UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2017
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 001-36669
Axar Acquisition Corp.
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 47-1434549 | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| 1330 Avenue of the Americas - 30th Floor New York, New York | 10019 | |
| (Address of Principal Executive Office) | (Zip Code) |
(212) 356-6130
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (check one):
| Large accelerated filer ¨ | Accelerated filer x |
| Non-accelerated filer ¨ | Smaller reporting company ¨ |
| (Do not check if a smaller reporting company) | Emerging growth company x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
The number of shares of the registrant’s common stock, $0.0001 par value per share, outstanding as of August 8, 2017 was 8,506,111.
TABLE OF CONTENTS
EXPLANATORY NOTE
In this Quarterly Report on Form 10-Q of Axar Acquisition Corp. (the “Company”) for the fiscal quarter ended June 30, 2017, the Company is restating (i) its audited consolidated financial statements as of and for the year ended December 31, 2016 and (ii) its unaudited condensed consolidated interim financial statements as of, and for the quarterly period ended March 31, 2017. The Company has restated these financial statements because the deferred fees payable to the underwriters of the Company's initial public offering (the "Deferred Fees") were reduced in October 2016 from $5.76 million to $277,467 and not reflected in the Company’s balance sheets at December 31, 2016 and March 31, 2017, as is described in further detail herein. The accounting for the deferred fees payable did not effect any previously reported operating expenses, interest income, net income, cash flows, assets, or stockholders equity.
The Company has not amended its previously filed Annual Report on Form 10-K or Quarterly Report on Form 10-Q for (i) its audited consolidated financial statements as of and for the year ended December 31, 2016 and (ii) its unaudited condensed consolidated interim financial statements as of, and for the quarterly period ended March 31, 2017 affected by the restatement. The financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Quarterly Report on Form 10-Q, and the financial statements and related financial information contained in such previously filed reports should no longer be relied upon.
The restatement is more fully described herein in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2 to the Company's Condensed Interim Financial Statements.
CONDENSED BALANCE SHEETS
| June 30, 2017 | December 31, 2016 | |||||||
| (unaudited) | (restated) | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 259,459 | $ | 200,003 | ||||
| Prepaid expenses and other assets | 37,000 | 100,120 | ||||||
| Total current assets | 296,459 | 300,123 | ||||||
| Non-current assets: | ||||||||
| Cash and marketable securities held in Trust Account | 25,389,493 | 25,072,751 | ||||||
| Total assets | $ | 25,685,952 | $ | 25,372,874 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accrued expenses and accounts payable | $ | 10,665 | $ | 45,409 | ||||
| Loan from related party | 1,200,000 | 700,000 | ||||||
| Franchise tax payable | 10,500 | - | ||||||
| Total current liabilities | 1,221,165 | 745,409 | ||||||
| Deferred underwriting commissions and advisory fees | 277,467 | 277,467 | ||||||
| Total liabilities | 1,498,632 | 1,022,876 | ||||||
| Commitments | ||||||||
| Common stock subject to possible redemption; 1,893,915 and 1,934,101 shares (at redemption value of approximately $10.13 and $10.00 per share, respectively) as of June 30, 2017 and December 31, 2016, respectively | 19,187,315 | 19,349,994 | ||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $0.0001 par value, 1,000,000 authorized, none issued and outstanding | - | - | ||||||
| Common stock, $0.0001 par value, 19,000,000 and 400,000,000 shares authorized; 6,612,196 and 6,572,010 shares issued and outstanding (excluding 1,893,915 and 1,934,101 shares subject to possible redemption) at June 30, 2017 and December 31, 2016, respectively | 661 | 657 | ||||||
| Additional paid-in capital | 7,908,221 | 7,745,546 | ||||||
| Accumulated deficit | (2,908,877 | ) | (2,746,199 | ) | ||||
| Total stockholders’ equity | 5,000,005 | 5,000,004 | ||||||
| Total liabilities and stockholders’ equity | $ | 25,685,952 | $ | 25,372,874 | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 1 |
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues | $ | - | $ | - | $ | - | $ | - | ||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 57,677 | 957,308 | 218,310 | 1,086,839 | ||||||||||||
| Franchise tax | 5,250 | 45,000 | 10,500 | 90,000 | ||||||||||||
| Total operating expenses | 62,927 | 1,002,308 | 228,810 | 1,176,839 | ||||||||||||
| Loss from operations | (62,927 | ) | (1,002,308 | ) | (228,810 | ) | (1,176,839 | ) | ||||||||
| Interest income | 40,558 | 99,771 | 66,132 | 180,173 | ||||||||||||
| Net loss | $ | (22,369 | ) | $ | (902,537 | ) | $ | (162,678 | ) | $ | (996,666 | ) | ||||
| Weighted average shares outstanding, basic and diluted | $ | (0.00 | ) | $ | (0.13 | ) | $ | (0.02 | ) | $ | (0.14 | ) | ||||
| Basic and diluted net loss per ordinary share (1) | 6,597,681 | 7,045,813 | 6,585,057 | 7,171,212 | ||||||||||||
(1) This number excludes an aggregate of up to 1,893,915 and 22,864,925 shares subject to conversion for the six months ended June 30, 2017 and 2016, respectively
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 2 |
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the six months ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (162,678 | ) | $ | (996,666 | ) | ||
| Adjustments to reconcile net loss to net cash used in operation activities: | ||||||||
| Interest earned on cash and marketable securities held in Trust Account | (66,132 | ) | (180,042 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | 63,120 | (20,000 | ) | |||||
| Accounts payable and accrued expenses | (34,744 | ) | 693,751 | |||||
| Due to affiliates | - | (30,000 | ) | |||||
| Franchise tax payable | 10,500 | (98,877 | ) | |||||
| Net cash used in operating activities | (189,934 | ) | (631,834 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Proceeds from loan to related party deposited to Trust Account | (250,610 | ) | (180,042 | ) | ||||
| Interest on Trust Account | - | 180,042 | ||||||
| Withdrawal from Trust Account funds for payment of Delaware franchise tax | - | 107,503 | ||||||
| Net cash provided by (used in) investing activities | (250,610 | ) | 107,503 | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds received from loan from related party | 500,000 | - | ||||||
| Reimbursement of offering costs | - | 2,817 | ||||||
| Net cash provided by financing activities | 500,000 | 2,817 | ||||||
| Net increase (decrease) in cash and cash equivalents | 59,456 | (521,514 | ) | |||||
| Cash and cash equivalents - beginning | 200,003 | 700,873 | ||||||
| Cash and cash equivalents - ending | $ | 259,459 | $ | 179,359 | ||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Reversal of deferred underwriting commissions and advisory fees | $ | - | $ | 2,640,000 | ||||
| Change in value of common stock subject to possible redemption | $ | (162,679 | ) | $ | - | |||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 3 |
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)
| 1. | Organization and Business Operations |
Incorporation
Axar Acquisition Corp., formerly known as AR Capital Acquisition Corp. (the “Company”), was incorporated in Delaware on July 25, 2014.
Sponsor
The Company’s former sponsor is AR Capital, LLC (“ARC”), a Delaware limited liability company. Upon the approval of the proposals at the Special Meeting in October 2016 (discussed below), Axar Master Fund Ltd., a Cayman Islands exempted company, became the Company’s new sponsor (the “Sponsor”).
Effective upon the closing of the Transfer Agreement (as defined in Note 6) between the Sponsor and ARC, (i) Andrew Axelrod was appointed as Chief Executive Officer and Executive Chairman of the Board of Directors, Lionel Benichou was appointed as Chief Financial Officer, and (ii) Nicholas S. Schorsch, Nicholas Radesca and William Kahane each resigned from their positions as officers and directors of the Company.
Business Purpose
The Company is a blank check company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more operating businesses (“Business Combination”). The Company has neither engaged in any operations nor generated significant revenue to date. The Company is an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended of the “Securities Act” as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).
The Company’s management has broad discretion with respect to the initial Business Combination. However, there is no assurance that the Company will be able to successfully effect an initial Business Combination.
Financing
The registration statement for the Company’s initial public offering (the “Public Offering”, see Note 4) was declared effective by the Securities and Exchange Commission (the “SEC”) on October 1, 2014. On October 7, 2014, the Company consummated the Public Offering of 24,000,000 units (“Public Units” and, with respect to the common stock and warrants to purchase common stock included in the Public Units, the “Public Shares” and “Public Warrants”) at $10.00 per Public Unit, generated gross proceeds of $240 million and, in connection therewith, incurred offering costs of approximately $13.3 million, inclusive of $4.8 million of underwriting fees paid upfront, and $8.4 million of Deferred Fees (as defined in Note 4), payable upon the consummation of the initial Business Combination. In January and October 2016, the consultant and the underwriter agreed to reduce the Deferred Fees to $277,467 (see Note 2 and 3).
Simultaneously with the consummation of the Public Offering, ARC, the Company’s former sponsor, purchased 6,550,000 warrants (“Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant in a private placement (“Private Placement”), generated gross proceeds of $6.55 million (see Note 6).
Liquidation Date
On October 6, 2016, the Company held a special meeting of stockholders (“Special Meeting”). Following the approval of the proposals at the Special Meeting, the Company filed an amendment to its amended and restated certificate of incorporation to: (i) extend the date by which it must complete an initial Business Combination (“Extension”) to (a) October 1, 2017 or (b) if prior to October 1, 2017, the Company publicly discloses that an extension past October 1, 2017 will not prevent the Company from maintaining the listing of its securities on NASDAQ, December 31, 2017 (“Liquidation Date”) and (ii) to change the Company’s name from “AR Capital Acquisition Corp.” to “Axar Acquisition Corp.”
| 4 |
AXAR ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)
If the Company does not complete the initial Business Combination by the Liquidation Date, it shall (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably possible, but not more than ten business days thereafter, redeem 100% of the Public Shares at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to the Company to pay franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then Public Shares outstanding, and (iii) as promptly as possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law, the balance of the Company’s net assets to its remaining stockholders, as part of its plan of dissolution and liquidation. In the event of such distribution, it is possible that the per-share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the price per unit in the Public Offering.
There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete an initial Business Combination within the required time period.
Trust Account
An aggregate of $240 million ($10.00 per Unit) from the net proceeds of the sale of the Public Units in the Public Offering and the Private Placement was placed in a U.S. based trust account (the “Trust Account”) with Continental Stock Transfer & Trust Company acting as trustee. The funds held in the Trust Account were invested in U.S. government treasury securities with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 of the Investment Company Act of 1940, as amended, which invest only in direct U.S. government treasury obligations.
At the Special Meeting, stockholders holding 21,493,889 Public Shares exercised their right to redeem such Public Shares for a pro rata portion of the Trust Account. As a result, an aggregate of approximately $215 million (or approximately $10.00 per share) was removed from the Trust Account to pay such stockholders. As of June 30, 2017, the Company had approximately $25.4 million in its Trust Account, and the conversion amount per share in connection with a Business Combination or liquidation would have been approximately $10.13 per share. An additional amount of approximately $125,300 was deposited into the Trust Account in each of January and April 2017 pursuant to the Transfer Agreement between the Sponsor and ARC (as defined in Note 6), which amount will be added on a pro rata basis to the per share redemption amount in connection with an initial Business Combination or liquidation of the Trust Account.
The Company’s amended and restated certificate of incorporation provides that, other than the withdrawal of interest to pay franchise and income taxes, none of the funds held in the Trust Account will be released until the earlier of: (i) the completion of the initial Business Combination; or (ii) the redemption of 100% of the shares of common stock included in the units sold in the Public Offering if the Company is unable to complete an initial Business Combination prior to the Liquidation Date. The Company expects to withdraw the interest earned from the funds held in the Trust Account to pay for franchise and income taxes.
Initial Business Combination
An initial Business Combination must occur with one or more target businesses that together have an aggregate fair market value of at least 80% of the assets held in the Trust Account, excluding deferred underwriting commissions, advisory fees and taxes payable on the income earned by the Trust Account, at the time of the agreement to enter into the initial Business Combination.
| 5 |
AXAR ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)
In connection with an initial Business Combination, the Company will either (i) seek stockholder approval of the initial Business Combination at a meeting called for such purpose in connection with which stockholders may seek to redeem their Public Shares, regardless of whether they vote for or against the initial Business Combination, for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the initial Business Combination, including interest earned on the funds held in the Trust Account and not previously released to the Company to pay franchise and income taxes, or (ii) provide stockholders with the opportunity to sell their shares to the Company by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount in cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to commencement of the tender offer, including interest earned on the funds held in the Trust Account and not previously released to the Company to pay franchise and income taxes. The decision as to whether the Company will seek stockholder approval of the initial Business Combination or will allow stockholders to sell their shares in a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require the Company to seek stockholder approval.
If the Company seeks stockholder approval, it will complete the initial Business Combination only if a majority of the outstanding shares of common stock voted are voted in favor of the initial Business Combination.
In no event will the Company redeem its Public Shares in an amount that would cause its net tangible assets to be less than $5,000,001. In such case, the Company would not proceed with the redemption of its Public Shares and the related initial Business Combination, and instead may search for an alternate initial Business Combination.
Liquidity and Going Concern
The Company will only have until the Liquidation Date to complete the Initial Business Combination. This mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after the Liquidation Date.
In the event of such liquidation, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the Initial Public Offering price per Unit in the Public Offering.
| 2. | Restatement of Previously Issued Financial Statements |
In preparation of the Company’s condensed financial statements for the six months ended June 30, 2017, the Company concluded it should correct the Deferred Fees amount payable to the underwriters. In October 2016, the underwriters agreed to reduce to Deferred Fees from $5.76 million to $277,467; thus, an aggregate of approximately $5.5 million should have been reversed from deferred underwriting commissions and advisory fees and additional paid-in capital and the subsequent reclass to common stock subject to possible redemption on the Company’s accompanying Balance Sheet at March 31, 2017 and December 31, 2016.
The following table summarizes the effect of the restatement to the Company’s financial statements for (i) its audited financial statements as of and for the year ended December 31, 2016, and (ii) its unaudited condensed interim financial statements as of, and for the quarterly period ended March 31, 2017. There were no changes to the statement of operations and cash flows for December 31, 2016 and March 31, 2017.
| 6 |
AXAR ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)
| December 31, 2016 | ||||||||||||
| As Previously Reported | Revisions | As Restated | ||||||||||
| Assets | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 200,003 | $ | - | $ | 200,003 | ||||||
| Prepaid expenses and other assets | 100,120 | - | 100,120 | |||||||||
| Total current assets | 300,123 | - | 300,123 | |||||||||
| Non-current assets: | ||||||||||||
| Cash and marketable securities held in Trust Account | 25,072,751 | - | 25,072,751 | |||||||||
| Total assets | $ | 25,372,874 | $ | - | $ | 25,372,874 | ||||||
| Liabilities and Stockholders’ Equity | ||||||||||||
| Current liabilities: | ||||||||||||
| Accrued expenses and accounts payable | $ | 45,409 | $ | - | $ | 45,409 | ||||||
| Loan from related party | 700,000 | - | 700,000 | |||||||||
| Franchise tax payable | - | - | - | |||||||||
| Total current liabilities | 745,409 | - | 745,409 | |||||||||
| Deferred underwriting commissions and advisory fees | 5,760,000 | (5,482,533 | ) | 277,467 | ||||||||
| Total liabilities | 6,505,409 | (5,482,533 | ) | 1,022,876 | ||||||||
| Commitments | ||||||||||||
| Common stock subject to possible redemption | 13,867,460 | 5,482,534 | 19,349,994 | |||||||||
| Stockholders’ Equity: | ||||||||||||
| Preferred stock, $0.0001 par value | - | - | - | |||||||||
| Common stock, $0.0001 par value | 712 | (55 | ) | 657 | ||||||||
| Additional paid-in capital | 7,745,492 | 54 | 7,745,546 | |||||||||
| Accumulated deficit | (2,746,199 | ) | - | (2,746,199 | ) | |||||||
| Total stockholders’ equity | 5,000,005 | (1 | ) | 5,000,004 | ||||||||
| Total liabilities and stockholders’ equity | $ | 25,372,874 | $ | - | $ | 25,372,874 | ||||||
| 7 |
AXAR ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)
| March 31, 2017 (unaudited) | ||||||||||||
| As Previously Reported | Revisions | As Restated | ||||||||||
| Assets | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 277,541 | $ | - | $ | 277,541 | ||||||
| Prepaid expenses and other assets | 59,750 | - | 59,750 | |||||||||
| Total current assets | 337,291 | - | 337,291 | |||||||||
| Non-current assets: | ||||||||||||
| Cash and marketable securities held in Trust Account | 25,223,630 | - | 25,223,630 | |||||||||
| Total assets | $ | 25,560,921 | $ | - | $ | 25,560,921 | ||||||
| Liabilities and Stockholders’ Equity | ||||||||||||
| Current liabilities: | ||||||||||||
| Accrued expenses and accounts payable | $ | 118,515 | $ | - | $ | 118,515 | ||||||
| Loan from related party | 950,000 | - | 950,000 | |||||||||
| Franchise tax payable | 5,250 | - | 5,250 | |||||||||
| Total current liabilities | 1,073,765 | - | 1,073,765 | |||||||||
| Deferred underwriting commissions and advisory fees | 5,760,000 | (5,482,533 | ) | 277,467 | ||||||||
| Total liabilities | 6,833,765 | (5,482,533 | ) | 1,351,232 | ||||||||
| Commitments | ||||||||||||
| Common stock subject to possible redemption | 13,727,147 | 5,482,534 | 19,209,681 | |||||||||
| Stockholders’ Equity: | ||||||||||||
| Preferred stock, $0.0001 par value | - | - | - | |||||||||
| Common stock, $0.0001 par value | 714 | (54 | ) | 660 | ||||||||
| Additional paid-in capital | 7,885,803 | 53 | 7,885,856 | |||||||||
| Accumulated deficit | (2,886,508 | ) | - | (2,886,508 | ) | |||||||
| Total stockholders’ equity | 5,000,009 | (1 | ) | 5,000,008 | ||||||||
| Total liabilities and stockholders’ equity | $ | 25,560,921 | $ | - | $ | 25,560,921 | ||||||
| 3. | Significant Accounting Policies |
Basis of Presentation
The accompanying unaudited interim financial statements of the Company should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2017 and Note 2 of this filing. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying financial statements do not include all of the information and notes required by U.S. GAAP for a complete financial statement presentation. In the opinion of management, the interim financial statements reflect all adjustments (consisting of normal, recurring adjustments) that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Interim results are not necessarily indicative of results for a full year.
| 8 |
AXAR ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)
Emerging Growth Company
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) permits emerging growth companies to delay complying with new or revised financial accounting standards that do not yet apply to private companies (that is, those that have not had a Securities Act of 1933, as amended (the “Securities Act”), registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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.
Investments Held in Trust Account
The amounts held in the Trust Account represent substantially all of the proceeds of the Public Offering and are classified as restricted assets since such amounts can only be used by the Company in connection with the consummation of an initial Business Combination and to pay its tax obligation. As of June 30, 2017, there was approximately $268,000 of interest income held in the Trust Account available to be released to the Company.
Net Loss Per Common Share
Net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period, plus to the extent dilutive, the incremental number of shares of common stock to settle warrants, as calculated using the treasury stock method. As the Company reported a net loss for the three and six months ended June 30, 2017 and 2016, the effect of the 12,000,000 warrants issued in the Public Offering, 6,550,000 warrants issued in connection with the private placement, and 1,253,055 warrants issued as dividends have not been considered in the diluted loss per common share because their effect would be anti-dilutive. An aggregate of 1,893,915 and 22,864,925 common stock subject to possible redemption at June 30, 2017 and 2016, respectively, 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 earnings in the Trust Account. As a result, diluted loss per common share is the same as basic loss per common share for the period.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented on the Company’s accompanying Balance Sheets.
Offering Costs
The Company complies with the requirements of FASB ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A - “Expenses of Offering”. Offering costs consist principally of professional and registration fees incurred in connection with the Public Offering and that were charged to stockholders’ equity. Upon the consummation of the Public Offering, an aggregate of $13.3 million, inclusive of $4.8 million of underwriting fees paid upfront, and $8.4 million of Deferred Fees (as defined in Note 4) was charged to stockholders’ equity. In January 2016, upon the consultant’s inability to provide agreed services, an aggregate of $2.64 million in Deferred Fees were reversed from deferred underwriting commissions and advisory fees and additional paid-in capital as reflected on the Company’s accompanying Balance Sheet at June 30, 2017 and December 31, 2016 (see Note 4). In October 2016, the underwriters agreed to reduce to Deferred Fees from $5.76 million to $277,467; thus, an aggregate of approximately $5.5 million were reversed from deferred underwriting commissions and advisory fees and additional paid-in capital as reflected on the Company’s restated Balance Sheet at March 31, 2017 and December 31, 2016.
| 9 |
AXAR ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)
Common Stock Subject to Possible Redemption
Under the Company’s amended and restated certificate of incorporation, all of the Public Shares may be redeemed for cash in connection with the Company’s liquidation or a tender offer or stockholder approval in connection with an initial Business Combination. In accordance with FASB ASC 480, “Distinguishing Liabilities from Equity”, redemption provisions not solely within the control of the Company require the security to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of FASB ASC 480. Although the Company did not specify a maximum redemption threshold, its charter provides that in no event will it redeem the common stock sold as part of the units in the Public Offering in an amount that would cause its net tangible assets (stockholders’ equity) to be less than $5,000,001.
The Company recognizes changes in redemption value immediately as they occur and will adjust the carrying value of the security to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock shall be affected by charges against additional paid-in capital in accordance with ASC 480.
Accordingly, at June 30, 2017 and December 31, 2016, 1,893,915 and 1,934,101 Public Shares were classified outside of permanent equity at its redemption value, respectively.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have an effect on the accompanying financial statements.
Subsequent Events
The Company evaluates subsequent events and transactions that occur after the Balance Sheet date up to the date these financial statements were available to be issued. Based on the evaluation, the Company did not identify any subsequent event that would have required adjustment or disclosure in the financial statements.
| 4. | Public Offering |
On October 7, 2014, the Company completed the Public Offering pursuant to which it sold 24,000,000 Public Units at a price of $10.00 per Unit, generated gross proceeds of $240 million. Offering costs associated with the Public Offering were approximately $13.3 million, inclusive of $4.8 million of underwriting fees paid upfront, and $8.4 million of Deferred Fees (as defined below), payable upon the consummation of the initial Business Combination. In January 2016, upon the consultant’s inability to provide agreed services, an aggregate of $2.64 million in Deferred Fees were reversed from deferred underwriting commissions and advisory fees and additional paid-in capital on the Company’s accompanying Balance Sheets. Each Public Unit consists of one share of the Company’s common stock, $0.0001 par value per share, and one-half of one redeemable common stock purchase warrant, the Public Warrants. On October 7, 2016, following approval of the proposals at the Special Meeting, the Company amended the warrant agreements for all of the 12,000,000 outstanding Public Warrants to convert all outstanding Public Warrants into rights to receive $0.15 per Public Warrant upon the consummation of a Business Combination, for an aggregate amount of $1.8 million, payable in cash or shares of the Company’s common stock at the discretion of the Company.
In addition to the underwriting discount paid upfront of $0.20 per Public Unit ($4.8 million in the aggregate) to the underwriters at the closing of the Public Offering, the Company agreed to pay additional fees (the “Deferred Fees”) of $8.4 million ($0.35 per Public Unit sold), comprised of (a) $5.76 million payable to the underwriters for deferred underwriting commissions and (b) $2.64 million payable to RCS Capital (“RCS”), a division of Realty Capital Securities, LLC, an entity then under common control with ARC, for financial advisory services in connection with the identification, evaluation, negotiation and completion of the initial Business Combination. The Deferred Fees are payable to the underwriters and RCS solely in the event the Company completes an initial Business Combination. The underwriters and RCS are not entitled to any interest accrued on the Deferred Fees. In January 2016, both parties agreed to terminate the administrative services agreement thereafter due to RCS’s inability to provide the services. As a result, as of and December 31, 2016, the Deferred Fees in the amount of $2.64 million are no longer be payable to RCS and were reversed from deferred underwriting commissions and advisory fees and additional paid-in capital on the Company’s accompanying Balance Sheet.
| 10 |
AXAR ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)
In October 2016, the underwriters agreed to reduce the Deferred Fees from $5.76 million to $277,467, but was not adjusted in the Company’s financial statements for prior periods. The Company identified this error in the quarter ended June 30, 2017 and concluded that the error is not material to the previously reported periods. As a result, the reversal of $5.5 million in deferred underwriting commissions and advisory fees and additional paid-in capital was corrected in the quarter ended June 30, 2017.
| 5. | Warrant Dividends |
On October 7, 2016, following approval of the proposals at the Special Meeting, the Company’s Board of Directors declared a dividend on the Company’s common stock consisting of one-half of one warrant per share of common stock, with each whole warrant exercisable to purchase one share of common stock at $12.50 per share (each a “New Warrant”). The New Warrants will not be exercisable until the later of (i) the date that is 30 days after the first date on which the Company completes an initial Business Combination and (ii) October 17, 2017. The Company’s independent directors agreed to waive their right to receive the dividend. As a result, the Company has issued an aggregate of 1,253,055 New Warrants in October 2016.
| 6. | Related Party Transactions |
Founder Shares
On August 1, 2014, ARC purchased 8,625,000 shares of the Company’s common stock (the “Founder Shares”) for $25,000, or approximately $0.003 per share. The Founder Shares are identical to the common stock included in the Public Units except that the Founder Shares are subject to certain transfer restrictions, as described in more detail below. On October 1, 2014, in connection with a reduction in the size of the Public Offering, ARC contributed to the Company 1,725,000 Founder Shares, which the Company canceled. Thereafter, ARC sold 20,000 Founder Shares at their original price to each of the Company’s independent directors. On December 4, 2014, as a result of the underwriters’ election not to exercise the overallotment option in connection with the Public Offering, the initial stockholders (as defined below) forfeited an aggregate of 900,000 Founder Shares, consisting of a forfeiture of 2,609 Founder Shares by each of David Gong, P. Sue Perrotty and Dr. Robert J. Froehlich, and a forfeiture of 892,173 Founder Shares by ARC. As a result of the forfeiture, ARC held 5,947,827 Founder Shares, and each of David Gong, P. Sue Perrotty and Dr. Robert J. Froehlich held 17,391 Founder Shares, so that there were 6,000,000 Founder Shares outstanding. The number of Founder Shares represented 20% of the outstanding shares. In October 2016, pursuant to the Transfer Agreement (as defined below), ARC transferred all of its Founder Shares and Private Placement Warrants to the Company’s Sponsor.
The Founder Shares are identical to the common stock included in the Public Units sold in the Public Offering except that the Founder Shares are subject to certain transfer restrictions. The Company’s stockholder prior to the Public Offering, including their subsequent transferees (collectively, the “initial stockholders”) have agreed, subject to certain exceptions, not to transfer, assign or sell any of their Founder Shares until the earlier of (a) one year after the completion of the initial Business Combination, or earlier if, subsequent to the initial Business Combination, the last sale price of the Company’s common stock 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 at least 150 days after the consummation of the initial Business Combination or (b) the Company consummates a subsequent liquidation, merger, stock exchange or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property (the “Lock Up Period”).
| 11 |
AXAR ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)
Private Placement Warrants
On October 7, 2014, ARC purchased from the Company an aggregate of 6,550,000 Private Placement Warrants at a price of $1.00 per Warrant (for an aggregate purchase price of $6.55 million) in a Private Placement that occurred simultaneously with the completion of the Public Offering. Each Private Placement Warrant entitles the holder to purchase one share of common stock at $12.50 per share, as amended upon approval of the proposals at the Special Meeting in October 2016. Of the $6.55 million purchase price of the Private Placement Warrants, $4.3 million of the purchase price of the Private Placement Warrants was added to the proceeds from the Public Offering to be held in the Trust Account pending completion of the initial Business Combination.
The Private Placement Warrants (including the common stock issuable upon exercise of the Private Placement Warrants) will not be transferable, assignable or salable until 30 days after the completion of the initial Business Combination and they will be non-redeemable so long as they are held by the initial purchasers of the Private Placement Warrants or their permitted transferees. In addition, the Private Placement Warrants are exercisable on a cashless basis so long as they are held by their initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers of the Private Placement Warrants or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the warrants included in the Public Units. Otherwise, the Private Placement Warrants have terms and provisions that are identical to those of the warrants included in the Public Units and have no net cash settlement provisions.
If the Company does not complete an initial Business Combination, then the proceeds from the sale of the Private Placement Warrants will be part of the liquidating distribution to the public stockholders and the Private Placement Warrants will expire worthless.
Agreements with Sponsor
Pursuant to the agreement by and among the Company, ARC and the Company’s Sponsor in October 2016 (“Transfer Agreement”), ARC transferred all of its Founder Shares and Private Placement Warrants to the Company’s Sponsor, Axar Master Fund Ltd. Upon consummation of the initial Business Combination, the Sponsor agreed to automatically forfeit, for no consideration, a number of Founder Shares equal to the excess of (if positive) of (a) 6,000,000 over (b) 25% of the sum of (i) total Public Shares outstanding plus (ii) the excess of (x) the total number of shares of common stock issued or deemed issued, or issuable upon the conversion of exercise of any equity-linked securities or rights issued or deemed issued, by the Company in connection with the consummation of the initial Business Combination, excluding any shares of common stock or equity-linked securities exercisable for or convertible into shares of common stock issued, or to be issued, to any seller in the initial Business Combination or the Sponsor and its affiliates, over (y) the total number of Public Shares redeemed in connection with the Business Combination. No Founder Shares will be forfeited if sum of the forgoing (a) and (b) is equal to or less than zero.
Loans from Related Parties
ARC agreed to loan the Company up to an aggregate of $200,000 by the issuance of an unsecured promissory note (the “Note”) on August 1, 2014 to cover expenses related to the Public Offering. The Note was payable without interest upon the consummation of the Public Offering. From inception through October 7, 2014, ARC loaned $79,702 to the Company. The Note was repaid in full on October 8, 2014. Additionally, the Company had a due to affiliate of $88,800 to ARC for costs incurred by the Company, which was repaid on October 8, 2014. Pursuant to the Transfer Agreement, in October 2016, ARC also contributed approximately $770,000 to the Company for general working capital purposes.
| 12 |
AXAR ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)
Pursuant to the Transfer Agreement, the Sponsor agreed to lend the Company on January 1, 2017 and on the first business day of each of the following three fiscal quarters commencing thereafter (or, if the Extension date is October 1, 2017, the following two fiscal quarters commencing thereafter) approximately $125,300, which amounts would be deposited in the Trust Account (“Trust Loan”). The Sponsor has also agreed to provide a loan to the Company for up to $2 million for working capital and other expenses (together with Trust Loan, “Loan”). The Loan would be non-interest bearing and repayable by the Company to the Sponsor upon consummation of an initial Business Combination. If a Business Combination is not consummated, the note will not be repaid by the Company and all amounts owed thereunder by the Company will be forgiven, except to the extent that the Company has funds available outside of the Trust Account. As of June 30, 2017, the Company had an outstanding amount of $1.2 million under the Loan from the Sponsor, of which approximately $251,000 was deposited in the Trust Account during the six months ended June 30, 2017.
Compensation Reimbursement Agreement
On October 1, 2014, the Company entered into an agreement to pay ARC an amount not to exceed $15,000 per month as reimbursement for a portion of the compensation paid to its personnel, including certain of the Company’s officers who work on the Company’s behalf, commencing on the date the Company’s securities are first listed on NASDAQ (the “Compensation Reimbursement Agreement”). During the six months ended June 30, 2016, the Company incurred $90,000 related to services under this agreement.
On October 7, 2016, this arrangement was terminated, and ARC agreed that all amounts owed under such arrangement as of such date, or approximately $50,000, were contributed to capital.
Registration Rights Agreement
The holders of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of working capital loans (and any shares of common stock issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of working capital loans) will be entitled to registration rights pursuant to a registration rights agreement signed on October 1, 2014 (the “Registration Rights Agreement”). The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities under the Securities Act. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the Company’s completion of the initial 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, which occurs (a) in the case of the Founder Shares, one year after the date of the consummation of the initial Business Combination or earlier if, subsequent to the initial Business Combination, (i) the last sale price of the Company’s common stock 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 at least 150 days after the initial Business Combination, or (ii) the Company consummates a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of its stockholders having the right to exchange their shares of common stock for cash, securities or other property and (b) in the case of the Private Placement Warrants and the respective common stock underlying such Private Placement Warrants, 30 days after the completion of the Initial Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
| 7. | Deferred Underwriting Commissions |
Upon closing of the Initial Public Offering, the Company is committed to pay a portion of the Deferred Fees totaling $5.76 million, or 2.4% of gross offering proceeds of the Public Offering, to the underwriters upon the Company’s consummation of an initial Business Combination. In October 2016, the underwriters agreed to reduce the Deferred Fees from $5.76 million to $277,467, which represents 2.4% of the total amount in the Company’s Trust Account corresponding to the outstanding public shares not held by the Company’s Sponsor on such date.
The underwriters will not be entitled to any interest accrued on their portion of the Deferred Fees, and no portion of the Deferred Fee is payable to the underwriters if there is no initial Business Combination.
| 13 |
AXAR ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)
| 8. | Fair Value Measurements |
The Company complies with ASC 820, “Fair Value Measurement”, 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 following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016, and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability:
| Description | June 30, 2017 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Money market funds held in Trust Account | $ | 25,389,493 | $ | 25,389,493 | $ | - | $ | - | ||||||||
| Description | December 31, 2016 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Money market funds held in Trust Account | $ | 25,072,751 | $ | 25,072,751 | $ | - | $ | - | ||||||||
| 9. | Stockholders’ Equity |
Common Stock - On December 14, 2016, at the Company’s 2016 annual meeting of stockholders (the “Annual Meeting”), the Company’s stockholders approved an amendment to the amended and restated certificate of incorporation to decrease the number of authorized shares of the Company’s common stock from 400,000,000 to 19,000,000 shares (the “Amendment”). On December 14, 2016, the Company filed the Amendment with the Secretary of State of the State of Delaware. Holders of the Company’s common stock are entitled to one vote for each share of common stock.
At June 30, 2017 and December 31, 2016, there were 8,506,111 shares of common stock outstanding, including 1,893,915 and 1,934,101 shares that were subject to possible redemption, respectively.
Preferred Stock - The authorized preferred stock of the Company includes up to 1,000,000 shares. At June 30, 2017 and December 31, 2016, there were no shares of preferred stock issued and outstanding.
| 14 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to the “Company,” “we,” “our” and “us” refer to Axar Acquisition Corp. (f/k/a AR Capital Acquisition Corp.). The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the condensed financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the Securities and Exchange Commission (the “SEC”). All subsequent written or oral forward-looking statements attributable to us or persons acting on the Company’s behalf are qualified in their entirety by this paragraph.
Restatement
In this Form 10-Q, we are restating (i) our audited consolidated financial statements as of and for the year ended December 31, 2016, and (ii) our unaudited condensed consolidated interim financial statements as of, and for the quarterly period ended March 31, 2017. The accounting for the deferred fees payable did not effect any previously reported operating expenses, interest income, net income, cash flows, assets, or stockholders equity.
The restatement results from our effort to correct the Deferred Fees amount payable to the underwriters. In October 2016, the underwriters agreed to reduce to Deferred Fees from $5.76 million to $277,467; thus, an aggregate of approximately $5.5 million should have been reversed from deferred underwriting commissions and advisory fees and additional paid-in capital and the subsequent reclass to common stock subject to possible redemption on our Balance Sheets at March 31, 2017 and December 31, 2016.
We have not amended our previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for (i) our audited consolidated financial statements as of and for the year ended December 31, 2016, and (ii) our unaudited condensed consolidated interim financial statements as of, and for the quarterly period ended March 31, 2017 affected by the restatement. The financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Quarterly Report on Form 10-Q, and the financial statements and related financial information contained in such previously filed reports should no longer be relied upon.
The restatement is more fully described in Note 2 of the notes to the financial statements included herein.
Overview
On October 6, 2016, we held a special meeting of stockholders (“Special Meeting”). Following the approval of the proposals at the Special Meeting, we filed an amendment to our amended and restated certificate of incorporation to: (i) extend the date by which we must complete an initial Business Combination to (a) October 1, 2017 or (b) if prior to October 1, 2017, we publicly disclose that an extension past October 1, 2017 will not prevent us from maintaining the listing of our securities on NASDAQ, December 31, 2017 (“Extension”), and (ii) to change our company’s name from “AR Capital Acquisition Corp.” to “Axar Acquisition Corp.”
In connection with the Extension, (i) Andrew Axelrod was appointed as Chief Executive Officer and Executive Chairman of the Board of Directors, Lionel Benichou was appointed as Chief Financial Officer, and (ii) Nicholas S. Schorsch, Nicholas Radesca and William Kahane each resigned from their positions as officers and directors of our company. Pursuant to the agreement by and among us, AR Capital, LLC, our former sponsor (“ARC”), transferred all of its Founder Shares and Private Placement Warrants to our new sponsor, Axar Master Fund Ltd. (the “Sponsor”). Upon consummation of the initial Business Combination, the Sponsor agreed to automatically forfeit, for no consideration, a number of Founder Shares equal to the excess of (if positive) of (a) 6,000,000 over (b) 25% of the sum of (i) total Public Shares outstanding plus (ii) the excess of (x) the total number of shares of common stock issued or deemed issued, or issuable upon the conversion of exercise of any equity-linked securities or rights issued or deemed issued, by us in connection with the consummation of the initial Business Combination, excluding any shares of common stock or equity-linked securities exercisable for or convertible into shares of common stock issued, or to be issued, to any seller in the initial Business Combination or the Sponsor and its affiliates, over (y) the total number of Public Shares redeemed in connection with the Initial Business Combination. No Founder Shares should be forfeited if sum of the forgoing (a) and (b) is equal to or less than zero.
In addition, ARC agreed to terminate its Compensation Reimbursement Agreement with us and agreed that all amounts owed under such arrangements, or approximately $50,000, were contributed to capital.
At the Special Meeting, stockholders holding 21,493,889 Public Shares exercised their right to convert their Public Shares into a pro rata portion of the Trust Account. As a result, an aggregate of approximately $215 million (or approximately $10.00 per share) was removed from the Trust Account to pay such holders.
| 15 |
On October 7, 2016, following approval of the proposals at the Special Meeting and pursuant to approval of public warrantholders at a special meeting of public warrantholders held for such purpose, we amended the warrant agreements for all of the 12,000,000 outstanding Public Warrants to automatically convert into right to receive $0.15 per Public Warrant upon the consummation of the Business Combination, for an aggregate amount of $1.8 million, payable in cash or shares of our common stock at our discretion. In addition, we also amended to increase the exercise price of the Private Placement Warrants from 11.50 to $12.50 per share. Also in October 2016, our Board of Directors declared a dividend on our common stock consisting of one-half of one warrant per share of common stock, with each whole warrant exercisable to purchase one share of common stock at $12.50 per share (each a “New Warrant”). The New Warrants will not be exercisable until the later of (i) the date that is 30 days after the first date on which we complete an initial Business Combination and (ii) October 17, 2017. Our independent directors agreed to waive their right to receive the dividend. As a result, we issued an aggregate of 1,253,055 New Warrants in October 2016.
Critical Accounting Policy
Common Stock Subject to Possible Redemption
Under our amended and restated certificate of incorporation, all of the Public Shares may be redeemed for cash in connection with our liquidation or a tender offer or stockholder approval in connection with an initial Business Combination. In accordance with FASB ASC 480, “Distinguishing Liabilities from Equity”, redemption provisions not solely within the control of our company require the security to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of FASB ASC 480. Although we did not specify a maximum redemption threshold, our charter provides that in no event will we redeem the Public Shares in an amount that would cause its net tangible assets (stockholders’ equity) to be less than $5,000,001.
We recognize changes in redemption value immediately as they occur and will adjust the carrying value of the security to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock shall be affected by charges against additional paid-in capital in accordance with ASC 480.
Accordingly, at June 30, 2017 and December 31, 2016, 1,893,915 and 1,934,101 Public Shares were classified outside of permanent equity at its redemption value, respectively.
Results of Operations
For the three months ended June 30, 2017 and 2016, we had a net loss of approximately $22,000 and $903,000, respectively.
For the six months ended June 30, 2017 and 2016, we had a net loss of approximately $163,000 and $997,000, respectively.
Through June 30, 2017, our efforts have been limited to organizational activities, activities relating to our Public Offering, activities relating to identifying and evaluating prospective acquisition candidates and activities relating to general corporate matters. We have not generated any income, other than interest income earned on the proceeds held in the Trust Account and cash outside of the Trust Account.
Liquidity and Going Concern
We will only have until (a) October 1, 2017 or (b) if prior to October 1, 2017, we publicly disclose that an extension past October 1, 2017 will not prevent us from maintaining the listing of our securities on NASDAQ, December 31, 2017 (“Liquidation Date”) to complete an Initial Business Combination. This mandatory liquidation and subsequent dissolution raises substantial doubt about our ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should we be required to liquidate after the Liquidation Date.
In the event of such liquidation, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the Initial Public Offering price per Unit in the Public Offering.
| 16 |
As of June 30, 2017, we had approximately $259,000 in our operating bank account, which excludes interest income available to us to pay franchise and income taxes of approximately $268,000 from our investments in the Trust Account.
Through June 30, 2017, our liquidity needs have been satisfied through receipt of a $25,000 capital contribution from the ARC in exchange for the issuance of the founder shares, $79,702 in loans from ARC and approximately $88,000 due to affiliate, which were fully paid on October 8, 2014, the proceeds not held in trust resulted from the consummation of the Public Offering and the Private Placement, and $950,000 in loans from the current Sponsor. In addition, ARC contributed approximately $770,000 to capital in October 2016 to pay for our outstanding payables.
Pursuant to the Transfer Agreement, the Sponsor agreed to lend us on January 1, 2017 and on the first business day of each of the following three fiscal quarters commencing thereafter (or, if the Extension date is October 1, 2017, the following two fiscal quarters commencing thereafter) approximately $125,300, which amounts will be deposited in the Trust Account (“Trust Loan”). The Sponsor has also agreed to provide a loan to us for up to $2 million for working capital and other expenses (together with Trust Loan, “Loan”). The Loan will be non-interest bearing and repayable by us to the Sponsor upon consummation of an initial Business Combination. If a Business Combination is not consummated, the note will not be repaid and all amounts owed thereunder by us will be forgiven, except to the extent that we had funds available outside of the Trust Account. As of June 30, 2017, we had an outstanding amount of $1,200,000 under the Loan to Sponsor, of which an aggregate of approximately $251,000 was deposited to the Trust Account during the six months ended June 30, 2017.
If we do not complete an initial Business Combination by (i) October 1, 2017 or (ii) if prior to October 1, 2017, we publicly disclose that an extension past October 1, 2017 will not prevent us from maintaining the listing of our securities on NASDAQ, December 31, 2017, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the common stock sold as part of the units in the Public Offering, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. This mandatory liquidation and subsequent dissolution requirement raises substantial doubt about our ability to continue as a going concern.
There will be no redemption rights or liquidating distributions with respect to our Private Placement Warrants and the New Warrants, which will expire worthless if we fail to complete an initial Business Combination within the required time period.
On October 7, 2016, ARC agreed to terminate its compensation reimbursement agreement with us, pursuant to which we were to pay ARC an amount not to exceed $15,000 per month. ARC also agreed that all amounts owed under such arrangements, or approximately $50,000, were contributed to capital.
Off-balance sheet financing arrangements
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or entered into any non-financial agreements involving assets.
| 17 |
Contractual obligations
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risk is the sensitivity of income to changes in interest rates, foreign exchanges, commodity prices, equity prices and other market driven rates or prices. We are not presently engaged in and, if we do not consummate a suitable business combination prior to the prescribed liquidation date of the Trust Account, we may not engage in, any substantive commercial business. Accordingly, we are not and, until such time as we consummate a business combination, we will not be, exposed to risks associated with foreign exchange rates, commodity prices, equity prices or other market driven rates or prices. The net proceeds of our initial public offering held in the Trust Account may be invested by the trustee only in permitted United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act, having a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations. Given our limited risk in our exposure to government securities and money market funds, we do not view the interest rate risk to be significant.
Item 4. Controls and Procedures.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2017. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of December 31, 2016 and March 31, 2017, due solely to the material weakness in our internal control over financial reporting. In light of this material weakness, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
During the most recently completed fiscal quarter, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as the circumstances that led to the restatement of our financial statements described in this Quarterly Report on Form 10-Q had not yet been identified. Our management has implemented remediation steps to address the material weakness and to improve our internal control over financial reporting. Specifically, we expanded and improved our review process for material agreements and related accounting standards. We plan to further improve this process by enhancing access to accounting literature, identification of third party professionals with whom to consult regarding complex accounting applications and consideration of additional staff with the requisite experience and training to supplement existing accounting professionals.
None.
Factors that could cause our actual results to differ materially from those in this Quarterly Report on Form 10-Q are any of the risks described in our Annual Report on Form 10-K filed with the SEC on February 19, 2016 (our “Annual Report”). Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our Annual Report, except we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
Not applicable.
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Item 4. Mine Safety Disclosures.
Not applicable.
Not applicable.
| Exhibit Number | Description | |
| 31.1 | Certification of Chief Executive Officer and Director Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of Chief Financial Officer, Treasurer and Secretary Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certification of Chief Executive Officer and Director Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Certification of Chief Financial Officer, Treasurer and Secretary Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| AXAR ACQUISITION CORP. | ||
| Dated: August 8, 2017 | By: | /s/ Andrew Axelrod |
| Name: | Andrew Axelrod | |
| Title: | Chief Executive Officer and Director | |
| (Principal Executive Officer) | ||
| Dated: August 8, 2017 | By: | /s/ Lionel Benichou |
| Name: | Lionel Benichou | |
| Title: | Chief Financial Officer, Treasurer and Secretary | |
| (Principal Financial Officer and Principal Accounting Officer) | ||
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