NOTES
TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(Unaudited)
1.
DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
National
Energy Services Reunited Corp. (the “Company”) is a blank check company formed in the British Virgin Islands on January
23, 2017. The Company was formed for the purpose of acquiring, engaging in a share exchange, share reconstruction and amalgamation,
purchasing all or substantially all of the assets of, entering into contractual arrangements, or engaging in any other similar
business combination with one or more businesses or entities that the Company has not yet identified (a “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 operate in the energy services industry, with an emphasis on oil and gas services
globally.
At
September 30, 2017, the Company had not yet commenced operations. All activity through September 30, 2017 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
registration statements for the Company’s Initial Public Offering were declared effective on May 11, 2017. On May 17, 2017,
the Company consummated the Initial Public Offering of 21,000,000 units (“Units” and, with respect to the ordinary
shares included in the Units being offered, the “Public Shares”), generating gross proceeds of $210,000,000, which
is described in Note 3.
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the sale of 11,850,000 warrants (the “Private Warrants”)
at a price of $0.50 per warrant in a private placement to the Company’s sponsor, NESR Holdings Ltd. (the “Sponsor”),
generating gross proceeds of $5,925,000, which is described in Note 4.
Following
the closing of the Initial Public Offering on May 17, 2017, an amount of $210,000,000 ($10.00 per Unit) from the net proceeds
of the sale of the Units in the Initial Public Offering and the Private Warrants was placed in a trust account (“Trust Account”)
and 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
May 30, 2017, in connection with the underwriters’ election to partially exercise their over-allotment option, the Company
consummated the sale of an additional 1,921,700 Units at $10.00 per Unit and the sale of an additional 768,680 Private Warrants
at $0.50 per warrant, generating total gross proceeds of $19,601,340. Following the closing, an additional $19,217,000 of net
proceeds ($10.00 per Unit) was placed in the Trust Account, resulting in $229,217,000 ($10.00 per Unit) held in the Trust Account.
Transaction costs amounted
to $13,761,498, consisting of $4,014,340 of underwriting fees, $9,032,265 of deferred underwriting fees (see Note 6) and $714,893
of Initial Public Offering costs. As of September 30, 2017, $1,244,689 of cash was held outside of the Trust Account and was available
for working capital purposes.
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of its Initial Public
Offering and sale of Private Warrants, 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 any deferred underwriters
fees and taxes payable on the income earned on the Trust Account) at the time of the signing of an agreement to enter into a Business
Combination. However, 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 and in accordance with applicable laws and regulations.
The shareholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then on deposit 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). The per-share amount to be distributed to shareholders who redeem their shares will
not be reduced by the deferred underwriting commissions the Company will pay to the underwriters (as discussed in Note 6). The
Company will proceed with a Business Combination 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. However, certain investors in the Initial Public Offering holding 6,000,000 Public Shares
have agreed that they will hold such Public Shares sold in the Initial Public Offering through the consummation of an initial
Business Combination and not seek redemption in connection therewith. As a result, the Company expects to meet the $5,000,001
net tangible asset requirement in order to complete its initial Business Combination.
NATIONAL ENERGY SERVICES REUNITED CORP.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(Unaudited)
If
a shareholder vote is not required by law and the Company does not decide to hold a shareholder vote for business or other legal
reasons, or if the Company is deemed to be a foreign private issuer (“FPI”) at such time, the Company will, pursuant
to its Amended and Restated Memorandum and Articles of Association, conduct the redemptions pursuant to the tender offer rules
of the Securities and Exchange Commission (“SEC”), and file tender offer documents with the SEC prior to completing
a Business Combination. If, however, a shareholder approval of the transaction is required by law, or the Company decides to obtain
shareholder approval for business or other legal reasons, and if the Company will not be an FPI at such time, the Company will
offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer
rules. If the Company seeks shareholder approval in connection with a Business Combination, the Sponsor, officers and directors
(the “Initial Shareholders”) have agreed to vote their Founder Shares (as defined in Note 5), and any Public Shares
held by them in favor of approving a Business Combination. Additionally, each public shareholder may elect to redeem their Public
Shares irrespective of whether they vote for or against the proposed transaction.
If the Company seeks shareholder approval of a Business Combination and it does not conduct redemptions in connection with a Business Combination pursuant to the tender offer rules, the Company’s Amended and Restated Memorandum and Articles of Association provides that a public shareholder,
together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group”
(as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted
from redeeming its shares with respect to an aggregate of 20% or more of the ordinary shares sold in the Initial Public Offering.
The
Company will have until 24 months from the closing of the Initial Public Offering to consummate a Business Combination (the “Combination
Period”). However, 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 $100,000), 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, proceed to commence a voluntary liquidation and thereby
a formal dissolution of the Company, subject in each case to its obligations to provide for claims of creditors and the requirements
of applicable law.
The
Initial Shareholders have agreed (i) to waive their liquidation rights with respect to their Founder Shares if the Company fails
to consummate a Business Combination within the Combination Period, (ii) to waive their redemption rights from the Trust Account
with respect to their Founder Shares and Public Shares in connection with the consummation of a Business Combination and (iii)
not to propose an amendment to the Company’s Amended and Restated 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. However, the Initial Shareholders will be entitled to liquidating distributions with respect to any Public
Shares acquired if the Company fails to consummate a Business Combination or liquidates within the Combination Period. The underwriters
have agreed to waive their rights to deferred underwriting commissions held in the Trust Account in the event the Company does
not consummate a Business Combination within the Combination Period and, in such event, such amounts will be included with the
funds held in the Trust Account that will be available to fund the redemption of the Public Shares. 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 $10.00 per Unit
in the Initial Public Offering. In order to protect the amounts held in the Trust Account, the Sponsor has agreed to 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 amount of funds in the
Trust Account. This liability will not apply with respect to any claims by a third party who executed a waiver of any right, title,
interest or claim of any kind in or to any monies held in the Trust Account or 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”). Moreover, 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.
NATIONAL ENERGY SERVICES REUNITED CORP.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(Unaudited)
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 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 prospectus
as filed with the SEC and declared effective on May 11, 2017, as well as the Company’s Current Report on Form 8-K, as filed with the SEC on
May 17, 2017. The interim results for the period from January 23, 2017 (inception) through September 30, 2017 are not necessarily
indicative of the results to be expected for the period from January 23, 2017 (inception) through December 31, 2017 or for any
future interim 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 confirming events. Accordingly, the actual
results could differ significantly from our estimates.
NATIONAL ENERGY SERVICES REUNITED CORP.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(Unaudited)
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, 2017.
Cash
and marketable securities held in Trust Account
At
September 30, 2017, the assets held in the Trust Account were held in cash and 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 (if any) 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 September 30, 2017, ordinary shares subject to possible redemption are presented as temporary
equity, outside of the shareholders’ equity section of the Company’s balance sheet.
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 $13,761,498 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 only major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized
tax benefits as income tax expense. As of September 30, 2017, there were no unrecognized tax benefits and no amounts accrued for
interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments,
accruals or material deviation from its position.
The
Company may be subject to potential examination by U.S. federal, U.S. states or foreign 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 U.S. federal, U.S. state and 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
provision for income taxes was deemed to be immaterial for the period from January 23, 2017 (inception) through September 30,
2017.
Net
loss per ordinary share
The Company complies with
accounting and disclosure requirements ASC Topic 260, “Earnings Per Share.” Net loss per ordinary share is computed
by dividing net loss by the weighted average number of ordinary shares outstanding for the period. Ordinary shares subject to possible
redemption at September 30, 2017 have been excluded from the calculation of basic income 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 17,770,190 ordinary shares and (2) 200,717 ordinary shares
that may be issued to the underwriters in connection with the deferred fee payable in the calculation of diluted loss per share,
since the exercise of the warrants and the issuance of the ordinary shares is contingent upon the occurrence of future events.
As a result, diluted income per ordinary share is the same as basic loss per ordinary share for the periods.
Reconciliation of net loss per ordinary
share
The Company’s net income
(loss) is adjusted for the portion of income that is attributable to ordinary shares subject to redemption, as these shares only
participate in the income of the Trust Account and not the losses of the Company. Accordingly, basic and diluted loss per ordinary
share is calculated as follows:
|
|
Three Months
Ended
September 30,
|
|
|
For
the Period
from January 23,
2017 (inception)
through
September
30,
|
|
|
|
2017
|
|
|
2017
|
|
Net (loss) income
|
|
$
|
(31,052
|
)
|
|
$
|
262,373
|
|
Less: Income attributable to ordinary shares subject to redemption
|
|
|
(393,309
|
)
|
|
|
(546,566
|
)
|
Adjusted net loss
|
|
$
|
(424,361
|
)
|
|
$
|
(284,193
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
11,730,425
|
|
|
|
8,690,796
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per ordinary share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
NATIONAL ENERGY SERVICES REUNITED CORP.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(Unaudited)
Concentration
of credit risk
Financial
instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution
which, at times may exceed the Federal depository insurance coverage of $250,000. At September 30, 2017, 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 sheets, 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 financial statements.
3.
INITIAL PUBLIC OFFERING
Pursuant
to the Initial Public Offering, the Company sold 22,921,700 Units at a purchase price of $10.00 per Unit, inclusive of 1,921,700
Units sold to the underwriters on May 30, 2017 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-half of one ordinary share at an exercise price of $5.75 per half share (see Note 7).
4.
PRIVATE PLACEMENT
Simultaneously
with the Initial Public Offering, the Sponsor purchased an aggregate of 11,850,000 Private Warrants at a price of $0.50 per Private
Warrant for an aggregate purchase price of $5,925,000. On May 30, 2017, the Company consummated the sale of an additional 768,680
Private Warrants at a price of $0.50 per Private Warrant, which were purchased by the Sponsor, generating gross proceeds of $384,340.
The proceeds from the Private Warrants were added to the proceeds from the Initial Public Offering held in the Trust Account.
There will be no redemption rights or liquidating distributions from the Trust Account with respect to the Private Warrants.
The
Private Warrants are identical to the Public Warrants except that the Private 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 initial purchaser or their permitted transferees.
In addition, the Private Warrants and their component securities may not be transferable, assignable or salable until 30 days
after the consummation of a Business Combination, subject to certain limited exceptions.
5.
RELATED PARTY TRANSACTIONS
Founder
Shares
On
February 9, 2017, the Company issued an aggregate of 5,750,000 ordinary shares to the Sponsor for an aggregate purchase price
of $25,000. On May 11, 2017, the Company effectuated a 1.05-for-1 subdivision of its ordinary shares, resulting in an aggregate
of 6,037,500 ordinary shares being held by the Sponsor (the “Founder Shares”). The 6,037,500 Founder Shares included
an aggregate of up to 787,500 ordinary shares which were subject to forfeiture by the Sponsor to the extent that the underwriters’
over-allotment was not exercised in full or in part, so that the Sponsor would own 20% of the Company’s issued and outstanding
shares after the Initial Public Offering. As a result of the underwriters’ election to partially exercise their over-allotment
option on May 30, 2017, 480,425 Founder Shares are no longer subject to forfeiture. The underwriters elected not to exercise the
remaining portion of the over-allotment option and, therefore, 307,075 Founder Shares were forfeited.
NATIONAL ENERGY SERVICES REUNITED CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(Unaudited)
The
Sponsor has agreed that, subject to certain limited exceptions, its Founder Shares will not be transferred, assigned or sold until
one year after the date of the consummation of a Business Combination or earlier if, subsequent to a Business Combination, the
last sales price of the Company’s ordinary shares equals or exceeds $12.00 per share (as adjusted for stock splits, stock
dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing 150 days
after a Business Combination.
Related
Party Advances
As
of September 30, 2017, the Sponsor advanced the Company an aggregate of $155,268 for costs associated with the Initial Public
Offering and for working capital purposes. The advances are non-interest bearing, unsecured and due on demand. As of September
30, 2017, the Company has repaid $132,137 of such advances. Advances amounting to $23,131 were outstanding as of September 30,
2017.
Promissory
Note — Related Party
On
February 10, 2017, the Company entered into a promissory note with the Sponsor, whereby the Sponsor agreed to loan the Company
up to an aggregate of $300,000 (the “Promissory Note”) to be used in part for expenses incurred in connection with
the Initial Public Offering. The Promissory Note was non-interest bearing, unsecured and due on the earlier of June 30, 2017 or
the closing of the Initial Public Offering. The Promissory Note was repaid upon the consummation of the Initial Public Offering
on May 17, 2017.
Administrative
Service Fee
The
Company entered into an agreement whereby, commencing on May 17, 2017 through the earlier of the consummation of a Business Combination
or the Company’s liquidation, the Company will pay the Sponsor a monthly fee of $10,000 for office space, utilities and
administrative support. For the three months ended September 30, 2017 and the period from January 23, 2017 (inception) through
September 30, 2017, the Company incurred $30,000 and $50,000, respectively, in fees for these services, which such amounts are
included in operating costs in the accompanying condensed statements of operations. As of September 30, 2017, $50,000 of administrative
fees payable are included in accrued expenses in the accompanying condensed balance sheet at September 30, 2017.
Related
Party Loans
In
order to finance transaction costs in connection with a Business Combination, the Sponsor, the Company’s officers, directors
or their affiliates may, but are not obligated to, loan the Company funds from time to time or at any time, as may be required
(“Working Capital Loans”). Each Working Capital Loan would be evidenced by a promissory note. 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 Private Warrants at a price of $0.50 per warrant. There were
no Working Capital Loans outstanding as of September 30, 2017.
6.
COMMITMENTS AND CONTINGENCIES
Registration
Rights
Pursuant
to a registration rights agreement entered into on May 11, 2017, the holders of the Founder Shares, Private Warrants (and their
underlying securities) and the warrants that may be issued upon conversion of the Working Capital Loans (and their underlying
securities) are entitled to registration rights. The holders of a majority of these securities are entitled to make up to three
demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back”
registration rights with respect to registration statements filed subsequent to the completion of a Business Combination and rights
to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration
rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become
effective until termination of the applicable lock-up period. The Company will bear the expenses incurred in connection with the
filing of any such registration statements.
NATIONAL ENERGY SERVICES REUNITED CORP.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(Unaudited)
Underwriters
Agreement
The
Company granted the underwriters a 45-day option to purchase up to 3,150,000 additional Units to cover over-allotments at the
Initial Public Offering price, less the underwriting discounts and commissions. On May 30, 2017, the underwriters elected to partially
exercise their over-allotment option to purchase 1,921,700 Units at a purchase price of $10.00 per Unit.
In connection with the closing
of the Initial Public Offering and the over-allotment option, the underwriters were paid a cash underwriting discount of $4,014,340.
In addition, the underwriters deferred their fee of up to $8,955,993 until the completion of the initial Business Combination,
which amount includes 200,717 ordinary shares (the “Deferred Shares”). The Company determined the fair value of the
Deferred Shares to be issued to the underwriters at May 30, 2017 to be $2,007,170, based upon the offering price of the Units of
$10.00 per Unit. The fair value of the Deferred Shares at September 30, 2017 was determined to be $1,930,898, based upon the closing
price of the Company’s ordinary shares at September 30, 2017. The Company recorded the change in the fair value of the deferred
underwriting fee liability of $91,548 and $(76,272) for the three months ended September 30, 2017 and for the period from January
23, 2017 (inception) through September 30, 2017 in the accompanying condensed statements of operations, respectively.
The
ordinary shares to be issued to the underwriters have been deemed compensation by FINRA and are therefore subject to a lock-up
for a period of 180 days pursuant to Rule 5110(g)(1) of FINRA’s NASD Conduct Rules. Pursuant to FINRA Rule 5110(g)(1), these
ordinary shares will not be the subject of any hedging, short sale, derivative, put or call transaction that would result in the
economic disposition of the securities by any person for a period of 180 days immediately following the date of the Initial Public
Offering, nor may they be sold, transferred, assigned, pledged or hypothecated for a period of 180 days immediately following
the Initial Public Offering except to any underwriter and selected dealer participating in the Initial Public Offering and their
bona fide officers or partners.
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 Amended and Restated 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 September
30, 2017, 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 September 30, 2017, there were 11,730,425 ordinary
shares issued and outstanding (excluding 16,921,700 ordinary shares subject to possible redemption).
Warrants
— Public Warrants may only be exercised for a whole number of shares. The Public Warrants will become exercisable
on the later of (a) 30 days after the completion of a Business Combination or (b) 12 months from the closing of the Initial Public
Offering. 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 a specified period following the consummation of a Business Combination, the warrant
holders may, until such time as there is an effective registration statement and during any period when the Company shall have
failed to maintain an effective registration statement, exercise the Public Warrants on a cashless basis in the same manner as
if the Company called the warrants for redemption and required all holders to exercise their 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 $.01 per warrant;
|
|
●
|
at
any time during the exercise period;
|
|
●
|
upon
a minimum of 30 days’ prior written notice of redemption;
|
|
●
|
if,
and only if, the last sale price of the ordinary shares equals or exceeds $21.00 per share for any 20 trading days within
a 30 trading day period ending on the third business day prior to the date on which the Company sends the notice of redemption
to the warrant holders; and
|
NATIONAL ENERGY SERVICES REUNITED CORP.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(Unaudited)
|
●
|
if,
and only if, there is a current registration statement in effect with respect to the ordinary shares underlying such warrants
commencing five business days prior to the 30-day trading period and continuing each day thereafter until the date of redemption.
|
If
the Company 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 ordinary shares 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 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.
8.
FAIR VALUE MEASUREMENTS
The
Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value
at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The
fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company
would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an
orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets
and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and
to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).
The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable
inputs used in order to value the assets and liabilities:
|
Level 1:
|
Quoted
prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which
transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing
basis.
|
|
|
|
|
Level 2:
|
Observable
inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or
liabilities and quoted prices for identical assets or liabilities in markets that are not active.
|
|
|
|
|
Level 3:
|
Unobservable
inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
|
The
following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring
basis at September 30, 2017 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such
fair value:
Description
|
|
Level
|
|
|
September
30,
2017
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash
and marketable securities held in Trust Account
|
|
|
1
|
|
|
$
|
229,957,404
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deferred
underwriting fees
|
|
|
1
|
|
|
$
|
8,955,993
|
|
9.
SUBSEQUENT EVENTS
The
Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that
the financial statements were issued. Other than as described below, the Company did not identify any subsequent events that would
have required adjustment or disclosure in the financial statements.
On
November 12, 2017, the Company announced that it had entered into definitive agreements to acquire Gulf Energy SAOC
("GES") and National Petroleum Services ("NPS"). GES and NPS are leading regional oilfield services companies offering a mix
of drilling, completion and production services and equipment in the Middle East and North Africa (“MENA”) and
Asia Pacific regions. Following closing, the Company's primary operating locations will be in Dammam, Saudi Arabia, Muscat,
Oman and Dubai, UAE with local headquarters in Houston, Texas. The Company will employ more than 3,000 people in more than a
dozen countries across the region. The transaction is subject to stockholder approval and other customary closing conditions.
See the Company's Current Report on Form 8-K filed with the SEC on November 13, 2017 for further
information.