The accompanying notes are an integral part
of the unaudited condensed financial statements.
The accompanying notes are an integral part
of the unaudited condensed financial statements.
The accompanying notes are an integral part
of the unaudited condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2018
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
DD3 Acquisition Corp.
(the “Company”) is a blank check company incorporated in the British Virgin Islands on July 23, 2018. The Company
was formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization
or other similar business combination with one or more businesses or entities (“Business Combination”). Although the
Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination, the Company
intends to focus on businesses that have their primary operations located in Mexico or Hispanic businesses in the United States.
At December 31, 2018,
the Company had not yet commenced any operations. All activity through December 31, 2018 relates to the Company’s formation,
its initial public offering (“Initial Public Offering”), which is described below, and identifying a target company
for a Business Combination. The Company has selected June 30 as its fiscal year end.
The registration statement
for the Company’s Initial Public Offering was declared effective on October 11, 2018. On October 16, 2018, the Company consummated
the Initial Public Offering of 5,000,000 units (“Units” and, with respect to the ordinary shares included in the Units
sold, the “Public Shares”), at $10.00 per Unit, generating gross proceeds of $50,000,000, which is described in Note
3.
Simultaneously with
the closing of the Initial Public Offering, the Company consummated the sale of 225,000 units (the “Private Units”)
at a price of $10.00 per unit in a private placement to the Company’s sponsor, DD3 Mex Acquisition Corp (the “Sponsor”),
generating gross proceeds of $2,250,000, which is described in Note 4.
Following the closing
of the Initial Public Offering on October 16, 2018, an amount of $50,000,000 ($10.00 per Unit) from the net proceeds of the sale
of the Units in the Initial Public Offering and the sale of the Private Units was placed in a trust account (“Trust Account”).
In addition, an advance payment of $187,500 was also placed in the Trust Account (see below). The net proceeds placed in the Trust
Account have been 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 meeting the conditions 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 funds in the
Trust Account to the Company’s shareholders, as described below.
On October 23, 2018,
in connection with the underwriters’ election to partially exercise their over-allotment option, the Company sold an additional
565,000 Units at $10.00 per Unit, generating gross proceeds of $5,650,000. In addition, in connection with the underwriters’
partial exercise of their over-allotment option, the Company also consummated the sale of an additional 14,125 Private Units at
$10.00 per Private Unit, generating total gross proceeds of $141,250, of which the Company applied $141,250 of the advance payment
made by the Sponsor already deposited into the Trust Account towards this transaction and returned the balance of $46,250 to the
Sponsor. Following such closing, an additional $5,508,750 of net proceeds was deposited in the Trust Account, resulting in $55,650,000
($10.00 per Unit) held in the Trust Account.
Transaction costs
relating to the Initial Public Offering amounted to $1,939,920, consisting of $1,391,250 of underwriting fees and $548,670 of offering
costs. In addition, as of December 31, 2018, $316,061 of cash was held outside of the Trust Account and is available for working
capital purposes.
The Company’s
management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and
sale of the Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating
a Business Combination. The Company’s initial Business Combination must be with one or more target businesses that together
have a fair market value equal to at least 80% of the balance in the Trust Account (excluding taxes payable on income earned on
the Trust Account) at the time of the signing of an agreement to enter into a Business Combination. The Company will only complete
a Business Combination if the post-Business Combination company owns or acquires 50% or more of the outstanding voting securities
of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an
investment company under the Investment Company Act. There is no assurance that the Company will be able to successfully effect
a Business Combination.
The Company will provide
its shareholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination
either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) by means of a tender offer.
The decision as to whether the Company will seek shareholder approval of a Business Combination or conduct a tender offer will
be made by the Company, solely in its discretion. The shareholders will be entitled to redeem their shares for a pro rata portion
of the amount then in the Trust Account ($10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account
and not previously released to the Company to pay its tax obligations). There will be no redemption rights upon the completion
of a Business Combination with respect to the Company’s warrants.
DD3 ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2018
(Unaudited)
In connection with
a proposed Business Combination, the Company may seek shareholder approval of a Business Combination at a meeting called for such
purpose at which shareholders may seek to redeem their shares, regardless of whether they vote for or against a Business Combination.
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, if the Company seeks shareholder approval, a majority of the outstanding shares voted
are voted in favor of the Business Combination. If a shareholder vote is not required and the Company does not decide to hold a
shareholder vote for business or other legal reasons, the Company will, pursuant to its Memorandum and Articles of Association,
offer such redemption pursuant to the tender offer rules of the Securities and Exchange Commission (“SEC”), and file
tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC prior
to completing a Business Combination.
The Sponsor has agreed
(a) to vote its Founder Shares (as defined in Note 5), the ordinary shares included in the Private Units (the “Private Shares”)
and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination, (b) not to propose
an amendment to the Company’s Memorandum and Articles of Association that would affect the substance or timing of the Company’s
obligation to redeem 100% of its Public Shares if the Company does not complete a Business Combination, unless the Company provides
the public shareholders with the opportunity to redeem their shares in conjunction with any such amendment; (c) not to redeem any
shares (including the Founder Shares) and Private Units (including underlying securities) into the right to receive cash from the
Trust Account in connection with a shareholder vote to approve a Business Combination (or to sell any shares in a tender offer
in connection with a Business Combination if the Company does not seek shareholder approval in connection therewith) and (d) that
the Founder Shares and Private Shares shall not participate in any liquidating distributions upon winding up if a Business Combination
is not consummated. However, the Sponsor will be entitled to liquidating distributions from the Trust Account with respect to any
Public Shares purchased during or after the Initial Public Offering if the Company fails to complete its Business Combination.
The Company will have
until April 16, 2020 to consummate a Business Combination (the “Combination Period”). If the Company is unable to complete
a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of
winding up, (ii) as promptly as reasonably possible but no more than ten business days thereafter, redeem 100% of the outstanding
Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including
interest earned (net of taxes payable and less interest to pay dissolution expenses up to $50,000), divided by the number of then
outstanding Public Shares, which redemption will completely extinguish public shareholders’ rights as shareholders (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 remaining shareholders and the Company’s board of directors,
dissolve and liquidate, subject in each case to its obligations to provide for claims of creditors and the requirements of applicable
law. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution
will be less than the Initial Public Offering price per Unit ($10.00).
The Sponsor has agreed
that it will be liable to the Company, if and to the extent any claims by a vendor for services rendered or products sold to the
Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the
amounts in the Trust Account to below $10.00 per share, except as to any claims by a third party who executed a waiver of any and
all rights to seek access to the Trust Account and except as to any claims under the Company’s indemnity of the underwriters
of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended
(the “Securities Act”). In the event that an executed waiver is deemed to be unenforceable against a third party, the
Sponsor will not be responsible to the extent of any liability for such third party claims. The Company will seek to reduce the
possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors,
service providers, prospective target businesses or other entities with which the Company does business, execute agreements with
the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Liquidity
The Company has principally
financed its operations from inception using proceeds from the sale of its equity securities to its shareholders prior to the Initial
Public Offering and such amount of proceeds from the Initial Public Offering that were placed in an account outside of the Trust
Account for working capital purposes. As of December 31, 2018, the Company had $316,061 in its operating bank accounts, $55,912,979
in securities held in the Trust Account to be used for a Business Combination or to repurchase or redeem its ordinary shares in
connection therewith and working capital of $281,149. In addition, one of the Company’s service providers has agreed to defer
the payment of fees owed to them until the consummation of a Business Combination, which amounted to approximately $129,000 as
of December 31, 2018. Such fees are included in accrued expenses in the accompanying condensed balance sheet at December 31, 2018.
Based on the foregoing, the Company believes it will have sufficient cash to meet its needs for the next twelve months following
the date from when the financial statements are issued.
NOTE 2. SUMMARY OF 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
8 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 complete 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.
DD3 ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2018
(Unaudited)
The accompanying unaudited
condensed financial statements should be read in conjunction with the Company’s prospectus for its Initial Public Offering
as filed with the SEC on October 12, 2018, as well as the Company’s Current Reports on Form 8-K, as filed with the SEC on
October 22, 2018 and October 29, 2018. The interim results for the period from July 23, 2018 (inception) through December 31, 2018
are not necessarily indicative of the results to be expected for the period from July 23, 2018 (inception) through June 30, 2019
or for any future periods.
Emerging growth company
The Company is an
“emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our
Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to,
not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously
approved.
Further, Section 102(b)(1)
of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards
until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not
have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt
out of such extended transition period which means that when a standard is issued or revised and it has different application dates
for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time
private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with
another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using
the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of estimates
The preparation of
financial statements in conformity with 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 revenues and expenses during the reporting period.
Making estimates requires
management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition,
situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating
its estimate, could change in the near term due to one or more future events. Accordingly, the actual results could differ significantly
from those estimates.
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 December 31, 2018.
Marketable securities held in Trust Account
At December 31, 2018,
substantially all of the assets held in the Trust Account were held in U.S. Treasury Bills.
Ordinary shares subject to possible redemption
The Company accounts
for its ordinary shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”)
Topic 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory redemption are classified
as a liability instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that
feature 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) are classified as temporary equity. At all other times, ordinary shares are
classified as shareholders’ equity. The Company’s ordinary shares feature certain redemption rights that are considered
to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at December 31,
2018, ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’
equity section of the Company’s balance sheet.
DD3 ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2018
(Unaudited)
Offering costs
Offering costs consist
of legal, accounting, underwriting fees and other costs incurred through the balance sheet date that are directly related to the
Initial Public Offering. Offering costs amounting to $1,939,920 were charged to shareholders’ equity upon the completion
of the Initial Public Offering.
Income taxes
The Company complies
with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability
approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts,
based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
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’s management determined that the British Virgin Islands is
the Company’s major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits,
if any, as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of
December 31, 2018.
The Company may be
subject to potential examination by foreign taxing authorities in the area 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 foreign
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.
The Company’s
tax provision is zero because the Company is organized in the British Virgin Islands with no connection to any other taxable jurisdiction.
As such, the Company has no deferred tax assets. The Company is considered to be an exempted British Virgin Islands Company, and
is presently not subject to income taxes or income tax filing requirements in the British Virgin Islands or the United States.
Net loss per ordinary share
Net loss per ordinary
share is computed by dividing net loss by the weighted average number of ordinary shares outstanding during the period. The Company
applies the two-class method in calculating earnings per share. Ordinary shares subject to possible redemption at December 31,
2018, which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic
loss per 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 (1) warrants sold in the Initial Public Offering and private placement to purchase 5,804,125 ordinary
shares and (2) 250,000 ordinary shares and warrants to purchase 250,000 ordinary shares in the unit purchase option sold to EarlyBirdCapital,
Inc. (“EarlyBirdCapital”) (and its designees), in the calculation of diluted loss per share, since the exercise of
the warrants and the exercise of the unit purchase option is contingent upon the occurrence of future events. As a result, diluted
loss per share is the same as basic loss per share for the period presented.
DD3 ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2018
(Unaudited)
Reconciliation of net loss per ordinary
share
The Company’s
net income is adjusted for the portion of income that is attributable to ordinary shares subject to possible redemption, as these
shares only participate in the earnings of the Trust Account and not the income or losses of the Company. Accordingly, basic and
diluted net loss per ordinary share is calculated as follows:
|
|
Three Months
Ended
December 31,
2018
|
|
|
For the Period from
July 23, 2018
(inception) through
December 31,
2018
|
|
Net income
|
|
$
|
71,283
|
|
|
$
|
67,698
|
|
Less: Income attributable to shares subject to redemption
|
|
|
(240,784
|
)
|
|
|
(240,784
|
)
|
Adjusted net loss
|
|
$
|
(169,501
|
)
|
|
$
|
(173,086
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
1,890,810
|
|
|
|
1,616,177
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.09
|
)
|
|
$
|
(0.11
|
)
|
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 December 31, 2018, the Company had not experienced
losses on this account and management believes the Company is not exposed to significant risks on such account.
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.
Recently issued accounting standards
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 consolidated financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
Pursuant to the Initial
Public Offering, the Company sold 5,565,000 Units at a purchase price of $10.00 per Unit, inclusive of 565,000 Units sold to the
underwriters on October 23, 2018 upon the underwriters’ election to partially exercise their over-allotment option. Each
Unit consists of one ordinary share and one warrant (“Public Warrant”). Each Public Warrant entitles the holder to
purchase one ordinary share at an exercise price of $11.50 per share (see Note 7).
NOTE 4. PRIVATE PLACEMENT
Simultaneously with
the Initial Public Offering, the Sponsor purchased an aggregate of 225,000 Private Units at a price of $10.00 per Private Unit,
or $2,250,000 in the aggregate. On October 23, 2018, in connection with the underwriters’ election to partially exercise
their over-allotment option, the Company sold an additional 14,125 Private Units to the Sponsor, generating gross proceeds of $141,250.
The Private Units are identical to the Units sold in the Initial Public Offering, except for the private warrants (“Private
Warrants”), as described in Note 7. The proceeds from the sale of the Private Units were added to the net proceeds from the
Initial Public Offering held in the Trust Account. The Sponsor had committed to purchase up to an aggregate additional amount of
18,750 Private Units if the underwriters’ over-allotment option had been exercised in full. If the Company does not complete
a Business Combination within the Combination Period, the proceeds from the sale of the Private Units will be used to fund the
redemption of the Public Shares (subject to the requirements of applicable law) and the Private Warrants will expire worthless.
DD3 ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2018
(Unaudited)
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In July 2018,
the Company issued an aggregate of 1,473,500 founder shares to the Sponsor (the “Founder Shares”) for an aggregate
purchase price of $25,000 in cash. In September 2018, the Sponsor forfeited 36,000 Founder Shares, resulting in an aggregate of
1,437,500 shares outstanding. The 1,437,500 Founder Shares included an aggregate of up to 187,500 shares subject to forfeiture
by the Sponsor to the extent that the underwriters’ over-allotment option was not exercised in full or in part, so that the
Sponsor will collectively own 20% of the Company’s issued and outstanding shares after the Initial Public Offering (assuming
the Sponsor did not purchase any Public Shares in the Initial Public Offering and excluding the Private Units, Representative Shares
(as defined in Note 7) and underlying securities). As a result of the underwriters’ election to partially exercise their
over-allotment option on October 23, 2018, 141,250 Founder Shares are no longer subject to forfeiture. The underwriters’
elected not to exercise the remaining portion of the over-allotment option, which expired on November 25, 2018, and, as a result,
46,250 Founder Shares were forfeited.
The Sponsor has agreed
not to transfer, assign or sell any of the Founder Shares (except to certain permitted transferees) until, (1) with respect
to 50% of the Founder Shares, the earlier of (i) one year after the date of the consummation of a Business Combination,
or (ii) the date on which the closing price of the Company’s ordinary shares equals or exceeds $12.50 per share (as such
amount may be adjusted) for any 20 trading days within any 30-trading day period commencing after a Business Combination, and (2) with
respect to the remaining 50% of the Founder Shares, one year after the date of the consummation of a Business Combination, or earlier,
in each case, if, subsequent to a Business Combination, the Company consummates a liquidation, merger, stock exchange or other
similar transaction which results in all of the Company’s shareholders having the right to exchange their ordinary shares
for cash, securities or other property.
Related Party Advances
On October 16, 2018,
the Sponsor advance funded $187,500 in anticipation of the additional amount they intended to pay for additional Private Units
upon the underwriters’ exercise of the over-allotment option. In connection with the underwriters’ partial exercise
of their over-allotment option on October 23, 2018, the Company applied $141,250 of the advance payment made by the Sponsor already
deposited into the Trust Account and returned the balance of $46,250 to the Sponsor.
Promissory Note – Related Party
On July 27, 2018,
the Company issued an unsecured promissory note to the Sponsor (the “Promissory Note”), pursuant to which the Company
could borrow up to an aggregate principal amount of $150,000. The Promissory Note was non-interest bearing and payable on the earlier
of (i) December 31, 2018 or (ii) the consummation of the Initial Public Offering. The Promissory Note was repaid in full on October 17, 2018.
Administrative Services Arrangement
The Sponsor entered
into an agreement, commencing on October 11, 2018 through the earlier of the Company’s consummation of a Business Combination
and its liquidation, to make available to the Company certain general and administrative services, including office space, utilities
and administrative services, as the Company may require from time to time. The Company has agreed to pay the Sponsor $7,500 per
month for these services. For the three months ended December 31, 2018 and for the period from July 23, 2018 (inception) through
December 31, 2018, the Company incurred $18,750 in fees for these services, of which $3,750 is included in accrued expenses in
the accompanying condensed balance sheet.
Related Party Loans
In order to finance
transaction costs in connection with a Business Combination, the Sponsor, an affiliate of the Sponsor, or the Company’s officers
and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). Such
Working Capital Loans would be evidenced by promissory notes. The Working Capital Loans would either be paid upon consummation
of a Business Combination, without interest, or, at the holder’s discretion, up to $1,500,000 of the Working Capital Loans
may be converted into units at a price of $10.00 per unit. The units would be identical to the Private Units. In the
event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay
the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans.
DD3 ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2018
(Unaudited)
NOTE 6. COMMITMENTS AND CONTINGENCIES
Registration Rights
Pursuant to a registration
rights agreement entered into on October 11, 2018, the holders of the Founder Shares, Private Units (and their underlying securities)
and any units that may be issued upon conversion of the Working Capital Loans (and underlying securities) are entitled to registration
rights. The holders of a majority of these securities are entitled to make up to two demands that the Company register such securities.
The holders of the majority of the Founder Shares can elect to exercise these registration rights at any time commencing three months
prior to the date on which these ordinary shares are to be released from escrow. The holders of a majority of the Private Units
and units issued in payment of Working Capital Loans made to the Company (or underlying securities) can elect to exercise these
registration rights at any time after the Company consummates a Business Combination. In addition, the holders have certain “piggy-back”
registration rights with respect to registration statements filed subsequent to the consummation of a Business Combination. The
Company will bear the expenses incurred in connection with the filing of any such registration statement.
Business Combination Marketing Agreement
The Company has engaged
EarlyBirdCapital as an advisor in connection with a Business Combination to assist the Company in holding meetings with its shareholders
to discuss a potential Business Combination and the target business’ attributes, introduce the Company to potential investors
that are interested in purchasing 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 a Business Combination. The Company will pay
EarlyBirdCapital a cash fee for such services upon the consummation of a Business Combination in an amount equal to 3.5% of the
gross proceeds of the Initial Public Offering (exclusive of any applicable finders’ fees which might become payable).
NOTE 7. SHAREHOLDERS’ EQUITY
Preferred Shares
— The Company is authorized to issue an unlimited number of no par value preferred shares, divided into five classes, Class
A through Class E, each with such designation, rights and preferences as may be determined by a resolution of the Company’s
board of directors to amend the Memorandum and Articles of Association to create such designations, rights and preferences. The
Company has five classes of preferred shares to give the Company flexibility as to the terms on which each Class is issued. All
shares of a single class must be issued with the same rights and obligations. Accordingly, starting with five classes of preferred
shares will allow the Company to issue shares at different times on different terms. At December 31, 2018, there are no preferred
shares designated, issued or outstanding.
Ordinary Shares
— The Company is authorized to issue an unlimited number of no par value ordinary shares. Holders of the Company’s
ordinary shares are entitled to one vote for each share. At December 31, 2018, there were 2,127,866 shares issued and outstanding,
excluding 5,095,334 ordinary shares subject to possible redemption.
Warrants —
The Public Warrants will become exercisable on the later of (a) 30 days after the completion of a Business Combination
or (b) October 16, 2019. No Public Warrants will be exercisable for cash unless the Company has an effective and current registration
statement covering the ordinary shares issuable upon exercise of the Public Warrants and a current prospectus relating to such
ordinary shares. Notwithstanding the foregoing, if a registration statement covering the ordinary shares issuable upon the exercise
of the Public Warrants is not effective within 90 days following 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 Public Warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9)
of the Securities Act, provided that such exemption is available. If an exemption from registration is not available, holders will
not be able to exercise their Public Warrants on a cashless basis. The Public Warrants will expire five years from the consummation
of a Business Combination or earlier upon redemption or liquidation.
The Company may call
the warrants for redemption (excluding the Private Warrants), in whole and not in part, at a price of $0.01 per warrant:
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at any time while the Public Warrants are exercisable,
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upon not less than 30 days’ prior written notice of redemption to each Public Warrant holder,
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if, and only if, the reported last sale price of the ordinary shares equals or exceeds $18.00 per share, for any 20 trading days within a 30 trading day period ending on the third trading day prior to the notice of redemption to Public Warrant holders, and
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if, and only if, there is a current registration statement in effect with respect to the ordinary shares underlying such warrants.
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DD3 ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2018
(Unaudited)
If the Company calls
the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants
to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of ordinary shares
issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary
dividend or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances
of ordinary shares 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.
The Private Warrants
are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Warrants
and the ordinary shares issuable upon the exercise of the Private Warrants will not be transferable, assignable or salable until
after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants will
be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted
transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the
Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
Representative Shares
Pursuant to the Initial
Public Offering, the Company issued to EarlyBirdCapital (and its designees) 27,825 ordinary shares (the “Representative Shares”),
inclusive of the 2,825 ordinary shares issued on October 23, 2018 upon the underwriters’ election to partially exercise their
over-allotment option, for no consideration. The Company accounted for the Representative Shares as an expense of the Initial Public
Offering resulting in a charge directly to shareholders’ equity. The Company estimated the fair value of Representative Shares
to be $278,250 based upon the offering price of the Units of $10.00 per Unit. EarlyBirdCapital has agreed not to transfer, assign
or sell any such shares until the completion of a Business Combination. In addition, EarlyBirdCapital (and its designees) has agreed
(i) to waive its redemption rights with respect to such shares in connection with the completion of a Business Combination
and (ii) to waive its rights to liquidating distributions from the Trust Account with respect to such shares if the Company fails
to complete a Business Combination within the Combination Period.
Unit Purchase Option
On October 16, 2018,
the Company sold to EarlyBirdCapital (and its designees), for $100, an option to purchase up to 250,000 units exercisable at $10.00
per unit (or an aggregate exercise price of $2,500,000) commencing on the later of October 11, 2019 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
on October 11, 2023. The units issuable upon exercise of the 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 shareholders’ equity. The Company estimated the fair value of the unit
purchase option to be approximately $894,000 (or $3.58 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 3.02% and (3) expected life of five years. The option and such units
purchased pursuant to the option, as well as the ordinary shares underlying 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. 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 share 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.
NOTE 8. FAIR VALUE MEASUREMENTS
The Company follows
the guidance in Accounting Standards Codification (“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.
DD3 ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2018
(Unaudited)
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:
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Level 1:
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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.
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Level 2:
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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.
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Level 3:
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Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
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The following table
presents information about the Company’s assets that are measured at fair value on a recurring basis at December 31, 2018,
and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
Description
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Level
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December 31,
2018
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Assets:
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Marketable securities held in Trust Account
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1
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$
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55,912,979
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NOTE 9. SUBSEQUENT EVENTS
The Company evaluated
subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were
issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure
in the financial statements.