ITEM
1. BUSINESS
E-compass
Acquisition Corp. (the “Company” or “we”) is a blank check company formed on September 23, 2014 for the
purpose of entering into a share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar
business combination with one or more businesses or entities, or entering into contractual arrangements that give us control over
such a target business. The Company’s efforts in identifying a prospective target businesses are not limited to a particular
industry or geographic region of the world although the Company has focused on target businesses located in the People’s
Republic of China (“China” or the “PRC”) that operate in the e-commerce and consumer retail industry.
On
August 18, 2015, we closed our initial public offering (“Public Offering”) of 4,000,000 units with each unit consisting
of one ordinary share, par value $.0001 per share (“Ordinary Share”), and one right (“Right”) to receive
one-tenth of one Ordinary Share upon consummation of an initial business combination. Simultaneous with the consummation of the
Public Offering, we consummated the private placement of 310,000 private Units (“Private Placement Units”) at a price
of $10.00 per Private Placement Unit, generating total proceeds of $3,100,000. The Private Placement Units were purchased by Lodestar
Investment Holdings I LLC (“Lodestar”), an affiliate of Richard Xu, our Chairman and Chief Executive Officer. The
Company received net proceeds of approximately $41,900,000 from the Public Offering and private placement.
After
deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds to us from the offering
and private placements were $41,900,000, of which $40,800,000 was deposited into a trust account and the remaining proceeds became
available to be used to provide for business, legal and accounting due diligence on prospective business combinations and continuing
general and administrative expenses. Through March 31, 2016, we have used approximately $161,000 of the net proceeds that were
not deposited into the trust fund to pay general and administrative expenses. The net proceeds deposited into the trust fund remain
on deposit in the trust fund earning interest. As of March 31, 2016, there was $40,851,104 held in the trust fund (including $51,104
of accrued interest).
In
connection with the Public Offering, the Company introduced the underwriter in the Public Offering to investors (“Lead Investors”)
that purchased $20,000,000 of the units offered in the Public Offering. The Lead Investors have waived their right to receive
$0.40 per share purchased by them in the Public Offering in the event they seek to redeem such shares into cash held in the trust
account described above in connection with an initial business combination or upon liquidation if the Company is unable to consummate
an initial business combination within the required time period (as described below) so that other holders of shares sold in the
Public Offering (“Public Shareholders”) will receive at least $10.40 per share purchased by them in the Public Offering
(“Public Shares”) upon redemption or liquidation.
Recent
Developments
On
July 18, 2016, our Board of Directors approved a change in the Company’s fiscal year from December 31 to March 31, effective
immediately.
On July 25, 2016, the Company entered
into a merger agreement (the “Merger Agreement”) with, iFresh Inc., a Delaware corporation and a wholly-owned subsidiary
of E-compass, or “iFresh,” iFresh Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of iFresh, or
“Merger Sub,” NYM Holding, Inc., a Delaware corporation, or “NYM,” the stockholders of NYM, and Long Deng,
as representative of the stockholders. Pursuant to the terms of the Merger Agreement, if the transaction closes, the Company will
be merged with and into iFresh in order to redomesticate the Company into Delaware. After the redomestication, Merger Sub would
be merged with and into NYM, resulting in NYM being a wholly owned subsidiary of iFresh. The transaction would constitute a Business
Combination.
NYM is a fast growing Asian/Chinese
grocery supermarket chain in the north-eastern U.S. providing food and other merchandise hard to find in mainstream grocery stores.
Since its start in 1995, NYM has been targeting the Chinese and Asian population in the U.S. with its in-depth cultural understanding
of its target customer’s unique consumption habits. NYM currently has two wholesale facilities and 8 retail supermarkets
across New York, Massachusetts and Florida, with an annual revenue of $131.2 million for the the fiscal year ended March 31, 2016.
The Company would pay NYM’s current stockholders an aggregate of $125 million in connection with the transaction: (i) $5
million in cash, plus, (ii) 12,000,000 shares of common stock of iFresh to be issued to the selling shareholders multiplied by
$10.00 (the deemed value of the shares in the Merger Agreement). The transaction is conditioned on the surviving company receiving
a loan of at least $15 million in connection with the closing of the transactions contemplated by the Merger Agreement. If the
transaction closes, iFresh would also receive an option to acquire an additional five supermarkets prior to March 31, 2017 for
consideration of $10 million in cash. The transaction is expected to close before the end of 2016. Please see the Company’s
Current Report on Form 8-K dated July 25, 2016 for additional information relating to the Merger Agreement and transactions contemplated
thereby.
Market
Opportunity
Our
management team believes that companies that operate in the e-commerce and consumer retail industry will perform favorably over
the next decade due to a variety of reasons including:
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rising
spending power of Chinese consumers;
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China’s
online shopping population being relatively underpenetrated;
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expansion
of categories of products and services that are being made available online;
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increased
usage of mobile devices;
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China’s
traditional in-person retail market facing more and more significant challenges;
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offline
retailers increasing their usage of the online marketplaces to grow their business;
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the
general growth of China’s consumption; and
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growth
in China’s population utilizing the internet.
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Competitive
Advantages
We
believe our competitive strengths to be the following:
Status
as a Public Company
We
believe our structure will make us an attractive business combination partner to target businesses. As an existing public company,
we offer a target business an alternative to the traditional initial public offering through a merger or other business combination.
In this situation, the owners of the target business would exchange their shares in the target business for our shares or for
a combination of shares and cash. We believe target businesses might find this method a more certain and cost effective method
to becoming a public company than the typical initial public offering. In a typical initial public offering, there are additional
expenses incurred in marketing, roadshow and public reporting efforts that will likely not be present to the same extent in connection
with a business combination with us. Furthermore, once the business combination is consummated, the target business will have
effectively become public, whereas an initial public offering is always subject to the underwriters’ ability to complete
the offering as well as general market conditions that could prevent the offering from occurring. Once public, we believe the
target business would then have greater access to capital and an additional means of providing management incentives consistent
with stockholders’ interests than it would have as a privately-held company. It can offer further benefits by augmenting
a company’s profile among potential new customers and vendors and aid in attracting talented employees.
While
we believe that our status as a public company will make us an attractive business partner, some potential target businesses may
view the inherent limitations in our status as a blank check company as a deterrent and may prefer to effect a business combination
with a more established entity or with a private company.
Financial
Position
With
funds held in trust available for our initial business combination in the amount of approximately $41 million, we offer a target
business a variety of options. Having these funds could allow us to structure a business combination where a portion of the consideration
payable to owners of a target business is paid in cash. Such funds could also provide capital for the potential growth and expansion
of our target’s operations or strengthening its balance sheet by reducing its debt burden. Because we are able to consummate
our initial business combination using our cash, debt or equity securities, or a combination of the foregoing, we have the flexibility
to use the most efficient combination that will allow us to tailor the consideration to be paid to the target business to fit
its needs and desires.
Management
Operating and Investing Experience
We
believe that our executive officers and directors possess the experience, skills and contacts necessary to source, evaluate, and
execute an attractive business combination. Several of our officers and directors were previously officers and directors of Sino
Mercury Acquisition Corp., a blank check company similar to our company that consummated an initial business combination in October
2015. Additionally, members of our board of directors have extensive professional relationships with the governmental, legislative,
and diplomatic communities. We intend to leverage these extensive contacts and relationships of our executive officers and directors
to source, evaluate and execute business combination opportunities.
Our
executive officers and directors have strong reputations in the business community, experience in mergers and acquisitions and
long-term relationships with senior executives and decision-makers. We believe that their experience and relationships will provide
us with an important advantage in sourcing and structuring potential business combinations. Additionally, our executive officers
and directors have extensive contacts with consultants, investment bankers, attorneys, and accountants, among others. While the
past successes of our executive officers and directors do not guarantee that we will successfully consummate an initial business
combination, they will play an important role in assisting us to identify strong potential targets and negotiate an agreement
for our initial business combination and, to the extent that our executive officers and directors continue with us following the
consummation of an initial business combination, we believe that their experience will help us operate the combined company. However,
if we consummate a business combination in an industry or geographic location that our officers or directors do not have experience
in, the foregoing competitive advantages may not be applicable to us.
Effecting
a Business Combination
General
We
are not presently engaged in, and we will not engage in, any substantive commercial business for an indefinite period of time.
We intend to utilize cash derived from the proceeds of our Public Offering and the private placement of Private Placement Units,
our share capital, debt or a combination of these in effecting a business combination. Although substantially all of the net proceeds
of the Public Offering and the private placement of Private Placement Units are intended to be applied generally toward effecting
a business combination, the proceeds are not otherwise being designated for any more specific purposes. A business combination
may involve the acquisition of, or merger with, a company which does not need substantial additional capital but which desires
to establish a public trading market for its shares, while avoiding what it may deem to be adverse consequences of undertaking
a public offering itself. In the alternative, we may seek to consummate a business combination with a company that may be financially
unstable or in its early stages of development or growth. While we may seek to effect simultaneous business combinations with
more than one target business, we will probably have the ability, as a result of our limited resources, to effect only a single
business combination.
Sources
of Target Businesses
We
anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including investment
bankers, venture capital funds, private equity funds, leveraged buyout funds, management buyout funds and other members of the
financial community. Target businesses may be brought to our attention by such unaffiliated sources as a result of being solicited
by us through calls or mailings. These sources may also introduce us to target businesses they think we may be interested in on
an unsolicited basis, since many of these sources will have read our Public Offering prospectus and know what types of businesses
we are targeting. Our officers and directors, as well as their respective affiliates, may also bring to our attention target business
candidates that they become aware of through their business contacts as a result of formal or informal inquiries or discussions
they may have, as well as attending trade shows or conventions. We may determine to engage the services of professional firms
or other individuals that specialize in business acquisitions on a formal basis, in which event we may pay a finder’s fee,
consulting fee or other compensation to be determined in an arm’s length negotiation based on the terms of the transaction.
In no event, however, will any of our existing officers, directors, special advisors or initial shareholders, or any entity with
which they are affiliated, be paid any finder’s fee, consulting fee or other compensation prior to, or for any services
they render in order to effectuate, the consummation of a business combination (regardless of the type of transaction). If we
decide to enter into a business combination with a target business that is affiliated with our officers, directors or initial
shareholders, we will do so only if we have obtained an opinion from an independent investment banking firm that the business
combination is fair to our unaffiliated shareholders from a financial point of view.
Selection
of a Target Business and Structuring of a Business Combination
Subject
to the limitations that a target business have a fair market value of at least 80% of the balance in the trust account at the
time of the execution of a definitive agreement for our initial business combination, as described below in more detail, our management
will have virtually unrestricted flexibility in identifying and selecting a prospective target business. We have not established
any other specific attributes or criteria (financial or otherwise) for prospective target businesses. In evaluating a prospective
target business, our management may consider a variety of factors, including one or more of the following:
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financial
condition and results of operation;
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growth
potential;
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experience
and skill of management and availability of additional personnel;
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capital
requirements;
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competitive
position;
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barriers
to entry;
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stage
of development of its products, processes or services;
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degree
of current or potential market acceptance of the products, processes or services;
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proprietary
features and degree of intellectual property or other protection for its products, processes or services;
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regulatory
environment of the industry; and
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costs
associated with effecting the business combination.
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We
believe such factors will be important in evaluating prospective target businesses, regardless of the location or industry in
which such target business operates. However, this list is not intended to be exhaustive. Furthermore, we may decide to enter
into a business combination with a target business that does not meet these criteria and guidelines.
Any
evaluation relating to the merits of a particular business combination will be based, to the extent relevant, on the above factors
as well as other considerations deemed relevant by our management in effecting a business combination consistent with our business
objective. In evaluating a prospective target business, we will conduct an extensive due diligence review which will encompass,
among other things, meetings with incumbent management and inspection of facilities, as well as review of financial and other
information which is made available to us. This due diligence review will be conducted either by our management or by unaffiliated
third parties we may engage, although we have no current intention to engage any such third parties.
The
time and costs required to select and evaluate a target business and to structure and complete the business combination cannot
presently be ascertained with any degree of certainty. Any costs incurred with respect to the identification and evaluation of
a prospective target business with which a business combination is not ultimately completed will result in a loss to us and reduce
the amount of capital available to otherwise complete a business combination.
Fair
Market Value of Target Business
Pursuant
to Nasdaq listing rules, the target business or businesses that we acquire must collectively have a fair market value equal to
at least 80% of the balance of the funds in the trust account (excluding deferred underwriting commissions and taxes payable on
the income earned on the trust account) at the time of the execution of a definitive agreement for our initial business combination,
although we may acquire a target business whose fair market value significantly exceeds 80% of the trust account balance. We currently
anticipate structuring a business combination to acquire 100% of the equity interests or assets of the target business or businesses.
We may, however, structure a business combination where we merge directly with the target business or where we acquire less than
100% of such interests or assets of the target business in order to meet certain objectives of the target management team or shareholders
or for other reasons, but we will only complete such business combination if the post-transaction company owns or acquires 50%
or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient
for it not to be required to register as an investment company under the Investment Company Act. Even if the post-transaction
company owns or acquires 50% or more of the voting securities of the target, our shareholders prior to the business combination
may collectively own a minority interest in the post-transaction company, depending on valuations ascribed to the target and us
in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial number of
new shares in exchange for all of the outstanding capital of a target. In this case, we would acquire a 100% controlling interest
in the target. However, as a result of the issuance of a substantial number of new shares, our shareholders immediately prior
to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business
combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the
post-transaction company, only the portion of such business or businesses that is owned or acquired is what will be valued for
purposes of the 80% of net assets test. In order to consummate such an acquisition, we may issue a significant amount of our debt
or equity securities to the sellers of such businesses and/or seek to raise additional funds through a private offering of debt
or equity securities. Since we have no specific business combination under consideration, we have not entered into any such fund
raising arrangement and have no current intention of doing so. The fair market value of the target will be determined by our board
of directors based upon one or more standards generally accepted by the financial community (such as actual and potential sales,
earnings, cash flow and/or book value). If our board is not able to independently determine that the target business has a sufficient
fair market value, we will obtain an opinion from an unaffiliated, independent investment banking firm, or another independent
entity that commonly renders valuation opinions on the type of target business we are seeking to acquire, with respect to the
satisfaction of such criteria. We will not be required to obtain an opinion from an independent investment banking firm, or another
independent entity that commonly renders valuation opinions on the type of target business we are seeking to acquire, as to the
fair market value if our board of directors independently determines that the target business complies with the 80% threshold.
Shareholder
Approval of Business Combination
In
connection with any proposed business combination, we will seek shareholder approval of an initial business combination at a meeting
called for such purpose at which shareholders may seek to convert their shares, regardless of whether they vote for or against
the proposed business combination, for a pro rata share of the aggregate amount then on deposit in the trust account, less any
taxes then due but not yet paid. The amount in the trust account is initially anticipated to be $10.40 per share for public investors
and $10.00 for Lead Investors.
Under
our amended and restated memorandum and articles of association, we must provide at least 10 days advance notice of any meeting
of shareholders. The proxy statement mailed in connection with any meeting to approve a proposed business combination will describe
the manner in which you can vote on the proposed transaction. Generally, in order to vote at the meeting to approve a proposed
business combination, if you are a record holder, you will either need to send in a proxy card or attend the meeting and vote
in person. If your shares are held in “street name” or are in a margin or similar account, you would need to contact
your broker to ensure that votes related to the shares you beneficially own are properly counted. The proxy statement mailed in
connection with any meeting to approve a proposed business combination will also describe the vote necessary to approve the proposed
business combination. The actual vote required to approve any proposed business combination will depend on the structure of the
transaction itself and the requirements of our amended and restated memorandum and articles of association and the Companies Law
of the Cayman Islands; provided that the minimum vote required to approve any proposed business combination would be the affirmative
vote of a majority of the holders voting on such proposed business combination.
We
will consummate our initial business combination only if we have net tangible assets of at least $5,000,001 upon such consummation
and a majority of the outstanding ordinary shares voted are voted in favor of the business combination. We chose our net tangible
asset threshold of $5,000,001 to ensure that we would avoid being subject to Rule 419 promulgated under the Securities Act of
1933, as amended. In connection with the Public Offering, the Lead Investors agreed to hold at least $10,000,000 of the shares
acquired in the offering through the consummation of our initial business combination, to vote such shares in favor of such proposed
business combination and not seek conversion of such shares in connection therewith. As a result, we expect to meet the $5,000,001
net tangible asset requirement in order to complete an initial business combination.
Notwithstanding
the foregoing, if we seek to consummate an initial business combination with a target business that imposes any type of working
capital closing condition or requires us to have a minimum amount of funds available from the trust account upon consummation
of such initial business combination, our net tangible asset threshold may limit our ability to consummate such initial business
combination (as we may be required to have a lesser number of shares converted) and may force us to seek third party financing
which may not be available on terms acceptable to us or at all. As a result, we may not be able to consummate such initial business
combination and we may not be able to locate another suitable target within the applicable time period, if at all. Public shareholders
may therefore have to wait until February 18, 2017 (the deadline for us to consummate an initial business combination as described
in more detail below) in order to be able to receive a pro rata share of the trust account.
Our
initial shareholders and our officers and directors have agreed (1) to vote any ordinary shares owned by them in favor of any
proposed business combination and (2) not to convert any ordinary shares in connection with a shareholder vote to approve a proposed
initial business combination or a vote to amend the provisions of our amended and restated memorandum and articles of association
relating to shareholders’ rights or pre-business combination activity.
None
of our officers, directors, initial shareholders or their affiliates has indicated any intention to purchase units or ordinary
shares in the open market or in private transactions. However, if we hold a meeting to approve a proposed business combination
and a significant number of shareholders vote, or indicate an intention to vote, against such proposed business combination, our
officers, directors, initial shareholders or their affiliates could make such purchases in the open market or in private transactions
in order to influence the vote. Notwithstanding the foregoing, our officers, directors, initial shareholders and their affiliates
will not make purchases of ordinary shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act, which
are rules designed to stop potential manipulation of a company’s stock.
Conversion
Rights
At
any meeting called to approve an initial business combination, public shareholders may seek to convert their shares, regardless
of whether they vote for or against the proposed business combination, into their pro rata share of the aggregate amount then
on deposit in the trust account, less any taxes then due but not yet paid. In such event, the conversion rights will be effected
under our amended and restated memorandum and articles of association and Cayman Islands law as repurchases. A holder will always
have the ability to vote against a proposed business combination and not seek conversion of his shares.
Notwithstanding
the foregoing, a public shareholder, together with any affiliate of his or any other person with whom he is acting in concert
or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking conversion rights
with respect to 20% or more of the ordinary shares sold in our Public Offering. Accordingly, all shares in excess of 20% of the
shares sold in our Public Offering held by a holder will not be converted to cash. We believe this restriction will prevent shareholders
from accumulating large blocks of shares before the vote held to approve a proposed business combination and attempt to use the
conversion right as a means to force us or our management to purchase their shares at a significant premium to the then current
market price. By limiting a shareholder’s ability to convert no more than 20% of the ordinary shares sold in our Public
Offering, we believe we have limited the ability of a small group of shareholders to unreasonably attempt to block a transaction
which is favored by our other public shareholders.
Our
initial shareholders will not have conversion rights with respect to any ordinary shares owned by them, directly or indirectly,
whether acquired prior to this offering or purchased by them in this offering or in the aftermarket. The non-tendering investors
will not have conversion rights with respect to 1,000,000 ordinary shares purchased by them in this offering. Additionally, the
Lead Investors have waived their right to receive $0.40 per share purchased by them in the Public Offering in the event they seek
to convert such shares into cash held in the trust account so that Public Shareholders will receive at least $10.40 per share
purchased by them in the Public Offering upon conversion.
We
may also require Public Shareholders, whether they are a record holder or hold their shares in “street name,” to either
tender their certificates to our transfer agent at any time through the vote on the business combination or to deliver their shares
to the transfer agent electronically using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at
the holder’s option.
There
is a nominal cost associated with this tendering process and the act of certificating the shares or delivering them through the
DWAC system. The transfer agent will typically charge the tendering broker $45 and it would be up to the broker whether or not
to pass this cost on to the converting holder. However, this fee would be incurred regardless of whether or not we require holders
seeking to exercise conversion rights. The need to deliver shares is a requirement of exercising conversion rights regardless
of the timing of when such delivery must be effectuated. However, in the event we require shareholders seeking to exercise conversion
rights prior to the consummation of the proposed business combination and the proposed business combination is not consummated
this may result in an increased cost to shareholders.
Any
request to convert such shares once made, may be withdrawn at any time up to the vote on the proposed business combination. Furthermore,
if a holder of a public share delivered his certificate in connection with an election of their conversion and subsequently decides
prior to the applicable date not to elect to exercise such rights, he may simply request that the transfer agent return the certificate
(physically or electronically).
If
the initial business combination is not approved or completed for any reason, then our public shareholders who elected to exercise
their conversion rights would not be entitled to convert their shares for the applicable pro rata share of the trust account.
In such case, we will promptly return any shares delivered by Public Shareholders.
Contractual
Arrangements
The
government of the PRC has restricted or limited foreign ownership of certain kinds of assets and companies operating in a wide
variety of industries, including some online and mobile commerce businesses. The PRC may apply these restrictions in other industries
in the future. In addition, there can be restrictions on the foreign ownership of businesses that are determined from time to
time to be in “important industries” that may affect the national economic security or having “famous Chinese
brand names” or “well established Chinese brand names.” Subject to the review requirements of the Ministry of
Commerce and other relevant agencies as discussed elsewhere for acquisitions of assets and companies in the PRC and subject to
the various percentage ownership limitations that exist from time to time, acquisitions involving foreign investors and parties
in the various restricted categories of assets and industries may nonetheless sometimes be consummated using contractual arrangements
with permitted Chinese parties through variable interest entities, which are entities 100% owned by Chinese citizens. To the extent
that such agreements are employed, they may be for control of specific assets such as intellectual property or control of blocks
of the equity ownership interests of a company. The agreements would be designed to provide our company with the economic benefits
of and control over the subject assets or equity interests similar to the rights of full ownership, while leaving the technical
ownership in the hands of Chinese parties who would likely be designated by our company.
For
example, these contracts could result in a structure where, in exchange for our payment of the acquisition consideration, (i)
the target company would be majority owned by Chinese residents whom we designate and the target company would continue to hold
the requisite licenses for the target business, and (ii) we would establish a new subsidiary in China which would provide technology,
technical support, consulting and related services to the target company in exchange for fees, which would transfer to us substantially
all of the economic benefits of ownership of the target company.
These
contractual arrangements would be designed to provide the following:
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Our
exercise of effective control over the target company;
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A
substantial portion of the economic benefits of the target company would be transferred to us; and
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We,
or our designee, would have an exclusive option to purchase all or part of the equity interests in the target company owned
by the Chinese residents whom we designate, or all or part of the assets of the target company, in each case when and to the
extent permitted by Chinese regulations.
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While
we cannot predict the terms of any such contract that we will be able to negotiate, at a minimum, any contractual arrangement
would need to provide us with (i) effective control over the target’s operations and management either directly through
board control or through affirmative and/or negative covenants and veto rights with respect to matters such as entry into material
agreements, management changes and issuance of debt or equity securities, among other potential control provisions and (ii) a
sufficient level of economic interest to ensure that we satisfy the 80% net asset test required for our initial business combination.
We have not, however, established specific provisions which must be in an agreement in order to meet the definition of business
combination.
These
agreements likely also would provide for increased ownership or full ownership and control by us when and if permitted under PRC
law and regulation. If we choose to effect a business combination that employs the use of these types of control arrangements,
we may have difficulty in enforcing our rights. Therefore these contractual arrangements may not be as effective in providing
us with the same economic benefits, accounting consolidation or control over a target business as would direct ownership through
a merger or stock exchange. For example, if the target business or any other entity fails to perform its obligations under these
contractual arrangements, we may have to incur substantial costs and expend substantial resources to enforce such arrangements,
and rely on legal remedies under Chinese law, including seeking specific performance or injunctive relief, and claiming damages,
which we cannot assure will be sufficient to off-set the cost of enforcement and may adversely affect the benefits we expect to
receive from the business combination.
Moreover,
we expect that the contractual arrangements upon which we would be relying would be governed by Chinese law and would be the only
basis of providing resolution of disputes which may arise through either arbitration or litigation in China. Accordingly, these
contracts would be interpreted in accordance with Chinese law and any disputes would be resolved in accordance with Chinese legal
procedures. Uncertainties in the Chinese legal system could limit our ability to enforce these contractual arrangements. In the
event we are unable to enforce these contractual arrangements, we may not be able to exert the effective level of control over
the target business.
Automatic
Liquidation of Trust Account if No Business Combination
If
we do not complete a business combination by February 18, 2017, it will trigger our automatic winding up, dissolution and liquidation
pursuant to the terms of our amended and restated memorandum and articles of association. As a result, this has the same effect
as if we had formally gone through a voluntary liquidation procedure under the Companies Law. Accordingly, no vote would be required
from our shareholders to commence such a voluntary winding up, dissolution and liquidation.
The
amount in the trust account (less $400 representing the aggregate nominal par value of the shares of our public shareholders)
under the Companies Law will be treated as share premium which is distributable under the Cayman Companies Law provided that immediately
following the date on which the proposed distribution is proposed to be made, we are able to pay our debts as they fall due in
the ordinary course of business. If we are forced to liquidate the trust account, we anticipate that we would distribute to our
public shareholders the amount in the trust account calculated as of the date that is two days prior to the distribution date
(including any accrued interest). Prior to such distribution, we would be required to assess all claims that may be potentially
brought against us by our creditors for amounts they are actually owed and make provision for such amounts, as creditors take
priority over our public shareholders with respect to amounts that are owed to them. We cannot assure you that we will properly
assess all claims that may be potentially brought against us. As such, our shareholders could potentially be liable for any claims
of creditors to the extent of distributions received by them as an unlawful payment in the event we enter an insolvent liquidation.
Furthermore, while we will seek to have all vendors and service providers (which would include any third parties we engaged to
assist us in any way in connection with our search for a target business) and prospective target businesses execute agreements
with us waiving any right, title, interest or claim of any kind they may have in or to any monies held in the trust account, there
is no guarantee that they will execute such agreements. Nor is there any guarantee that, even if such entities execute such agreements
with us, they will not seek recourse against the trust account or that a court would conclude that such agreements are legally
enforceable.
Each
of our initial shareholders has agreed to waive its rights to participate in any liquidation of our trust account or other assets
with respect to the ordinary shares owned by them prior to the Public Offering (the “insider shares”) and ordinary
shares included in the Private Placement Units (the “private shares”) and to vote their insider shares and private
shares in favor of any dissolution and plan of distribution which we submit to a vote of shareholders. There will be no distribution
from the trust account with respect to our rights, which will expire worthless.
If
we are unable to complete an initial business combination and expend all of the net proceeds of this offering, other than the
proceeds deposited in the trust account, and without taking into account interest, if any, earned on the trust account, the initial
per-share distribution from the trust account would be $10.40 for Public Shareholders and $10.00 for Lead Investors.
The
proceeds deposited in the trust account could, however, become subject to the claims of our creditors which would be prior to
the claims of our public shareholders. Although we will seek to have all vendors, including lenders for money borrowed, prospective
target businesses or other entities we engage execute agreements with us waiving any right, title, interest or claim of any kind
in or to any monies held in the trust account for the benefit of our public shareholders, there is no guarantee that they will
execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the
trust account, including but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims,
as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with a claim against
our assets, including the funds held in the trust account. If any third party refused to execute an agreement waiving such claims
to the monies held in the trust account, we would perform an analysis of the alternatives available to us if we chose not to engage
such third party and evaluate if such engagement would be in the best interest of our shareholders if such third party refused
to waive such claims. Examples of possible instances where we may engage a third party that refused to execute a waiver include
the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly
superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a provider
of required services willing to provide the waiver. In any event, our management would perform an analysis of the alternatives
available to it and would only enter into an agreement with a third party that did not execute a waiver if management believed
that such third party’s engagement would be significantly more beneficial to us than any alternative. In addition, there
is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of,
any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason.
Richard
Xu and Chen Liu, our President and a Director, have personally agreed that, if we liquidate the trust account prior to the consummation
of a business combination, they will be liable to pay debts and obligations to target businesses or vendors or other entities
that are owed money by us for services rendered or contracted for or products sold to us in excess of the net proceeds of this
offering not held in the trust account, but only to the extent necessary to ensure that such debts or obligations do not reduce
the amounts in the trust account and only if such parties have not executed a waiver agreement. However, we cannot assure you
that Messrs. Xu or Liu will be able to satisfy those obligations if they are required to do so. Accordingly, the actual per-share
distribution could be reduced, due to claims of creditors. Additionally, if we are forced to file a bankruptcy case or an involuntary
bankruptcy case is filed against us which is not dismissed, the proceeds held in the trust account could be subject to applicable
bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the
claims of our shareholders. To the extent any bankruptcy claims deplete the trust account, we cannot assure you we will be able
to return to our public shareholders at least $10.40 or $10.00 per share, as applicable.
Competition
In
identifying, evaluating and selecting a target business, we may encounter intense competition from other entities having a business
objective similar to ours. Many of these entities are well established and have extensive experience identifying and effecting
business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources
than us and our financial resources will be relatively limited when contrasted with those of many of these competitors. Our ability
to compete in acquiring certain sizable target businesses may be limited by our available financial resources.
The
following also may not be viewed favorably by certain target businesses:
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our
obligation to seek shareholder approval of a business combination may delay the completion of a transaction;
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our
obligation to convert ordinary shares held by our Public Shareholders may reduce the resources available to us for a business
combination;
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our
outstanding rights and unit purchase options, and the potential future dilution they represent;
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our
obligation to either repay or issue securities upon conversion of up to $500,000 of working capital loans that may be made
to us by our initial shareholders, officers, directors or their affiliates;
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our
obligation to register the resale of the insider shares, as well as the Private Placement Units (and underlying securities)
and any securities issued to our initial shareholders, officers, directors or their affiliates upon conversion of working
capital loans; and
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the
impact on the target business’ assets as a result of unknown liabilities under the securities laws or otherwise depending
on developments involving us prior to the consummation of a business combination.
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Any
of these factors may place us at a competitive disadvantage in successfully negotiating a business combination. Our management
believes, however, that our status as a public entity and potential access to the United States public equity markets may give
us a competitive advantage over privately-held entities having a similar business objective as ours in acquiring a target business
with significant growth potential on favorable terms.
If
we succeed in effecting a business combination, there will be, in all likelihood, intense competition from competitors of the
target business. We cannot assure you that, subsequent to a business combination, we will have the resources or ability to compete
effectively.
Employees
We
have three executive officers. These individuals are not obligated to devote any specific number of hours to our matters and intend
to devote only as much time as they deem necessary to our affairs. The amount of time they will devote in any time period will
vary based on whether a target business has been selected for the business combination and the stage of the business combination
process the company is in. Accordingly, once management locates a suitable target business to acquire, they will spend more time
investigating such target business and negotiating and processing the business combination (and consequently spend more time to
our affairs) than they would prior to locating a suitable target business. We presently expect each of our executive officers
to devote an average of approximately 10 hours per week to our business. We do not intend to have any full time employees prior
to the consummation of a business combination.
ITEM
1A. RISK FACTORS
An
investment in our securities involves a high degree of risk. You should consider carefully the material risks described below,
which we believe represent the material risks related to our business and our securities, together with the other information
contained in this Form 10-K, before making a decision to invest in our securities. This Form 10-K also contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking
statements as a result of specific factors, including the risks described below.
If
we are unable to consummate a business combination, our Public Shareholders may be forced to wait until February 18, 2017 before
receiving liquidation distributions.
We
have until February 18, 2017 in which to complete a business combination. We have no obligation to return funds to investors prior
to such date unless we consummate a business combination prior thereto and only then in cases where investors have sought to convert
their shares. Only after the expiration of this full time period will public shareholders be entitled to liquidation distributions
if we are unable to complete a business combination. Accordingly, investors’ funds may be unavailable to them until after
such date and to liquidate your investment, you may be forced to sell your securities potentially at a loss.
The
requirement that we complete an initial business combination by February 18, 2017 may give potential target businesses leverage
over us in negotiating a business transaction.
We
have until February 18, 2017 to complete an initial business combination. Any potential target business with which we enter into
negotiations concerning a business combination will be aware of this requirement. Consequently, such target business may obtain
leverage over us in negotiating a business combination, knowing that if we do not complete a business combination with that particular
target business, we may be unable to complete a business combination with any other target business. This risk will increase as
we get closer to the time limits referenced above.
We
may issue ordinary or preferred shares or debt securities to complete a business combination, which would reduce the equity interest
of our shareholders and likely cause a change in control of our ownership.
We
may issue a substantial number of additional ordinary shares or preferred shares, or a combination of ordinary shares and preferred
shares, to complete a business combination. The issuance of additional ordinary shares or preferred shares:
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may
significantly reduce the equity interest of investors;
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may
subordinate the rights of holders of ordinary shares if we issue preferred shares with rights senior to those afforded to
our ordinary shares;
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may
cause a change in control if a substantial number of ordinary shares are issued, which may affect, among other things, our
ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present
officers and directors; and
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may
adversely affect prevailing market prices for our ordinary shares.
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Similarly,
if we issue debt securities, it could result in:
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default
and foreclosure on our assets if our operating revenues after a business combination are insufficient to repay our debt obligations;
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acceleration
of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain
covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
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our
immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; and
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our
inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain
such financing while the debt security is outstanding.
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The
funds held in the trust account may not earn significant interest and, as a result, we may be limited to the funds held outside
of the trust account to fund our search for target businesses, to pay our tax obligations and to complete our initial business
combination.
As
of March 31, 2016, we had $305,279 available to us outside the trust account to fund our working capital requirements. We will
depend on sufficient interest being earned on the proceeds held in the trust account to provide us with additional working capital
we will need to identify one or more target businesses and to complete our initial business combination, as well as to pay any
tax obligations that we may owe. Interest rates on permissible investments for us have been less than 1% over the last several
years. Accordingly, if we do not earn a sufficient amount of interest on the funds held in the trust account and use all of the
funds held outside of the trust account, we may not have sufficient funds available with which to structure, negotiate or close
an initial business combination. In such event, we may be forced to cease searching for a target business.
If
third parties bring claims against us, the proceeds held in trust could be reduced and the per-share liquidation price received
by shareholders may be less than $10.40 for Public Shareholders and $10.00 for Lead Investors.
Our
placing of funds in trust may not protect those funds from third party claims against us. Although we will seek to have all vendors
and service providers we engage and prospective target businesses we negotiate with execute agreements with us waiving any right,
title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public shareholders,
they may not execute such agreements. Furthermore, even if such entities execute such agreements with us, they may seek recourse
against the monies held in the trust account. A court may not uphold the validity of such agreements. Accordingly, the proceeds
held in trust could be subject to claims which could take priority over those of our public shareholders and any such claims could
delay the timing of our distribution of the funds held in the trust account. If we liquidate the trust account before the completion
of a business combination, Messrs. Xu and Liu have agreed that they will be personally liable to ensure that the proceeds in the
trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by
us for services rendered or contracted for or products sold to us and which have not executed a waiver agreement. However, they
may not be able to meet such obligation. Therefore, the per-share distribution from the trust account in such a situation may
be reduced.
Additionally,
if we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, or if
we otherwise enter compulsory or court supervised liquidation, the proceeds held in the trust account could be subject to applicable
bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the
claims of our shareholders. To the extent any bankruptcy claims deplete the trust account, we may not be able to return to our
Public Shareholders at least $10.40 or $10.00, as applicable.
Our
shareholders may be held liable for claims by third parties against us to the extent of distributions received by them.
Our
amended and restated memorandum and articles of association provide that we will continue in existence only until February 18,
2017 unless we complete an initial business combination by such date.
As
such, our shareholders could potentially be liable for any claims to the extent of distributions received by them pursuant to
such process and any liability of our shareholders may extend beyond the date of such distribution. Accordingly, we cannot assure
you that third parties, or us under the control of an official liquidator, will not seek to recover from our shareholders amounts
owed to them by us.
If
we are unable to consummate a transaction within the required time period, upon notice from us, the trustee of the trust account
will distribute the amount in our trust account to our public shareholders. Concurrently, we shall pay, or reserve for payment,
from funds not held in trust, our liabilities and obligations, although we cannot assure you that there will be sufficient funds
for such purpose. If there are insufficient funds held outside the trust account for such purpose, Messrs. Xu and Liu have that
they will be liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims
of vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us and which
have not executed a waiver agreement.
If
we are forced to enter into an insolvent liquidation, any distributions received by shareholders could be viewed as an unlawful
payment if it was proved that immediately following the date on which the distribution was made, we were unable to pay our debts
as they fall due in the ordinary course of business. As a result, a liquidator could seek to recover all amounts received by our
shareholders. Furthermore, our directors may be viewed as having breached their fiduciary duties to us or our creditors and/or
may have acted in bad faith, and thereby exposing themselves and our company to claims, by paying public shareholders from the
trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for
these reasons. We and our directors and officers who knowingly and willfully authorized or permitted any distribution to be paid
out of our share premium account while we were unable to pay our debts as they fall due in the ordinary course of business would
be guilty of an offence and may be liable to a fine of US$15,000 and to imprisonment for five years in the Cayman Islands.
Holders
of rights will not have redemption rights if we are unable to complete an initial business combination within the required time
period.
If
we are unable to complete an initial business combination within the required time period and we redeem the funds held in the
trust account, the rights will expire and holders will not receive any of such proceeds with respect to such rights.
We
have no obligation to net cash settle the rights.
In
no event will we have any obligation to net cash settle the rights. Furthermore, there are no contractual penalties for failure
to deliver securities to the holders of the rights upon consummation of an initial business combination. Accordingly, the rights
may expire worthless.
We
may amend the terms of the rights in a way that may be adverse to holders with the approval by the holders of a majority of the
then outstanding rights.
Our
rights have been issued in registered form under a rights agreement between Continental Stock Transfer & Trust Company, as
rights agent, and us. The rights agreement provides that the terms of the rights may be amended without the consent of any holder
to cure any ambiguity or correct any defective provision. The rights agreement requires the approval by the holders of a majority
of the then outstanding rights (including the rights underlying the Private Placement Units) in order to make any change that
adversely affects the interests of the registered holders.
Since
we have not yet selected a particular industry or target business with which to complete a business combination, we are unable
to currently ascertain the merits or risks of the industry or business in which we may ultimately operate.
We
are not limited in this respect and may consummate a business combination with a company in any location or industry we choose.
Accordingly, there is no current basis for you to evaluate the possible merits or risks of the particular industry in which we
may ultimately operate or the target business which we may ultimately acquire. To the extent we complete a business combination
with a financially unstable company or an entity in its development stage, we may be affected by numerous risks inherent in the
business operations of those entities. If we complete a business combination with an entity in an industry characterized by a
high level of risk, we may be affected by the currently unascertainable risks of that industry. Although our management will endeavor
to evaluate the risks inherent in a particular industry or target business, we cannot assure you that we will properly ascertain
or assess all of the significant risk factors.
The
requirement that the target business or businesses that we acquire must collectively have a fair market value equal to at least
80% of the balance of the funds in the trust account at the time of the execution of a definitive agreement for our initial business
combination may limit the type and number of companies that we may complete such a business combination with.
Pursuant
to the Nasdaq listing rules, the target business or businesses that we acquire must collectively have a fair market value equal
to at least 80% of the balance of the funds in the trust account
(
excluding
deferred underwriting commissions and
taxes payable on the income earned on the trust account
)
at the time of the execution of a definitive agreement for our
initial business combination. This restriction may limit the type and number of companies that with which may complete a business
combination. If we are unable to locate a target business or businesses that satisfy this fair market value test, we may be forced
to liquidate and you will only be entitled to receive your pro rata portion of the funds in the trust account.
If
Nasdaq delists our securities from quotation on its exchange after this offering, we would not be required to complete a business
combination with a target business or businesses meeting specific fair market value requirements.
If
Nasdaq delists our securities from quotation on its exchange, we would not be required to satisfy the fair market value requirement
described above and could complete a business combination with a target business having a fair market value substantially below
80% of the balance in the trust account.
Our
ability to successfully effect a business combination and to be successful thereafter will be totally dependent upon the efforts
of our key personnel, some of whom may join us following a business combination. While we intend to closely scrutinize any individuals
we engage after a business combination, we cannot assure you that our assessment of these individuals will prove to be correct.
Our
ability to successfully effect a business combination is dependent upon the efforts of our key personnel. We believe that our
success depends on the continued service of our key personnel, at least until we have consummated our initial business combination.
We cannot assure you that any of our key personnel will remain with us for the immediate or foreseeable future. In addition, none
of our officers are required to commit any specified amount of time to our affairs and, accordingly, they will have conflicts
of interest in allocating management time among various business activities, including identifying potential business combinations
and monitoring the related due diligence. We do not have employment agreements with, or key-man insurance on the life of, any
of our officers. The unexpected loss of the services of our key personnel could have a detrimental effect on us.
The
role of our key personnel in the target business, however, cannot presently be ascertained. Although some of our key personnel
may remain with the target business in senior management or advisory positions following a business combination, it is likely
that some or all of the management of the target business will remain in place. While we intend to closely scrutinize any individuals
we engage after a business combination, we cannot assure you that our assessment of these individuals will prove to be correct.
These individuals may be unfamiliar with the requirements of operating a public company which could cause us to have to expend
time and resources helping them become familiar with such requirements. This could be expensive and time-consuming and could lead
to various regulatory issues which may adversely affect our operations.
Our
officers and directors may not have significant experience or knowledge regarding the jurisdiction or industry of the target business
we may seek to acquire.
We
may consummate a business combination with a target business in any geographic location or industry we choose. We cannot assure
you that our officers and directors will have enough experience or have sufficient knowledge relating to the jurisdiction of the
target or its industry to make an informed decision regarding a business combination. If we become aware of a potential business
combination outside of the geographic location or industry where our officers and directors have their most experience, our management
may determine to retain consultants and advisors with experience in such industries to assist in the evaluation of such business
combination and in our determination of whether or not to proceed with such a business combination. However, our management is
not required to engage such consultants and advisors in any situation. If they do not engage any consultants or advisors to assist
them in the evaluation of a particular target business or business combination, our management may not properly analyze the risks
attendant with such target business or business combination. As a result, we may enter into a business combination that is not
in our shareholders’ best interests.
Our
key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business
combination. These agreements may provide for them to receive compensation following a business combination and as a result, may
cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous.
Our
key personnel will be able to remain with the company after the consummation of a business combination only if they are able to
negotiate employment or consulting agreements or other appropriate arrangements in connection with the business combination. Such
negotiations would take place simultaneously with the negotiation of the business combination and could provide for such individuals
to receive compensation in the form of cash payments and/or our securities for services they would render to the company after
the consummation of the business combination. The personal and financial interests of such individuals may influence their motivation
in identifying and selecting a target business.
Our
officers and directors will allocate their time to other businesses thereby potentially limiting the amount of time they devote
to our affairs. This conflict of interest could have a negative impact on our ability to consummate our initial business combination.
Our
officers and directors are not required to commit their full time to our affairs, which could create a conflict of interest when
allocating their time between our operations and their other commitments. We presently expect each of our employees to devote
such amount of time as they reasonably believe is necessary to our business. We do not intend to have any full time employees
prior to the consummation of our initial business combination. All of our officers and directors are engaged in several other
business endeavors and are not obligated to devote any specific number of hours to our affairs. If our officers’ and directors’
other business affairs require them to devote more substantial amounts of time to such affairs, it could limit their ability to
devote time to our affairs and could have a negative impact on our ability to consummate our initial business combination. We
cannot assure you these conflicts will be resolved in our favor.
Our
officers and directors have pre-existing fiduciary and contractual obligations and accordingly, may have conflicts of interest
in determining to which entity a particular business opportunity should be presented.
Our
officers and directors have pre-existing fiduciary and contractual obligations to other companies, including companies that are
engaged in business activities similar to those intended to be conducted by us. Accordingly, they may participate in transactions
and have obligations that may be in conflict or competition with our consummation of our initial business combination. As a result,
a potential target business may be presented by our management team to another entity prior to its presentation to us and we may
not be afforded the opportunity to engage in a transaction with such target business.
Our
officers’ and directors’ personal and financial interests may influence their motivation in determining whether a
particular target business is appropriate for a business combination.
Our
officers and directors have waived their right to convert their insider shares, private shares or any other ordinary shares, or
to receive distributions with respect to their insider shares or private shares upon our liquidation if we are unable to consummate
our initial business combination. Accordingly, these securities will be worthless if we do not consummate our initial business
combination. Their private rights and any other rights they acquire will also be worthless if we do not consummate an initial
business combination. In addition, our officers and directors may loan funds to us after our initial public offering and may be
owed reimbursement for expenses incurred in connection with certain activities on our behalf which would only be repaid if we
complete an initial business combination. The personal and financial interests of our directors and officers may influence their
motivation in timely identifying and selecting a target business and completing a business combination. Consequently, our directors’
and officers’ discretion in identifying and selecting a suitable target business may result in a conflict of interest when
determining whether the terms, conditions and timing of a particular business combination are appropriate and in our shareholders’
best interest. If this were the case, it would be a breach of their fiduciary duties to us as a matter of Cayman Islands law and
we might have a claim against such individuals. However, we might not ultimately be successful in any claim we may make against
them for such reason.
Nasdaq
may delist our securities from quotation on its exchange which could limit investors’ ability to make transactions in our
securities and subject us to additional trading restrictions.
Our
securities are listed on Nasdaq, a national securities exchange. However, we cannot assure you that our securities will continue
to be listed on Nasdaq in the future prior to an initial business combination. Additionally, in connection with our initial business
combination, it is likely that Nasdaq will require us to file a new initial listing application and meet its initial listing requirements
as opposed to its more lenient continued listing requirements. We cannot assure you that we will be able to meet those initial
listing requirements at that time.
If
Nasdaq delists our securities from trading on its exchange, we could face significant material adverse consequences, including:
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limited availability of market quotations for our securities;
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reduced
liquidity with respect to our securities;
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a
determination that our ordinary shares are “penny stock” which will require brokers trading in our ordinary shares
to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market
for our ordinary shares;
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limited amount of news and analyst coverage for our company; and
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decreased ability to issue additional securities or obtain additional financing in the future.
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We
may only be able to complete one business combination with the proceeds of our initial public offering, which will cause us to
be solely dependent on a single business which may have a limited number of products or services.
We
may only be able to complete one business combination with the proceeds of our initial public offering. By consummating a business
combination with only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory
developments. Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting
of losses, unlike other entities which may have the resources to complete several business combinations in different industries
or different areas of a single industry. Accordingly, the prospects for our success may be:
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solely
dependent upon the performance of a single business, or
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dependent
upon the development or market acceptance of a single or limited number of products, processes or services.
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This
lack of diversification may subject us to numerous economic, competitive and regulatory developments, any or all of which may
have a substantial adverse impact upon the particular industry in which we may operate subsequent to a business combination.
Alternatively,
if we determine to simultaneously acquire several businesses and such businesses are owned by different sellers, we will need
for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other business
combinations, which may make it more difficult for us, and delay our ability, to complete the business combination. With multiple
business combinations, we could also face additional risks, including additional burdens and costs with respect to possible multiple
negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent
assimilation of the operations and services or products of the acquired companies in a single operating business. If we are unable
to adequately address these risks, it could negatively impact our profitability and results of operations.
The
ability of our Public Shareholders to exercise their conversion rights may not allow us to effectuate the most desirable business
combination or optimize our capital structure.
If
our business combination requires us to use substantially all of our cash to pay the purchase price, because we will not know
how many shareholders may exercise conversion rights, we may either need to reserve part of the trust account for possible payment
upon such conversion, or we may need to arrange third party financing to help fund our business transaction. In the event that
the business combination involves the issuance of our shares as consideration, we may be required to issue a higher percentage
of our shares to make up for a shortfall in funds. Raising additional funds to cover any shortfall may involve dilutive equity
financing or incurring indebtedness at higher than desirable levels. This may limit our ability to effectuate the most attractive
business combination available to us.
We
may be unable to consummate a business combination if a target business requires that we have cash in excess of the minimum amount
we are required to have at closing and public shareholders may have to remain shareholders of our company and wait until our liquidation
to receive a pro rata share of the trust account or attempt to sell their shares in the open market.
A
potential target may make it a closing condition to our business combination that we have a certain amount of cash in excess of
the $5,000,001 of net tangible assets we are required to have pursuant to our organizational documents (or $10,000,000 from the
non-tendering investors) available at the time of closing. If the number of our shareholders electing to exercise their conversion
rights has the effect of reducing the amount of money available to us to consummate a business combination below such minimum
amount required by the target business and we are not able to locate an alternative source of funding, we will not be able to
consummate such business combination and we may not be able to locate another suitable target within the applicable time period,
if at all. In that case, public shareholders may have to remain shareholders of our company and wait until February 18, 2017 in
order to be able to receive a pro rata portion of the trust account, or attempt to sell their shares in the open market prior
to such time, in which case they may receive less than a pro rata share of the trust account for their shares.
In
connection with any meeting held to approve an initial business combination, we will offer each Public Shareholder the option
to vote in favor of a proposed business combination and still seek conversion of his, her or its shares, which may make it more
likely that we will consummate a business combination.
In
connection with any meeting held to approve an initial business combination, we will offer each Public Shareholder (but not our
initial shareholders or the non-tendering investors with respect to up to 1,000,000 ordinary shares purchased in the Public Offering)
the right to have his, her or its ordinary shares converted for cash (subject to the limitations described elsewhere in this annual
report) regardless of whether such shareholder votes for or against such proposed business combination. This is different than
other similarly structured blank check companies where shareholders are offered the right to have their shares converted only
when they vote against a proposed business combination. Accordingly, Public Shareholders owning shares sold in the Public Offering
may exercise their conversion rights and we could still consummate a proposed business combination so long as a majority of shares
voted at the meeting are voted in favor of the proposed business combination. The ability to seek conversion while voting in favor
of a proposed business combination may make it more likely that we will consummate our initial business combination.
In
connection with any meeting held to approve an initial business combination, public shareholders, together with any affiliates
of theirs or any other person with whom they are acting in concert or as a “group,” will be restricted from seeking
conversion rights with respect to more than 20% of the shares sold in our initial public offering.
In
connection with any meeting held to approve an initial business combination, we will offer each Public Shareholder (but not holders
of our insider shares or the non-tendering investors with respect to up to 1,000,000 ordinary shares purchased in the Public Offering)
the right to have his, her, or its ordinary shares converted for cash. Notwithstanding the foregoing, a public shareholder, together
with any of its affiliates or any other person with whom it is acting in concert or as a “group” will be restricted
from seeking conversion rights with respect to more than 20% of the shares sold in the Public Offering. Accordingly, if you hold
more than 20% of the shares sold in the Public Offering and a proposed business combination is approved, you will not be able
to seek conversion rights with respect to the full amount of your shares and may be forced to hold such shares following the business
combination over 20% or sell them in the open market. We cannot assure you that the value of such shares will appreciate over
time following a business combination or that the market price of our ordinary shares will exceed the per-share conversion price.
In
connection with any shareholder meeting called to approve a proposed initial business combination, we may require shareholders
who wish to convert their shares in connection with a proposed business combination to comply with specific requirements for conversion
that may make it more difficult for them to exercise their conversion rights prior to the deadline for exercising their rights.
In
connection with any shareholder meeting called to approve a proposed initial business combination, each Public Shareholder will
have the right, regardless of whether it is voting for or against such proposed business combination, to demand that we convert
its shares into a share of the trust account. Such conversion will be effectuated under Cayman Islands law as a repurchase of
the shares, with the repurchase price to be paid being the applicable pro-rata portion of the monies held in the trust account.
We may require Public Shareholders who wish to convert their shares in connection with a proposed business combination to either
tender their certificates to our transfer agent at any time prior to the vote taken at the shareholder meeting relating to such
business combination or to deliver their shares to the transfer agent electronically using the Depository Trust Company’s
DWAC (Deposit/Withdrawal At Custodian) System. In order to obtain a physical share certificate, a shareholder’s broker and/or
clearing broker, DTC and our transfer agent will need to act to facilitate this request. It is our understanding that shareholders
should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, because we do not
have any control over this process or over the brokers or DTC, it may take significantly longer than two weeks to obtain a physical
share certificate. While we have been advised that it takes a short time to deliver shares through the DWAC System, this may not
be the case. Accordingly, if it takes longer than we anticipate for shareholders to deliver their shares, shareholders who wish
to convert may be unable to meet the deadline for exercising their conversion rights and thus may be unable to convert their shares.
Investors
may not have sufficient time to comply with the delivery requirements for conversion.
Pursuant
to our memorandum and articles of association, we are required to give a minimum of only ten days’ notice for each general
meeting. As a result, if we require Public Shareholders who wish to convert their public shares into the right to receive a pro
rata portion of the funds in the trust account to comply with specific delivery requirements for conversion, holders may not have
sufficient time to receive the notice and deliver their shares for conversion. Accordingly, investors may be forced to retain
our securities when they otherwise would not want to.
If
we require Public Shareholders who wish to convert their ordinary shares to comply with the delivery requirements for conversion,
such converting shareholders may be unable to sell their securities when they wish to in the event that the proposed business
combination is not approved.
If
we require Public Shareholders who wish to convert their ordinary shares to comply with specific delivery requirements for conversion
described above and such proposed business combination is not consummated, we will promptly return such certificates to the tendering
Public Shareholders. Accordingly, investors who attempted to convert their shares in such a circumstance will be unable to sell
their securities after the failed acquisition until we have returned their securities to them. The market price for our shares
may decline during this time and you may not be able to sell your securities when you wish to, even while other shareholders that
did not seek conversion may be able to sell their securities.
Because
of our limited resources and structure, other companies may have a competitive advantage and we may not be able to consummate
an attractive business combination.
We
expect to encounter intense competition from entities other than blank check companies having a business objective similar to
ours, including venture capital funds, leveraged buyout funds and operating businesses competing for acquisitions. Many of these
entities are well established and have extensive experience in identifying and effecting business combinations directly or through
affiliates. Many of these competitors possess greater technical, human and other resources than we do and our financial resources
will be relatively limited when contrasted with those of many of these competitors. While we believe that there are numerous potential
target businesses that we could acquire with the net proceeds of our initial public offering, our ability to compete in acquiring
certain sizable target businesses will be limited by our available financial resources. This inherent competitive limitation gives
others an advantage in pursuing the acquisition of certain target businesses. Furthermore, seeking shareholder approval of a business
combination may delay the consummation of a transaction. Additionally, our outstanding rights and unit purchase options, and the
future dilution they potentially represent, may not be viewed favorably by certain target businesses. Any of the foregoing may
place us at a competitive disadvantage in successfully negotiating a business combination.
Our
initial shareholders control a substantial interest in us and thus may influence certain actions requiring a shareholder vote.
Our
initial shareholders collectively own approximately 24.6% of our issued and outstanding ordinary shares. In connection with any
vote for a proposed business combination, all of our initial shareholders, as well as all of our officers and directors, have
agreed to vote the ordinary shares owned by them immediately before the Public Offering as well as any ordinary shares acquired
in the aftermarket in favor of such proposed business combination. Additionally, the non-tendering investors have agreed to vote
in favor of a proposed business combination and not seek conversion of up to 1,000,000 of their shares.
Our
board of directors is and will be divided into three classes, each of which will generally serve for a term of three years with
only one class of directors being elected in each year. There is no requirement under the Companies Law of the Cayman Islands
for us to hold annual or general meetings or elect directors. Accordingly, shareholders would not have the right to such a meeting
or election of directors, unless the holders of not less than 10% in par value capital of our company requests such a meeting.
As a result, it is unlikely that there will be an annual meeting of shareholders to elect new directors prior to the consummation
of a business combination, in which case all of the current directors will continue in office until at least the consummation
of the business combination. If there is an annual meeting, as a consequence of our “staggered” board of directors,
only a minority of the board of directors will be considered for election and our initial shareholders, because of their ownership
position, will have considerable influence regarding the outcome. Accordingly, our initial shareholders will continue to exert
control at least until the consummation of a business combination.
Our
outstanding rights and unit purchase options may have an adverse effect on the market price of our ordinary shares and make it
more difficult to effect a business combination.
We
have outstanding rights and unit purchase options that may result in the issuance of additional securities. Such securities, when
exercised, will increase the number of issued and outstanding ordinary shares and reduce the value of the shares issued to complete
the business combination. Accordingly, our rights and unit purchase options may make it more difficult to effectuate a business
combination or increase the cost of acquiring the target business. Additionally, the sale, or even the possibility of sale, of
the shares underlying the rights and unit purchase options could have an adverse effect on the market price for our securities
or on our ability to obtain future financing. If and to the extent these rights and options are exercised, you may experience
dilution to your holdings.
If
our shareholders exercise their registration rights with respect to their securities, it may have an adverse effect on the market
price of our ordinary shares and the existence of these rights may make it more difficult to effect a business combination.
Our
initial shareholders are entitled to make a demand that we register the resale of their insider shares at any time commencing
three months prior to the date on which their shares may be released from escrow. Additionally, the purchasers of the Private
Placement Units and our initial shareholders, officers and directors are entitled to demand that we register the resale of the
Private Placement Units (and the underlying ordinary shares and rights) and any securities our initial shareholders, officers,
directors or their affiliates may be issued in payment of working capital loans made to us at any time after we consummate a business
combination. The presence of these additional securities trading in the public market may have an adverse effect on the market
price of our securities. In addition, the existence of these rights may make it more difficult to effectuate a business combination
or increase the cost of acquiring the target business, as the shareholders of the target business may be discouraged from entering
into a business combination with us or will request a higher price for their securities because of the potential effect the exercise
of such rights may have on the trading market for our ordinary shares.
If
we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities
may be restricted, which may make it difficult for us to complete a business combination.
A
company that, among other things, is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business
of investing, reinvesting, owning, trading or holding certain types of securities would be deemed an investment company under
the Investment Company Act of 1940. Since we will invest the proceeds held in the trust account, it is possible that we could
be deemed an investment company. Notwithstanding the foregoing, we do not believe that our principal activities will subject us
to the Investment Company Act of 1940. To this end, the proceeds held in trust may be invested by the trustee only in United States
government treasury bills, notes or bonds having a maturity of 180 days or less or in money market funds meeting the applicable
conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940 and that invest solely in United States treasuries.
By restricting the investment of the proceeds to these instruments, we intend to meet the requirements for the exemption provided
in Rule 3a-1 promulgated under the Investment Company Act of 1940.
If
we are nevertheless deemed to be an investment company under the Investment Company Act of 1940, we may be subject to certain
restrictions that may make it more difficult for us to complete a business combination, including:
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restrictions
on the nature of our investments; and
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restrictions
on the issuance of securities.
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In
addition, we may have imposed upon us certain burdensome requirements, including:
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registration
as an investment company;
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adoption
of a specific form of corporate structure; and
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reporting,
record keeping, voting, proxy, compliance policies and procedures and disclosure requirements and other rules and regulations.
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Compliance
with these additional regulatory burdens would require additional expense for which we have not allotted.
We
may not seek an opinion from an unaffiliated investment banking firm as to the fair market value of the target business we acquire
or that the price we are paying for the business is fair to our shareholders from a financial point of view.
We
are not required to obtain an opinion from an unaffiliated investment banking firm that the target business we select has a fair
market value in excess of at least 80% of the balance of the trust account unless our board of directors cannot make such determination
on its own. We are also not required to obtain an opinion from an unaffiliated third party indicating that the price we are paying
is fair to our shareholders from a financial point of view unless the target is affiliated with our officers, directors, initial
shareholders or their affiliates. If no opinions are obtained, our shareholders will be relying on the judgment of our board of
directors, whose collective experience in business evaluations for blank check companies like ours is not significant. Furthermore,
our directors may have a conflict of interest in analyzing the transaction due to their personal and financial interests.
We
may acquire a target business that is affiliated with our officers, directors, initial shareholders or their affiliates.
While
we do not currently intend to pursue an initial business combination with a company that is affiliated with our officers, directors,
initial shareholders or their affiliates, we are not prohibited from pursuing such a transaction, nor are we prohibited from consummating
a business combination where any of our officers, directors, initial shareholders or their affiliates acquire a minority interest
in the target business alongside our acquisition, provided in each case we obtain an opinion from an unaffiliated investment banking
firm indicating that the price we are paying is fair to our shareholders from a financial point of view. These affiliations could
cause our officers or directors to have a conflict of interest in analyzing such transactions due to their personal and financial
interests.
Because
we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your ability
to protect your rights through the U.S. Federal courts may be limited.
We
are an exempted company incorporated under the laws of the Cayman Islands. In addition, certain of our directors and officers
are nationals or residents of jurisdictions other than the United States and all or a substantial portion of their assets are
located outside the United States. As a result, it may be difficult for investors to effect service of process within the United
States upon our directors or executive officers, or enforce judgments obtained in the United States courts against our directors
or officers.
Our
corporate affairs will be governed by our amended and restated memorandum and articles of association, the Companies Law (as the
same may be supplemented or amended from time to time) or the common law of the Cayman Islands. The rights of shareholders to
take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us
under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman
Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common
law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights
of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established
as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands
has a less developed body of securities laws as compared to the United States, and certain states, such as Delaware, have more
fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing
to initiate a shareholders derivative action in a Federal court of the United States.
We
have been advised by our Cayman Islands legal counsel that the courts of the Cayman Islands are unlikely (i) to recognize or enforce
against us judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws
of the United States or any state; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us
predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the
liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement
in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce
a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that
a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been
given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be
final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman
Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind
the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple
damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent
proceedings are being brought elsewhere. There is recent Privy Council authority (which is binding on the Cayman Islands Court)
in the context of a reorganization plan approved by the New York Bankruptcy Court which suggests that due to the universal nature
of bankruptcy/insolvency proceedings, foreign money judgments obtained in foreign bankruptcy/insolvency proceedings may be enforced
without applying the principles outlined above. However, a more recent English Supreme Court authority (which is highly persuasive
but not binding on the Cayman Islands Court), has expressly rejected that approach in the context of a default judgment obtained
in an adversary proceeding brought in the New York Bankruptcy Court by the receivers of the bankruptcy debtor against a third
party, and which would not have been enforceable upon the application of the traditional common law principles summarized above
and held that foreign money judgments obtained in bankruptcy/insolvency proceedings should be enforced by applying the principles
set out above, and not by the simple exercise of the Courts’ discretion. Those cases have now been considered by the Cayman
Islands Court. The Cayman Islands Court was not asked to consider the specific question of whether a judgment of a bankruptcy
court in an adversary proceeding would be enforceable in the Cayman Islands, but it did endorse the need for active assistance
of overseas bankruptcy proceedings. We understand that the Cayman Islands Court’s decision in that case has been appealed
and it remains the case that the law regarding the enforcement of bankruptcy/insolvency related judgments is still in a state
of uncertainty.
As
a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions
taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a
United States company.
We
intend to effect a business combination with a company located outside of the United States and if we do, we would be subject
to a variety of additional risks that may negatively impact our business operations and financial results.
If
we consummate a business combination with a target business located outside of the United States, we would be subject to any special
considerations or risks associated with companies operating in the target business’ governing jurisdiction, including any
of the following:
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rules
and regulations or currency redemption or corporate withholding taxes on individuals;
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tariffs
and trade barriers;
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regulations
related to customs and import/export matters;
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longer
payment cycles;
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inflation;
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economic
policies and market conditions;
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unexpected
changes in regulatory requirements;
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challenges
in managing and staffing international operations;
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tax
issues, such as tax law changes and variations in tax laws as compared to the United States;
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currency
fluctuations;
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challenges
in collecting accounts receivable;
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cultural
and language differences;
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protection
of intellectual property; and
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employment
regulations.
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We
cannot assure you that we would be able to adequately address these additional risks. If we were unable to do so, our operations
might suffer.
If
we effect a business combination with a company located outside of the United States, the laws applicable to such company will
likely govern all of our material agreements and we may not be able to enforce our legal rights.
If
we effect a business combination with a company located outside of the United States, the laws of the country in which such company
operates will govern almost all of the material agreements relating to its operations. We cannot assure you that the target business
will be able to enforce any of its material agreements or that remedies will be available in this new jurisdiction. The system
of laws and the enforcement of existing laws in such jurisdiction may not be as certain in implementation and interpretation as
in the United States. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant
loss of business, business opportunities or capital. Additionally, if we acquire a company located outside of the United States,
it is likely that substantially all of our assets would be located outside of the United States and some of our officers and directors
might reside outside of the United States. As a result, it may not be possible for investors in the United States to enforce their
legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated
upon civil liabilities and criminal penalties of our directors and officers under Federal securities laws.
If
we acquire control of a target business through contractual arrangements with one or more operating businesses in the PRC, such
contracts may not be as effective in providing operational control as direct ownership of such business and may be difficult to
enforce.
We
will only acquire a business or businesses that, upon the consummation of our initial business combination, will be our majority-owned
subsidiaries and will be neither investment companies nor companies excluded from the definition of an investment company by Section
3(c)(1) or 3(c)(7) of the Investment Company Act. However, the PRC has restricted or limited foreign ownership of certain kinds
of assets and companies operating in certain industries. The industry groups that are restricted are wide ranging, including,
for example, certain aspects of telecommunications, food production, and heavy equipment manufacturers. In addition there can
be restrictions on the foreign ownership of businesses that are determined from time to time to be in “important industries”
that may affect the national economic security or having “famous brand names” or “well-established brand names.”
Subject to the review and approval requirements of the relevant agencies for acquisitions of assets and companies in the relevant
jurisdictions and subject to the various percentage ownership limitations that exist from time to time, acquisitions involving
foreign investors and parties in the various restricted categories of assets and industries may nonetheless sometimes be consummated
using contractual arrangements with permitted local parties. To the extent that such agreements are employed, they may be for
control of specific assets such as intellectual property or control of blocks of the equity ownership interests of a company which
may provide exceptions to the merger and acquisition regulations mentioned above since these types of arrangements typically do
not involve a change of equity ownership in the operating company. The agreements would be designed to provide our company with
the economic benefits of and control over the subject assets or equity interests similar to the rights of full ownership, while
leaving the technical ownership in the hands of local parties who would be our nominees and, therefore, may exempt the transaction
from certain regulations, including the application process required thereunder.
However,
since there has been limited implementation guidance provided with respect to such regulations, the relevant government agency
might apply them to a business combination effected through contractual arrangements. If such an agency determines that such an
application should have been made or that our potential future target businesses are otherwise in violation of local laws or regulations,
consequences may include confiscating relevant income and levying fines and other penalties, revoking business and other licenses,
requiring restructure of ownership or operations, requiring discontinuation or restriction of the operations of any portion or
all of the acquired business, restricting or prohibiting our use of the proceeds of this offering to finance our businesses and
operations and imposing conditions or requirements with which we or potential future target businesses may not be able to comply.
These agreements likely also would provide for increased ownership or full ownership and control by us when and if permitted under
local laws and regulations. If we choose to effect a business combination that employs the use of these types of control arrangements,
we may have difficulty in enforcing our rights. Therefore, these contractual arrangements may not be as effective in providing
us with the same economic benefits, accounting consolidation or control over a target business as would direct ownership. For
example, if the target business or any other entity fails to perform its obligations under these contractual arrangements, we
may have to incur substantial costs and expend substantial resources to enforce such arrangements, and rely on legal remedies
under local law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure will
be sufficient to off-set the cost of enforcement and may adversely affect the benefits we expect to receive from the business
combination.
Contractual
arrangements we enter into with potential future subsidiaries and affiliated entities or acquisitions of offshore entities that
conduct operations through affiliates in the PRC may be subject to a high level of scrutiny by the relevant tax authorities.
Under
the laws of the PRC, arrangements and transactions among related parties may be subject to audit or challenge by the relevant
tax authorities. If any of the transactions we enter into with potential future subsidiaries and affiliated entities are found
not to be on an arm’s-length basis, or to result in an unreasonable reduction in tax under local law, the relevant tax authorities
may have the authority to disallow any tax savings, adjust the profits and losses of such potential future local entities and
assess late payment interest and penalties. A finding by the relevant tax authorities that we are ineligible for any such tax
savings, or that any of our possible future affiliated entities are not eligible for tax exemptions, would substantially increase
our possible future taxes and thus reduce our net income and the value of a shareholder’s investment. In addition, in the
event that in connection with an acquisition of an offshore entity that conducted its operations through affiliates in the PRC,
the sellers of such entities failed to pay any taxes required under local law, the relevant tax authorities could require us to
withhold and pay the tax, together with late-payment interest and penalties. The occurrence of any of the foregoing could have
a negative impact on our operating results and financial condition.
If
we effect our initial business combination with a business located in the PRC, the laws applicable to such business will likely
govern all of our material agreements and we may not be able to enforce our legal rights.
If
we effect our initial business combination with a business located in the PRC, the laws of the country in which such business
operates will govern almost all of the material agreements relating to its operations, including any contractual arrangements
through which we acquire control of target business as described above. We cannot assure you that we or the target business will
be able to enforce any of its material agreements or that remedies will be available in this new jurisdiction. The system of laws
and the enforcement of existing laws in such jurisdiction may not be as certain in implementation and interpretation as in the
United States. In addition, the judiciary in the PRC is relatively inexperienced in enforcing corporate and commercial law, leading
to a higher than usual degree of uncertainty as to the outcome of any litigation. In addition, to the extent that our target business’
material agreements are with governmental agencies in the PRC, we may not be able to enforce or obtain a remedy from such agencies
due to sovereign immunity, in which the government is deemed to be immune from civil lawsuit or criminal prosecution. The inability
to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities
or capital.
If
the government of the PRC finds that the agreements we entered into to acquire control of a target business through contractual
arrangements with one or more operating businesses do not comply with local governmental restrictions on foreign investment, or
if these regulations or the interpretation of existing regulations change in the future, we could be subject to significant penalties
or be forced to relinquish our interests in those operations.
The
PRC currently prohibits and/or restricts foreign ownership in certain “important industries,” including telecommunications,
food production and heavy equipment. There are uncertainties under certain regulations whether obtaining a majority interest through
contractual arrangements will comply with regulations prohibiting or restricting foreign ownership in certain industries. For
example, the PRC may apply restrictions in other industries in the future. In addition, there can be restrictions on the foreign
ownership of businesses that are determined from time to time to be in “important industries” that may affect the
national economic security or those having “famous brand names” or “well-established brand names.”
If
we or any of our potential future target businesses are found to be in violation of any existing or future local laws or regulations
(for example, if we are deemed to be holding equity interests in certain of our affiliated entities in which direct foreign ownership
is prohibited), the relevant regulatory authorities might have the discretion to:
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revoke
the business and operating licenses of the potential future target business;
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confiscate
relevant income and impose fines and other penalties;
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discontinue
or restrict the operations of the potential future target business;
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require
us or potential future target business to restructure the relevant ownership structure or operations;
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restrict
or prohibit our use of the proceeds of this offering to finance our businesses and operations in the relevant jurisdiction;
or
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impose
conditions or requirements with which we or potential future target business may not be able to comply.
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If
the PRC government deems that the contractual arrangements in relation to our variable interest entities do not comply with PRC
governmental restrictions on foreign investment, or if these regulations or the interpretation of existing regulations change
in the future, we could be subject to penalties or be forced to relinquish our interests in those operations.
Foreign
ownership of certain internet-based and consumer retail businesses is subject to restrictions under current PRC laws and regulations.
For example, foreign investors are not allowed to own more than 50% of the equity interests in a value-added telecommunication
service provider not engaged in e-commerce and any such foreign investor must have experience in providing value-added telecommunications
services overseas and maintain a good track record. Accordingly, we may need to structure our business combination to acquire
a target business using contractual arrangements through variable interest entities. Additionally, foreign investments are restricted
in certain businesses such as those involving the purchase or distribution of certain agricultural products and the construction
and operation of gasoline stations and are prohibited in certain businesses such as those involving the wholesale and retail trade
of tobacco products.
Although
the structure of variable interest entities is commonly adopted by comparable companies in China, the PRC government may not agree
that these arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with
requirements or policies that may be adopted in the future.
It
is uncertain whether any new PRC laws, rules or regulations relating to variable interest entity structures will be adopted, or
if adopted, what they would provide. If we or any of the variable interest entities are found to be in violation of any existing
or future PRC laws, rules or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant
PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including revoking
the business and operating licenses of the PRC subsidiaries or the variable interest entities, requiring us to discontinue or
restrict our operations, restricting our right to collect revenue, blocking one or more of our websites, requiring us to restructure
our operations or taking other regulatory or enforcement actions against us. The imposition of any of these measures could result
in a material adverse effect on our ability to conduct all or any portion of our business operations. In addition, it is unclear
what impact the PRC government actions would have on us and on our ability to consolidate the financial results of any of our
variable interest entities in our consolidated financial statements, if our legal structure were to be in violation of PRC laws,
rules and regulations. If the imposition of any of these government actions causes us to lose our right to direct the activities
of any of our material variable interest entities or otherwise separate from any of these entities and if we are not able to restructure
our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results
of our variable interest entities in our consolidated financial statements. Any of these events would have a material adverse
effect on our business, financial condition and results of operations.
Our
contractual arrangements may not be as effective in providing control over the variable interest
entities as direct
ownership.
If
we have to acquire a target business using contractual arrangements through variable interest entities, they may not be as effective
as direct ownership in providing us with control over our variable interest entity. For example, a variable interest entity and
its shareholders could breach their contractual arrangements with us by, among other things, failing to conduct the variable interest
entity’s operations, including maintaining our website and using the domain names and trademarks, in an acceptable manner
or taking other actions that are detrimental to our interests.
If
we had direct ownership of an entity, we would be able to exercise our rights as an equity holder directly to effect changes in
the boards of directors of those entities, which could effect changes at the management and operational level. With contractual
arrangements, we might not be able to directly change the members of the boards of directors of these entities and would have
to rely on the variable interest entities and the variable interest entity equity holders to perform their obligations in order
to exercise our control over the variable interest entities. The variable interest entity equity holders may have conflicts of
interest with us or our shareholders, and they may not act in the best interests of our company or may not perform their obligations
under these contracts. Such risks would exist throughout the period in which we intended to operate our business through contractual
arrangements. If any dispute relating to such contracts remained unresolved, we would have to enforce our rights under these contracts
under PRC law and arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the PRC
legal system. See “—Any failure by our variable interest entity or its shareholders to perform their obligations under
our contractual arrangements with them would have a material and adverse effect on our business.” Therefore, contractual
arrangements with variable interest entities may not be as effective in ensuring our control over the relevant portion of our
business operations as direct ownership would be.
Any
failure by a variable interest entity or its shareholders to perform their obligations under our contractual arrangements with
them would have a material and adverse effect on our business.
If
we utilized contractual arrangements to acquire a target business and the variable interest entity or its shareholders failed
to perform their respective obligations under the contractual arrangements, we might have to incur substantial costs and expend
additional resources to enforce such arrangements. We might also have to rely on legal remedies under PRC law, including seeking
specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective under PRC law.
All
the agreements relating to contractual arrangements would be governed by PRC law. Accordingly, these contracts would be interpreted
in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the
PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal
system could limit our ability to enforce these contractual arrangements. Meanwhile, there are very few precedents and little
formal guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced
under PRC law. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become
necessary. In the event we were unable to enforce these contractual arrangements, or if we suffered significant delay or other
obstacles in the process of enforcing these contractual arrangements, we might not be able to exert effective control over the
variable interest entity, and our ability to conduct our business might be negatively affected.
Because
we must furnish our shareholders with financial statements of the target business prepared in accordance with U.S. GAAP or IFRS
or reconciled to U.S. GAAP, we may not be able to complete an initial business combination with some prospective target businesses.
The
federal proxy rules require that a proxy statement with respect to a vote on a business combination meeting certain financial
significance tests include historical and/or pro forma financial statement disclosure in periodic reports. These financial statements
may be required to be prepared in accordance with, or be reconciled to, accounting principles generally accepted in the United
States of America, or GAAP, or international financial reporting standards as promulgated by the International Accounting Standards
Board, or IFRS, depending on the circumstances, and the historical financial statements may be required to be audited in accordance
with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB. These financial statement requirements
may limit the pool of potential target businesses we may acquire.
Compliance
with the Sarbanes-Oxley Act of 2002 will require substantial financial and management resources and may increase the time and
costs of completing an acquisition.
Section
404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on our system of internal controls and may require
us to have such system audited by an independent registered public accounting firm. If we fail to maintain the adequacy of our
internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or shareholder litigation. Any
inability to provide reliable financial reports could harm our business. A target may also not be in compliance with the provisions
of the Sarbanes-Oxley Act regarding the adequacy of internal controls. The development of the internal controls of any such entity
to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition.
Furthermore, any failure to implement required new or improved controls, or difficulties encountered in the implementation of
adequate controls over our financial processes and reporting in the future, could harm our operating results or cause us to fail
to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial
information, which could have a negative effect on the trading price of our securities.
We
are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging
growth companies will make our securities less attractive to investors.
We
are an “emerging growth company,” as defined in the JOBS Act. We will remain an “emerging growth company”
for up to five years. However, if our non-convertible debt issued within a three-year period or revenues exceeds $1 billion, or
the market value of our ordinary shares that are held by non-affiliates exceeds $700 million on the last day of the second fiscal
quarter of any given fiscal year, we would cease to be an emerging growth company as of the following fiscal year. As an emerging
growth company, we are not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley
Act, we have reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and
we are exempt from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of
any golden parachute payments not previously approved. Additionally, as an emerging growth company, we have elected to delay the
adoption of new or revised accounting standards that have different effective dates for public and private companies until those
standards apply to private companies. As such, our financial statements may not be comparable to companies that comply with public
company effective dates. We cannot predict if investors will find our shares less attractive because we may rely on these provisions.
If some investors find our shares less attractive as a result, there may be a less active trading market for our shares and our
share price may be more volatile.
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial
accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared
effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised
financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and
comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We
have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has
different application dates for public or private companies, we, as an emerging growth company, will not adopt the new or revised
standard until the time private companies are required to adopt the new or revised standard. This may make comparison of our 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 accountant standards
used.
We
may qualify as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S.
investors.
In
general, we will be treated as a passive foreign investment company (“PFIC”) for any taxable year in which either
(1) at least 75% of our gross income (looking through certain 25% or more-owned corporate subsidiaries) is passive income or (2)
at least 50% of the average value of our assets (looking through certain 25% or more-owned corporate subsidiaries) is attributable
to assets that produce, or are held for the production of, passive income. Passive income generally includes, without limitation,
dividends, interest, rents, royalties, and gains from the disposition of passive assets. If we are determined to be a PFIC for
any taxable year (or portion thereof) that is included in the holding period of a U.S. holder of our units, ordinary shares or
rights, the U.S. holder may be subject to increased U.S. federal income tax liability and may be subject to additional reporting
requirements. Our actual PFIC status for our current taxable year may depend on whether we qualify for the PFIC start-up exception.
Our actual PFIC status for any taxable year, however, will not be determinable until after the end of such taxable year (or after
the end of the start-up period, if later). Accordingly, there can be no assurance with respect to our status as a PFIC for our
current taxable year or any subsequent taxable year. We urge U.S. investors to consult their own tax advisors regarding the possible
application of the PFIC rules.
Target
businesses in the e-commerce and consumer retail industry in China are subject to special considerations and risks.
Business
combinations with companies with operations in the e-commerce and consumer retail industry in China entail special considerations
and risks. If we are successful in completing a business combination with a target business with operations in this location and
these industries, we will be subject to, and possibly adversely affected by, the following risks:
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competition
and consolidation of the specific sector of the e-commerce and consumer retail industry within which the target business operates;
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changes
in demands for e-commerce and consumer retail products;
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increased
government regulations in the e-commerce and consumer retail industry and the costs of compliance with such regulations;
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the
negative impacts of catastrophic events; and
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any
changes in China’s economic, political and social conditions.
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