UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended September 30, 2017

 

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

 

For the transition period from                      to                     

 

Commission File No. 001-37360

 

Atlantic Alliance Partnership Corp.

(Exact name of registrant as specified in its charter)

 

British Virgin Islands		N/A
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

590 Madison Avenue New York, NY		10022
(Address of Principal Executive Offices)		(Zip Code)

 

(212) 409-2434

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

☐     Large accelerated filer	☒     Accelerated filer
☐     Non-accelerated filer	☐     Smaller reporting company
	☒     Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes  ☒   No  ☐

 

As of November 13, 2017, the registrant had 2,976,691 ordinary shares outstanding.

  

 

 

ATLANTIC ALLIANCE PARTNERSHIP CORP.

 

Quarterly Report on Form 10-Q

 

TABLE OF CONTENTS

 

		Page
PART 1 - FINANCIAL INFORMATION		1
Item 1.	Unaudited Financial Statements	1
	Condensed Balance Sheets	1
	Condensed Statements of Operations	2
	Condensed Statements of Cash Flows	3
	Notes to Condensed Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	13
Item 4.	Controls and Procedures	13
PART II - OTHER INFORMATION		14
Item 1.	Legal Proceedings	14
Item 1A.	Risk Factors	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities	14
Item 4.	Mine Safety Disclosures	14
Item 5.	Other Information	14
Item 6.	Exhibits	14
SIGNATURES		15

  

PART 1 - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

ATLANTIC ALLIANCE PARTNERSHIP CORP.

 

CONDENSED BALANCE SHEETS

 

		September 30,  2017				December 31, 2016
		(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	114,082			$	595,939
Prepaid expenses			34,420				185,145
Total Current Assets			148,502				781,084
Cash and marketable securities held in Trust Account			7,514,325				7,479,598
TOTAL ASSETS		$	7,662,827			$	8,260,682
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities – Accounts payable and accrued expenses		$	323,496			$	240,485
Total Liabilities			323,496				240,485
Commitments and Contingencies
Ordinary shares subject to possible redemption 221,203 and 286,911 shares at redemption value as of September 30, 2017 and December 31, 2016, respectively			2,339,330				3,020,196
Shareholders’ Equity
Preferred shares, no par value; unlimited shares authorized, none issued and outstanding			-				-
Ordinary shares, no par value; unlimited shares authorized; 3,466,030 and 3,400,322 shares issued and outstanding (excluding 221,203 and 286,911 shares subject to possible redemption) as of September 30, 2017 and December 31, 2016, respectively			5,701,435				5,020,569
Accumulated deficit			(701,434	)			(20,568	)
Total Shareholders’ Equity			5,000,001				5,000,001
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	7,662,827			$	8,260,682

 

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

 

ATLANTIC ALLIANCE PARTNERSHIP CORP.

 

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
Operating costs		$	242,169			$	1,278,062			$	715,593			$	2,821,247
Loss from operations			(242,169	)			(1,278,062	)			(715,593	)			(2,821,247	)
Other income:
Interest income			16,981				58,333				34,727				137,746
Net Loss		$	(225,188	)		$	(1,219,729	)		$	(680,866	)		$	(2,683,501	)
Weighted average shares outstanding, basic and diluted (1)			3,444,188				3,532,972				3,419,643				3,445,897
Basic and diluted net loss per ordinary share		$	(0.07	)		$	(0.35	)		$	(0.20	)		$	(0.78	)

 

(1)	Excludes an aggregate of up to 221,203 and 6,733,997 ordinary shares subject to redemption at September 30, 2017 and 2016, respectively.

 

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

 

ATLANTIC ALLIANCE PARTNERSHIP CORP.

 

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Nine Months Ended September 30,
		2017				2016
Cash Flows from Operating Activities:
Net loss		$	(680,866	)		$	(2,683,501	)
Adjustments to reconcile net loss to net cash used in operating activities:
Interest earned on marketable securities held in Trust Account			(34,727	)			(137,746	)
Changes in operating assets and liabilities:
Prepaid expenses			150,725				(21,997	)
Accounts payable and accrued expenses			83,011				1,969,029
Net cash used in operating activities			(481,857	)			(874,215	)
Cash Flows from Financing Activities:
Advances from related parties			-				520,000
Net cash provided by financing activities			-				520,000
Net Change in Cash and Cash Equivalents			(481,857	)			(354,215	)
Cash and Cash Equivalents – Beginning			595,939				357,077
Cash and Cash Equivalents – Ending		$	114,082			$	2,862
Non-cash investing and financing activities:
Change in value of ordinary shares subject to possible redemption		$	680,866			$	2,683,501

  

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

 

ATLANTIC ALLIANCE PARTNERSHIP CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(Unaudited)

 

NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

 

Atlantic Alliance Partnership Corp. (the “Company”) is a blank check company incorporated in the British Virgin Islands on January 14, 2015. The Company was formed for the purpose of acquiring, engaging in a share exchange, share reconstruction and amalgamation, contractual control arrangement with, purchasing all or substantially all of the assets of, or engaging in any other similar initial business combination with one or more businesses or entities (“Business Combination”).

 

All activity through September 30, 2017 related to the Company’s formation, its initial public offering (“Initial Public Offering”) (described below), identifying a target company for a Business Combination and activities in connection with the announced and subsequently terminated proposed acquisitions of TLA Worldwide plc (which activities ceased in September 2016) and of Kalyx Development, Inc. (“Kalyx”) (as described below).

 

On May 8, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) and related agreements with Kalyx, a privately held Maryland corporation. Pursuant to the Merger Agreement, the Company agreed to acquire all of the outstanding capital stock of Kalyx (the “Kalyx Merger”). On October 5, 2017, due to the inability to list the securities of the combined entity on any U.S. national stock exchange upon consummation of the Kalyx Merger, which was one of the closing conditions set forth in the Merger Agreement, the parties entered into an agreement terminating the Kalyx Merger, effective October 5, 2017.

 

The registration statement for the Company’s Initial Public Offering was declared effective on April 28, 2015. On May 4, 2015, the Company consummated the Initial Public Offering of 7,687,500 ordinary shares, no par value per share (“Public Shares”), which includes a partial exercise by the underwriters of their over-allotment option of 187,500 ordinary shares, at $10.00 per Public Share, generating gross proceeds of $76,875,000.

 

Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 778,438 ordinary shares (the “Private Placement Shares”) at a price of $10.00 per share in a private placement to the Company’s sponsor, AAP Sponsor (PTC) Corp., a British Virgin Islands company (“AAP Sponsor”), generating gross proceeds of $7,784,380, which is described in Note 4.

 

Transaction costs amounted to $5,907,302, consisting of $2,690,625 of underwriting fees, $2,690,625 of deferred underwriting fees (which were waived by the underwriter (see Note 6)) and $526,052 of Initial Public Offering costs.

 

Following the closing of the Initial Public Offering on May 4, 2015, an amount of $80,718,750 ($10.50 per Public Share) from the net proceeds of the sale of the Public Shares in the Initial Public Offering and the Private Placement Shares was placed in a trust account (“Trust Account”) and invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “1940 Act”), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of paragraphs (c)(2), (c)(3) and (c)(4) of Rule 2a-7 of the 1940 Act, as determined by the Company, until the earlier of: (i) the consummation of a Business Combination or (ii) the distribution of the Trust Account as described below.

  

On November 1, 2016, the Company’s shareholders approved (a) to extend the period of time for which the Company is required to consummate a Business Combination until November 3, 2017 and (b) the removal of the prohibition on the Company’s offering to redeem Public Shares held by AAP Sponsor or its affiliates, directors or officers in connection with the consummation of a Business Combination (the “Extension Amendment”). The number of ordinary shares presented for redemption in connection with the Extension Amendment was 6,976,958. The Company paid cash in the aggregate amount of $73,443,711, or approximately $10.53 per share, to redeeming shareholders. As a result of the payment on the ordinary shares presented for redemption in connection with the Extension Amendment, cash and marketable securities held in the Trust Account decreased to $7,484,172. In addition, on November 1, 2016, an aggregate of $144,602 was distributed as a cash dividend payment to shareholders that voted to approve the Extension Amendment, which amount is equal to $0.02 for each of the 7,230,088 Public Shares that was voted to approve the Extension Amendment. The cash payment did not come from the Trust Account but was paid from funds loaned to the Company by AAP Sponsor.

 

 

ATLANTIC ALLIANCE PARTNERSHIP CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(Unaudited)

 

On November 3, 2017, due to the Company’s inability to consummate a Business Combination within the time period required by its Amended Memorandum and Articles of Association, the Company redeemed all of its outstanding Public Shares. The number of shares redeemed was 710,542 and the Company distributed $7,519,635, or approximately $10.58 per share to redeeming shareholders.

 

The Company is currently considering its alternatives, including whether to continue as a business entity. However, the Company has not taken any action as of this time to amend its Amended Memorandum and Articles of Association.

 

In order to protect the amounts held in the Trust Account, Messrs. Jonathan Goodwin, Iain Abrahams, Mark Klein, Waheed Alli and Jonathan Mitchell, each of whom are current or former members of the Company’s management team, agreed that they would be jointly and severally liable to the Company if and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account. This liability would not apply with respect to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, then Messrs. Abrahams, Klein, and Mitchell would not be responsible to the extent of any liability for such third party claims. As a result of the Company’s redemption and cancellation of all of its outstanding Public Shares on November 3, 2017, Messrs. Abrahams, Klein, and Mitchell have no further obligation under the indemnification agreement.

 

On November 1, 2016, the Company amended certain letter agreements, dated as of April 28, 2015, by and among the Company and AAP Sponsor, officers and directors (the “Insiders” and such letter agreements, the “Letter Agreements”) pursuant to which (1) the Insiders shall be entitled to redemption and liquidation rights, as applicable, with respect to any ordinary shares of the Company (other than founder shares, Private Placement Shares and Conversion Shares (defined below)) they hold (i) if the Company fails to consummate a Business Combination by November 3, 2017 or (ii) in connection with the consummation of a Business Combination and (2) the Insiders shall not have the right to vote any ordinary shares of the Company issuable upon conversion of convertible debt of the Company held by the Insiders in connection with a Business Combination (including the Conversion Shares).

  

Nasdaq Delisting

 

On March 29, 2017, the Company received a written notice from the Listing Qualifications Department of Nasdaq indicating that the staff of Nasdaq had determined that the Company did not comply with Listing Rule 5550(a)(3) (the “Minimum Holders Rule”), which requires the Company to have at least 300 public holders of its ordinary shares for continued listing on Nasdaq.  Subsequently, upon the Company’s request, the Nasdaq granted the Company an extension to comply with the Minimum Holders Rule until September 25, 2017.

 

On September 26, 2017, the Company received a written notice (the “Notice”) from Nasdaq indicating that the Company did not satisfy the terms of the extension and accordingly, the staff of Nasdaq had initiated procedures to delist the Company’s securities from The Nasdaq Stock Market. As a result, the trading of the Company’s ordinary shares was suspended as of October 5, 2017 and the Company’s securities were subsequently removed from listing and registration on The Nasdaq Stock Market and transitioned to the over-the-counter markets operated by OTC Markets Group.

 

Liquidity and Going Concern

 

As of September 30, 2017, the Company had $114,082 in its operating bank accounts and a working capital deficit of $174,994.

 

The Company is currently considering a search for a potential target company; however, as a result of the redemption and cancellation of all of its outstanding Public Shares and the return of all funds held in the Trust Account, the Company continues to have a working capital deficit. The Company will need to raise additional capital through loans or additional investments its shareholders, officers, directors, or third parties. However, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of its business plan, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company’s ability to continue as a going concern through November 2018. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

 

The accompanying unaudited condensed financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the SEC on March 15, 2017, which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis. The financial information as of December 31, 2016 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The interim results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or for any future interim periods.

 

ATLANTIC ALLIANCE PARTNERSHIP CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(Unaudited)

  

Emerging growth company

 

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

     

Further, section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

 

Use of estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future events. Accordingly, the actual results could differ significantly from those estimates. 

 

Cash equivalents

 

The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of September 30, 2017 and December 31, 2016.

 

Cash and marketable securities held in Trust Account

 

At September 30, 2017 and December 31, 2016, the assets held in the Trust Account were held in cash and U.S. Treasury Bills, which are classified as trading securities.

 

Ordinary shares subject to possible redemption

 

The Company accounts for its ordinary shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. The Company’s ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at September 30, 2017 and December 31, 2016, ordinary shares subject to possible redemption are presented as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheets. 

 

Net loss per share

 

The Company complies with accounting and disclosure requirements of ASC Topic 260, “Earnings Per Share.” Net loss per share is computed by dividing net loss by the weighted average number of ordinary shares outstanding during the period. The Company applies the two-class method in calculating earnings per share. Ordinary shares subject to possible redemption at September 30, 2017 and 2016, which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic loss per share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. At September 30, 2017 and 2016, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into ordinary shares and then share in the earnings of the Company. As a result, diluted loss per share is the same as basic loss per share for the periods presented.

 

 

ATLANTIC ALLIANCE PARTNERSHIP CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(Unaudited)

 

Reconciliation of Net Loss per Ordinary Share

 

The Company’s net loss is adjusted for the portion of income that is attributable to ordinary shares subject to redemption, as these shares only participate in the income of the Trust Account and not the losses of the Company. Accordingly, basic and diluted loss per ordinary share is calculated as follows:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
Net loss		$	(225,188	)		$	(1,219,729	)		$	(680,866	)		$	(2,683,501	)
Less: Income attributable to ordinary shares subject to redemption			(5,286	)			(51,100	)			(10,811	)			(120,666	)
Adjusted net loss			(230,474	)			(1,270,829	)			(691,677	)			(2,804,167	)
Weighted average shares outstanding, basic and diluted			3,444,188				3,532,972				3,419,643				3,445,897
Basic and diluted net loss per ordinary share		$	(0.07	)		$	(0.36	)		$	(0.20	)		$	(0.81	)

 

Income taxes

 

The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company’s management determined that the British Virgin Islands is the Company’s only major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. As of June 30, 2017, there were no amounts accrued for interest and penalties. There were no unrecognized tax benefits as of September 30, 2017. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.

 

The Company may be subject to potential examination by U.S. federal, U.S. states or foreign taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with U.S. federal, U.S. state and foreign tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

 

The Company’s tax provision is zero because the Company is organized in the British Virgin Islands with no connection to any other taxable jurisdiction. The Company is considered to be an exempted British Virgin Islands Company, and is presently not subject to income taxes or income tax filing requirements in the British Virgin Islands or the United States. 

 

Concentration of credit risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution which, at times may exceed the Federal depository insurance coverage of $250,000. At September 30, 2017 and December 31, 2016, the Company had not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

 

 

ATLANTIC ALLIANCE PARTNERSHIP CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(Unaudited)

 

Fair value of financial instruments

 

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

 

Recent Accounting Pronouncements  

 

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company's financial statements.

 

NOTE 3. PRIVATE PLACEMENT

 

Simultaneously with the Initial Public Offering, AAP Sponsor purchased an aggregate of 778,438 Private Placement Shares at a purchase price of $10.00 per share from the Company in a private placement. The proceeds from the Private Placement Shares were added to the net proceeds from the Initial Public Offering held in the Trust Account and will be used to fund the redemption of the Company’s Public Shares (subject to the requirements of applicable law).

  

NOTE 4. RELATED PARTY TRANSACTIONS

 

Founder Shares

 

On January 15, 2015, the Company issued 2,156,250 ordinary shares to the AAP Sponsor (the “founder shares”) for an aggregate purchase price of $25,000. The 2,156,250 founder shares included an aggregate of up to 281,250 shares subject to forfeiture by AAP Sponsor (or its permitted transferees) on a pro rata basis depending on the extent to which the underwriters’ over-allotment option was exercised. As a result of the underwriters’ election to exercise their over-allotment option to purchase 187,500 ordinary shares on May 4, 2015, 46,875 founder shares were no longer subject to forfeiture.

 

The remaining portion of the underwriters’ over-allotment was extinguished; accordingly, 234,375 founder shares were forfeited. The founder shares are identical to the Public Shares sold in the Initial Public Offering, except that (1) the founder shares are subject to certain transfer restrictions, as described in more detail below, and (2) AAP Sponsor has agreed (i) to waive its redemption rights with respect to its founder shares, Private Placement Shares and Public Shares purchased during or after the Initial Public Offering in connection with the completion of a Business Combination and (ii) to waive its rights to liquidating distributions from the Trust Account with respect to its founder shares and Private Placement Shares if the Company fails to complete a Business Combination within the Combination Period.

   

Promissory Notes – Related Party

 

During the year ended December 31, 2016, the Company received an aggregate of $2,852,000 in advances from certain directors of the Company or their affiliates (through AAP Sponsor). The advances were non-interest bearing, unsecured and to be repaid upon the completion of a Business Combination.

 

On November 1, 2016, (i) an aggregate of $1,000,000 of outstanding advances from certain directors of the Company or their affiliates (through AAP Sponsor) were converted into ordinary shares of the Company at a conversion price of $10.00 per share and (ii) an aggregate of $1,852,000 of outstanding advances from certain directors of the Company or their affiliates were converted into ordinary shares of the Company at a conversion price of approximately $10.50 per share. In the aggregate, 276,378 ordinary shares (the “Conversion Shares”) were issued to AAP Sponsor in connection with such conversions.

 

 

ATLANTIC ALLIANCE PARTNERSHIP CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(Unaudited)

 

NOTE 5. COMMITMENTS AND CONTINGENCIES

 

Registration Rights

 

Pursuant to a registration rights agreement entered into on April 28, 2015 with the holders of the founder shares and Private Placement Shares, the holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities and shares that may be issued upon conversion of Working Capital Loans. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable Lock-Up Period. The Company will bear the expenses incurred in connection with the filing of any such registration statements.

 

Underwriting Agreement

 

The underwriters were entitled to an underwriting discount of 7.0%, or $5,381,250, of which three and one-half percent (3.5%), or $2,690,625, was paid in cash at the closing of the Initial Public Offering on May 4, 2015, and up to three and one-half percent (3.5%), or $2,690,625, had been deferred. The deferred fee was payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completed a Business Combination, subject to the terms of the underwriting agreement.

 

On November 1, 2016, the representative of the underwriters waived its right to receive its deferred fee in the amount of $2,690,625, which had been held in the Trust Account. Accordingly, no further payments are due and payable to the underwriters by the Company.

 

NOTE 6. SHAREHOLDERS’ EQUITY

 

Preferred Shares - The Company is authorized to issue an unlimited number of no par value preferred shares, divided into five classes, Class A through Class E each with such designation, rights and preferences as may be determined by a resolution of the Company’s board of directors to amend the Amended Memorandum and Articles of Association to create such designations, rights and preferences. The Company has five classes of preferred shares to give the Company flexibility as to the terms on which each Class is issued. All shares of a single class must be issued with the same rights and obligations. Accordingly, starting with five classes of preferred shares will allow the Company to issue shares at different times on different terms. At September 30, 2017, there are no preferred shares designated, issued or outstanding.

  

Ordinary Shares - The Company is authorized to issue an unlimited number of no par value ordinary shares. Holders of the Company’s ordinary shares are entitled to one vote for each share. At September 30, 2017, there were 3,446,030 ordinary shares issued and outstanding (excluding 221,203 ordinary shares subject to possible redemption). As a result of the Company’s redemption and cancellation of 710,542 shares on November 3, 2017, there are now 2,976,691 ordinary shares issued and outstanding.

 

NOTE 7. FAIR VALUE MEASUREMENTS

 

The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.

 

The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

 

	Level 1:	Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
	Level 2:	Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
	Level 3:	Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.

  

ATLANTIC ALLIANCE PARTNERSHIP CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(Unaudited)

 

The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at September 30, 2017 and December 31, 2016, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

 

Description		Level				September 30, 2017				December 31, 2016
Assets:
Cash and marketable securities held in Trust Account			1			$	7,514,325			$	7,479,598

 

NOTE 8. SUBSEQUENT EVENTS

 

The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the financial statements were issued. Other than as described below, the Company did not identify subsequent events that would have required adjustment or disclosure in the financial statements.

 

On November 3, 2017, due to the Company’s inability to consummate a Business Combination within the time period required by its Amended Memorandum and Articles of Association, the Company redeemed all of its outstanding Public Shares. The number of shares redeemed was 710,542 and the Company distributed $7,519,635, or approximately $10.58 per share to redeeming shareholders.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

References in this report to “we,” “us” or the “Company” refer to Atlantic Alliance Partnership Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “AAP Sponsor” refer to AAP Sponsor (PTC) Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results (including, without limitation, the outcome of our proposed business combination with Kalyx) to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

 

Overview

 

We are a blank check company incorporated on January 14, 2015 in the British Virgin Islands and formed for the purpose of acquiring, engaging in a share exchange, share reconstruction and amalgamation, contractual control arrangement with, purchasing all or substantially all of the assets of, or engaging in any other similar initial business combination with one or more businesses or entities.

 

Recent Developments

 

On May 8, 2017, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) and related agreements with Kalyx, a privately held Maryland corporation. Pursuant to the Merger Agreement, we agreed to acquire all of the outstanding capital stock of Kalyx (the “Kalyx Merger”). On October 5, 2017, due to the inability to list the securities of the combined entity on any U.S. national stock exchange upon consummation of the Kalyx Merger, which was one of the closing conditions set forth in the Merger Agreement, the parties entered into an agreement terminating the Kalyx Merger, effective October 5, 2017.

 

On November 3, 2017, due to our inability to consummate a Business Combination within the time period required by our Amended Memorandum and Articles of Association, we redeemed all of our outstanding Public Shares. The number of shares redeemed was 710,542 and we distributed $7,519,635, or approximately $10.58 per share to redeeming shareholders.

 

Results of Operations

 

All activity through September 30, 2017 related to our formation, our Initial Public Offering, identifying a target company for a Business Combination and activities in connection with the announced and subsequently terminated proposed acquisitions of TLA Worldwide plc (which activities ceased in September 2016) and of Kalyx. We generated non-operating income in the form of interest income on cash and marketable securities held.

 

For the three and nine months ended September 30, 2017, we had a net loss of $225,188 and $680,866, respectively, which consisted of operating costs and target identification expenses of $242,169 and $715,593, respectively, offset by interest income on marketable securities held in our trust account of $16,981 and $34,727, respectively.

 

For the three and nine months ended September 30, 2016, we had a net loss of $1,219,729 and $2,683,501, respectively, which consisted of operating costs and target identification expenses of $1,278,062 and $2,821,247, respectively, offset by interest income on marketable securities held in our trust account of $58,333 and $137,746, respectively.

 

 

Liquidity and Capital Resources

 

On May 4, 2015, we consummated the Initial Public Offering of 7,687,500 ordinary shares, which includes a partial exercise by the underwriters of their over-allotment option in the amount of 187,500 ordinary shares, at a price of $10.00 per share, generating gross proceeds of $76,875,000. Simultaneously with the closing of the Initial Public Offering, we consummated the private sale of 778,438 ordinary shares to AAP Sponsor, generating gross proceeds of $7,784,380. Following the Initial Public Offering, a total of $80,718,750 was placed into a trust account and we had $535,323 of cash held outside of the trust account and available for working capital purposes. We incurred $5,907,302 in our Initial Public Offering related costs, including $2,690,625 of underwriting fees, $2,690,625 of deferred underwriting fees (which deferred fees were waived on November 1, 2016) and $526,052 of Initial Public Offering costs.

 

On November 1, 2016, we held a special meeting in lieu of an annual meeting of shareholders pursuant to which the shareholders approved (a) to extend the period of time for which we are required to consummate a Business Combination until November 3, 2017 and (b) the removal of the prohibition on the offering to redeem public shares held by AAP Sponsor or its affiliates, directors or officers in connection with the consummation of a Business Combination (the “Extension Amendment”). The number of ordinary shares presented for redemption in connection with the Extension Amendment was 6,976,958. The Company distributed $73,443,711, or approximately $10.52 per share, to redeeming shareholders. In addition, an aggregate of $144,602 was distributed as a cash payment to shareholders that voted to approve the Extension Amendment, which amount is equal to $0.02 for each of the 7,230,088 public shares that was voted to approve the Extension Amendment. The cash payment did not come from our trust account but was paid from funds loaned to us by AAP Sponsor.

 

On November 3, 2017, due to our inability to consummate a Business Combination within the time period required by our Amended Memorandum and Articles of Association, we redeemed all of or outstanding Public Shares. The number of shares redeemed was 710,542 and we distributed $7,519,635, or approximately $10.58 per share to redeeming shareholders.

  

As of September 30, 2017, we had cash of $114,082 held outside the trust account, which is available for use by us to cover the costs associated with general corporate uses. In addition, as of September 30, 2017, we had accounts payable and accrued expenses of $323,496.

 

For the nine months ended September 30, 2017, cash used in operating activities amounted to $481,857, resulting from a net loss of $680,866 and interest income on marketable securities held in the trust account of $34,727, offset by changes in our operating assets and liabilities of $233,736. For the nine months ended September 30, 2016, cash used in operating activities amounted to $874,215, resulting from a net loss of $2,683,501 and interest income on marketable securities held in the trust account of $137,746, offset by changes in our operating assets and liabilities of $1,947,032.

 

During 2016, we received an aggregate of $2,852,000 in advances from certain directors. The advances were non-interest bearing, unsecured and to be repaid upon the completion of a Business Combination. On November 1, 2016, (i) an aggregate of $1,000,000 of outstanding advances from certain directors or their affiliates (through our sponsor) were converted into ordinary shares at a conversion price of $10.00 per share and (ii) an aggregate of $1,852,000 of outstanding advances from certain directors or their affiliates were converted into ordinary shares at a conversion price of approximately $10.50 per share. In the aggregate, 276,378 ordinary shares were issued to our sponsor in connection with such conversions. Our sponsor shall not be entitled to (i) vote in connection with a Business Combination or (ii) redeem such Conversion Shares in connection with the liquidation of the Company.

  

On November 1, 2016, the representative of the underwriters agreed to waive in full its right to receive its deferred fee in the amount of $2,690,625, which had been held in the trust account pursuant to the underwriting agreement entered into by and between us and the underwriters in connection with the Initial Public Offering. Accordingly, no further payments are due and payable to the underwriters by us.

 

We are currently considering a search for a potential target company; however, as a result of the redemption and cancellation of all of our outstanding Public Shares and the return of all funds held in the trust account, we continue to have a working capital deficit. We will need to raise additional capital through loans or additional investments our shareholders, officers, directors, or third parties, However, we may not be able to obtain additional financing. If we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of our business plan, and reducing overhead expenses. We cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all. These conditions raise substantial doubt about our ability to continue as a going concern through November 2018.

  

Off-balance sheet financing arrangements

 

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

 

 

Contractual obligations

 

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.

 

Critical Accounting Policies

 

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. The Company has not identified any critical accounting policies.

 

Recent accounting pronouncements

 

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company's financial statements.

  

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The net proceeds of our Initial Public Offering and the sale of the private placement warrants held in the trust account are invested in U.S. government treasury bills with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were effective.

 

Changes in Internal Control Over Financial Reporting

 

During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

None.

 

Item 1A. Risk Factors.

 

Factors that could cause our actual results to differ materially from those in this report are any of the risks described in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 15, 2017. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Report, there have been no material changes to the risk factors disclosed in our Annual Report filed with the SEC.

 

On November 3, 2017, due to the Company’s inability to consummate a Business Combination, the Company redeemed and cancelled all of its outstanding Public Shares. The Company is currently considering a search for a potential target company; however, as a result of the Company’s redemption and cancellation of all of its outstanding Public Shares and the return of all funds held in its trust account, the Company continues to have a working capital deficit.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

 

No.		Description of Exhibit
10.1 (1)		Termination Agreement, dated October 5, 2017 by and between Atlantic Alliance Partnership Corp., and Kalyx Development Inc.
31.1*		Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1#		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2#		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*		XBRL Instance Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

  

(1) Incorporated by reference to our Current Report on Form 8-K filed on October 5, 2017

*Filed herewith.

# Furnished herewith

 

 

SIGNATURES

 

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	ATLANTIC ALLIANCE PARTNERSHIP CORP.
Date: November 14, 2017	/s/ Iain Abrahams
	Name:	Iain Abrahams
	Title:	Chief Executive Officer
		(Principal Executive Officer)
Date: November 14, 2017	/s/ Jonathan Mitchell
	Name:	Jonathan Mitchell
	Title:	Chief Financial Officer
		(Principal Financial and Accounting Officer)

 

 

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