UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2019
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number 001-38363
GORDON POINTE ACQUISITION CORP.
(Exact name of Registrant as Specified in Its Charter)
| Delaware | 82-1270173 | |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
| 780 Fifth Avenue South, Naples, FL 34102 | ||
| (Address of principal executive offices and Zip Code) | ||
| (412) 960-4687 | ||
| (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 past 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☒ | ||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||
| Emerging growth company | ☒ |
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 ☒ No ☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Units, each consisting of one share of Class A common stock, $0.0001 par value, and one Warrant | GPAQU | Nasdaq Capital Market | ||
| Class A common stock, $0.0001 par value per share | GPAQ | Nasdaq Capital Market | ||
| Warrants to purchase Class A common stock | GPAQW | Nasdaq Capital Market e |
As of May 6, 2019, there were 12,500,000 shares of the Company’s Class A common stock, par value $0.0001 per share, and 3,125,000 shares of the Company’s Class F common stock, par value $0.0001 per share, issued and outstanding.
GORDON POINTE ACQUISITION CORP.
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2019
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 11 |
| Item 4. | Controls and Procedures | 11 |
| PART II. OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 12 |
| Item 1A. | Risk Factors | 12 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 12 |
| Item 3. | Defaults Upon Senior Securities | 12 |
| Item 4. | Mine Safety Disclosures | 12 |
| Item 5. | Other Information | 12 |
| Item 6. | Exhibits | 13 |
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GORDON POINTE ACQUISITION CORP.
CONDENSED BALANCE SHEETS
| March 31, 2019 | December 31, 2018 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 68,720 | $ | 89,557 | ||||
| Prepaid expenses | — | 6,527 | ||||||
| Total Current Assets | 68,720 | 96,084 | ||||||
| Marketable securities held in Trust Account | 128,971,406 | 128,396,771 | ||||||
| Total Assets | $ | 129,040,126 | $ | 128,492,855 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 290,603 | $ | 309,265 | ||||
| Income taxes payable | 404,622 | 284,958 | ||||||
| Total Current Liabilities | 695,225 | 594,223 | ||||||
| Deferred tax liability | 1,572 | — | ||||||
| Deferred underwriting fees | 4,375,000 | 4,375,000 | ||||||
| Deferred legal fee payable | 72,500 | 72,500 | ||||||
| Total Liabilities | 5,144,297 | 5,041,723 | ||||||
| Commitments | ||||||||
| Common stock subject to possible redemption, 11,563,449 and 11,572,288 shares at redemption value as of March 31, 2019 and December 31, 2018, respectively | 118,895,828 | 118,451,128 | ||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, $0.0001 par value; 5,000,000 authorized; -0- issued and outstanding | — | — | ||||||
| Class A Common stock, $0.0001 par value; 40,000,000 shares authorized; 936,551 and 927,712 issued and outstanding (excluding 11,563,449 and 11,572,288 shares subjection to possible redemption) as of March 31, 2019 and December 31, 2018, respectively | 94 | 93 | ||||||
| Class F Common stock, $0.0001 par value; 5,000,000 shares authorized; 3,125,000 shares issued and outstanding as of March 31, 2019 and December 31, 2018 | 313 | 313 | ||||||
| Additional paid-in capital | 3,476,034 | 3,920,735 | ||||||
| Retained earnings | 1,523,560 | 1,078,863 | ||||||
| Total Stockholders’ Equity | 5,000,001 | 5,000,004 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 129,040,126 | $ | 128,492,855 | ||||
The accompanying notes are an integral part of these condensed financial statements.
1
GORDON POINTE ACQUISITION CORP.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| Operating costs | $ | 175,067 | $ | 229,889 | ||||
| Loss from operations | (175,067 | ) | (229,889 | ) | ||||
| Other income: | ||||||||
| Interest income | 733,515 | 292,038 | ||||||
| Unrealized gain (loss) on marketable securities held in Trust Account | 7,485 | (16,762 | ) | |||||
| Other income | 741,000 | 275,276 | ||||||
| Income before provision for income taxes | 565,933 | 45,387 | ||||||
| Provision for income taxes | (121,236 | ) | (9,531 | ) | ||||
| Net income | $ | 444,697 | $ | 35,856 | ||||
| Weighted average shares outstanding, basic and diluted (1) | 4,052,712 | 3,711,062 | ||||||
| Basic and diluted net loss per common share(2) | $ | 0.04 | $ | (0.05 | ) | |||
| (1) | Excludes an aggregate of up to 11,563,449 and 11,603,176 shares subject to possible redemption at March 31, 2019 and 2018, respectively. |
| (2) | Excludes income attributable to shares subject to possible redemption of $272,977 and $213,632 for the three months ended March 31, 2019 and 2018, respectively. |
The accompanying notes are an integral part of these condensed financial statements.
2
GORDON POINTE ACQUISITION CORP.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| Class A Common Stock | Class F Common Stock | Additional Paid-in | Retained Earnings / (Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit) | Equity | ||||||||||||||||||||||
| Balance – January 1, 2018 | — | $ | — | 3,593,750 | $ | 359 | $ | 24,641 | $ | (2,416 | ) | $ | 22,584 | |||||||||||||||
| Sale of 12,500,000 Units, net of underwriting discounts and offering expenses | 12,500,000 | 1,250 | — | — | 117,446,019 | — | 117,447,269 | |||||||||||||||||||||
| Sale of 4,900,000 Private Placement Warrants | — | — | — | — | 4,900,000 | — | 4,900,000 | |||||||||||||||||||||
| Forfeiture of Founder Shares | — | — | (468,750 | ) | (46 | ) | 46 | — | — | |||||||||||||||||||
| Common stock subject to possible redemption | (11,603,176 | ) | (1,161 | ) | — | — | (117,404,542 | ) | — | (117,405,703 | ) | |||||||||||||||||
| Net income | — | — | — | — | — | 35,856 | 35,856 | |||||||||||||||||||||
| Balance – March 31, 2018 (unaudited) | 896,824 | $ | 89 | 3,125,000 | $ | 313 | $ | 4,966,164 | $ | 33,440 | $ | 5,000,006 | ||||||||||||||||
| Class A Common Stock | Class F Common Stock | Additional Paid-in | Retained | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||||||||
| Balance – January 1, 2019 | 927,712 | $ | 93 | 3,125,000 | $ | 313 | $ | 3,920,735 | $ | 1,078,863 | $ | 5,000,004 | ||||||||||||||||
| Change in value of common stock subject to possible redemption | 8,839 | 1 | — | — | (444,701 | ) | — | (444,700 | ) | |||||||||||||||||||
| Net income | — | — | — | — | — | 444,697 | 444,697 | |||||||||||||||||||||
| Balance – March 31, 2019 (unaudited) | 936,551 | $ | 94 | 3,125,000 | $ | 313 | $ | 3,476,034 | $ | 1,523,560 | $ | 5,000,001 | ||||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
3
GORDON POINTE ACQUISITION CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 444,697 | $ | 35,856 | ||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Interest earned on marketable securities held in Trust Account | (733,515 | ) | (292,038 | ) | ||||
| Unrealized (gain) loss on marketable securities held in Trust Account | (7,485 | ) | 16,762 | |||||
| Deferred income taxes | 1,572 | — | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | 6,527 | (83,692 | ) | |||||
| Accounts payable and accrued expenses | (18,662 | ) | 121,899 | |||||
| Income taxes payable | 119,664 | 9,531 | ||||||
| Net cash used in operating activities | (187,202 | ) | (191,682 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Cash withdrawn from Trust Account | 166,365 | — | ||||||
| Investment of cash in Trust Account | — | (126,250,000 | ) | |||||
| Net cash provided by (used in) investing activities | 166,365 | (126,250,000 | ) | |||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from sale of Units, net of underwriting discounts paid | — | 122,500,000 | ||||||
| Proceeds from sale of Private Placement Warrants | — | 4,900,000 | ||||||
| Advances from related party | 164,850 | 88,095 | ||||||
| Repayment of advances from related party | (164,850 | ) | (55,207 | ) | ||||
| Payment of offering costs | — | (528,339 | ) | |||||
| Net cash provided by financing activities | — | 126,904,549 | ||||||
| Net Change in Cash | (20,837 | ) | 462,867 | |||||
| Cash – Beginning | 89,557 | 3,193 | ||||||
| Cash – Ending | $ | 68,720 | $ | 466,060 | ||||
| Non-Cash Investing and Financing activities: | ||||||||
| Initial classification of common stock subject to possible redemption | $ | — | $ | 117,371,161 | ||||
| Change in value of common stock subject to possible redemption | $ | 444,700 | $ | 34,542 | ||||
| Deferred underwriting fees | $ | — | $ | 4,375,000 | ||||
| Deferred legal fee payable | $ | — | $ | 72,500 | ||||
The accompanying notes are an integral part of these condensed financial statements.
4
GORDON POINTE ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Gordon Pointe Acquisition Corp. (the “Company”), is a blank check company incorporated in Delaware on April 12, 2017. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or assets (a “Business Combination”). Although the Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination, the Company is focusing on businesses in the financial services technology sector or related financial services or technology sectors.
All activity through March 31, 2019 relates to the Company’s formation, the Company’s initial public offering (the “Initial Public Offering”) of 12,500,000 units, the simultaneous sale of 4,900,000 warrants (the “Private Placement Warrants”) in a private placement (the “Private Placement”) to Gordon Pointe Management, LLC (the “Sponsor”), and the Company’s search for a target business with which to complete a Business Combination.
NOTE 2. LIQUIDITY
As of March 31, 2019, the Company had $68,720 in its operating bank accounts, $128,971,406 in marketable securities held in the Trust Account to be used for a Business Combination or to repurchase or redeem stock in connection therewith and a working capital deficit of $180,583, which excludes franchise and income taxes payable of $445,922, of which such amounts will be paid from interest earned on the Trust Account. As of March 31, 2019, approximately $2,721,000 of the amount on deposit in the Trust Account represented interest income, which is available to pay the Company’s tax obligations. During the three months ended March 31, 2019, the Company withdrew $166,365 of interest from the Trust Account in order to pay its franchise tax obligations.
Until the consummation of a Business Combination, the Company will be using the funds not held in the Trust Account for identifying and evaluating prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting target businesses to acquire, and structuring, negotiating and consummating the Business Combination.
In April 2019, the Sponsor committed to provide an aggregate of $410,000 in loans to the Company to finance transaction costs in connection with a Business Combination. To the extent advanced, the loans will be evidenced by a promissory note, will be non-interest bearing, unsecured and will only be repaid upon the completion of a Business Combination. The loans may also be convertible into common stock purchase warrants at a purchase price of $1.00 per warrant. The warrants would be identical to the Private Placement Warrants, including as to exercise price, exercisability and exercise period. Through March 31, 2019, there have been no borrowings pursuant to the Sponsor commitment.
The Company may raise additional capital through loans or additional investments from the Sponsor or its stockholders, officers, directors, or third parties. The Company’s officers and directors and the Sponsor may, but, except as described above, are not obligated to, loan the Company funds, from time to time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs.
The Company does not believe it will need to raise additional funds in order to meet expenditures required for operating its business. Neither the Sponsor, nor any of the stockholders, officers or directors, or third parties are under any obligation to advance funds to, or invest in, the Company, except for the $410,000 commitment discussed above. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to curtailing operations, suspending the pursuit of a potential transaction and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. Even if the Company can obtain sufficient financing or raise additional capital, it only has until July 30, 2019 to consummate a Business Combination. There is no assurance that they will be able to do so prior to July 30, 2019.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
5
GORDON POINTE ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC on March 18, 2019, which contains the audited financial statements and notes thereto. The financial information as of December 31, 2018 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The interim results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any future interim periods.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Marketable securities held in Trust Account
At March 31, 2019 and December 31, 2018, the assets held in the Trust Account were substantially held in U.S. Treasury Bills. During the three months ended March 31, 2019, the Company withdrew $166,365 of interest income to pay its franchise tax obligations. In April 2019, the Company withdrew an additional $370,000 to pay its income tax obligations.
Net income (loss) per common share
Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. The Company applies the two-class method in calculating earnings per share. An aggregate of 11,563,449 and 11,603,176 shares of common stock subject to possible redemption at March 31, 2019 and 2018, respectively, which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic net income (loss) per share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. The Company has not considered the effect of warrants sold in the Initial Public Offering and Private Placement to purchase 17,400,000 shares of Class A common stock in the calculation of diluted net income (loss) per share, since the exercise of the warrants is contingent upon the occurrence of future events. As a result, diluted net income (loss) per common share is the same as basic net income (loss) per common share for the periods presented.
Reconciliation of net income (loss) per common share
The Company’s net income (loss) is adjusted for the portion of income that is attributable to common stock subject to possible redemption, as these shares only participate in the earnings of the Trust Account and not the income or losses of the Company. Accordingly, basic and diluted net income (loss) per common share is calculated as follows:
| Three Months Ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| Net income | $ | 444,697 | $ | 35,856 | ||||
| Less: Income attributable to common stock subject to possible redemption | (272,977 | ) | (213,632 | ) | ||||
| Adjusted net income (loss) | $ | 171,720 | $ | (177,776 | ) | |||
| Weighted average shares outstanding, basic and diluted | 4,052,712 | 3,711,062 | ||||||
| Basic and diluted net income (loss) per common share | $ | 0.04 | $ | (0.05 | ) | |||
6
GORDON POINTE ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)
Recently Issued Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
NOTE 4. RELATED PARTY TRANSACTIONS
Advances from Related Party
In March 2019, the Sponsor advanced an aggregate of $164,850 for working capital purposes, of which such amount was repaid during the three months ended March 31, 2019. As of March 31, 2019, there were no outstanding advances.
Administrative Services Agreement
The Company entered into an agreement whereby, commencing on January 30, 2018 through the earlier of the consummation of a Business Combination or the Company’s liquidation, the Company will pay an affiliate of the Sponsor a monthly fee of $10,000 for office space, utilities and administrative support. For the three months ended March 31, 2019 and 2018, the Company incurred $30,000 and $20,000, respectively, in fees for these services. At March 31, 2019 and December 31, 2018, $90,000 and $60,000 in administrative fees, respectively, are included in accounts payable and accrued expenses in the accompanying condensed balance sheets.
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Sponsor, the Company’s officers and directors may, but are not obligated to (other than the Sponsor's commitment to provide the Company an aggregate of $410,000 in loans in order to finance transaction costs in connection with a Business Combination (see Note 8)), loan the Company funds from time to time or at any time, as may be required (the “Working Capital Loans”). Each Working Capital Loan would be evidenced by a promissory note. The Working Capital Loans would either be paid upon consummation of a Business Combination, without interest, or, at the holder’s discretion, up to $1,500,000 of the Working Capital Loans may be converted into warrants at a price of $1.00 per warrant. The warrants would be identical to the Private Placement Warrants.
NOTE 5. COMMITMENTS
Director Compensation
The Company has agreed to pay each of its independent directors an annual retainer of $20,000 (pro-rated for interim periods of service) for their service as members of the Company’s Board, for which, in addition to general matters of corporate governance and oversight, the Company expects its Board members to assist the Company in the identification and evaluation of industries and particular businesses that are, in the reasonable judgment of the Board, suitable acquisition targets for the Company, as well as assisting the Company in the review and analysis of alternative Business Combinations. In addition, the Company has agreed to pay each independent director a telephonic meeting fee of $1,000 or in-person meeting fee of $1,500 for each meeting attended by such independent director. The Company has also agreed to pay the Chairperson of the Audit Committee an annual retainer of $7,500 and the Chairperson of the Compensation Committee an annual retainer of $5,000. The fees will be deferred and become payable only if the Company consummates a Business Combination. If a Business Combination does not occur, the Company will not be required to pay these contingent fees, therefore, these amounts are not accrued in the accompanying financial statements.
Registration Rights
Pursuant to a registration rights agreement entered into on January 24, 2018, the holders of the Company’s Class F common stock (the “Founder Shares”), Private Placement Warrants (and their underlying securities) and the warrants that may be issued upon conversion of the Working Capital Loans (and their underlying securities) are entitled to registration rights. The holders of a majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
7
GORDON POINTE ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)
Underwriters Agreement
The underwriters are entitled to a deferred fee of three and one-half percent (3.5%) of the gross proceeds of the Initial Public Offering, or $4,375,000. The deferred fee will be paid in cash upon the closing of a Business Combination from the amounts held in the Trust Account, subject to the terms of the underwriting agreement.
Deferred Legal Fee
In connection with the closing of the Initial Public Offering, the Company became obligated to pay its attorneys a deferred legal fee of $72,500 upon consummation of a Business Combination. Accordingly, the Company recorded $72,500 as deferred legal payable in the accompanying balance sheets.
NOTE 6. STOCKHOLDERS’ EQUITY
Preferred Stock — The Company is authorized to issue 5,000,000 shares of preferred stock with a par value of $0.0001 per share with such designation, rights and preferences as may be determined from time to time by the Company’s Board of Directors. At March 31, 2019 and December 31, 2018, there were no shares of preferred stock issued or outstanding.
Class A Common Stock — The Company is authorized to issue 40,000,000 shares of common stock with a par value of $0.0001 per share. Holders of the Company’s Class A common stock are entitled to one vote for each share. At March 31, 2019 and December 31, 2018, there were 936,551 and 927,712 shares of common stock issued and outstanding, excluding 11,563,449 and 11,572,288 shares of common stock subject to possible redemption, respectively.
Class F Common Stock — The Company is authorized to issue 5,000,000 shares of common stock with a par value of $0.0001 per share. Holders of the Company’s Class F common stock are entitled to one vote for each share. At March 31, 2019 and December 31, 2018, there were 3,125,000 shares of common stock issued and outstanding.
NOTE 7. FAIR VALUE MEASUREMENTS
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
| Level 1: | Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. | |
| Level 2: | Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. | |
| Level 3: | Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability. |
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at March 31, 2019 and December 31, 2018, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Description | Level | March 31, 2019 | December 31, 2018 | |||||||
| Assets: | ||||||||||
| Marketable securities held in Trust Account | 1 | $ | 128,971,406 | $ | 128,396,771 | |||||
NOTE 8. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued. Other than as described below in Notes 2 and 3, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements.
8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to the “Company,” “our,” “us” or “we” refer to Gordon Pointe Acquisition Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited 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.
Cautionary note regarding forward-looking statements
All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q including, without limitation, statements under this “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 Quarterly Report on 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 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 April 12, 2017 as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (a “Business Combination”). We completed our Initial Public Offering on January 30, 2018. Under the terms of our Initial Public Offering, we will have until July 30, 2019 to complete a Business Combination.
Since the date of the Initial Public Offering, we have been contacting businesses, intermediaries and other third parties to evaluate a number of targets that may be candidates for a possible Business Combination. Although we will continue to review a number of opportunities to enter into a Business Combination, we are not able to determine at this time whether we will complete a Business Combination within the allotted 18-month timeframe. We intend to effectuate our initial Business Combination using cash from the proceeds of the Initial Public Offering and the Private Placement, our capital stock, debt or a combination of cash, stock and debt.
Results of Operations
Our entire activity from inception up to January 30, 2018 was in preparation for our Initial Public Offering. Since the consummation of our Initial Public Offering, our activity has been limited to the evaluation of Business Combination candidates. We will not be generating any operating revenues until the closing and completion of our initial Business Combination. We are incurring expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For the three months ended March 31, 2019, we had net income of $444,697, which consists of interest income on marketable securities held in the Trust Account of $733,515 and an unrealized gain on marketable securities held in the Trust Account of $7,485, offset by operating costs of $175,067 and a provision for income taxes of $121,236.
For the three months ended March 31, 2018, we had net income of $35,856, which consists of interest income on marketable securities held in the Trust Account of $292,038, offset by operating costs of $229,889, an unrealized loss on marketable securities held in our Trust Account of $16,762, and a provision for income taxes of $9,531.
Liquidity and Capital Resources
As of March 31, 2019, we had marketable securities held in the Trust Account of $128,971,406 (including approximately $2,721,000 of interest income) consisting of U.S. treasury bills with a maturity of 180 days or less. Interest income on the balance in the Trust Account may be used by us to pay taxes and up to $100,000 of dissolution expenses. Through March 31, 2019, we withdrew $166,365 of funds from the interest earned on the Trust Account to pay our franchise tax obligations. In April 2019, we withdrew an additional $370,000 to pay our income tax obligations.
For the three months ended March 31, 2019, cash used in operating activities was $187,202. Net income of $444,697 was affected by interest earned on marketable securities held in the Trust Account of 733,515, an unrealized gain on marketable securities held in our Trust Account of $7,485 and deferred income taxes of $1,572. Changes in operating assets and liabilities provided $107,529 of cash from operating activities.
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For the three months ended March 31, 2018, cash used in operating activities was $191,682, consisting primarily of interest earned on marketable securities held in the Trust Account of $292,038, offset by net income of $35,856 and an unrealized loss on marketable securities held in our Trust Account of $16,762. Changes in operating assets and liabilities provided $47,738 of cash from operating activities.
We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less deferred underwriting fees) to complete our initial Business Combination. We may withdraw interest from the Trust Account to pay franchise and income taxes. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our initial Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
As of March 31, 2019, we had cash of $68,720 held outside the Trust Account. We are using the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.
We have agreed to pay each of our independent directors an annual retainer of $20,000 (pro-rated for interim periods of service) for their service as members of our Board, for which, in addition to general matters of corporate governance and oversight, we expect our Board members to assist us in the identification and evaluation of industries and particular businesses that are, in the reasonable judgment of the Board, suitable acquisition targets for us, as well as assisting us in the review and analysis of alternative Business Combinations. In addition, we have agreed to pay each independent director a telephonic meeting fee of $1,000 or in-person meeting fee of $1,500 for each meeting attended by such independent director. We have also agreed to pay the Chairperson of the Audit Committee an annual retainer of $7,500 and the Chairperson of the Compensation Committee an annual retainer of $5,000. All such fees will be deferred and become payable on the consummation of a Business Combination.
In order to fund working capital deficiencies and/or finance transaction costs in connection with an initial Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete our initial Business Combination, we would repay such loaned amounts. In the event that our initial Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants, at a price of $1.00 per warrant at the option of the lender. The warrants would be identical to the Private Placement Warrants, including as to exercise price, exercisability and exercise period.
In April 2019, the Sponsor committed to provide an aggregate of $410,000 in loans to the Company in order to finance transaction costs in connection with a Business Combination. To the extent advanced, the loans will be evidenced by a promissory note, will be non-interest bearing, unsecured and will only be repaid upon the completion of a Business Combination. The loans may also be convertible into common stock purchase warrants at a purchase price of $1.00 per warrant. The warrants would be identical to the Private Placement Warrants, including as to exercise price, exercisability and exercise period. Through March 31, 2019, there have been no borrowings pursuant to the Sponsor commitment.
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our public shares upon completion of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination. If we are unable to complete our initial Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our initial Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
Off-balance sheet financing arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of March 31, 2019. 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 purchased any non-financial assets.
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Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities other than an agreement to pay an affiliate of our Sponsor a monthly fee of $10,000 for office space, utilities and administrative support provided to the Company. We began incurring these fees on January 30, 2018 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and the Company’s liquidation.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Common Stock subject to possible redemption
We account for our common stock subject to possible conversion in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and are measured at fair value. Conditionally redeemable common stock (including common stocks that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, common stocks are classified as stockholders’ equity. Our common stocks feature certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of our balance sheets.
Net income (loss) per common share
We apply the two-class method in calculating earnings per share. Common stock subject to possible redemption which is not currently redeemable and is not redeemable at fair value, has been excluded from the calculation of basic net income (loss) per common share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. Our net income is adjusted for the portion of income that is attributable to common stock subject to possible redemption, as these shares only participate in the earnings of the Trust Account and not our income or losses.
Recent accounting pronouncements
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Following the consummation of our Offering, we invested the funds held in the Trust Account in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest solely in United States Treasuries. Due to the short-term nature of the money market fund’s investments, we do not believe that there will be an associated material exposure to interest rate risk.
Item 4. Controls and Procedures.
Disclosure 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 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 March 31, 2019. 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.
Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that has occurred during the fiscal quarter of 2019 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
Factors that could cause our actual results to differ materially from those in this report are any of the risks described in our Annual Report on Form 10-K filed with the SEC on March 18, 2019. 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 on Form 10-K filed on March 18, 2019 with the SEC, however, 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.
None
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
| Exhibit Number | Description | |
| 31.1* | Certification of Principal Executive Officer 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 Principal Financial Officer 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 Principal Executive Officer 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 Principal Financial Officer 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 | |
| 101.SCH* | XBRL Taxonomy Extension Schema | |
| 101.CAL* | XBRL Taxonomy Extension Calculation | |
| 101.DEF* | XBRL Taxonomy Extension Definition | |
| 101.LAB* | XBRL Taxonomy Extension Label | |
| 101.PRE* | XBRL Taxonomy Extension Presentation | |
| * | Filed herewith. |
| ** | Furnished. |
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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.
| GORDON POINTE ACQUISITION CORP. | |
| Date: May 6, 2019 | /s/ James J. Dolan |
| James J. Dolan | |
| Chairman and Chief Executive Officer | |
| (Principal Executive Officer) | |
| Date: May 6, 2019 | /s/ Douglas L. Hein |
| Douglas L. Hein | |
| Chief Financial Officer and Chief Operating Officer | |
| (Principal Financial and Accounting Officer) |
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