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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

 

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FORM 10-Q

 

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(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

OR 

☐	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 001-38454   

 

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Pure Acquisition Corp.

(Exact Name of Registrant as Specified in its Charter)

 

 

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Delaware		82-3434680
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)
421 W. 3rd Street, Suite 1000 Fort Worth, TX		76102
(Address of Principal Executive Offices)		(Zip Code)

 

(817) 850-9203

(Registrant’s Telephone Number, Including Area Code) 

 

 

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Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share	PACQ	NASDAQ
Warrants, each Warrant exercisable for one share of Class A Common Stock at an exercise price of $11.50	PACQW	NASDAQ
Units, each consisting of one share of Class A Common Stock and one-half of one Warrant	PACQU	NASDAQ

 

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 ☒  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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one): 

Large accelerated filer	☐	Accelerated filer	☐
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 ☐

 

As of November 13, 2019, there were 37,806,000 shares of Class A Common Stock, par value $0.0001 per share, and 10,350,000 shares of Class B Common Stock, par value $0.0001 per share, outstanding.

 

 

 

TABLE OF CONTENTS

 

	Page
Part I. Financial Information	3
Item 1. Financial Statements	3
Condensed Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018	3
Condensed Statements of Operations for the Three and Nine Months ended September 30, 2019 (unaudited)	4
Condensed Statements of Changes in Stockholders’ Equity for the Three and Nine Months ended September 30, 2019 (unaudited)	5
Condensed Statements of Cash Flows for the Nine Months ended September 30, 2019 (unaudited)	6
Notes to Condensed Financial Statements (unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3. Quantitative and Qualitative Disclosures About Market Risk	19
Item 4. Controls and Procedures	19
Part II. Other Information	20
Item 1. Legal Proceedings	20
Item 1A. Risk Factors	20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3. Defaults Upon Senior Securities	20
Item 4. Mine Safety Disclosures	20
Item 5. Other Information	20
Item 6. Exhibits	21

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

 

		September 30, 2019				December 31, 2018
		(Unaudited)				(Audited)
ASSETS
Current assets:
Cash		$	530,256			$	734,894
Prepaid expenses			-				3,023
Total current assets			530,256				737,917
Other assets:
Cash and marketable securities held in Trust Account			423,991,093				418,727,517
Total other assets			423,991,093				418,727,517
TOTAL ASSETS		$	424,521,349			$	419,465,434
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	104,930			$	39,867
Accrued taxes payable			63,123				357,759
Total current liabilities			168,053				397,626
Class A common stock subject to possible redemption; 41,400,000 at redemption value of $10 per share as of September 30, 2019 and December 31, 2018, respectively			414,000,000				414,000,000
Stockholders' equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized, none issued and outstanding			—				—
Class A common stock, $0.0001 par value; 200,000,000 shares authorized, -0- issued and outstanding (excluding 41,400,000 shares subject to possible redemption) as of September 30, 2019 and December 31, 2018, respectively			—				—
Class B common stock, $0.0001 par value; 15,000,000 shares authorized, 10,350,000 issued and outstanding as of September 30, 2019 and December 31, 2018			1,035				1,035
Additional paid-in capital			797,383				797,383
Retained earnings			9,554,878				4,269,390
Total stockholders' equity			10,353,296				5,067,808
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	424,521,349			$	419,465,434

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		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2019				2018				2019				2018
Revenues		$	-			$	-			$	-			$	-
Expenses:
Administrative expenses			30,000				30,000				90,000				56,000
General expenses			128,535				16,098				272,624				52,859
Franchise taxes			63,123				35,234				150,050				106,234
Total operating expense			221,658				81,332				512,674				215,093
Loss from operations			(221,658	)			(81,332	)			(512,674	)			(215,093	)
Other income - investment income on Trust Account			2,178,777				1,961,856				7,206,248				3,445,896
Net income before income tax provision			1,957,119				1,880,524				6,693,574				3,230,803
Income tax provision			370,572				394,468				1,408,086				678,468
Net income attributable to common shares		$	1,586,547			$	1,486,056			$	5,285,488			$	2,552,335
Weighted average shares outstanding:
Class A common stock			41,400,000				41,400,000				41,400,000				41,400,000
Class B common stock			10,350,000				10,350,000				10,350,000				10,350,000
Net income (loss) per share:
Basic and diluted income per common share, Class A		$	0.04			$	0.04			$	0.13			$	0.06
Basic and diluted loss per common share, Class B		$	(0.01	)		$	(0.00	)		$	(0.03	)		$	(0.01	)

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		Nine Month Period Ended September 30, 2019
		Class A Common Stock								Class B Common Stock								Additional Paid-in				Retained				Stockholders'
		Shares				Amount				Shares				Amount				Capital				Earnings				Equity
Balances, December 31, 2018			-			$	-				10,350,000			$	1,035			$	797,383			$	4,269,390			$	5,067,808
Net income			-				-				-				-				-				1,745,005				1,745,005
Balances, March 31, 2019			-				-				10,350,000				1,035				797,383				6,014,395				6,812,813
Net income			-				-				-				-				-				1,953,936				1,953,936
Balances, June 30, 2019			-			$	-				10,350,000			$	1,035			$	797,383			$	7,968,331			$	8,766,749
Net income			-				-				-				-				-				1,586,547				1,586,547
Balances, September 30, 2019			-			$	-				10,350,000			$	1,035			$	797,383			$	9,554,878			$	10,353,296

		Nine Month Period Ended September 30, 2018
		Class A Common Stock								Class B Common Stock								Additional Paid-in				Retained Earnings/ Accumulated				Stockholders'
		Shares				Amount				Shares				Amount				Capital				Deficit				Equity
Balances, December 31, 2017			-			$	-				10,350,000			$	1,035			$	23,965			$	(5,881	)		$	19,119
Net loss			-				-				-				-				-				(450	)			(450	)
Balances, March 31, 2018			-				-				10,350,000				1,035				23,965				(6,331	)			18,669
Sale of Class A common stock to public			41,400,000				4,140				-				-				413,995,860				-				414,000,000
Underwriting commissions and offering expenses			-				-				-				-				(9,506,582	)			-				(9,506,582	)
Sale of 10,280,000 Private Placement Warrants @ $1 per warrant			-				-				-				-				10,280,000				-				10,280,000
Shares subject to possible redemption			(41,085,881	)			(4,109	)			-				-				(410,854,701	)			-				(410,858,810	)
Net income			-				-				-				-				-				1,066,729				1,066,729
Balances, June 30, 2018			314,119			$	31				10,350,000			$	1,035			$	3,938,542			$	1,060,398			$	5,000,006
Shares subject to possible redemption			(148,606	)			(14	)											(1,486,046	)							(1,486,060	)
Net income																			-				1,486,056				1,486,056
Balances, September 30, 2018			165,513			$	17				10,350,000			$	1,035			$	2,452,496			$	2,546,454			$	5,000,002

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		Nine Months Ended September 30,
		2019				2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	5,285,488			$	2,552,335
Adjustments to reconcile net income to net cash used in operating activities:
Investment income earned on cash equivalents held in Trust Account			(7,206,248	)			(3,445,896	)
Changes in operating assets and liabilities:
Prepaid expenses			3,023				(8,183	)
Accounts payable and accrued expenses			65,063				15,701
Accrued taxes payable			(294,635	)			354,702
Net cash used in operating activities			(2,147,309	)			(531,341	)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment of cash in Trust Account			-				(414,000,000	)
Cash released from Trust Account			1,942,671				480,000
Net cash provided by (used in) investing activities			1,942,671				(413,520,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from public offering of Units							414,000,000
Proceeds from sale of Private Placement Warrants							10,280,000
Proceeds from promissory note from sponsor							200,000
Payment of promissory note from sponsor							(200,000	)
Payment of underwriting commissions							(8,280,000	)
Payment of offering costs (excluding related parties)							(1,192,542	)
Payment to related party for offering costs paid on behalf of the Company			-				(34,040	)
Net cash provided by financing activities			-				414,773,418
NET CHANGE IN CASH			(204,638	)			722,077
Cash, beginning of period			734,894				25,000
Cash, end of period		$	530,256			$	747,077
Supplemental cash flow information:
Cash paid for administrative services		$	90,000			$	50,000
Cash paid for franchise taxes		$	231,671			$	-
Cash paid for income taxes		$	1,621,000			$	430,000
Supplemental disclosure of non-cash transactions:
Common stock subject to redemption		$	-			$	412,344,870

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Note 1 - Description of Organization and Business Operations

 

Pure Acquisition Corp. (the "Company'', "we", "us" or "our") was incorporated in Delaware on November 13, 2017 as a blank check company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities (a "Business Combination"). We intend to focus our search for target businesses in the energy industry with an emphasis on opportunities in the upstream oil and gas industry in North America.

 

At September 30, 2019, the Company had not yet commenced operations. All activity from November 13, 2017 (inception) through September 30, 2019 relates to the Company's formation and the public offering described below. The Company will not generate any operating revenues until after completion of its Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the public offering. The Company has selected December 31 as its fiscal year-end. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.

 

On April 17, 2018 (the “IPO Closing Date”), the Company consummated its initial public offering (“Public Offering”) of 41,400,000 units, representing a complete exercise of the over-allotment option, at a purchase price of $10.00 per unit as discussed in Note 3. Each unit consists of one share of Class A common stock and one half of one warrant (a "Unit"). Each whole public warrant (the “Public Warrants”) entitles the holder to purchase one share of Class A common stock at a price of $11.50. Each Public Warrant will become exercisable on the later of 30 days after the completion of an initial Business Combination or 12 months from the April 17, 2018 close of the Company’s offering and will expire on the fifth anniversary of our completion of an initial Business Combination, or earlier upon redemption or liquidation.

 

On April 17, 2018, HighPeak Pure Acquisition, LLC ("HighPeak" and the "Sponsor") purchased from us an aggregate of 10,280,000 private placement warrants at $1.00 per private placement warrant (for a total purchase price of $10,280,000) in a private placement that occurred simultaneously with the consummation of the Public Offering.

 

The Company intends to finance its initial Business Combination with proceeds from the Public Offering and the $10,280,000 private placement (See Note 3 – Public Offering and Private Placement). Upon the closing of the Public Offering and the private placement, $414,000,000 (See Note 8 – Subsequent Events) was placed in a trust account (“Trust Account”). The proceeds held in the Trust Account will be invested only in U.S. government treasury bills with a maturity of one hundred eighty (180) days or less or in money market funds that meet certain conditions under Rule 2a-7 under the Investment Act of 1940 and invest only in direct U.S. government obligations.

 

The Company's management has broad discretion with respect to the specific application of the net proceeds of the Public Offering although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance the Company will be able to complete a Business Combination successfully. Management placed $10.00 per Unit sold in the Public Offering into the Trust Account to be held until the earlier of (i) the consummation of its initial Business Combination or (ii) the Company's failure to consummate a Business Combination within 18 months from the consummation of the Public Offering. Placing funds in the Trust Account may not protect those funds from third party claims against the Company. Although the Company will use its reasonable best efforts to have all vendors, service providers, prospective target businesses or other entities it engages, execute agreements with the Company waiving any claim of any kind in or to any monies held in the Trust Account, there is no guarantee such persons will execute such agreements. Additionally, the interest earned on the Trust Account balance may be released to the Company for any amounts necessary to pay (i) the Company's income and other tax obligations, (ii) payment of $10,000 per month to our Sponsor or one of its affiliates, for up to 18 months, for office space, utilities and secretarial and administrative support commencing on April 13, 2018, the date of listing of the Company's securities on the NASDAQ, and (iii) the Company's liquidation expenses if the Company is unable to consummate a Business Combination within the required time period (up to a maximum of $50,000).

 

Cash proceeds from the Public Offering and the private placement remaining outside the Trust Account are available to pay prospective acquisition business, technical, legal and accounting due diligence, continuing general and administrative expenses and for working capital purposes. To meet additional working capital needs, the Company's Sponsor or its affiliates may, but are not obligated to, loan the Company funds as may be required. The loans would either be paid upon consummation of the Company's initial Business Combination, or, at the lender's discretion, up to $1,500,000 of such loans may be converted upon consummation of the Company's Business Combination into private placement warrants at a price of $1.00 per private placement warrant. If the Company does not complete a Business Combination, the loans would be repaid only out of funds held outside of the Trust Account. 

 

 

Initial Business Combination

 

Pursuant to the NASDAQ Capital Markets listing rules, the Company's initial Business Combination must be with a target business or businesses whose collective fair market value is at least equal to 80% of the balance in the Trust Account, net of taxes payable, at the time of the execution of a definitive agreement for such Business Combination, although this may entail simultaneous acquisitions of several target businesses. The fair market value of the target will be determined by the Company's board of directors based upon one or more standards generally accepted by the financial community (such as actual and potential sales, earnings, cash flow, proved oil and gas reserves, oil and gas production, oil and gas lease acreage and/or book value). The target business or businesses the Company acquires may have a collective fair market value substantially in excess of 80% of the Trust Account balance. To consummate such a Business Combination, the Company may issue a significant amount of its debt or equity securities to the sellers of such business and/or seek to raise additional funds through a private offering of debt or equity securities. If the Company's securities are not listed on NASDAQ at the time of the initial Business Combination, the Company would not be required to satisfy the 80% requirement. However, the Company intends to satisfy the 80% requirement even if the Company's securities are not listed on NASDAQ at the time of the initial Business Combination.

 

The Company will provide the public stockholders, who are the holders of the Class A common stock ("Public Shares") sold as part of the Units in the Public Offering, whether purchased in the Public Offering or in the aftermarket and the Company's stockholders prior to the Public Offering (including the Sponsor) (the "Initial Stockholders") to the extent they purchase such Public Shares ("Public Stockholders"), with an opportunity to redeem all or a portion of their Public Shares of the Company's Class A common stock, irrespective of whether they vote for or against the proposed transaction or if the Company conducts a tender offer, upon the completion of the initial Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination, or (ii) by means of a tender offer, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest, net of taxes payable, divided by the number of the then outstanding shares of Class A common stock. The Class A common stock subject to redemption will be recorded at redemption value and classified as temporary equity, in accordance with Accounting Standards Codification ("ASC") Topic 480 "Distinguishing Liabilities from Equity". The Company will proceed with a Business Combination only if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and in the case of a stockholder vote, a majority of the outstanding shares voted are voted in favor of the Business Combination. The decision as to whether the Company will seek stockholder approval of a proposed Business Combination or conduct a tender offer will be made by the Company, solely in its discretion, based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require it to seek stockholder approval under the law or stock exchange listing requirement. If a stockholder vote is not required and the Company decides not to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to the proposed amended and restated certificate of incorporation, (i) conduct the redemptions pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate issuer tender offers, and (ii) file tender offer documents with the Securities and Exchange Commission (“SEC”) prior to completing the initial Business Combination which contain substantially the same financial and other information about the initial Business Combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies.

 

The Initial Stockholders will agree to vote their founders' shares (as described in Note 6) and any Public Shares purchased during or after the Public Offering in favor of the initial Business Combination, and the Company's executive officers, directors and director nominees have also agreed to vote any Public Shares purchased after the Public Offering in favor of the initial Business Combination. The Initial Stockholders entered into a letter agreement, pursuant to which they agreed to waive their redemption rights with respect to the initial Business Combination as to their founders' shares as well as any Public Shares purchased by the Initial Stockholders. In addition, the Initial Stockholders also agreed to waive their rights to liquidating distributions from the Trust Account with respect to the founders' shares if the Company fails to complete the initial Business Combination within the prescribed time frame. However, if the Initial Stockholders (or any of the Company's executive officers, directors or affiliates) acquire Public Shares after the Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares in the event the Company does not complete the initial Business Combination within such applicable time period.

 

The Company filed a preliminary proxy statement with the SEC on September 10, 2019, and filed a definitive proxy statement with the SEC on September 20, 2019 announcing a special meeting in lieu of its 2019 annual meeting of stockholders, at which the Company seeks the approval of its stockholders with respect to, among other things, a proposal to, amend (the “Extension Amendment”) the Company’s second and amended and restated certificate of incorporation (the “Charter”) to extend the date by which the Company must complete a business combination from October 17, 2019 to February 21, 2020 (the “Extended Date”). The Company will afford its public stockholders the right to redeem their shares of Class A Common Stock of a pro rata portion of the funds available in the Trust Account established by the Company in connection with the IPO at the time the Extension Amendment becomes effective. The purpose of the Extension Amendment is to allow the Company more time to complete its initial business combination, which the Company’s Board of Directors believes is in the best interests of the Company’s stockholders. The stockholders approved the Extension Amendment at the special meeting. The Company will hold another stockholder meeting prior to the Extended Date to seek stockholder approval of any proposed business combination. See Note 8 – Subsequent Events.

 

Pursuant to the Extension Amendment approved by the Company’s stockholders, the Sponsor has agreed to contribute or cause an affiliate to contribute to the Company as a loan $0.033 for each share of the Company’s Class A Common Stock issued in the IPO that is not redeemed in connection with the stockholder vote to approve the Extension for each month (commencing on October 17, 2019 and on the 17^th day of each subsequent calendar month) that is needed by the Company to complete a business combination from October 17, 2019 until the Extended Date and the Company will deposit such funds into the Trust Account. See Note 8 – Subsequent Events.

 

Pursuant to the Sponsor’s obligation under a certain letter agreement (the “Letter Agreement”), dated as of April 18, 2018, entered into with the Company in connection with the Company’s IPO, the Sponsor or an affiliate thereof is required to commence a tender offer for the Public Warrants not owned by the Sponsor or its affiliates at a price of $1.00 per Public Warrant promptly after any occurrence of (a) the Company’s announcement of an initial Business Combination or (b) following the Company filing of a preliminary proxy statement with respect to a proposed amendment to the Company’s Charter that would affect the substance or timing of the Company’s obligation to redeem 100% of the outstanding public shares if the Company does not complete a business combination within 18 months from closing the IPO.

 

In connection with the Extension Amendment and pursuant their obligations under the Letter Agreement, the Sponsor and certain affiliates (the “Offerors”), offered to purchase (the “Offer to Purchase”) 20,700,000 outstanding Public Warrants at the tender offer price of $1.00 in cash per Public Warrant. The Offer to Purchase is subject to the terms and conditions set forth in the Offer to Purchase, dated September 12, 2019 (together with exhibits and any amendments or supplements thereto, the “Schedule TO”) filed with the SEC on September 12, 2019, as amended by Amendment No. 1 on Schedule TO-T/A filed with the SEC on September 16, 2019, and as further amended by Amendment No. 2 on Schedule TO-T/A filed with the SEC on September 20, 2019. The Offer to Purchase expires at 11:59 p.m., Eastern Time, on October 11, 2019. The Offer is not conditioned upon any minimum number of Public Warrants being tendered. Pursuant to the Offer to Purchase, the Offerors purchased 248,000 Public Warrants for $248,000. See Note 8 – Subsequent Events.

 

 

Going Concern and Failure to Consummate a Business Combination

 

The Company has until February 21, 2020 to complete its initial Business Combination. If the Company is unable to complete the initial Business Combination by February 21, 2020, the Company must: (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 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 (which interest shall be net of taxes payable and up to $50,000 for 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 the case of clauses (ii) and (iii) 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 of the Company if an initial Business Combination is not completed by February 21, 2020 raises substantial doubt about the Company’s ability to continue as a going concern.  No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate. See Note 8 – Subsequent Events.

 

In the event of such liquidation, it is possible the per share value of the residual assets remaining available for distribution (including the Trust Account assets) will be less than the offering price per Unit in the Public Offering.  Based on the fair value of the Trust Account at September 30, 2019, the redemption value, after payment of accrued income taxes and other expenses, is greater than $10.00 per share.

 

 

 

Note 2 - Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited interim condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and pursuant to the accounting and disclosure rules and regulations of the SEC, and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position as of September 30, 2019 and the results of operations and cash flows for the period presented. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations. Interim results are not necessarily indicative of results for a full year.

 

The accompanying unaudited interim condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the final prospectus filed by the Company with the SEC on April 16, 2018 and with the Company’s Annual Report on Form 10-K filed with the SEC on February 8, 2019.

 

Emerging growth company

 

The Company is an "emerging growth company," as defined in Section 2(a) of the Securities Act of 1933, as amended, (the "Securities Act"), as modified by the Jumpstart our Business Startups Act of 2012, (the "JOBS Act"), and it may take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides 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 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.

 

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 has not considered the effect of the warrants sold in the Public Offering (including the over-allotment) and private placement warrants to purchase 20,700,000 and 10,280,000 shares of the Company’s Class A common stock, respectively, in the calculation of diluted income per share, since their inclusion would be anti-dilutive.

 

The Company’s statement of operations includes a presentation of net income per share for common shares subject to redemption in a manner similar to the two-class method of net income (loss) per share. Net income (loss) per common share for basic and diluted for Class A common stock is calculated by dividing the interest income earned on the Trust Account, net of applicable administrative fees, franchise taxes and income taxes, by the weighted average number of Class A common stock since issuance. Net loss per common share for basic and diluted for Class B common stock is calculated by dividing the net loss, which excludes income attributable to Class A common stock, by the weighted average number of Class B common stock outstanding for the period. 

 

 

Cash and cash equivalents

 

The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of September 30, 2019 or December 31, 2018. See Note 8 – Subsequent Events.

 

Cash and Marketable Securities held in the Trust Account

 

The amounts held in the Trust Account represent proceeds from the Public Offering and the private placement of private placement warrants of $414,000,000 which were invested in permitted United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), having a maturity of 180 days or less, or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act (“Permitted Investments”) and are classified as restricted assets because such amounts can only be used by the Company in connection with the consummation of an initial Business Combination.

 

As of September 30, 2019, and December 31, 2018, cash and Permitted Investments held in the Trust Account had a fair value of $423,991,093 and $418,727,517, respectively. For the three months and nine months ended September 30, 2019, investments held in the Trust Account generated interest income of $2,178,777 and $7,206,248, respectively. From the IPO Closing Date through September 30, 2019, the Company paid $2,591,000 to the IRS, with funds received from the Trust Account, for estimated federal income taxes. From the IPO Closing Date through September 30, 2019, the Company paid approximately $170,000 to an affiliate of our Sponsor, with funds received from the Trust Account, for administrative services.

 

Redeemable Common Stock

 

As discussed in Note 1, all of the 41,400,000 Public Shares contain a redemption feature which allows for the redemption of Class A Common Stock under the Company’s liquidation or tender offer/stockholder approval provisions. 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 has not specified a maximum redemption threshold, its amended and restated certificate of incorporation provides that 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.

 

The Company recognizes changes in redemption value immediately as they occur and will adjust the carrying value of the security at the end of each reporting period. Increases or decreases in the carrying number of redeemable shares of Class A Common Stock shall be affected by charges against additional paid-in capital.

 

Accordingly, at September 30, 2019, the 41,400,000 shares of Class A Common Stock were classified outside of permanent equity at approximately $10.00 per share.

 

Concentration of credit risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution which, at times may exceed the Federal depository insurance coverage of $250,000. At September 30, 2019, the Company had not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.

 

Use of estimates

 

The preparation of the financial statements in conformity with U.S. 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 expenses during the reporting period. Actual results could differ from those estimates.

 

Fair value of financial instruments

 

The fair value of the Company's assets and liabilities, which qualify as financial instruments under ASC Topic 820, "Fair Value Measurements and Disclosures", approximates the carrying amounts represented in the accompanying balance sheets, primarily due to their short-term nature.

 

 

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 of $9,506,582 consisting principally of underwriting discounts of $8,280,000 and $1,226,582 of professional, printing, filing, regulatory and other costs incurred through the date of the financial statements directly related to the preparation of the Public Offering were charged to stockholders' equity upon completion of the Public Offering (See Note 3).

 

Income taxes

 

The Company follows the asset and liability method for accounting for income taxes under FASB ASC 740 - "Income Taxes." Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

FASB ASC 740 prescribes a recognition threshold and a measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2019 and December 31, 2018. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.  

 

Related Parties

 

The Company follows subtopic ASC 850-10 for the identification of related parties and disclosure of related party transactions.

 

Pursuant to Section 850-10-20, the related parties include: (a) affiliates of the Company (“Affiliate” means, with respect to any specified person, any other person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such person, as such terms are used in and construed under Rule 405 under the Securities Act); (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing thrust that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

Recent Accounting Pronouncements

 

The Company has evaluated recently issued, but not yet effective, accounting pronouncements and does not believe they would have a material effect on the Company's financial statements.

 

Subsequent Events

 

The Company evaluates subsequent events and transactions that occur after the balance sheet date for potential recognition or disclosure. Any material events that occur between the balance sheet date and the date the financial statements were issued are disclosed as subsequent events, while the financial statements are adjusted to reflect any conditions that existed at the balance sheet date. See Note 8 – Subsequent Events.

 

  

 

Note 3 - Public Offering and Private Placement

 

Public Offering

 

On April 17, 2018, the Company sold 41,400,000 Units in its initial Public Offering, including 5,400,000 Units sold to cover over-allotments, at a price of $10.00 per Unit resulting in gross proceeds of $414,000,000. Each Unit consists of one share of the Company's Class A common stock and one-half of one warrant, each whole Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment. No fractional Public Warrants will be issued upon separation of the Units and only whole Public Warrants will trade. Each Public Warrant will become exercisable on the later of (i) 30 days after the completion of the initial Business Combination and (ii) 12 months from the closing of the Public Offering, April 17, 2018, and will expire five years after the completion of the initial Business Combination or earlier upon redemption or liquidation.

 

The Company filed a preliminary proxy statement with the SEC on September 10, 2019, and filed a definitive proxy statement with the SEC on September 20, 2019 announcing a special meeting in lieu of its 2019 annual meeting of stockholders, at which the Company seeks the approval of its stockholders with respect to, among other things, a proposal to, amend (the “Extension Amendment”) the Company’s second and amended and restated certificate of incorporation (the “Charter”) to extend the date by which the Company must complete a business combination from October 17, 2019 to February 21, 2020 (the “Extended Date”). The Company will afford its public stockholders the right to redeem their shares of Class A Common Stock of a pro rata portion of the funds available in the Trust Account established by the Company in connection with the IPO at the time the Extension Amendment becomes effective. The purpose of the Extension Amendment is to allow the Company more time to complete its initial business combination, which the Company’s Board of Directors believes is in the best interests of the Company’s stockholders. The stockholders approved the Extension Amendment at the special meeting. The Company will hold another stockholder meeting prior to the Extended Date to seek stockholder approval of any proposed business combination. See Note 8 – Subsequent Events.

 

Pursuant to the Extension Amendment approved by the stockholders, the Sponsor has agreed to contribute or cause an affiliate to contribute to the Company as a loan $0.033 for each share of the Company’s Class A Common Stock issued in the IPO that is not redeemed in connections with the stockholder vote to approve the Extension for each month (commencing on October 17, 2019 and on the 17^th day of each subsequent calendar month) that is needed by the Company to complete a business combination from October 17, 2019 until the Extended Date and the Company will deposit such funds into the Trust Account. See Note 8 – Subsequent Events. 

 

The Company may redeem the Public Warrants, in whole and not in part, at a price of $0.0l per Public Warrant upon 30 days' notice ("30-day redemption period"), only in the event the last sales price of the Class A common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which notice of redemption is given, provided there is an effective registration statement with respect to the shares of Class A common stock underlying such Public Warrants and a current prospectus relating to those shares of Class A common stock is available throughout the 30-day redemption period. If the Company calls the Public Warrants for redemption as described above, the Company's management will have the option to require all holders that wish to exercise Public Warrants to do so on a "cashless basis." In determining whether to require all holders to exercise their Public Warrants on a "cashless basis," the management will consider, among other factors, the Company's cash position, the number of Public Warrants outstanding and the dilutive effect on the Company's stockholders of issuing the maximum number of shares of Class A common stock issuable upon the exercise of the Public Warrants.

 

The Sponsor, pursuant to the Letter Agreement, has committed to offer or cause an affiliate to offer to purchase, at $1.00 per Public Warrant (exclusive of commissions), the outstanding Public Warrants in a tender offer that would commence after our announcement of an initial Business Combination and occur in connection with such Business Combination. The warrant tender offer would not be conditioned upon any minimum number of Public Warrants being tendered. The Sponsor also committed to offer or cause an affiliate to offer to purchase, at $1.00 per Public Warrant (exclusive of commissions), the outstanding Public Warrants in a tender offer that would commence after our filing of a proxy statement or information statement with respect to a proposed amendment to our amended and restated certificate of incorporation that would affect the substance of timing of our obligation to redeem 100% of our public shares if we do not complete a Business Combination within 18 months from the consummation of our Public Offering. Any such purchases would occur in connection with the effectiveness of such amendment.

 

In connection with the Extension Amendment, pursuant their obligations under the Letter Agreement, the Sponsor and certain affiliates (the “Offerors”), offered to purchase (the “Offer to Purchase”) 20,700,000 outstanding Public Warrants at the tender offer price of $1.00 in cash per Public Warrant. The Offer to Purchase is subject to the terms and conditions set forth in the Offer to Purchase, dated September 12, 2019 (together with exhibits and any amendments or supplements thereto, the “Schedule TO”) filed with the SEC on September 12, 2019, as amended by Amendment No. 1 on Schedule TO-T/A filed with the SEC on September 16, 2019, and as further amended by Amendment No. 2 on Schedule TO-T/A filed with the SEC on September 20, 2019. The Offer to Purchase expires at 11:59 p.m., Eastern Time, on October 11, 2019. The Offer to Purchase is not conditioned upon any minimum number of Public Warrants being tendered. Pursuant to the Offer to Purchase, the Offerors purchased 248,000 Public Warrants for $248,000. See Note 8 – Subsequent Events.

 

There will be no redemption rights or liquidating distributions with respect to the Public Warrants, which will expire if we fail to complete our Business Combination by February 21, 2020. The Company paid an underwriting discount of 2.0% of the per Unit offering price to the underwriters at the closing of the Public Offering.

 

Private Placement

 

The Sponsor purchased from the Company an aggregate of 10,280,000 private placement warrants at $1.00 per private placement warrant (for a total purchase price of $10,280,000) in a private placement that occurred simultaneously with the consummation of the offering.

 

 

 

Note 4 - Related Party Transactions

 

Founders’ Shares

 

In connection with the organization of the Company, a total of 10,062,500 shares of Class B common stock were sold to the Sponsor at a price of approximately $0.002 per share for an aggregate of $25,000 ("Founders' Shares"). In March 2018, our Sponsor returned to us, at no cost, an aggregate of 1,437,500 Founders’ Shares, which we cancelled, leaving an aggregate of 8,625,000 Founders’ Shares outstanding. In March 2018, our Sponsor transferred 40,000 Founders’ Shares to each of its three independent director nominees resulting in a total of 120,000 Founders’ Shares transferred to our independent director nominees. In April 2018, we effected a stock dividend of 0.2 shares of Class B common stock for each outstanding share of Class B common stock, resulting in our Sponsor and independent director nominees holding an aggregate of 10,350,000 Founders’ Shares. The Sponsor would have been required to forfeit only a number of shares of Class B common stock necessary to continue to maintain the 20.0% ownership interest in our shares of common stock after giving effect to the offering and exercise, if any, of the underwriters' over-allotment option. As a result of the full exercise of the underwriters' over-allotment option, no shares were forfeited.

 

Subject to certain limited exceptions, 50% of the Founders' Shares will not be transferred, assigned, sold until the earlier of: (i) one year after the date of the consummation of the initial Business Combination or (ii) the date on which the closing price of the Company's Class A common stock equals or exceeds $12.00 per share (as adjusted) for any 20 trading days within any 30-trading day period commencing after the initial Business Combination, and the remaining 50% of the Founders' Shares will not be transferred, assigned, sold until one year after the date of the consummation of the initial Business Combination, or earlier, in either case, if, subsequent to the Company's initial Business Combination, the Company consummates a subsequent liquidation, merger, stock exchange, reorganization or other similar transaction which results in all stockholders having the right to exchange their common stock for cash, securities or other property.

 

Related Party Loans

 

The Sponsor loaned the Company an aggregate of up to $200,000 to cover expenses related to the Company's formation and the Public Offering. The note was executed on December 16, 2017 and the Company requested and received $200,000 in funds on January 5, 2018. The Company repaid the note on April 17, 2018 in full without interest.

 

We do not believe we will need to raise additional funds following the offering to meet the expenditures required for operating our business. However, to finance transaction costs in connection with an intended initial Business Combination, our Sponsor, officers, directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we consummate an initial Business Combination, we would repay such loaned amounts. In the event the 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 private placement warrants of the post Business Combination entity at a price of $1.00 per private placement warrant at the option of the lender.

 

Administrative Service Agreement

 

Commencing on April 13, 2018, the date of the listing of our securities on the NASDAQ, through the earlier of our consummation of our initial Business Combination or our liquidation, we have agreed to pay our Sponsor or one of its affiliates $10,000 per month for up to 18 months to entice our Sponsor to make available to us certain general and administrative services, including office space, utilities and administrative support, as we may require from time to time. The Company incurred administrative expenses of $30,000 for both the three-month periods ended September 30, 2019 and September 30, 2018, respectively. For the nine-month periods ended September 30, 2019 and September 30, 2018, the Company incurred $90,000 and $56,000 for administrative services, respectively. From the IPO Closing Date through September 30, 2019, the Company paid approximately $170,000 to an affiliate of our Sponsor, with funds received from the Trust Account, for administrative services. Upon completion of the initial Business Combination or our liquidation, we will cease paying these monthly fees.

 

Private Placement

 

As discussed in Note 1, the Sponsor purchased an aggregate of 10,280,000 private placement warrants at $1.00 per private placement warrant (for a total purchase price of $10,280,000) from us simultaneous with the closing of the Public Offering. Each whole private placement warrant is exercisable for one whole share of the Company’s Class A Common Stock at a price of $11.50 per share. A portion of the purchase price of the private placement warrants was added to the proceeds from the Public Offering held in the Trust Account. If the initial Business Combination is not completed within 18 months from the closing of the Public Offering, the proceeds from the sale of the private placement warrants held in the Trust Account will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the private placement warrants will expire worthless. The private placement warrants will be non-redeemable and exercisable on a cashless basis so long as they are held by the Sponsor or its permitted transferees.

 

The Sponsor and the Company’s officers and directors agreed, subject to limited exceptions, not to transfer, assign or sell any of their private placement warrants until 30 days after the completion of the initial Business Combination.

 

Forward Purchase Agreement

 

In April 2018, HighPeak Energy Partners, LP ("HighPeak LP") entered into a forward purchase agreement with us that provides for the purchase by HighPeak LP of an aggregate of up to 15,000,000 shares of our Class A common stock and 7,500,000 warrants for $10.00 per forward unit, for an aggregate purchase price of up to $150,000,000 in a private placement that will close simultaneously with the closing of our initial Business Combination. HighPeak LP is a limited partnership affiliated with our Sponsor. The forward purchase warrants will have the same terms as the private placement warrants so long as they are held by HighPeak LP, its affiliates or its permitted transferees, and the forward purchase shares are identical to the shares of Class A common stock included in the Units sold in the Public Offering, except the forward purchase shares are subject to transfer restrictions and certain registration rights, as described in the forward purchase agreement. HighPeak LP's commitment under the forward purchase agreement may be reduced under certain circumstances as described in the agreement.

 

  

Warrant Tender Offer

 

Our Sponsor committed, pursuant to the Letter Agreement, to offer or cause an affiliate to offer to purchase, at $1.00 per Public Warrant (exclusive of commissions), the outstanding Public Warrants in a tender offer that would commence after our filing of a proxy statement or information statement with respect to a proposed amendment to our amended and restated certificate of incorporation that would affect the substance of timing of our obligation to redeem 100% of our public shares if we do not complete a Business Combination within 18 months from the closing of the Public Offering.

 

 In April 2018, an affiliate of our Sponsor deposited cash funds in an amount equal to $20,700,000 with Continental Stock Transfer & Trust Company prior to the closing of the Public Offering. The funds held in the escrow account may be used (or the letter of credit referred to below may be drawn upon) to pay $1.00 per whole Public Warrant to holders of Public Warrants (excluding private placement warrants or forward purchase warrants) that tender in the tender offer for the Public Warrants. At any time, our Sponsor or its affiliate may substitute a letter of credit from a financially capable bank in good standing in lieu of cash or cash in lieu of a letter of credit. Neither funds in the escrow account nor the letter of credit shall be held in trust nor comprise any portion of any pro-rata distribution of our Trust Account. In the event a Business Combination is announced and a tender offer for the Public Warrants is made, but the Business Combination is later abandoned, the tender offer will not be closed, and the Public Warrants will be returned to the holders.

 

In connection with the Extension Amendment, pursuant their obligations under the Letter Agreement, the Offerors offered to purchase 20,700,000 outstanding Public Warrants at the tender offer price of $1.00 in cash per Public Warrant. The Offer to Purchase is subject to the terms and conditions set forth in the Offer to Purchase, dated September 12, 2019 (together with exhibits and any amendments or supplements thereto, the “Schedule TO”) filed with the SEC on September 12, 2019, as amended by Amendment No. 1 on Schedule TO-T/A filed with the SEC on September 16, 2019, and as further amended by Amendment No. 2 on Schedule TO-T/A filed with the SEC on September 20, 2019. The Offer to Purchase will close at 11:59 p.m. Eastern Time on October 11, 2019, unless extended by the Offerors. The Offer to Purchase is not conditioned upon any minimum number of Public Warrants being tendered. Pursuant to the Offer to Purchase, the Offerors purchased 248,000 Public Warrants for $248,000. See Note 8 – Subsequent Events.

 

In the event we are unable to close a Business Combination by February 21, 2020, the escrow agent will be authorized to transfer $1.00 per whole Public Warrant, to holders of Public Warrants other than our sponsor and its affiliates, at the same time as we redeem our public shares, and all warrants will expire worthless. See Note 8 – Subsequent Events.

   

 

 Note 5 - Commitments and Contingencies

 

Business Combination Marketing Agreement

 

The Company engaged the underwriters from our Public Offering as advisors in connection with any potential Business Combination to assist us in holding meetings with our stockholders to discuss the potential Business Combination and the target business' attributes, introduce us to potential investors interested in purchasing our securities, assist us in obtaining stockholder approval for the Business Combination and assist us with our press releases and public filings in connection with the Business Combination. Pursuant to the Business Combination Marketing Agreement, as amended, the Company will pay Oppenheimer & Co. Inc. and EarlyBirdCapital a cash fee equal to $10.9 million (exclusive of any applicable finders’ fees which might become payable) for such services upon the consummation of our initial Business Combination. As of September 30, 2019, and December 31, 2018, none of the above services had been performed and accordingly, no amounts have been recorded in the accompanying financial statements.

 

Registration Rights

 

The holders of our Founders' Shares issued and outstanding and any private placement warrants issued to our Sponsor, officers, directors or their affiliates, including private placement warrants issued in payment of working capital loans made to us (and all underlying securities), will be entitled to registration rights pursuant to an agreement signed April 12, 2018. The holders of a majority of these securities are entitled to make up to three demands that we register such securities. The holders of the majority of the Founders' Shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of Class B common stock are to be released from escrow. The holders of a majority of the private placement warrants issued to our Sponsor, officers, directors or their affiliates in payment of working capital loans made to us (or underlying securities) can elect to exercise these registration rights at any time after we consummate a Business Combination. In addition, the holders have certain "piggy-back" registration rights with respect to registration statements filed subsequent to our consummation of a Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.

    

 

Note 6 - Stockholders' Equity

 

Preferred Stock

 

The Company is authorized to issue 1,000,000 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 September 30, 2019 and December 31, 2018, no preferred stock is issued or outstanding.

 

Class A Common Stock

 

The Company is authorized to issue up to 200,000,000 shares of Class A Common Stock. If the Company enters into an initial Business Combination, it may (depending on the terms of such initial Business Combination) be required to increase the number of shares of Class A Common Stock which the Company is authorized to issue at the same time as the Company’s stockholders vote on the initial Business Combination to the extent the Company seeks stockholder approval in connection with the initial Business Combination. Holders of the Company’s common stock are entitled to one vote for each share of common stock held. At September 30, 2019 and December 31, 2018, there were 41,400,000 shares of Class A Common Stock, of which 41,400,000 were classified outside of permanent equity. See Note 8 – Subsequent Events.

 

Class B Common Stock

 

The Company is authorized to issue up to 15,000,000 shares of Class B Common Stock. At September 30, 2019 and December 31, 2018, there were 10,350,000 shares of Class B Common Stock issued and outstanding. See Note 4 – Founders’ Shares.  

  

 

 

Note 7 – Fair Value Measurements

 

The following table presents information about the Company’s assets, measured on a recurring basis, as of September 30, 2019 and December 31, 2018. The table indicates the fair value hierarchy of the valuation techniques 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.

 

 

 

 

Note 8 – Subsequent Events

 

Extension Amendment

 

The Company filed a preliminary proxy statement with the SEC on September 10, 2019, and filed a definitive proxy statement with the SEC on September 20, 2019 (the “Proxy Statement”) announcing a special meeting in lieu of its 2019 annual meeting of stockholders, at which the Company sought and received the approval of its stockholders with respect to, among other things, a proposal (the “Proposal”) to, amend (the “Extension Amendment”) the Company’s second and amended and restated certificate of incorporation (the “Charter”) to extend the date by which the Company must complete a business combination (the “Extension”) from October 17, 2019 to February 21, 2020 (the “Extended Date”). The special meeting was held on October 10, 2019 at which the Company’s stockholders approved, among other things, the Extension Amendment and the ratification of the selection by the Company’s audit committee of WithumSmith+Brown, PC to serve as the Company’s independent registered public accounting firm for the year ending December 31, 2019 . The Company afforded its public stockholders the right to redeem their shares of Class A Common Stock of a pro rata portion of the funds available in the Trust Account established by the Company in connection with the IPO at the time the Extension Amendment became effective. The Company’s public stockholders redeemed 3,594,000 shares for approximately $36.8 million. Consequently, the Company has 37,806,000 Public Shares outstanding as of November 8, 2019. The purpose of the Extension Amendment was to allow the Company more time to complete its initial business combination, which the Company’s Board of Directors believes is in the best interests of the Company’s stockholders. The Company will hold another stockholder meeting prior to the Extended Date to seek stockholder approval of any proposed business combination.

 

The Sponsor has agreed to contribute or cause an affiliate to contribute to the Company as a loan $0.033 for each share of the Company’s Class A Common Stock issued in the IPO that is not redeemed in connection with the stockholder vote to approve the Extension for each month (commencing on October 17, 2019 and on the 17^th day of each subsequent calendar month) that is needed by the Company to complete a business combination from October 17, 2019 until the Extended Date and the Company will deposit such funds into the Trust Account.

 

Warrant Tender Offer

 

In connection with the Extension Amendment and pursuant their obligations under the Letter Agreement, the Offerors commenced an Offer to Purchase 20,700,000 outstanding Public Warrants at the tender offer price of $1.00 in cash per Public Warrant. The Offer to Purchase was subject to the terms and conditions set forth in the Offer to Purchase, dated September 12, 2019 (together with exhibits and any amendments or supplements thereto, the “Schedule TO”) filed with the SEC on September 12, 2019, as amended by Amendment No. 1 on Schedule TO-T/A filed with the SEC on September 16, 2019, and as further amended by Amendment No. 2 on Schedule TO-T/A filed with the SEC on September 20, 2019. The Offer to Purchase expired at 11:59 p.m., Eastern Time, on October 11, 2019. The Offer was not conditioned upon any minimum number of Public Warrants being tendered. In connection with the Offer to Purchase, the Offerors acquired 248,000 Public Warrants for $248,000.

 

 

HighPeak Energy, Inc.

 

On October 28, 2019, the Company formed HighPeak Energy, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“HighPeak Energy”).  The Company subscribed for 10,000 shares of HighPeak Energy common stock, par value $0.0001 per share, for $1.00.

 

 

 

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