Notes to Condensed Interim Consolidated
Financial Statements
(unaudited)
NOTE
1 — DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Organization
and General:
Stellar
Acquisition III Inc. (the “Company” or “Stellar”) was incorporated pursuant to the laws of the Republic
of the Marshall Islands on December 8, 2015. The Company was formed for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business
Combination”). The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act
of 1933, as amended, or the “Securities Act,” as modified by the Jumpstart Our Business Startups Act of 2012 (the
“JOBS Act”).
On
February 27, 2018, Stellar entered into a merger agreement (the “Merger Agreement”) with Phunware Inc., a Delaware company
(“Phunware”) and STLR Merger Subsidiary Inc., a Delaware corporation and a newly formed wholly-owned subsidiary of
Stellar (“Merger Sub”). The Merger Agreement provides for the merger of Merger Sub with and into Phunware (the “Merger”),
with Phunware continuing as the surviving corporation in the Merger. On or prior to the consummation of the transactions contemplated
by the Merger Agreement (the “Closing”), the holders of Phunware’s preferred stock will convert all of their
issued and outstanding shares of preferred stock into shares of Phunware common stock at a conversion ratio of one share of common
stock for each share of preferred stock (the “Preferred Stock Exchange”). Subject to the terms and conditions set
forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”): (i) all shares of Phunware
common stock and preferred stock (the “Phunware Stock”) issued and outstanding immediately prior to the Effective
Time (after giving effect to the Preferred Stock Exchange) will automatically be cancelled and cease to exist in exchange for
the right to receive the Stockholder Merger Consideration, without interest; (ii) each outstanding warrant to acquire shares of
Phunware Stock will be cancelled, retired and terminated and cease to represent the right to acquire shares of Phunware Stock
in exchange for the right to receive from the Successor a new warrant for shares of Successor common stock with its price and
number of shares equitably adjusted based on the conversion of the shares of Phunware Stock into the Stockholder Merger Consideration,
but with terms otherwise the same as the Phunware warrant; and (iii) each outstanding option to acquire Phunware Stock (whether
vested or unvested) shall be assumed by the Successor and automatically converted into an option to acquire shares of Successor
common stock, with its price and number of shares equitably adjusted based on the conversion of the shares of Phunware Stock into
the Stockholder Merger Consideration. The Merger Agreement states that the Company will use good faith efforts to achieve a minimum
of $40 million in cash, including funds in the Trust Account and proceeds from any Backstop Financing, available to the post-transaction
company. On April 11, 2018, Stellar filed with the SEC a registration statement on Form S-4 in connection with the Business Combination.
On June 11, 2018, the Company filed an amendment to the aforementioned registration statement. On August 15, 2018, and October
2, 2018, the Company filed a second and third amendment to the aforementioned registration statement, respectively. The Company
anticipates having a shareholder vote and closing the transaction before the end of 2018.
The
Merger Agreement also provides that, immediately prior to the Effective Time, Stellar will convert from a Republic of the Marshall
Islands corporation to a Delaware corporation, whether by reincorporation, statutory conversion, merger or otherwise and in accordance
with the applicable provisions of the Republic of the Marshall Islands Associations Law, as amended, and the applicable provisions
of the DGCL (the “Conversion”). At the Closing, Stellar will change its name to “Phunware, Inc.”.
Phunware,
Inc. offers a fully integrated software platform that equips companies with the products, solutions and services necessary to
engage, manage and monetize their mobile application portfolios globally at scale. Phunware’s Multiscreen as a Service (MaaS)
platform provides the entire mobile lifecycle of applications, media and data in one login through one procurement relationship.
Its offerings include:
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Enterprise
mobile software including content management, location-based services, marketing automation,
business intelligence and analytics, alerts, notifications and messaging, audience engagement,
audience monetization, vertical solutions and cryptonetworking, as well as an Application
Framework for developers and publishers building their own mobile applications in-house;
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Stellar Acquisition III Inc. and Subsidiary
Notes to Condensed Interim Consolidated
Financial Statements
(unaudited)
|
●
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Media
for mobile audience building and activation, application discovery, brand awareness,
user engagement, user monetization and more; and
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Data
for audience insights, campaign engagement and business process optimization.
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Additionally,
Phunware plans to launch PhunCoin, a blockchain-powered token and ecosystem that enables consumers, brands and application developers
to transact directly and create a value-based and voluntary data exchange.
In
connection with the proposed merger with Phunware, the Company formed a wholly-owned subsidiary, STLR Merger Subsidiary Inc.,
which was incorporated in Delaware in February 2018. Merger Sub did not have any activity as of August 31, 2018. At August 31,
2018, the Company had not commenced any operations. All activity for the period from December 8, 2015 (inception) through August
31, 2018 relates to the Company’s formation and the initial public offering (“Public Offering”) described below
and since August 24, 2016 a search for a target business with which to complete a Business Combination and activities in connection
with the proposed acquisition of Phunware. The Company will not generate any operating revenues until after completion of a Business
Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents
from the proceeds derived from the Public Offering.
Going
Concern:
Following
the Company’s announcements on August 24, 2017, November 27, 2017 and February 27, 2018, regarding the first, second and
third extensions, respectively, the Company extended its time to consummate a Business Combination until May 24, 2018. On May
22, 2018, Stellar’s shareholders approved an amendment to the Company’s Second Amended and Restated Articles of Incorporation,
extending the date by which Stellar must consummate its initial business combination to August 24, 2018. On August 22, 2018, Stellar’s
shareholders approved an amendment to the Company’s Second Amended and Restated Articles of Incorporation, extending the
date by which Stellar must consummate its initial business combination to December 26, 2018.
In
connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standards
Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an
Entity’s Ability to Continue as a Going Concern,” management has determined that the mandatory liquidation and
subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments
have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after December
26, 2018.
Sponsors
and Public Financing:
The
Company’s sponsors are Astra Maritime Inc. and Dominium Investments Inc., affiliated with the Company’s Chairman and
co-Chief Executive Officer, and Magellan Investments Corp. and Firmus Investments Inc., affiliated with our co-Chief Executive
Officer and Chief Financial Officer. All four companies were incorporated pursuant to the laws of the Republic of the Marshall
Islands (the “Sponsors”). The registration statement (the “Registration Statement”) for the Public Offering
(as described in Note 3) was declared effective by the United States Securities and Exchange Commission (the “SEC”)
on August 18, 2016. The Company intends to finance a Business Combination with the net proceeds from the $69,006,100 raised in
the Public Offering (Note 3) and the $3,985,244 private placement in each case including the partial exercise of the underwriter’s
overallotment option. Upon the closing of the Public Offering and the private placement, $70,386,222 was deposited in a trust
account with Continental Stock Transfer and Trust Company acting as trustee (the “Trust Account”) as discussed below.
On August 24, 2017, November 24, 2017, and February 27, 2018, the period of time the Company has to consummate a business combination
was extended by three months by increasing the minimum amount in the Trust Account by $402,536 each time, pursuant to the Company’s
prospectus in connection with the Company’s initial public offering. On May 22, 2018, Stellar’s shareholders approved
an amendment to the Company’s Second Amended and Restated Articles of Incorporation, extending the date by which Stellar
must consummate its initial business combination to August 24, 2018, or such earlier date as determined by the Company’s
board of directors, by increasing the minimum amount in the Trust Account by $124,164 each month. Concurrently, 3,353,060 public
shares exercised their right to redeem such public shares. An aggregate $34,787,998 was removed from Stellar’s trust account
to pay for such redemptions. On August 22, 2018, Stellar’s shareholders approved an amendment to the Company’s Second
Amended and Restated Articles of Incorporation, extending the date by which Stellar must consummate its initial business combination
to December 26, 2018, or such earlier date as determined by the Company’s board of directors, by increasing the minimum
amount in the Trust Account by $74,069 each month. Concurrently, 1,695,830 public shares exercised their right to redeem such
public shares. An aggregate $17,772,298 was removed from Stellar’s trust account to pay for such redemptions.
Stellar Acquisition III Inc. and Subsidiary
Notes to Condensed Interim Consolidated
Financial Statements
(unaudited)
The
Trust Account:
The
Trust Account will be invested only in U.S. government treasury bills with a maturity of one hundred and eighty (180) days or
less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940 which invest
only in direct U.S. government obligations. Funds will remain in the Trust Account until the earlier of (i) the consummation of
its initial Business Combination or (ii) the distribution of the Trust Account as described below. The remaining proceeds outside
the Trust Account may be used to pay for business, legal and accounting due diligence expenses for prospective acquisition targets
and continuing general and administrative expenses. The proceeds held from the Public Offering were used to invest in U.S. government
treasury bills with a maturity of one hundred and eighty (180) days or less or in money market funds meeting certain conditions
under Rule 2a-7 under the Investment Company Act of 1940 which invest only in direct U.S. government obligations. At August 31,
2018, the Trust Account consisted of US treasury bills yielding interest of approximately 1.9% per annum, with a value of $19,487,416
and another $1,454 held as cash and cash equivalents.
The
Company’s amended and restated articles of incorporation provides that, other than the withdrawal of interest to pay taxes,
if any, or working capital expenses, none of the funds held in the Trust Account will be released until the earlier of: (i) the
completion of the Business Combination; or (ii) the redemption of 100% of the shares of common stock included in the Units being
sold in the Public Offering if the Company is unable to complete a Business Combination by August 24, 2018 (subject to the requirements
of law). Since March 17, 2017, the Company has withdrawn $1,025,325 of interest earned from the Trust Account to pay for working
capital expenses, respectively. Additionally, $99,236, $101,536 and $34,168 of interest was used for the first, second and third
extensions on August 24, 2017, November 24, 2017 and February 23, 2018, respectively.
Business
Combination:
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the Public Offering,
although it initially intends to focus its efforts within the international energy logistics industry. Substantially all of the
net proceeds of the Public Offering and the private placement are intended to be generally applied toward consummating a Business
Combination with (or acquisition of) a Target Business. As used herein, “Target Business” means one or more target
businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (less any deferred
underwriting commissions and taxes payable on interest earned) at the time of the Company signing a definitive agreement in connection
with the Business Combination. There is no assurance that the Company will be able to successfully effect a Business Combination.
The
Company, after signing a definitive agreement for a Business Combination, will either (i) seek stockholder approval of the Business
Combination at a meeting called for such purpose in connection with which shareholders may seek to redeem their shares, regardless
of whether they vote for or against the Business Combination, for cash equal to their pro rata share of the aggregate amount then
on deposit in the Trust Account as of two business days prior to the consummation of the initial Business Combination, including
interest but less taxes payable or amounts released to the Company for working capital, or (ii) provide shareholders with the
opportunity to sell their shares to the Company by means of a tender offer (and thereby avoid the need for a stockholder vote)
for an amount in cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business
days prior to commencement of the tender offer, including interest but less taxes payable or amounts released to the Company for
working capital. The decision as to whether the Company will seek stockholder approval of the Business Combination or will allow
shareholders to redeem their shares in a tender offer will be made by the Company, solely in its discretion, and will be based
on a variety of factors such as whether the Company is a foreign private issuer, the timing of the transaction and whether the
terms of the transaction would otherwise require the Company to seek stockholder approval unless a vote is required by NASDAQ
rules. If the Company seeks stockholder approval, it will complete its Business Combination only if a majority of the outstanding
shares of common stock voted are voted in favor of the Business Combination. However, in no event will the Company redeem its
public shares in an amount that would cause its net tangible assets to be less than $5,000,001 upon consummation of the initial
Business Combination. In such case, the Company would not proceed with the redemption of its public shares and the related Business
Combination, and instead may search for an alternate Business Combination.
Stellar Acquisition III Inc. and Subsidiary
Notes to Condensed Interim Consolidated
Financial Statements
(unaudited)
If
the Company holds a shareholder vote or there is a tender offer for shares in connection with a Business Combination, a public
shareholder will have the right to redeem its shares for an amount in cash equal to their pro rata share of the aggregate amount
then on deposit in the Trust Account as of two business days prior to the consummation of the initial Business Combination, including
interest but less taxes payable or amounts released to the Company for working capital purposes. As a result, such shares of common
stock have been recorded at redemption amount and classified as temporary equity upon the completion of the Public Offering, in
accordance with FASB ASU 480, “Distinguishing Liabilities from Equity.” The amount in the Trust Account is initially
$10.20 per public common share ($70,386,222 held in the Trust Account divided by 6,900,610 public common shares), subject to increase
of up to an additional $0.175 per unit in the event that the Sponsors elect to extend the period of time to consummate a Business
Combination, as described in more detail below. As of August 31, 2018, the minimum amount in the Trust Account was approximately
$10.52 per public common share ($19,480,095 held in the Trust Account divided by 1,851,720 public common shares).
The
Company has until December 26, 2018, to complete a Business Combination. If the Company does not complete a Business Combination
within this period of time, it shall (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably
possible, but not more than ten business days thereafter, redeem the public shares of common stock for a per share pro rata portion
of the Trust Account, including interest, but less taxes payable or amounts released to the Company for working capital (less
up to $50,000 of such net interest to pay dissolution expenses) and (iii) as promptly as possible following such redemption, dissolve
and liquidate the balance of the Company’s net assets to its remaining shareholders, as part of its plan of dissolution
and liquidation. The initial shareholders have entered into letter agreements with the Company, pursuant to which they have waived
their rights to participate in any redemption with respect to their founder shares; however, if the initial shareholders or any
of the Company’s officers, directors or affiliates acquire shares of common stock in or after the Public Offering, they
will be entitled to a pro rata share of the Trust Account upon the Company’s redemption or liquidation with respect to such
shares in the event the Company does not complete a Business Combination within the required time period.
In
the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution
(including Trust Account assets) will be less than the initial public offering price per Unit in the Public Offering.
Stellar Acquisition III Inc. and Subsidiary
Notes to Condensed Interim Consolidated
Financial Statements
(unaudited)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation:
The
accompanying unaudited condensed interim consolidated financial statements are presented in U.S. dollars in conformity with accounting
principles generally accepted in the United States of America (’‘GAAP’’) for interim information and in
accordance with the instructions to Form 10-Q and Article 8 and Article 10 of Regulation S-X. Accordingly, since they are interim
statements, the accompanying consolidated financial statements do not include all of the information and notes required by GAAP
for a complete consolidated financial statement presentation. In the opinion of management, the interim consolidated financial
statements reflect all adjustments (consisting of normal, recurring adjustments) that are necessary for a fair presentation of
the financial position, results of consolidated operations and cash flows for the interim periods presented. Interim results are
not necessarily indicative of results for a full year and pursuant to the rules and regulations of the SEC.
Principles
of Consolidation:
The
accompanying condensed interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary.
All significant intercompany balances and transactions have been eliminated in consolidation.
Emerging
Growth Company:
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.
Net
Loss per Ordinary Share
Net
loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding, ineligible
for redemption, during the period, plus to the extent dilutive, the incremental number of shares of common stock to settle warrants,
as calculated using the treasury stock method. At August 31, 2018, the Company had outstanding warrants to purchase 14,871,098
shares. For all periods presented, these shares were excluded from the calculation of diluted loss per share of common stock because
their inclusion would have been antidilutive. As a result, diluted loss per common share is the same as basic loss per common
share for all periods presented.
Concentration
of Credit Risk:
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution
in Cyprus, which has no deposit insurance. The Company has not experienced losses on these accounts and management believes the
Company is not exposed to significant risks on such accounts.
Fair
Value of Financial Instruments:
The
fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair
Value Measurements and Disclosures,” approximates the carrying amounts represented in the consolidated balance sheets.
Use
of Estimates:
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America requires the Company’s 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 consolidated financial statements. Actual
results could differ from those estimates.
Stellar Acquisition III Inc. and Subsidiary
Notes to Condensed Interim Consolidated
Financial Statements
(unaudited)
Cash
and securities held in Trust Account:
At
August 31, 2018 and November 30, 2017, the assets held in the Trust Account were held in cash and U.S. Treasury Bills. Since March
17, 2017, the Company has withdrawn $1,025,325 of interest earned from the Trust Account to pay for operating expenses. Additionally,
$99,236, $101,536 and $34,168 of interest was used for the first, second and third extensions on August 24, 2017, November 24,
2017, and February 23, 2018, respectively.
Income
Taxes:
There
is, at present, no direct taxation in the Marshall Islands and interest, dividends, and gains payable to the Company are received
free of all Marshall Islands taxes. The Company is registered as an “exempted company” pursuant to the Marshall Islands
Business Corporations Act (as amended). As the Company proceeds with making investments in various jurisdictions, tax considerations
outside the Marshall Islands may arise. Although the Company intends to pursue tax-efficient investments, it may be subject to
income tax, withholding tax, capital gains tax, and other taxes imposed by tax authorities in other jurisdictions. For U.S. tax
purposes, the Company expects to be treated as a passive foreign investment company by its U.S. shareholders. The Company does
not expect to be subject to direct taxation based on net income in the U.S. as long as it maintains its non-U.S. trade or business
status. The Company does not expect to invest in any U.S. obligation that will be subject to U.S. withholding taxes. As of August
31, 2018, the Company has not commenced operations and thus has no uncertain tax positions. There were no adjustments related
to uncertain tax positions recognized during the period December 8, 2015 (inception) to August 31, 2018.
The
Company follows the provisions of FASB ASC 740-10 which prescribes a recognition threshold and measurement attribute for how a
company should recognize, measure, present and disclose in its consolidated financial statements uncertain tax positions that
the Company has taken or expects to take on its tax return. FASB ASC 740-10 requires that the consolidated financial statements
reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position
and all relevant facts, but without considering time values.
Redeemable
Common Stock:
As
discussed in Note 3, all common shares sold as part of a Unit in the Public Offering contain a redemption feature which allows
for the redemption of common shares under the Company’s Liquidation or Tender offer/stockholder/approval provisions. In
accordance with FASB ASC 480, redemption provisions not solely within the control of the Company require the security to be classified
outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of an entity’s
equity instruments, are excluded from the provisions of FASB ASC 480. Although the Company did not specify a maximum redemption
threshold, its charter provides that in no event will it redeem its Public Shares in an amount that would cause its net tangible
assets (shareholders’ equity) to be less than $5,000,001.
The
Company recognizes changes in redemption value immediately as they occur and will adjust the carrying value of the security to
equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common
stock shall be affected by charges against additional paid-in capital.
Accordingly,
at August 31, 2018 and November 30, 2017, 1,123,870 and 6,192,221 of the 1,851,720 and 6,900,610 Public Shares were classified
outside of permanent equity at their redemption value, respectively.
Recent
Accounting Pronouncements:
Management
does not believe there are any recently issued, but not yet effective, accounting pronouncements, that if currently adopted, would
have a material effect on the Company’s consolidated financial statements.
Stellar Acquisition III Inc. and Subsidiary
Notes to Condensed Interim Consolidated
Financial Statements
(unaudited)
NOTE
3 — PUBLIC OFFERING
On
August 24, 2016, the Company closed the Public Offering for the sale of 6,500,000 units at a price of $10.00 per unit (the “Units”).
Each Unit consists of one share of the Company’s common stock, $0.0001 par value (the “Public Shares”) and one
redeemable common stock purchase warrant (the “Warrants”). Under the terms of a warrant agreement, the Company has
agreed to use its best efforts to file a new registration statement under the Securities Act to register the shares of common
stock underlying the Warrants, following the completion of the Business Combination. Each Warrant entitles the holder to purchase
one share of common stock at a price of $11.50. No fractional shares will be issued upon exercise of the Warrants. If, upon exercise
of the Warrants, a holder would be entitled to receive a fractional interest in a share, the Company will, upon exercise, round
down to the nearest whole number the number of shares of common stock to be issued to the Warrant holder. Each Warrant will become
exercisable on the later of 30 days after the completion of the Business Combination or 12 months from the closing of the Public
Offering and will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation.
However, if the Company does not complete its initial Business Combination on or prior to the applicable time period to complete
the Business Combination, the Warrants will expire at the end of such period. If the Company is unable to deliver registered shares
of common stock to the holder upon exercise of Warrants issued in connection with the Company’s public Units during the
exercise period, there will be no net cash settlement of these Warrants and the Warrants will expire worthless, unless they may
be exercised on a cashless basis in the circumstances described in the warrant agreement. Once the Warrants become exercisable,
the Company may redeem the outstanding Warrants in whole and not in part at a price of $0.01 per Warrant upon a minimum of 30
days’ prior written notice of redemption, only in the event that the last sale price of the Company’s shares of common
stock equals or exceeds $21.00 per share for any 20 trading days within the 30-trading day period ending on the third trading
day before the Company sends the notice of redemption to the Warrant holders.
The
Company granted the underwriters an overallotment option to purchase an additional 975,000 Units at $10.00 for 45 days following
the closing of the Public Offering. Following the partial exercise of the underwriters’ overallotment option on September
28, 2016, the Company sold an additional 400,610 Units at a price of $10.00 per unit generating additional gross proceeds of $4,006,100.
The Company paid an underwriting fee of $1,300,000, equal to a 2.00% underwriting discount on the per Unit offering price to the
underwriters, based on a sale of 6,500,000 Units, at the closing of the Public Offering and $80,122 based on a sale of 400,610
Units, following the partial exercise of the underwriters’ overallotment option on September 28, 2016. The Company will
pay an additional fee (the “Deferred Discount”) of 2.5% of the gross offering proceeds payable to underwriters, reduced
pro rata for any share redemptions, upon the Company’s completion of a Business Combination. The Deferred Discount will
become payable to the underwriters from the amounts held in the Trust Account solely in the event the Company completes its initial
Business Combination.
The
Company issued the underwriters, as additional compensation for the Public Offering, 100,000 shares at the close of the Public
Offering. Following the partial exercise of the underwriters’ overallotment option on September 28, 2016, the Company issued
the underwriters, as additional compensation for the Public Offering, another 6,164 shares. The Company accounted for the fair
value of these shares, as an expense of the Public Offering resulting in a charge directly to shareholders’ equity. The
shares were issued at an estimated fair value of $1,061,640.
Stellar Acquisition III Inc. and Subsidiary
Notes to Condensed Interim Consolidated
Financial Statements
(unaudited)
NOTE
4 — RELATED PARTY TRANSACTIONS
Founder
Shares
The
Company’s initial shareholders currently own 2,003,403 shares of common stock, following the partial exercise of the underwriters’
overallotment option on September 28, 2016. In January 2016, 2,300,000 shares were initially purchased by Messrs. Tsirigakis and
Syllantavos for an aggregate of $25,000, up to 300,000 of which were subject to forfeiture. In January 2016, Messrs. Tsirigakis
and Syllantavos collectively transferred an aggregate of 2,099,900 shares to the Sponsors and an aggregate of 34,500 shares to
the Company’s director nominees. In addition, in January 2016, Messrs. Tsirigakis and Syllantavos collectively transferred
an aggregate of 165,600 shares to the Company’s other initial shareholders. In August 2016, the Sponsors returned to the
Company, at no cost, an aggregate of 129,839 founder shares, which the Company cancelled, leaving an aggregate of 2,170,161 founder
shares outstanding. Following the partial exercise of the underwriters’ overallotment option on September 28, 2016, the
Sponsors returned to the Company, at no cost, an aggregate of 166,758 founder shares, which the Company cancelled, leaving an
aggregate of 2,003,403 founder shares outstanding. The founder shares are identical to the common stock included in the Units
sold in the Public Offering except that the founder shares are subject to certain transfer restrictions, as described in more
detail below. The Company’s initial shareholders currently own 35.4% of the Company’s issued and outstanding shares
of common stock.
The
Company’s initial shareholders have agreed not to transfer, assign or sell any of their founder shares until the earlier
of (A) one year after the completion of the Business Combination, or earlier if, subsequent to the Business Combination, the last
sale price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends,
reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least
150 days after the Business Combination or (B) the date on which the Company completes a liquidation, merger, stock exchange or
other similar transaction after the initial Business Combination that results in all of the Company’s shareholders having
the right to exchange their shares of common stock for cash, securities or other property.
Private
Placement Warrants
Upon
the closing of the Public Offering on August 24, 2016, the Sponsors paid the Company $3,825,000 in a private placement for the
purchase of an aggregate of 7,650,000 Warrants at a price of $0.50 per Warrant (the “Private Placement Warrants”).
Following the partial exercise of the underwriters’ overallotment option on September 28, 2016, the Sponsors purchased 320,488
additional Private Placement Warrants for an aggregate price of $160,244. Each Private Placement Warrant entitles the holder to
purchase one share of common stock at $11.50 per share. The proceeds from the sale of the Private Placement Warrants have been
added to the proceeds from the Public Offering held in the Trust Account pending completion of the Business Combination. The Private
Placement Warrants (including the common stock issuable upon exercise of the Private Placement Warrants) will not be transferable,
assignable or salable until 30 days after the completion of the initial Business Combination and they will be non-redeemable so
long as they are held by the Sponsors or their permitted transferees. If the Private Placement Warrants are held by someone other
than the Sponsors or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable
by such holders on the same basis as the Warrants included in the Units being sold in the Public Offering. Otherwise, the Private
Placement Warrants have terms and provisions that are identical to those of the Warrants sold as part of the Units in the Public
Offering and have no net cash settlement provisions.
If
the Company does not complete a Business Combination, then the proceeds will be part of the liquidating distribution to the public
shareholders and the Warrants issued to the Sponsors will expire worthless.
Registration
Rights
The
Company’s initial shareholders and holders of the Private Placement Warrants are entitled to registration rights pursuant
to a registration rights agreement executed on August 18, 2016. The Company’s initial shareholders and holders of the Private
Placement Warrants are entitled to make up to three demands, excluding short form registration demands, that the Company register
such securities for sale under the Securities Act. In addition, these holders have “piggy-back” registration rights
to include their securities in other registration statements filed by the Company. The Company will bear the expenses incurred
in connection with the filing of any such registration statements. There are no penalties associated with delays in registering
the securities under the registration rights agreement.
Stellar Acquisition III Inc. and Subsidiary
Notes to Condensed Interim Consolidated
Financial Statements
(unaudited)
Related
Party Loans
As
of January 15, 2016, three of the Company’s Sponsors, Firmus Investments Inc., Astra Maritime, Inc. and Magellan Investments
Corp., have agreed to loan the Company an aggregate of $250,000 against the issuance of an unsecured promissory note (the “Note”)
to cover expenses related to the Public Offering. Between January and August 2016, the Company borrowed approximately $207,985
under this loan from the three Sponsors. These loans were non-interest bearing and were paid in full on August 24, 2016. Additionally,
between January and August 2016 Nautilus Energy Management Corp., an affiliate of the Company’s co-Chief Executive Officers
paid for certain expenses related to the Company’s roadshow and offering amounting to $42,550. Nautilus Energy Management
Corp. was reimbursed for these expenses in full on August 24, 2016.
On
August 24, 2017, the Company issued unsecured promissory notes (the “First Extension Notes”) in the aggregate amount
of $303,300 to three of the Company’s Sponsors, Firmus Investments Inc., Astra Maritime, Inc. and Magellan Investments Corp.,
affiliates of our co-CEOs, Mr. Prokopios (Akis) Tsirigakis, and of Mr. George Syllantavos. Of the aggregate amount of $303,300
received, $65,000 is held outside of a financial institution in cash on hand at the Company and is expected to be deposited in
the Company’s operating cash account. The Trust Account was funded properly for the extension. These funds, which were deposited
into the Trust Account, were used to extend the period of time the Company has to consummate a business combination by three months
to November 24, 2017.
On
November 23, 2017, the Company issued unsecured promissory notes (the “Second Extension Notes”) in the aggregate amount
of $301,000 to three of the Company’s Sponsors, Firmus Investments Inc., Astra Maritime, Inc. and Magellan Investments Corp.,
affiliates of our co-CEOs, Mr. Prokopios (Akis) Tsirigakis, and of Mr. George Syllantavos. These funds, which were deposited into
the Trust Account, were used to extend the period of time the Company has to consummate a business combination by three months
to February 24, 2018.
On
February 23, 2018, the Company issued unsecured promissory notes in the aggregate amount of $167,100 to three of the Company’s
Sponsors, Firmus Investments Inc., Astra Maritime, Inc. and Magellan Investments Corp., affiliates of our co-CEOs, Mr. Prokopios
(Akis) Tsirigakis, and of Mr. George Syllantavos. Additionally, on February 22, 2018 the Company issued a promissory note in the
aggregate amount of $201,268 to Phunware. The promissory note payable to Phunware bears no interest, and is payable on the earlier
of (a) the date of consummation of the merger pursuant to the terms of the Merger Agreement, (b) the date that the Company consummates
its initial business combination, or (c) the date of liquidation of the Company. The aggregate funds from the four aforementioned
promissory notes (collectively the “Third Extension Notes”), which were deposited into the Trust Account, were used
to extend the period of time the Company has to consummate a business combination by three months to May 24, 2018.
On
each of May 22, 2018, June 22, 2018, and July 23, 2018, Stellar issued unsecured promissory notes in the aggregate amount of $62,082
to three of the Company’s Sponsors, Firmus Investments Inc., Astra Maritime, Inc. and Magellan Investments Corp., affiliates
of our co-CEOs, Mr. Prokopios (Akis) Tsirigakis, and of Mr. George Syllantavos. Additionally, each of May 22, 2018, June 22, 2018,
and July 23, 2018, the Company issued a promissory note in the aggregate amount of $62,082 to Phunware (collectively the “Fourth
Extension Notes”).
On
each of August 23, 2018, and September 24, 2018, Stellar issued unsecured promissory notes in the aggregate amount of $37,034
each time to three of the Company’s Sponsors, Firmus Investments Inc., Astra Maritime, Inc. and Magellan Investments Corp.,
affiliates of our co-CEOs, Mr. Prokopios (Akis) Tsirigakis, and of Mr. George Syllantavos. Additionally, on August 23, 2018, and
September 24, 2018, the Company issued promissory notes in the aggregate amount of $37,034 each time to Phunware (collectively
the “Fifth Extension Notes”).
Stellar Acquisition III Inc. and Subsidiary
Notes to Condensed Interim Consolidated
Financial Statements
(unaudited)
As
of August 31, 2018, the outstanding loans to related parties amounted to $994,681 and the outstanding loans to Phunware amounted
to $424,549.
The
First Extension Notes, the Second Extension Notes, the Third Extension Notes, the Fourth Extension Notes and the Fifth Extension
Notes (the “Extension Notes”) bear no interest and are repayable in full upon consummation of the Company’s
initial business combination. The Sponsors have the option to convert any unpaid balance of the Notes into warrants exercisable
for shares of the Company’s common stock, based on a conversion price of $0.50 per warrant. The terms of any such warrants
shall be identical to the terms of the warrants issued pursuant to the private placement that was consummated by the Company in
connection with the Company’s initial public offering.
As
of August 31, 2018, the Company had $70,000 of outstanding invoices to Nautilus Energy Management Corp.
Administrative
Service Agreement and Services Agreement
The
Company has agreed to pay $10,000 a month for office space, administrative services and secretarial support to Nautilus Energy
Management Corp., an affiliate of our co-Chief Executive Officers. Services commenced on the date the securities were first listed
on the NASDAQ Capital Market on August 19, 2016 and will terminate upon the earlier of the consummation by the Company of an initial
Business Combination or the liquidation of the Company. For the period from December 5, 2015 (inception) through August 31, 2018,
the Company paid $244,194 under this agreement, $90,000 of which was for the nine months ended August 31, 2018.
NOTE
5 — COMMITMENTS AND CONTINGENCIES
The
Company paid an underwriting fee of $1,300,000, equal to a 2.00% underwriting discount on the per Unit offering price to the underwriters,
based on a sale of 6,500,000 Units, at the closing of the Public Offering. Following the partial exercise of the underwriters’
overallotment option on September 28, 2016, the Company paid an additional underwriting fee of $80,122. The Company will pay an
additional fee (the “Deferred Discount”) of 2.5% of the gross offering proceeds payable to underwriters, reduced pro
rata for any share redemptions, upon the Company’s completion of a Business Combination. The Deferred Discount will become
payable to the underwriters from the amounts held in the Trust Account solely in the event the Company completes its initial Business
Combination. On August 31, 2018, and November 30, 2017, the Deferred Discount amounted to $462,930 and $1,725,153, respectively.
The reduction was due to the redemption of 3,353,060 and 1,695,830 shares that took place in May 22, 2018 and August 22, 2018,
respectively.
The
Company sold to the underwriters for $100, an option to purchase up to a total of 130,000 units, exercisable at $11.50 per unit
(or an aggregate exercise price of $1,495,000) upon the closing of the Public Offering. The purchase option may be exercised for
cash or on a cashless basis, at the holder’s option, at any time during the period commencing on the later of the first
anniversary of the effective date of the Registration Statement and the closing of our initial Business Combination and terminating
on the fifth anniversary of such effectiveness date. The units issuable upon exercise of this option are identical to those offered
in the Public Offering. The Company accounted for the fair value of the unit purchase option, net of the receipt of the $100 cash
payment, as an expense of the Public Offering resulting in a charge directly to shareholders’ equity. The Company estimates
the fair value of this unit purchase option is $6.01 per unit (for a total fair value of approximately $781,000) using a Black-Scholes
option-pricing model. The fair value of the unit purchase option granted to the underwriter is estimated as of the date of grant
using the following assumptions: (1) expected volatility of 37.8% (2) risk-free interest rate of 1.83% and (3) expected life of
5 years. Because the Company’s units do not have a trading history, the volatility assumption is based on information currently
available to management. The volatility assumption was calculated using the average volatility of stock prices of a selection
of companies within the energy logistics space, which are representative of the sectors on which the company intends to focus
for the initial business transaction, including: Arc Logistics Partners LP, Ardmore Shipping Corporation, Blueknight Energy Partners,
L.P., Buckeye Partners, L.P., Cheniere Energy, Inc., DHT Holdings, Inc., Dorian LPG Ltd., EnLink Midstream, LLC, GasLog Ltd.,
Genesis Energy LP, Golar LNG Ltd., Kinder Morgan, Inc., Magellan Midstream Partners LP, Navigator Holdings Ltd., Nordic American
Tankers Limited, NuStar GP Holdings, LLC, ONEOK Inc., PBF Logistics LP, Scorpio Tankers Inc., StealthGas, Inc., Teekay Tankers
Ltd., Tsakos Energy Navigation Limited. The Company believes that the volatility estimate is a reasonable benchmark to use in
estimating the expected volatility of the units. Although an expected life of five years was used in the calculation, if the Company
does not consummate a Business Combination within the prescribed time period and it liquidates, the option will become worthless.
The unit purchase option may be exercised for cash or on a “cashless” basis, at the holder’s option, such that
the holder may use the appreciated value of the unit purchase option (the difference between the exercise prices of the unit purchase
option and the underlying Warrants and the market price of the Units and underlying ordinary shares) to exercise the unit purchase
option without the payment of cash.
Stellar Acquisition III Inc. and Subsidiary
Notes to Condensed Interim Consolidated
Financial Statements
(unaudited)
The
Company issued the underwriters, as additional compensation for the Public Offering, 100,000 shares at the close of the Public
Offering. Following the partial exercise of the underwriters’ overallotment option on September 28, 2016, the Company issued
the underwriters, as additional compensation for the Public Offering, another 6,164 shares. The Company accounted for the fair
value of these shares, as an expense of the Public Offering resulting in a charge directly to shareholders’ equity. The
shares were issued at an estimated fair value of $1,061,640.
NOTE
6 — TRUST ACCOUNT AND FAIR VALUE MEASUREMENTS
As
of August 31, 2018, investment securities in the Company’s Trust Account consisted of $19,487,416 in United States Treasury
Bills and another $1,454 held as cash and cash equivalents. As of November 30, 2017, investment securities in the Company’s
Trust Account consisted of $71,215,004 in United States Treasury Bills and another $852 held as cash and cash equivalents. The
Company classifies its Treasury Instruments and equivalent securities as held-to-maturity in accordance with FASB ASC 320 “Investments
- Debt and Equity Securities”. Held-to-maturity securities are those securities which the Company has the ability and intent
to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying August 31, 2018
and November 30, 2017 consolidated balance sheet and adjusted for amortization or accretion of premiums or discounts. The following
table presents information about the Company’s assets that are measured at fair value on a recurring basis as of August 31, 2018
and November 30, 2017 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such
fair value. In addition, the table presents the carrying value under ASC 320, excluding accrued interest income and gross unrealized
holding gain. Since all of the Company’s permitted investments consist of U.S. government treasury bills and cash, fair values
of its investments are determined by Level 1 inputs utilizing quoted prices (unadjusted) in active markets for identical assets
as follows:
|
|
Carrying Value
|
|
|
Gross Unrealized Holding Losses
|
|
|
Quoted prices in Active Markets (Level 1)
|
|
U.S. Government Treasury Securities as of August 31, 2018 (maturing on September 20, 2018)
|
|
$
|
19,487,416
|
|
|
$
|
(4,002
|
)
|
|
$
|
19,491,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Treasury Securities as of November 30, 2017
|
|
$
|
71,215,004
|
|
|
$
|
(14,157
|
)
|
|
$
|
71,229,161
|
|
NOTE
7 — SHAREHOLDERS’ EQUITY
Common
Stock
The
authorized common stock of the Company includes up to 200,000,000 shares. Holders of the Company’s common stock are entitled
to one vote for each share of common stock. At August 31, 2018 and November 30, 2017, there were 3,961,287 and 9,010,177 shares
of common stock issued and outstanding, including 1,123,870 and 6,192,221 shares subject to possible redemption, respectively.
Preferred
Stock
The
Company is authorized to issue 10,000,000 shares of preferred stock with such designations, voting and other rights and preferences
as may be determined from time to time by the Board of Directors. At August 31, 2018 and November 30, 2017, there were no shares
of preferred stock issued and outstanding.