets (liabilities), net of allowance
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$
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(182
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)
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$
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18,678
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The income tax provision consists of the following:
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Three Months Ended September 30, 2018
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Nine Months Ended September 30, 2018
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Federal
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Current
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$
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101,559
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$
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250,252
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Deferred
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1,029
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13,780
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State and Local
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Current
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52,559
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129,640
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Deferred
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379
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5,080
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Income tax provision
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$
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155,526
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$
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398,752
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The provision for income taxes was deemed to be immaterial for
the period ended September 30, 2017.
Note 8 — Subsequent
Events
The Company evaluates events that have
occurred after the balance sheet date through the date these financial statements were issued. No events occurred of a material
nature that would have required adjustments to or disclosures in these financial statements.