NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
(Unaudited)
NOTE
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 (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
March 31, 2018, the Company had not yet commenced operations. All activity through March 31, 2018 relates to the Company’s
formation, its initial public offering (“Initial Public Offering”), which is described below, identifying a target
company for a Business Combination and activities in connection with the proposed acquisitions of Gulf Energy S.A.O.C. (“Gulf
Energy”) and NPS Holdings, Ltd. (“NPS”), as described in Note 8. The Company has two wholly owned subsidiaries,
National Energy Services Reunited Corporation, which was incorporated in Texas on October 20, 2017, and NESR Limited, which was
incorporated in the United Kingdom on October 30, 2017.
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 4.
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 5.
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
7) and $714,893 of Initial Public Offering costs. As of March 31, 2018, $120,476 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, including interest but
net of taxes payable ($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 7).
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. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
(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 6), 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”). 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), 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. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
(Unaudited)
NOTE
2. LIQUIDITY AND GOING CONCERN
As
of March 31, 2018, the Company had $120,746 in its operating bank accounts, $231,258,235 in cash and 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 a working
capital deficit of $5,165,916. As of March 31, 2018, approximately $2,041,000 of the amount on deposit in the Trust Account represented
interest income, which is available to pay the Company’s tax obligations. To date, the Company has not withdrawn any interest
from the Trust Account.
Until
the consummation of a Business Combination, the Company will be using the funds not held in the Trust Account for identifying
and evaluating prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel
expenditures, selecting the target business to acquire, and structuring, negotiating and consummating the Business Combination.
The
Company will need to raise additional capital through loans or additional investments from its sponsors, stockholders, officers,
directors, or third parties. The Company’s officers, directors and sponsors may, but are not obligated to, loan the Company
funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s
working capital needs.
None
of the sponsors, stockholders, officers or directors, or third parties is under any obligation to advance funds to, or to invest
in, the Company. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional
capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited
to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot
provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions
raise substantial doubt about the Company’s ability to continue as a going concern. These condensed consolidated financial
statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities
that might be necessary should the Company be unable to continue as a going concern.
NOTE
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation
The
accompanying unaudited condensed consolidated 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 consolidated 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 consolidated
financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December
31, 2017 as filed with the SEC on March 27, 2018, which contains the audited consolidated financial statements and notes thereto.
The financial information as of December 31, 2017 is derived from the audited consolidated financial statements presented in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The interim results for the three months
ended March 31, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 or for
any future interim periods.
Principles
of Consolidation
The
accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated in consolidation.
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
consolidated 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.
NATIONAL
ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
(Unaudited)
Use
of estimates
The
preparation of condensed consolidated 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 condensed consolidated 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 condensed consolidated 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.
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 March 31, 2018 and December 31, 2017.
Cash
and marketable securities held in Trust Account
At
March 31, 2018 and December 31, 2017, substantially all of 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 March 31, 2018 and December 31, 2017, ordinary shares subject to possible redemption
are presented at redemption value as temporary equity, outside of the shareholders’ equity section of the Company’s
condensed consolidated balance sheet.
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 March 31, 2018 and December 31, 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.
NATIONAL
ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
(Unaudited)
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 tax 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 revalue
its deferred tax assets and liabilities at the new rate.
The
provision for income taxes was deemed to be immaterial for the three months ended March 31, 2018 and for the period from January
23, 2017 (inception) through March 31, 2017.
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 for the
period. Ordinary shares subject to possible redemption at March 31, 2018 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. Weighted
average shares as of March 31, 2017 were reduced for the effect of an aggregate of 787,500 ordinary shares that were subject to
forfeiture if the over-allotment option was not exercised by the underwriters (see Note 6). 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 loss 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 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
March 31, 2018
|
|
|
For the Period
from
January 23, 2017
(inception) through
March 31, 2017
|
|
Net loss
|
|
$
|
(1,851,707
|
)
|
|
$
|
(5,744
|
)
|
Less: Income attributable to ordinary shares subject to redemption
|
|
|
(519,849
|
)
|
|
|
-
|
|
Adjusted net loss
|
|
$
|
(2,371,556
|
)
|
|
$
|
(5,744
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
11,730,425
|
|
|
|
5,250,000
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per ordinary share
|
|
$
|
(0.20
|
)
|
|
$
|
(0.00
|
)
|
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 March 31, 2018 and December 31, 2017, the
Company had not experienced losses on these accounts and management believes the Company is not exposed to significant risks on
such accounts.
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 condensed consolidated
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 condensed consolidated financial statements.
NATIONAL
ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
(Unaudited)
NOTE
4. 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 9).
NOTE
5. 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.
NOTE
6. 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.
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
During
the period from January 23, 2017 (inception) through May 17, 2017, the Sponsor advanced the Company an aggregate of $193,899 for
costs associated with the Initial Public Offering and for working capital purposes. The advances are non-interest bearing, unsecured
and due on demand. The Company has repaid $192,910 of such advances. Advances amounting to $989 were outstanding as of March 31,
2018 and December 31, 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 March 31, 2018 and for the period from January 23, 2017 (inception) through
March 31, 2017, the Company paid $30,000 and $-0-, respectively, in fees for these services.
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 March 31, 2018 and December 31, 2017.
NATIONAL
ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
(Unaudited)
NOTE
7. COMMITMENTS AND CONTINGENCIES
Contingent
Transaction Fee Arrangements
The
Company entered into a fee arrangement with a service provider pursuant to which certain fees incurred by the Company in connection
with a potential Business Combination will be deferred and become payable only if the Company consummates a Business Combination.
If a Business Combination does not occur, the Company will not be required to pay these contingent fees. The terms of the fee
arrangement include a fee of $1,500,000 contingent on the consummation of a Business Combination, less expenses incurred, an additional
fee of up to $500,000 payable at the sole discretion of the Company and other rights to act as a service provider to the Company
in certain future transactions for a 12 month period. As of March 31, 2018, the amount of these contingent fees was approximately
$1,382,000. In addition to this fee arrangement, the Company anticipates incurring a significant amount of additional costs
to complete the preparation of required securities filings and other costs to consummate the Business Combination. There can
be no assurances that the Company will complete a Business Combination.
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.
Underwriters
Agreement
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 $9,018,215 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 March 31, 2018 was determined to be $1,993,120,
based upon the closing price of the Company’s ordinary shares at March 31, 2018. The Company recorded the change in the
fair value of the deferred underwriting fee liability of $4,014 for the three months ended March 31, 2018 in the accompanying
condensed consolidated statements of operations.
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.
NOTE
8. GULF ENERGY AND NPS BUSINESS COMBINATION
On
November 12, 2017, the Company entered into the following agreements (the “Transactions”) to acquire 100% of the shares
of two independent oil field service companies operating in the Middle East and North Africa, Gulf Energy and NPS.
NPS
Transaction
Pursuant
to a Stock Purchase Agreement with NPS (the “NPS SPA”), the Selling Stockholders (as defined in the NPS SPA) agreed
to sell to the Company and Hana Investments Co. WLL (“HIC”) 100% of its outstanding NPS shares in two separate closings.
The total consideration to be paid to Selling Stockholders, assuming no NPS Leakage (as defined in the NPS SPA) adjustments, will
be $442,800,000 in cash plus 11,318,827 ordinary shares of the Company valued at $10.00 per share. Selling Stockholders have elected
to receive a distribution out of certain receivables proceeds from NPS, expected to be paid before the closing, of $48 million
(the “Receivable Proceeds”).
First
Closing
. HIC agreed in the NPS SPA to pay $150 million of the total cash requirements to certain Selling Shareholders in exchange
for 83,660,878 shares of NPS. This payment was made on January 14, 2018. The Selling Stockholders mutually agreed on the proportion
of cash to be received by each of the Selling Stockholders and on the allocation of the Company’s shares to be received
among the Selling Stockholders who remain shareholders in the Company through the closing.
NATIONAL
ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
(Unaudited)
Second
Closing.
Upon approval by the shareholders of the Company, the Company agrees to buy the remaining outstanding NPS shares
by (i) paying the remaining $292,800,000 cash required and (ii) issuing ordinary shares of the Company’s ordinary shares
valued at $10.00 per share for the balance of the purchase price, adjusted for any NPS Leakage.
Contemporaneously
on the closing date, HIC shall transfer the 83,660,878 NPS shares it acquired from Selling Stockholders to the Company in exchange
for the Company’s shares valued at $11.244 per share, which will result in issuance of 13,340,448 of the Company’s
shares to HIC. In addition, the Company shall pay HIC an amount of interest accrued from the date of the payment of the $150,000,000
to the Selling Stockholders until the closing date up to $4.7 million in cash or ordinary shares at a value of $11.244 equal to
418,001 ordinary shares.
Earnout
Consideration.
Potential earn-out mechanisms enable the Selling Stockholders to receive additional consideration after the
closing date as follows:
|
●
|
Cash
Earn-Out: the Company agreed to pay an additional $7,572,444 in cash payable upon renewal of a major customer contract by
NPS or its subsidiaries, provided the renewal is on materially the same terms. Such customer contract will not be deemed to
be renewed on materially the same terms if some services are excluded or prices are materially reduced from the prior year
upon renewal.
|
|
|
|
|
●
|
Equity
Stock Earn-Out: Up to 1,671,704 shares of the Company’s stock would be issued to the Selling Stockholders that exchange
their shares for the Company’s stock, if the 2018 EBITDA of the Company satisfies scheduled financial thresholds.
|
|
|
|
|
●
|
Second
Equity Stock Earn-Out: Up to an additional 1,671,704 shares of the Company’s stock would be issued to the Selling Stockholders
if the 2018 EBITDA of the Company satisfies scheduled thresholds higher than first Equity Stock Earn-Out financial thresholds.
|
The
Company is also required to make additional payments for delays in receiving shareholder approval (“Ticker Fee”) to
complete the Transactions beyond December 31, 2017 as per the NPS SPA. The amount of the Ticker Fee is being discussed with NPS
Selling Stockholders. Pursuant to these discussions, the Selling Shareholders have agreed to waive the Ticker Fee associated with
the HIC payment of $150,000,000 which was made on January 14, 2018 to purchase 83,660,878 NPS Shares. For the remaining cash payments,
the Company has proposed an 8-week suspension of the Ticker Fee which would postpone its application to start from March 1, 2018.
Based on the 8-week suspension, the Ticker Fee is estimated to total $11,200,606 based on completing the Transactions on May 15,
2018. There is no Ticker Fee on the equity portion of the consideration received by the reinvesting Selling Stockholders.
Gulf
Energy SPA
Pursuant
to a Stock Purchase Agreement with Gulf Energy (the “Gulf Energy SPA”), the Company contracted to acquire 61% of the
outstanding shares of Gulf Energy for a valuation of $184,800,000 through a stock exchange for the Company’s ordinary shares
valued at $10.00 per share, to occur within one year of the signing of the Gulf Energy SPA or at such later time as mutually agreed
upon by the parties.. The Gulf Energy SPA was entered upon approval by the Company’s Board of Directors subject to approval
by the shareholders of the Company authorizing the Transactions. The Gulf Energy SPA provides that the purchase price shall be
reduced to the extent that the “Net Debt” in the company (i.e. bank debt less cash) exceeds $47,200,000 at the closing
date and to the extent of any Gulf Energy Leakage (as defined in the Gulf Energy SPA). The Gulf Energy SPA contains substantial
seller warranties regarding the stock and the financial condition of Gulf Energy.
Contribution
Agreement of SV3’s 27.3% Shares
SV3
Holdings, Pte Ltd (“SV3”) and the Company entered into a Contribution Agreement (the “SV3 Contribution Agreement”)
to which SV3 agreed to contribute its 27.3% of Gulf Energy shares to the Company in exchange for the Company’s ordinary
shares at an agreed valuation of $10.00 per share for the net price paid by SV3 to acquire the Gulf Energy shares, which amounted
to 136,500 shares of Gulf Energy stock, or 27.3% of the outstanding stock of Gulf Energy, for $68,250,000.
Minority
Interests Acquisitions/ Shares Exchange Agreement
In
addition, the Sponsor contracted with Mubadarah Investments LLC (the “Seller”) and National Bank of Oman (“NBO”)
to acquire for cash 58,500 shares of Gulf Energy, which is 11.7% of the outstanding stock of Gulf Energy, for a total purchase
price of $29,250,000. The Sponsor contracted with the Seller for $16,750,000, or 6.7% of Gulf Energy. The Sponsor also
contracted to acquire 5% of the Gulf Energy shares from NBO for $12,500,000 and completed that purchase on or about October 8,
2017. The Sponsor organized financing of the acquisition of the 11.7% through agreements (“Loan Contracts”) with a
series of private investment, private equity lenders (“Investors”).
Each
Investor has agreed that the Sponsor can assign the Loan Contracts to the Company if the shareholders of the Company approve the
Transactions. Each Investor agreed to accept in repayment of the Loan Contracts either the Company’s ordinary shares at
a value of $10.00 per share, payment in cash, or Gulf Energy shares acquired with their respective advances.
NATIONAL
ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
(Unaudited)
The
Company executed with the Sponsor a Shares Exchange Agreement pursuant to which, subject to receiving approval by the Company’s
shareholders for the Transactions, the Sponsor agreed to assign all 58,500 shares of Gulf Energy acquired to the Company, and
the Company will at that time assume the obligation to satisfy the Loan Contracts. Unless any Investor elects not to accept the
Company’s shares to satisfy the debt, the Company will issue its ordinary shares to the Investors to satisfy the debt.
The
Company’s obligation to perform under all of the Transactions documents is subject to an affirmative vote by a majority
of its shareholders to approve the Transactions. The Transactions will qualify as a Business Combination within the Combination
Period.
Backstop Commitment
On April 27, 2018 the Company entered into
a forward purchase agreement (the “Forward Purchase Agreement”) with MEA Energy Investment Company 2 Ltd., a Cayman
Islands company (“Backstop Investor”) pursuant to which the Company agreed to sell up to $150 million (the “Backstop
Commitment”) of the Company’s ordinary shares to the Backstop Investor (see Note 11).
NOTE
9. 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 March 31,
2018 and December 31, 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 March 31, 2018 and December 31, 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):
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●
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in
whole and not in part;
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●
|
at
a price of $.01 per warrant;
|
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●
|
at
any time during the exercise period;
|
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●
|
upon
a minimum of 30 days’ prior written notice of redemption;
|
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●
|
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
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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
commencing five business days prior to the 30-day trading period and continuing each day thereafter until the date of redemption.
|
NATIONAL
ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
(Unaudited)
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.
NOTE
10. 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 March 31, 2018 and December 31, 2017 and indicates the fair value hierarchy of the valuation inputs the Company utilized
to determine such fair value:
Description
|
|
Level
|
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and marketable securities held in Trust Account
|
|
|
1
|
|
|
$
|
231,258,235
|
|
|
$
|
230,554,024
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
underwriting fees
|
|
|
1
|
|
|
$
|
9,018,215
|
|
|
$
|
9,022,229
|
|
NOTE
11. SUBSEQUENT EVENTS
The Company evaluates subsequent events and
transactions that occur after the balance sheet date up to the date that the condensed consolidated 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 condensed consolidated financial statements.
Backstop Commitment
On April 27, 2018 the Company entered into
a Forward Purchase Agreement with the Backstop Investor pursuant to which the Company agreed to sell up to $150 million (the “Backstop
Commitment”) of the Company’s ordinary shares to the Backstop Investor. Such Backstop Commitment will consist of (i)
a primary placement to occur concurrently with the closing of the Business Combination, pursuant to which the Company will sell
7,000,000 ordinary shares at $10.00 per share for a total drawdown of $70 million and (ii) at the Company’s election, a
secondary placement, pursuant to which the Company will have the option to draw, in one or more installments, up to an additional
$80 million by selling up to 7,114,906 shares at $11.244 per share, as needed. The funds will be used to replace capital removed
by shareholder redemptions, to help fund the cash portion of the consideration to the NPS Selling Stockholders and transaction
expenses in the Business Combination, or for other corporate purposes, such that the Company meets its minimum cash requirements
immediately following the Business Combination.