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, 2016
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 001-36669
AR Capital 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.) | |
405 Park Avenue - 14th Floor New York, New York | 10022 | |
| (Address of Principal Executive Office) | (Zip Code) | |
(212) 415-6500
(Registrant’s Telephone Number, Including Area Code)
Not applicable
(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 o
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 o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer o | Accelerated filer x |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes x No o
The number of shares of the registrant's common stock, $0.0001 par value per share, outstanding as of August 3, 2016 was 30,000,000.
TABLE OF CONTENTS
| Page | |
| PART I | |
| PART II | |
PART I
Item 1. Financial Statements.
AR CAPITAL ACQUISITION CORP.
CONDENSED BALANCE SHEETS
| June 30, | December 31, | ||||||
| 2016 | 2015 | ||||||
| (Unaudited) | |||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash | $ | 179,359 | $ | 700,873 | |||
| Prepaid expenses and other assets | 20,000 | — | |||||
| Accounts receivable | — | 2,817 | |||||
| Total current assets | 199,359 | 703,690 | |||||
| Non-current assets: | |||||||
| Investments held in Trust Account | 240,091,511 | 240,018,972 | |||||
| Total assets | $ | 240,290,870 | $ | 240,722,662 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable and accrued expenses | $ | 829,688 | $ | 135,937 | |||
| Due to affiliates | 33,919 | 63,919 | |||||
| Franchise tax payable | 18,000 | 116,877 | |||||
| Total current liabilities | 881,607 | 316,733 | |||||
| Deferred underwriting commissions and advisory fees | 5,760,000 | 8,400,000 | |||||
| Total liabilities | 6,641,607 | 8,716,733 | |||||
| Common stock subject to possible redemption; 22,864,925 and 22,700,592 shares (at redemption value of approximately $10.00 per share) as of June 30, 2016 and December 31, 2015, respectively | 228,649,253 | 227,005,919 | |||||
| Preferred stock, $0.0001 par value, 1,000,000 authorized, none issued and outstanding | — | — | |||||
| Common stock, $0.0001 par value, 400,000,000 shares authorized, 7,135,075 and 7,299,408 shares issued and outstanding (excluding 22,864,925 and 22,700,592 shares subject to possible redemption) at June 30, 2016 and December 31, 2015, respectively | 714 | 730 | |||||
| Additional paid-in capital | 7,273,668 | 6,276,986 | |||||
| Accumulated deficit | (2,274,372 | ) | (1,277,706 | ) | |||
| Total stockholders' equity | 5,000,010 | 5,000,010 | |||||
| Total liabilities and stockholders' equity | $ | 240,290,870 | $ | 240,722,662 | |||
The accompanying notes are an integral part of these condensed interim financial statements.
1
AR CAPITAL ACQUISITION CORP.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Revenues: | |||||||||||||||
| Interest income from Trust Account | $ | 99,771 | $ | 2,214 | $ | 180,042 | $ | 4,402 | |||||||
| Interest income from operating account | — | 324 | 131 | 701 | |||||||||||
| Total interest income | 99,771 | 2,538 | 180,173 | 5,103 | |||||||||||
| Expenses: | |||||||||||||||
| State franchise taxes | 45,000 | 45,000 | 90,000 | 90,605 | |||||||||||
| Compensation reimbursement fee | 45,000 | 45,000 | 90,000 | 90,000 | |||||||||||
| Professional fees | 880,959 | 49,218 | 921,416 | 110,966 | |||||||||||
| Administrative fee | — | 30,000 | — | 60,000 | |||||||||||
| Other expenses | 31,349 | 68,372 | 75,423 | 145,445 | |||||||||||
| Total expenses | 1,002,308 | 237,590 | 1,176,839 | 497,016 | |||||||||||
| Net loss | $ | (902,537 | ) | $ | (235,052 | ) | $ | (996,666 | ) | $ | (491,913 | ) | |||
| Net loss per common share, basic and diluted | $ | (0.13 | ) | $ | (0.03 | ) | $ | (0.14 | ) | $ | (0.07 | ) | |||
| Weighted average number of common shares outstanding, basic and diluted | 7,045,813 | 7,228,901 | 7,171,212 | 7,216,281 | |||||||||||
The accompanying notes are an integral part of these condensed interim financial statements.
2
AR CAPITAL ACQUISITION CORP.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
| Common Stock | ||||||||||||||||||
| Number of Shares | Par Value | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders' Equity | ||||||||||||||
| Balance, January 1, 2015 | 7,203,238 | $ | 720 | $ | 5,312,478 | $ | (313,188 | ) | $ | 5,000,010 | ||||||||
| Decrease in common stock subject to possible redemption of 48,910 ordinary shares at redemption value | 48,910 | 5 | 489,091 | — | 489,096 | |||||||||||||
| Offering cost reimbursement | — | — | 2,817 | — | 2,817 | |||||||||||||
| Net loss | — | — | — | (491,913 | ) | (491,913 | ) | |||||||||||
| Balance, June 30, 2015 | 7,252,148 | $ | 725 | $ | 5,804,386 | $ | (805,101 | ) | $ | 5,000,010 | ||||||||
| Common Stock | ||||||||||||||||||
| Number of Shares | Par Value | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders' Equity | ||||||||||||||
| Balance, January 1, 2016 | 7,299,408 | $ | 730 | $ | 6,276,986 | $ | (1,277,706 | ) | $ | 5,000,010 | ||||||||
| Increase in common stock subject to possible redemption by 164,333 ordinary shares at redemption value | (164,333 | ) | (16 | ) | (1,643,318 | ) | — | (1,643,334 | ) | |||||||||
| Change in underwriters' commissions and advisory fees | — | — | 2,640,000 | — | 2,640,000 | |||||||||||||
| Net loss | — | — | — | (996,666 | ) | (996,666 | ) | |||||||||||
| Balance, June 30, 2016 | 7,135,075 | $ | 714 | $ | 7,273,668 | $ | (2,274,372 | ) | $ | 5,000,010 | ||||||||
The accompanying notes are an integral part of these condensed interim financial statements.
3
AR CAPITAL ACQUISITION CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the six months ended June 30, 2016 | For the six months ended June 30, 2015 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (996,666 | ) | $ | (491,913 | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Interest on Trust Account | (180,042 | ) | (4,402 | ) | ||||
| Changes in assets and liabilities: | ||||||||
| Prepaid expenses and other assets | (20,000 | ) | (38,584 | ) | ||||
| Accounts payable and accrued expenses | 693,751 | 50,130 | ||||||
| Due to affiliates | (30,000 | ) | 99,410 | |||||
| Franchise tax payable | (98,877 | ) | (19,973 | ) | ||||
| Net cash used in operating activities: | (631,834 | ) | (405,332 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Trust Account proceeds invested | (180,042 | ) | (4,402 | ) | ||||
| Interest on Trust Account | 180,042 | 4,402 | ||||||
| Withdrawal of Trust Account funds for payment of Delaware franchise tax | 107,503 | — | ||||||
| Net cash from investing activities | 107,503 | — | ||||||
| Cash flows from financing activities: | ||||||||
| Reimbursement (payment) of offering costs | 2,817 | (13,700 | ) | |||||
| Net cash provided by (used in) financing activities: | 2,817 | (13,700 | ) | |||||
| Net decrease in cash | (521,514 | ) | (419,032 | ) | ||||
| Cash, beginning of period | 700,873 | 1,570,214 | ||||||
| Cash, end of period | $ | 179,359 | $ | 1,151,182 | ||||
| Supplemental disclosure of cash flow activities: | ||||||||
| Cash paid for franchise taxes | $ | 188,877 | $ | 110,578 | ||||
| Supplemental disclosure of financing activities: | ||||||||
| Reversal of deferred underwriting commissions and advisory fees | $ | 2,640,000 | $ | — | ||||
| Receivable for offering costs | $ | — | $ | 2,817 | ||||
The accompanying notes are an integral part of these condensed interim financial statements.
4
AR CAPITAL ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)
1. Organization and Business Operations
Incorporation
AR Capital Acquisition Corp. (the "Company") was incorporated in Delaware on July 25, 2014.
Sponsor
The Company’s sponsor is AR Capital, LLC, a Delaware limited liability company (the “Sponsor”).
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 (“Initial Business Combination”). The Company has neither engaged in any operations nor generated significant revenue to date.
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 3) 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 of its units. The Sponsor purchased simultaneously with the consummation of the Public Offering $6,550,000 of warrants at a price of $1.00 per warrant in a private placement (See Note 4).
Upon consummation of the Public Offering of 24,000,000 of the Company's units and the private placement of $6,550,000 of the Company's private placement warrants, $240,000,000 (which is net of the upfront underwriting discount of $4,800,000, expenses related to the offering of $750,000 and proceeds not held in the trust account of $1,000,000) was placed in the trust account (the "Trust Account") with Continental Stock Transfer & Trust Company acting as trustee.
Additionally, the Sponsor loaned $79,702 through the issuance of an unsecured promissory note (the "Note") on August 1, 2014 to cover expenses related to the Public Offering. The Note outstanding was payable without interest upon consummation of the Public Offering. The Note was repaid in full on October 8, 2014.
Trust Account
The funds held in the Trust Account can be invested only 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.
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 within 24 months from the closing of the Public Offering. 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.
The Company, after signing a definitive agreement for the Initial Business Combination, 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 shares, regardless of whether they vote for or against the Initial Business Combination (provided they in fact 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
5
AR CAPITAL ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)
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 the event the Company seeks stockholder approval or conducts redemptions pursuant to the tender offer rules, then 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.
The Company will only have 24 months from the closing of the Public Offering to complete its Initial Business Combination. If the Company does not complete the Initial Business Combination within this period of time, 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 initial public offering price per unit in the Public Offering.
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.
Fiscal Year End
The Company has selected December 31 as its fiscal year end.
2. 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 February 19, 2016. 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.
6
AR CAPITAL ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)
Going Concern Consideration
If the Company does not complete an Initial Business Combination by October 7, 2016, the Company 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 the Company to pay its 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 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 to provide for claims of creditors and the requirements of other applicable law. This mandatory liquidation and subsequent dissolution requirement raises substantial doubt about the Company’s ability to continue as a going concern.
As of June 30, 2016 the Company’s current liabilities exceed its current assets, and the Company does not have sufficient cash held outside of the trust account to cover accounts payable and accrued expenses. AR Global Investments, LLC (“AR Global”), an affiliate of the Sponsor, agreed to be responsible for payment of one service provider’s fees if the Company does not have sufficient funds to make such a payment. Fees associated with this service provider are currently included in accounts payable and accrued expenses, and make up a significant portion of this balance. If the Company does not complete an Initial Business Combination by October 7, 2016 and there is not sufficient cash to settle outstanding liabilities, AR Global would pay this counterparty on the Company’s behalf and the Sponsor will provide funds to settle any other remaining liabilities. Only interest earned on the funds in the Trust account can be withdrawn to pay franchise and income taxes, as disclosed in Footnote 1, Organization and Business Operations in the section titled ‘Trust Account’.
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 by October 7, 2016.
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, 2016, the effect of the 12,000,000 warrants issued in the Public Offering and 6,550,000 warrants issued to the Sponsor in connection with the private placement have not been considered in the diluted loss per common share because their effect would be anti-dilutive. 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 condensed 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. As of June 30, 2016, offering costs of $10,651,365 (including $10,560,000 in underwriting commissions and $91,365 in fees in connection with the Public Offering, which is net of reimbursable offering expenses of $500,000) have been charged to stockholders' equity.
7
AR CAPITAL ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)
Redeemable Common Stock
Under the Company's amended and restated certificate of incorporation, all of the 24,000,000 shares of common stock sold as part of the units in the Public Offering ("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, 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, 2016 and December 31, 2015, 22,864,925 and 22,700,592, respectively of the 24,000,000 Public Shares were classified outside of permanent equity at its redemption value.
Income Taxes
The Company complies with the accounting and reporting requirements of FASB ASC 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. A valuation allowance is established when necessary to reduce deferred tax assets when it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized. At June 30, 2016, the Company has a deferred tax asset of approximately $796,030 related to startup costs and net operating loss. Management has determined that a full valuation allowance of the deferred tax asset is appropriate at this time. FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48") (now incorporated into FASB ASC 740, Income Taxes), sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. This interpretation uses a two-step approach wherein a tax benefit or expense is recognized if a position is more-likely-than-not to be sustained upon examination by taxing authorities. The amount of the benefit or expense is then measured to be the highest tax benefit or expense that is greater than 50% likely to be realized. Based on its analysis, the Company has determined that it has no unrecognized tax benefits or expenses as of June 30, 2016. The Company's conclusion may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof. The Company recognizes interest and penalties related to unrecognized tax benefits in interest expense and other expenses, respectively. No interest expense or penalties have been recognized as of June 30, 2016. The Company files an income tax return in the U.S. federal jurisdiction, and may file income tax returns in various U.S. states and foreign jurisdictions. The Company may be subject to potential examination by U.S. federal, U.S. states or foreign jurisdiction 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 is subject to income tax examinations by Federal, state and local taxing authorities for all tax years since inception.
For the three and six months ended June 30, 2016, the effective tax rate was 0%.
As of June 30, 2016 the Company had a federal net operating loss of approximately $164,657, which expires in the year 2035.
Reclassification and Presentation
The Company previously disclosed insurance expenses separately on the Company's Condensed Statements of Operations. For the three and six months ended June 30, 2015, insurance expenses were condensed to other expenses of $47,231 and $94,460, respectively, on the Company's Condensed Statements of Operations presented in this Quarterly Report on Form 10-Q.
3. Public Offering
On October 7, 2014, the Company completed the Public Offering pursuant to which it sold 24,000,000 units at a price of $10.00 per unit (the "Public Units"). 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 "Warrants"). Each whole Warrant entitles the
8
AR CAPITAL ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)
holder to purchase one share of common stock at a price of $11.50 per share. Each Warrant will become exercisable on the later of 30 days after the completion of the Company’s Initial Business Combination or 12 months from the closing of the Public Offering, provided an effective registration statement under the Securities Act exists covering the shares of common stock issuable upon exercise of the Warrants and a current prospectus relating to the Warrants is available (or the Company permits holders to exercise the Warrants on a cashless basis under the circumstances specified in the warrant agreement). The Warrants will expire at 5:00 p.m., New York City time, five years after the completion of the Initial Business Combination or earlier upon redemption or liquidation.
The Company paid an upfront underwriting discount of $0.20 per Public Unit ($4,800,000 in the aggregate) to the underwriters at the closing of the Public Offering. Additional fees (the “Deferred Fees”) of $8,400,000 ($0.35 per Public Unit sold), comprised of (a) $5,760,000 payable to the underwriters for deferred underwriting commissions and (b) $2,640,000 payable to RCS Capital ("RCS"), a division of Realty Capital Securities, LLC, an entity then under common control with the Sponsor, for financial advisory services in connection with the identification, evaluation, negotiation and completion of the Initial Business Combination, were deposited in the Trust Account at the closing of the Public Offering and will become payable to the underwriters and RCS from the amounts held in the Trust Account 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. On January 22, 2016, due to the exigent circumstances publicly announced by RCS’s parent company, including but not limited to its stated intention to file for Chapter 11 bankruptcy protection and shut down all of its businesses other than its retail advisor platform by the end of January 2016 (such bankruptcy filing occurred on January 31, 2016 and on May 23, 2016, RCS’s parent company and its affiliated debtors emerged from bankruptcy under the new name, Aretec Group, Inc.), which resulted in RCS’s inability to provide the services contemplated by the M&A Services Agreement (as defined below), the Company provided notice of termination of the M&A Services Agreement for cause. As a result, as of June 30, 2016, the Deferred Fees in the amount of $2,640,000 will no longer be payable to RCS. The $2,640,000 was reversed from deferred underwriting commissions and advisory fees on the Company's Condensed Balance Sheets and from additional paid-in capital on the Company's Condensed Statements of Changes in Stockholders' Equity.
The underwriters paid the Company $500,000 as reimbursement (the "Reimbursement") for certain expenses incurred in connection with the Public Offering which was recorded in additional paid in capital in the accompanying interim condensed balance sheets.
4. Related Party Transactions
Founder Shares
On August 1, 2014, the Sponsor 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, the Sponsor contributed to the Company 1,725,000 Founder Shares, which the Company canceled. Thereafter, the Sponsor sold 20,000 Founder Shares at their original price to each of the Company's independent directors. On December 5, 2014, as a result of the underwriters' election not to exercise the over-allotment option in connection with the Public Offering, the initial stockholders 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 the Sponsor. As a result of the forfeiture, the Sponsor 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 represents 20% of the outstanding shares.
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 initial stockholders have agreed 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”).
9
AR CAPITAL ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)
| Ownership of Founder Shares | |||||||||
| Sponsor | Independent Directors | Total Founder Shares | |||||||
| Sale of common stock to initial stockholder on August 1, 2014 | 8,625,000 | — | 8,625,000 | ||||||
Forfeiture of shares on October 1, 2014(1) | (1,725,000 | ) | — | (1,725,000 | ) | ||||
| Sale of Founder Shares to Company's independent directors on October 1, 2014 | (60,000 | ) | 60,000 | — | |||||
Forfeiture of shares on December 5, 2014(2) | (892,173 | ) | (7,827 | ) | (900,000 | ) | |||
| 5,947,827 | 52,173 | 6,000,000 | |||||||
____________________________
(1) In connection with a reduction in the size of the Public Offering, the Sponsor forfeited 1,725,000 Founder Shares.
(2) As a result of the underwriters' election not to exercise the over-allotment option in connection with the Public Offering, the initial stockholders forfeited an aggregate of 900,000 Founder Shares.
Private Placement Warrants
On October 7, 2014, the Sponsor purchased from the Company an aggregate of 6,550,000 Warrants at a price of $1.00 per Warrant (a purchase price of $6,550,000) in a private placement that occurred simultaneously with the completion of the Public Offering (the "Private Placement Warrants"). Each Private Placement Warrant entitles the holder to purchase one share of common stock at $11.50 per share. Of the $6,550,000 purchase price of the Private Placement Warrants, $4,300,000 of the purchase price of the Private Placement Warrants (which is net of the estimated offering expenses of $750,000, proceeds not held in the Trust Account of $1,000,000 and Reimbursement of $500,000) 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 (except as described in the prospectus relating to the Public Offering under “Principal Stockholders—Escrow of Founder Shares and Private Placement Warrants and Transfer Restrictions”). 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.
Sponsor Loans
The Sponsor agreed to loan the Company up to an aggregate of $200,000 by the issuance of 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, the Sponsor loaned at total of $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 the Sponsor for costs incurred by the Company, which was repaid on October 8, 2014.
10
AR CAPITAL ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)
Administrative Services Agreement
On September 8, 2014, the Company entered into an agreement to pay RCS Advisory Services, LLC ("RCS Advisory"), an entity then under common control with the Sponsor, a total of $10,000 per month for office space, utilities, secretarial support and administrative services commencing on the date the Company’s securities are first listed on The NASDAQ Capital Market ("NASDAQ"). Upon the earlier of the completion of the Initial Business Combination or the Company’s liquidation, the Company will cease paying these monthly fees. On January 22, 2016, due to the exigent circumstances publicly announced by RCS Advisory’s parent company, including but not limited to its stated intention to file for Chapter 11 bankruptcy protection and shut down all of its businesses other than its retail advisor platform by the end of January 2016 (such bankruptcy filing occurred on January 31, 2016 and on May 23, 2016, RCS’s parent company and its affiliated debtors emerged from bankruptcy under the new name, Aretec Group, Inc.), which resulted in RCS Advisory’s inability to provide the services contemplated by the administrative services agreement, the Company provided notice of termination of the administrative services agreement. The space formerly sublet by RCS Advisory for the Company’s office space is currently leased by the Sponsor and will be provided to the Company free of charge. During the three and six months ended June 30, 2016, the Company incurred $0 related to services under this agreement. During the three and six months ended June 30, 2015, the Company incurred $30,000 and $60,000, respectively, related to services under this agreement.
M&A Advisory Agreement
On October 1, 2014, the Company entered into an agreement with RCS to act as a financial advisor in connection with the Company’s identification, negotiation and consummation of an Initial Business Combination (the “M&A Services Agreement”). The M&A Services Agreement provides that RCS would perform customary financial analyses of potential Initial Business Combination targets, assist in coordinating the business due diligence process with potential targets, assist in the Company’s review and consideration of the financial aspects of business combination proposals, assist in negotiating the financial aspects of an Initial Business Combination and provide other mutually agreed upon financial advisory services rendered in advance of a determination by the Company’s board to execute definitive documentation related to any business combination. Additionally, in the event that the Company executes a definitive agreement with respect to an Initial Business Combination, the M&A Services Agreement provides that RCS would provide post-signing and pre-closing financial advisory services as may be mutually agreed upon.
In exchange for these services, the M&A Services Agreement provides that the Company would pay RCS a transaction fee equal to $2,640,000 or 1.1% of the total gross proceeds raised in the Public Offering. This fee will be payable upon consummation of an Initial Business Combination out of the proceeds of the Trust Account released to the Company. The M&A Services Agreement also provides that the Company would reimburse RCS for reasonable out-of-pocket expenses, irrespective of whether an Initial Business Combination is consummated, and in the event that the Company fails to complete an Initial Business Combination within 24 months from the closing of the Public Offering, such out-of-pocket expenses would not be paid out of the Trust Account. The M&A Services Agreement could be terminated by either party at any time with or without cause. On January 22, 2016, due to the exigent circumstances publicly announced by RCS’s parent company, including but not limited to its stated intention to file for Chapter 11 bankruptcy protection and shut down all of its businesses other than its retail advisor platform by the end of January 2016 (such bankruptcy filing occurred on January 31, 2016 and on May 23, 2016, RCS’s parent company and its affiliated debtors emerged from bankruptcy under the new name, Aretec Group, Inc.), which resulted in RCS’s inability to provide the services contemplated by the M&A Services Agreement, the Company provided notice of termination for cause. As a result, as of June 30, 2016, the Deferred Fees in the amount of $2,640,000 will no longer be payable to RCS. The $2,640,000 was reversed from deferred underwriting commissions and advisory fees on the Company's Condensed Balance Sheets and from additional paid-in capital on the Company's Condensed Statements of Changes in Stockholders' Equity.
Compensation Reimbursement
On October 1, 2014, the Company entered into an agreement to pay the Sponsor 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"). Upon the earlier of the completion of the Initial Business Combination or the Company’s liquidation, the Company will cease paying these monthly fees. During the three and six months ended June 30, 2016, the Company incurred $45,000 and $90,000, respectively, related to services under this agreement. During the three and six months ended June 30, 2015, the Company incurred $45,000 and $90,000, respectively, related to services under this agreement.
11
AR CAPITAL ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)
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. 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.
5. Deferred Underwriting Commissions
The Company is committed to pay a portion of the Deferred Fees totaling $5,760,000 or 2.4% of gross offering proceeds of the Public Offering, to the underwriters upon the Company's consummation of an Initial Business Combination. 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.
6. Trust Account
A total of $240,000,000, which includes $235,200,000 of the net proceeds from the Public Offering, $4,300,000 from the sale of the Private Placement Warrants and the $500,000 Reimbursement has been placed in the Trust Account. As of June 30, 2016 and December 31, 2015, the balance in the Trust Account was $240,091,511 and $240,018,972, respectively. For the three and six months ended June 30, 2015, the Company withdrew approximately $72,000 and $107,503, respectively, in funds from interest earned on the trust proceeds to pay for franchise taxes. No amounts were withdrawn for the three and six months ended June 30, 2015.
7. 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, 2016 and December 31, 2015, 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, 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 | $ | 240,091,511 | $ | 240,091,511 | $ | — | $ | — | ||||||||
12
AR CAPITAL ACQUISITION CORP.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)
| Description | December 31, 2015 | 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 | $ | 240,018,972 | $ | 240,018,972 | $ | — | $ | — | ||||||||
8. Stockholder’s Equity
Common Stock - The authorized common stock of the Company includes up to 400,000,000 shares. Holders of the Company’s common stock are entitled to one vote for each share of common stock. At June 30, 2016 and December 31, 2015, there were 30,000,000 shares of common stock outstanding, including 22,864,925 and 22,700,592 shares that were subject to possible redemption at June 30, 2016 and December 31, 2015, respectively.
Preferred Stock - The authorized preferred stock of the Company includes up to 1,000,000 shares. At June 30, 2016 and December 31, 2015, there were no shares of preferred stock issued and outstanding.
9. Subsequent Events
Management has evaluated subsequent events through the date the financial statements were issued, and determined that there have not been any events that have occurred that would require adjustments to disclosures in these financial statements.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
References to the “Company,” “we,” “our” and “us” refer to 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.
Overview
We are a blank check company incorporated on July 25, 2014 as a Delaware corporation and 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 (“Initial Business Combination”). We intend to effectuate our Initial Business Combination using cash from the proceeds of a public offering (the "Public Offering") and the sale of warrants in a private placement that occurred simultaneously with the consummation of the Public Offering (the "Private Placement Warrants"), our capital stock, debt or a combination of cash, stock and debt.
Our management has broad discretion with respect to the Initial Business Combination. However, there is no assurance that we will be able to successfully effect an Initial Business Combination.
Upon consummation of the Public Offering and the sale of the Private Placement Warrants, $240,000,000 was placed in a trust account (the "Trust Account") with Continental Stock Transfer & Trust Company acting as trustee.
Results of Operations
For the three and six months ended June 30, 2016, we had a net loss of $902,537 and $996,666, respectively. For the three and six months ended June 30, 2015, we had a net loss of $235,052 and $491,913, respectively. Through June 30, 2016, 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 revenues, other than interest income earned on the proceeds held in the Trust Account and cash outside of the Trust Account. Through June 30, 2016, we withdrew $107,503 in funds from the interest earned from the Trust Account proceeds to pay for franchise taxes. As of June 30, 2016, we had cash held outside of the Trust Account of $179,359, which is available to fund our working capital requirements, and we believe that we have sufficient funds available to complete our efforts to effect an Initial Business Combination with an operating business by October 7, 2016.
Liquidity and Capital Resources
As of June 30, 2016, we had cash of $179,359. Until the consummation of the Public Offering, our only source of liquidity was an initial sale of our founder shares to AR Capital, LLC, a Delaware limited liability company (the “Sponsor”), and the proceeds of loans made by the Sponsor under an unsecured promissory note (the "Note") of $79,702, which was repaid upon the consummation of our Public Offering.
On October 7, 2014, we consummated our Public Offering of 24,000,000 units at a price of $10.00 per unit. Simultaneously with the consummation of the Public Offering, we consummated the private sale of an aggregate of 6,550,000 Private Placement Warrants, each exercisable to purchase one share of our common stock at $11.50 per share, to the Sponsor, at a price of $1.00 per Private Placement Warrant, generating proceeds, before expenses, of $6,550,000. In addition, the underwriters of the Public Offering paid us $500,000 as reimbursement for certain expenses incurred in connection with the Public Offering (the "Reimbursement"). We received net proceeds from the Public Offering and the sale of the Private Placement Warrants of approximately $241,000,000, net of the upfront underwriting discounts of $4,800,000 and offering costs and other expenses of approximately $750,000. No additional offering related costs were incurred during the three and six months ended June 30, 2016. For a description of the proceeds generated in our Public Offering and a discussion of the use of such proceeds, we refer you to Note 3 of the notes to the condensed interim financial statements included in Part I, Item 1 of this report.
14
During the six months ended June 30, 2016, we have continued to identify and evaluate Initial Business Combinations. Professional fees incurred during the due diligence for Initial Business Combinations were either paid with cash from outside of the Trust account or are included in accounts payable and accrued expenses. At June 30, 2016 current liabilities exceed current assets, and the Company does not have sufficient cash held outside of the trust account to cover accounts payable and accrued expenses. On June 21, 2016 AR Global Investments, LLC (“AR Global”), an affiliate of the Sponsor, agreed to be responsible for payment of one service provider’s fees if we do not have sufficient funds to make such a payment. Fees associated with this service provider are currently included in accounts payable and accrued expenses, and make up a significant portion of this balance. If we do not complete an Initial Business Combination by October 7, 2016 and there is not sufficient cash to settle outstanding liabilities, AR Global would pay this counterparty on our behalf and the Sponsor will provide funds to settle any other remaining liabilities. Only interest earned on the funds in the Trust account can be withdrawn to pay franchise and income taxes, as disclosed in Footnote 1, Organization and Business Operations in the section titled ‘Trust Account’.
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.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities other than an administrative agreement to pay RCS Advisory Services, LLC ("RCS Advisory"), an entity previously under common control with our Sponsor, a total of $10,000 per month for office space, utilities, secretarial support and administrative services and a compensation reimbursement agreement to pay the Sponsor an amount not to exceed $15,000 per month as reimbursement for a portion of the compensation paid to its personnel, including certain of our officers who work on our behalf, commencing on the date our securities are first listed on The NASDAQ Capital Market. Upon the earlier of the completion of the Initial Business Combination or the Company’s liquidation, we will cease paying these monthly fees. On January 22, 2016, due to the exigent circumstances publicly announced by RCS Advisory’s parent company, including but not limited to its stated intention to file for Chapter 11 bankruptcy protection and shut down all of its businesses other than its retail advisor platform by the end of January 2016 (such bankruptcy filing occurred on January 31, 2016 and on May 23, 2016, RCS’s parent company and its affiliated debtors emerged from bankruptcy under the new name, Aretec Group, Inc.), which resulted in RCS Advisory’s inability to provide the services contemplated by the administrative services agreement, we provided notice of termination of the administrative services agreement. The space formerly sublet by RCS Advisory for our office space is currently leased by the Sponsor and will be provided to us free of charge.
Significant Accounting Estimates and Critical Accounting Policies
A summary of our accounting policies is set forth in Note 2 of the Notes to the Condensed Interim Financial Statements included in Part I, Item 1 of this report and our Annual Report on Form 10-K for the year ended December 31, 2015 under “Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations – Significant Accounting Estimates and Critical Accounting Policies.”
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
15
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, 2016. 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 effective.
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
16
PART II
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
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.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.
17
Item 6. Exhibits.
EXHIBITS INDEX
The following exhibits are included in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 (and are numbered in accordance with Item 601 of Regulation S-K).
_________________________
| Exhibit No. | Description | |
| 31.1* | Certification of the Principal Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 * | Certification of the Principal Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32 ** | Certification of the Principal Executive Officer and Principal Financial and Accounting Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350. | |
| 101 * | XBRL (eXtensible Business Reporting Language). The following materials from AR Capital Acquisition Corp.'s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016 formatted in XBRL: (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Operations, (iii) the Condensed Statements of Changes in Stockholders' Equity, (iv) the Condensed Statements of Cash Flows and (v) the Notes to Condensed Interim Financial Statements. | |
| * | Filed herewith |
| ** | Furnished herewith |
18
AR CAPITAL ACQUISITION CORP.
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.
| AR CAPITAL ACQUISITION CORP. | |
| Dated: August 3, 2016 | By: /s/ William M. Kahane Name: William M. Kahane Title: Chief Executive Officer and Director (Principal Executive Officer) |
| Dated: August 3, 2016 | By: /s/ Nicholas Radesca Name: Nicholas Radesca Title: Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer and Principal Accounting Officer) |