Borqs Technologies, Inc. - Annual Report: 2017 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

For the fiscal year ended June 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 number: 001-37593

PACIFIC SPECIAL ACQUISITION CORP.

(Exact name of registrant as specified in its charter) 

Issuer’s telephone number: (86) 21-61376584

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

Securities registered pursuant to Section 12(g) of the Act: None 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐   No ☒ 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes ☐   No ☒ 

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒ 

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

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 December 31, 2016, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the ordinary shares outstanding, other than shares held by persons who may be deemed affiliates of the registrant, based on its last reported sales price of $10.35 on the NASDAQ Capital Market, was $59,512,500. 

As of August 16, 2017, there were 7,065,379 ordinary shares, no par value, of the registrant issued and outstanding. 

TABLE OF CONTENTS

Unless otherwise stated in this Annual Report on Form 10-K (this “Report”), references in this Report to:

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Report, including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” 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, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements relating to our ability to consummate any acquisition or other business combination and any other statements that are not statements of current or historical facts. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, but not limited to:

The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under “Risk Factors” may not be exhaustive.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods. For any risks associated with the Business Combination (as described below), see the Company’s definitive proxy statement (the “Proxy Statement”) on Schedule 14A containing information about the Business Combination, filed with the SEC on July 14, 2017.

PART I

Item 1. Business

Introduction

We are a blank check company incorporated in the British Virgin Islands as a business company with limited liability. This means that our shareholders have no additional liability for the company’s liabilities over and above the amount paid for their shares. We were formed for the purpose of acquiring, engaging in a share exchange, share reconstruction and amalgamation with, contractual control arrangement with, purchasing all or substantially all of the assets of, or engaging in any other similar business combination with one or more businesses or entities.

Prior to December 27, 2016, our efforts were limited to organizational activities, our initial public offering, and the search for a suitable acquisition target. On December 27, 2016, we entered into a Merger Agreement (the “Merger Agreement”) with Borqs International Holding Corp, an exempted company incorporated under the laws of the Cayman Islands with limited liability (“Borqs”), PAAC Merger Subsidiary Limited, an exempted company incorporated under the laws of the Cayman Islands with limited liability and a wholly-owned subsidiary of Pacific (“Merger Sub”), our sponsor, in the capacity as the representative from and after the Effective Time (as defined below) for the shareholders of Pacific other than the shareholders of Borqs as of immediately prior to the Effective Time and their successors and assignees, Zhengdong Zou, in the capacity as the representative from and after the Effective Time for the shareholders of Borqs as of immediately prior to the Effective Time, and for certain limited purposes thereof, our sponsor. The Merger Agreement was subsequently amended on May 10, 2017 and on June 29, 2017.

Pursuant to the Merger Agreement, as amended, subject to the terms and conditions set forth therein, at the closing of the transactions contemplated by the Merger Agreement (the “Closing”), Merger Sub will merge with and into Borqs, with Borqs continuing as the surviving entity (the “Merger”). As a result of the consummation of the Merger, at the effective time of the Merger (the “Effective Time”), and subject to the terms and conditions set forth in the Merger Agreement, the holders of Borqs issued and outstanding capital shares will receive ordinary shares of Pacific, the holders of Borqs issued and outstanding warrants will receive replacement warrants to acquire ordinary shares of Pacific (“Replacement Warrants”), and the holders of Borqs issued and outstanding options will have their options assumed by Pacific and will instead acquire ordinary shares of Pacific upon exercise of such options (the “Business Combination”).

On July 14, 2017, we filed the Proxy Statement. On August 10, 2017, we held a special meeting of shareholders to approve the Business Combination. The Business Combination and related proposals, including (i) a proposal to amend our memorandum and articles of association to (A) remove or amend those provisions of our charter which terminate or otherwise cease to be applicable following the consummation of the Business Combination, (2) give our board of directors the ability to reclassify the board, and if necessary modify existing terms, into up to three classes at any time after the consummation of the Business Combination and (3) in the case of certain future acquisitions by us (x) if having a value in excess of $60 million, require at least two-thirds of the directors then-serving on the board to approve any such acquisitions that close on or before June 30, 2018, (y) grant the Sponsor and the Purchaser Representative (as defined in the Merger Agreement) certain information rights relating to such acquisitions, and (z) if requested by the Sponsor or the Purchaser Representative, to provide a fairness opinion in respect of such acquisitions (such amendments to be adopted by way of the amendment and restatement of the charter in the form of the Amended Charter), (ii) a proposal to approve and adopt  the Borqs Technologies, Inc. 2017 Equity Incentive Plan, (iii) a proposal to approve, for purposes of complying with applicable Nasdaq listing rules, the issuance of more than 20% of our issued and outstanding ordinary shares and (iv) a proposal to adjourn the special meeting to a later date, if necessary, were approved at such meeting. Concurrently with the consummation of the Business Combination, we will provide our shareholders with the opportunity to redeem their public shares for cash equal to their pro rata share of the aggregate amount then on deposit in the trust account. In connection with the meeting, 3,841,131 of our public shares were validly presented to us for redemption. The parties are seeking to satisfy or negotiate waivers to any remaining closing conditions to the proposed business combination. Without satisfying all remaining closing conditions or receiving all waivers, no assurance can be made as to whether the proposed business combination will be consummated. If we do not consummate the Business Combination by the close of business on August 21, 2017, we will be required to dissolve and liquidate our trust account by returning the then remaining funds in such account to our then-public shareholders. The description of the Merger Agreement is qualified in its entirety by reference to the full text of the Merger Agreement, which was filed with the SEC on the Company’s Current Report on Form 8-K filed on January 3, 2017, the First Amendment to the Merger Agreement, which was filed with the SEC on the Company’s Current Report on Form 8-K filed on May 12, 2017, the Second Amendment to the Merger Agreement, which was filed with SEC on the Company’s Current Report on Form 8-K filed on July 3, 2017, and the Proxy Statement filed on July 14, 2017. You are urged to read the entire Merger Agreement and the other exhibits attached thereto.

Additional information about the proposed Business Combination, the business of Borqs and the special meeting are available, without charge, at the SEC’s website (http://www.sec.gov). Other than specific references to the Business Combination, the discussion in this Annual Report is as of June 30, 2017.

Significant Activities Since Inception

On October 20, 2015, we consummated our initial public offering of 5,000,000 units. Each unit consists of one ordinary share, no par value per share, one right to receive one-tenth (1/10) of one ordinary share upon consummation of our initial business combination and one warrant to purchase one-half of one ordinary share at an exercise price of $12.00 per full share. The units were sold at an offering price of $10.00 per unit, generating gross proceeds of $50,000,000 (before underwriting discounts and commissions and offering expenses). Simultaneously with the consummation of our initial public offering, we completed the private placement of 477,500 units, issued to our sponsor and to the lead underwriter of our initial public offering, generating gross proceeds of $4,775,000.

On October 23, 2015, the underwriters of our initial public offering exercised their over-allotment option in full, purchasing 750,000 units at an offering price of $10.00 per unit, generating gross proceeds of $7,500,000. On October 23, 2015, simultaneously with the sale of the over-allotment units, the Company completed a private placement with our sponsor and the lead underwriter of our initial public offering for an additional 54,375 units, generating gross proceeds of $543,750.

A total of $59.8 million of the net proceeds from the IPO (including the over-allotment) and the private placements were deposited in a trust account established for the benefit of the Company’s public shareholders.

Our units began trading on October 15, 2015 on the NASDAQ Capital Market under the symbol “PAACU.” Commencing on October 29, 2015, the common stock, rights and warrants comprising the units began separate trading on the NASDAQ Capital Market under the symbols “PAAC,” “PAACR” and “PAACW,” respectively.

In connection with the Company’s April 19, 2017 special meeting in lieu of the 2017 annual meeting of shareholders to approve an extension of the date to complete an initial business combination from April 20, 2017 to August 21, 2017 (the “Extension Meeting”), a total of 653,996 ordinary shares were redeemed. As a result, an aggregate of approximately $6.8 million (or approximately $10.40 per share) was removed from the Trust Account to pay such holders.

As indicated in the Company’s proxy statement and related supplement for the Extension Meeting, our sponsor agreed to contribute to the Company as a loan $0.03 for each public share that was not redeemed, for each calendar month (commencing on April 20, 2017 and on the 20th day of each subsequent month), or portion thereof, that is needed by the Company to complete an initial business combination from April 20, 2017 until August 21, 2017, to be deposited in the trust account within seven calendar days from the beginning of such calendar month (or portion thereof). Accordingly, our sponsor agreed to contribute an aggregate of approximately $153,000 (the “Contribution”) to the Company within seven calendar days from the beginning of each such calendar month (or portion thereof), with the initial Contribution contributed by April 27, 2017. If the Company takes the full time through August 21, 2017 to complete the initial business combination (which is currently anticipated), the redemption amount per share at the meeting for such an initial business combination or the Company’s subsequent liquidation will be approximately $10.52 per share. The amount of the Contribution will not bear interest and will be repayable by the Company to the sponsor upon consummation of an initial business combination. As of August 15, our sponsor has contributed an aggregate of $612,000 into the trust account.

Merger Agreement

As discussed above, on December 27, 2016, we entered into a Merger Agreement, pursuant to which, among other things and subject to the terms and conditions contained therein, the Company will effect an acquisition of Borqs.

The Merger shall become effective at the time when the Plan of Merger is registered by the Registrar of Companies of the Cayman Islands. As a result of the consummation of the Merger, at the Effective Time, and subject to the terms and conditions set forth in the Merger Agreement, the holders of the issued and outstanding shares in the share capital of Borqs will receive Pacific ordinary shares, the holders of Borqs issued and outstanding warrants will receive Replacement Warrants, and the holders of Borqs issued and outstanding options will have their options assumed by Pacific and will instead acquire Assumed Options.

The total number of Pacific ordinary shares to be received by Sellers at the Effective Time (the “Merger Consideration Shares”) will be based on the adjusted equity valuation of Borqs as of the Closing, with such adjusted equity valuation divided by US$10.40. The adjusted equity valuation of Borqs as of the Closing will be determined by starting with a base valuation of US$270.0 million, deducting the amount of indebtedness (net of cash) of Borqs as of the last business day before the Closing (but treating any amounts contingent upon the Closing as not being contingent) (the “Reference Time”), increasing such valuation to the extent that the net working capital (excluding indebtedness and cash) of Borqs as of the Reference Time is greater than US$11.0 million or decreasing such valuation to the extent that the net working capital (excluding indebtedness and cash) of Borqs as of the Reference Time is less than US$9.0 million, and increasing such valuation to the extent that Pacific’s outside accounting and legal expenses incurred in connection with the negotiation, preparation and consummation of the Merger Agreement (but excluding any deferred initial public offering costs or costs incurred with any Commitment Investment or any costs incurred in connection with an extension of Pacific’s deadline to consummate a business combination, if sought) exceed US$1.0 million. The adjusted equity valuation will be determined by mutual agreement of Borqs and Pacific based on estimates of the foregoing factors as of the Closing, without any post-Closing adjustments.

Of the Merger Consideration Shares to be issued, between 2,352,285 and 3,846,154 of such shares will be contingent and deposited in escrow (together with any equity securities paid as dividends or distributions with respect to such shares or into which such shares are exchanged or converted, the “Earnout Shares”) to be released (or with respect to the Backstop Guarantee Shares and Commitment Escrow Shares, as described below, to be cancelled in connection with an issuance of replacement shares by Pacific) to the Sellers in the event certain net income earnout conditions are met during the period from July 1, 2017 to June 30, 2018. Four percent (4%) of (a) the shares otherwise due to the Sellers at the Closing (excluding any Earnout Shares), or approximately 885,315 shares assuming that the full 3,846,154 Earnout Shares are issued and that, based on the unaudited pro forma financial statements included in this proxy statement, the adjusted equity valuation of Borqs is $270,182,000 as of the closing and (b) any Earnout Shares earned by the Sellers (collectively, the “Indemnity Escrow Shares”, and together any other dividends, distributions or other income on the Indemnity Escrow Shares, the “Indemnity Escrow Property”) will be deposited in escrow to support certain indemnification obligations under the Merger Agreement, and released on the 18 month anniversary of the Closing, subject to amounts reserved for indemnification claims then pending or unpaid (the “Escrow Indemnification Period”). Each Borqs shareholder as of the Effective Time (each, a “Seller”) will receive its pro rata portion of the Merger Consideration Shares, less its pro rata portion of the Earnout Shares and the Indemnity Escrow Shares as described above, based on the number of Borqs shares held by such Seller (with any Borqs preferred shares treated on an as-converted into Borqs ordinary share basis), except that any Seller who validly exercises dissenters rights under Part XVI of the Companies Law (2016 Revision) of the Cayman Islands will not be entitled to receive its pro rata share of the Merger Consideration Shares.

The number of Earnout Shares due to the Sellers shall be based on the consolidated net income of Pacific and its subsidiaries, subject to certain adjustments (the “Adjusted Net Income”), for the twelve month period from July 1, 2017 to June 30, 2018 (the “Earnout Period”). The exact number of Earnout Shares will be based on the aggregate of the funds left in Pacific’s trust account after redemptions in connection with the Merger and the proceeds from any third party equity financing to be conducted by Pacific prior to the closing of the Merger, including pursuant to the Backstop and any Commitment Investment (the “Closing Proceeds”), with there being 2,352,285 Earnout Shares if the Closing Proceeds are $24.0 million and the number of Earnout Shares increasing on a linear sliding scale, up to 3,846,154 Earnout Shares if the Closing Proceeds are $57.5 million. In order for the Sellers to receive the full Earnout Shares, Pacific will need to achieve at least $20.0 million in Adjusted Net Income during the Earnout Period, and if the Adjusted Net Income is greater than $18.0 million but less than $20.0 million, the Sellers will receive a pro-rated amount of the Earnout Shares on a linear sliding scale with zero Earnout Shares earned at $18.0 million in Adjusted Net Income and the full Earnout Shares earned at $20.0 million in Adjusted Net Income. We believe that the aggregate funds left in the trust account and private placement after the redemption of 3,841,131 of our public shares and the Closing Proceeds pursuant to the Backstop and any Commitment Investment will aggregate $24.0 million.

Between 1,282,051 and 2,352,285 of the Earnout Shares (the “Backstop Guarantee Shares”) will be issued in the name of the sponsor in consideration of entering into the Backstop and Subscription Agreement (as described below). To the extent there is any Commitment Investment, up to 2,564,103 of the Earnout Shares (the “Commitment Escrow Shares”) will be issued in the name of qualified institutional buyers or institutional accredited investors who enter into agreements with the Purchaser to commit to purchase or otherwise continue to own (and not redeem) Purchaser Ordinary Shares through the Closing (the “Commitment Investors”) pursuant to such Commitment Investment. Commitment Investors will be allocated Commitment Escrow Shares at a rate equal to approximately 44,593 Commitment Escrow Shares per $1,000,000 of committed investment, and the total number of Commitment Escrow Shares will depend on the amount of aggregate investment from all Commitment Investors. The Commitment Escrow Shares will be derived from either the Backstop Guarantee Shares or the Net Income Shares, depending on the amount and source of the funds left in Pacific’s trust account after redemptions. Any remaining Earnout Shares, after accounting for the Backstop Guarantee Shares and the Commitment Escrow Shares (the “Net Income Shares”), will be issued in the name of the Sellers and deposited into escrow.

The sponsor and the Commitment Investors will be entitled to all voting rights and dividend rights (other than equity securities paid as dividends) with respect to the Backstop Guarantee Shares and the Commitment Escrow Shares while they are held in escrow. The Sellers will be entitled to all voting rights and dividend rights (other than equity securities paid as dividends) with respect to the Net Income Shares while such Net Income Shares are held in escrow. To the extent the Earnout conditions are not met, the Backstop Guarantee Shares will be released to the sponsor, the Commitment Escrow Shares will be released to the Commitment Investors, and the Net Income Shares will be cancelled. To the extent that the Earnout conditions are met or partially met, the resulting portion of Backstop Guarantee Shares and the Commitment Escrow Shares will be cancelled and equivalent replacement shares will be issued to the Sellers, and the resulting portion of Net Income Shares will be released to the Sellers; in each case, 4% of all such shares will be deposited in escrow and added to the existing indemnity escrow as described in further detail below. The indemnity escrow will be the sole source to pay for the Sellers’ indemnification obligations under the Merger Agreement, to be released on the 18 month anniversary of the Closing, subject to amounts reserved for indemnification claims then pending or unpaid.

Holders of issued and outstanding Borqs warrants will receive Replacement Warrants, which will be subject to substantially the same terms and conditions as Pacific’s warrants issued as part of the units in Pacific’s IPO, except that the number of shares and exercise price thereunder will each be equitably adjusted for the Merger based on the number of Merger Consideration Shares as compared to the number of issued and outstanding Borqs shares immediately prior to the Effective Time.

Pursuant to the terms of the lock-up agreements to be entered into by each Seller and each holder of a Borqs warrant, Sellers will not transfer, assign or sell any remaining Merger Consideration Shares received and held outside of escrow or the Replacement Warrants for a period of one year from the closing of the Business Combination (which period may be shortened under certain circumstances).

Pacific will assume the obligations under the Assumed Options (including the applicable provisions of the plan under which they were issued), except that the number of shares and exercise price thereunder will be based on the number of Borqs shares and exercise price under the applicable Assumed Option, with each equitably adjusted for the Merger based on the number of Merger Consideration Shares as compared to the number of issued and outstanding Borqs shares immediately prior to the Effective Time.

Backstop and Subscription Agreement

In connection with the execution of an amendment to the Merger Agreement on May 10, 2017 (with such amendment further amended with the execution of a second amendment to Merger Agreement on June 29, 2017), Pacific and our sponsor entered into a Backstop and Subscription Agreement (the “Backstop and Subscription Agreement”) on May 11, 2017, pursuant to which our sponsor agreed to purchase up to $24.0 million of Pacific ordinary shares through (i) open market or privately negotiated transactions with third parties (with the sponsor not obligated to pay a price of greater than $10.40 per share), (ii) a private placement at a price of $10.40 per share with consummation to occur concurrently with that of the Business Combination or (iii) a combination thereof, in order to ensure that there is at least $24.0 million in Closing Proceeds (the “Backstop”), although the sponsor is entitled, at its sole election, to purchase additional Pacific ordinary shares in excess of such $24.0 million Closing Proceeds requirement. As consideration for the Backstop, the sponsor will be entitled to receive the Backstop Guarantee Shares subject to the terms and conditions of the Merger Agreement, as amended. In connection with the Backstop and Subscription Agreement, at the Closing, Pacific and the sponsor will enter into a registration rights agreement, in a form to be agreed upon, with respect to the shares purchased in connection with the Backstop and Subscription Agreement and any Backstop Guarantee Shares released from escrow to and retained by the sponsor. We believe that the aggregate funds left in the trust account and private placement after the redemption of 3,841,131 of our public shares and the Closing Proceeds pursuant to the Backstop and any Commitment Investment will aggregate $24.0 million.

Pacific and Borqs may also obtain commitments from Commitment Investors to participate in a Commitment Investment to purchase Pacific’s ordinary shares through (i) open market or privately negotiated transactions with third parties, (ii) purchases of restricted shares to occur concurrently with that of the Business Combination, or (iii) a combination thereof. Any such Commitment Investors who participate in a Commitment Investment will have the right to receive Commitment Escrow Shares, and may receive registration rights in connection with the Commitment Investment. As of the date hereof, no such commitments have been made, and we are not required to obtain any such commitments.

Special Meeting of Shareholders

On August 10, 2017, we held a special meeting of shareholders to approve the Business Combination. At such meeting, the Business Combination and related proposals were approved. In connection with the meeting, 3,841,131 of our public shares were validly presented to us for redemption. Investors should review the Proxy Statement filed on July 14, 2017 for additional information regarding anticipated ownership.

Business Strategy

Our efforts in identifying prospective target businesses were not limited to a particular country, although we focused on businesses that have their primary operations located in Asia (with an emphasis on China). Our team consists of experienced financial services and accounting professionals, senior operating executives and directors of Asian companies. Our Chairman, Chief Executive Officer (“CEO”), and directors have decades of experience in mergers, acquisitions and divestures of privately and publicly-held companies. Both our Chairman and CEO have been actively engaged in cross-border investments/divestments between the U.S. and Asia (with an emphasis on China) for several decades, while also assisting U.S. companies with expansion in China and vice versa since the early 1980s. Our independent directors are Chinese and U.S. citizens who have decades of experience in entrepreneurship, asset management/advisory services, and accounting & tax practices in China and U.S. We believe we will benefit from their accomplishments in Asia as well as in the U.S., and specifically their current activities in China market, in identifying attractive acquisition opportunities. However, there is no assurance that we will complete a business combination.

There was no restriction in the geographic location of targets we could pursue, although we prioritized geographic locations in Asia, and specifically China. We sought to identify targets that are likely to provide attractive financial returns through business combinations.

Our sponsor, Zhengqi International Holding Limited, is a wholly owned subsidiary of Pacific Securities Investment Management Co., Ltd., a company incorporated in the People’s Republic of China and a wholly owned subsidiary of Pacific Securities Capital Management Co. Ltd., a company incorporated in the People’s Republic of China which, in turn, is a wholly owned subsidiary of Pacific Securities Co. Ltd (601099.SH), or Pacific Securities, a company incorporated in the People’s Republic of China. Pacific Securities is a provider of financial, advisory, investment, and funds management services, primarily in China. Pacific Securities’ main business focus is generating returns to investors and stockholders by providing a diversified range of services to clients. Pacific Securities acts on behalf of institutional, corporate, and retail clients and counterparties around the world.

Investment Criteria

We had identified the following general criteria and guidelines, which we believed were important in evaluating prospective target businesses.

These criteria were not intended to be exhaustive. Any evaluation relating to the merits of a particular initial business combination may have bene based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that our management may have deemed relevant.

Effecting our initial business combination

We are not presently engaged in any operations. We intend to effectuate our initial business combination by issuing ordinary shares and/or paying cash as the consideration to the sellers of the acquired business.

We may seek to raise additional funds through a private offering of debt or equity securities in connection with the consummation of our initial business combination, and we may effectuate our initial business combination using the proceeds of such offering rather than using the amounts held in the trust account. Subject to compliance with applicable securities laws, we would consummate such financing only simultaneously with the consummation of our business combination. In the case of an initial business combination funded with assets other than the trust account assets, our tender offer documents or proxy materials disclosing the business combination would disclose the terms of the financing and, only if required by law or the Nasdaq Capital Market, we would seek shareholder approval of such financing. There are no prohibitions on our ability to raise funds privately or through loans in connection with our initial business combination. As discussed above, in connection with the Business Combination, our sponsor agreed to purchase up to $24.0 million of Pacific ordinary shares through the Backstop, although our sponsor is entitled, at its sole election, to purchase additional Pacific ordinary shares in excess of such $24.0 million Closing Proceeds requirement.

Sources of target businesses

From the date of our IPO through execution of a non-binding letter of intent with Borqs on July 22, 2016, Pacific has identified and evaluated over 80 acquisition target companies.

Target business candidates were brought to our attention from various unaffiliated sources, including investment bankers, venture capital funds, private equity groups, leveraged buyout funds, management buyout funds and other members of the financial community. Target businesses were brought to our attention by such unaffiliated sources as a result of being solicited by us through calls or mailings. These sources also introduced us to target businesses in which they thought we might be interested on an unsolicited basis, since many of these sources knew what types of businesses we were targeting. Our officers and directors, as well as their affiliates, also brought to our attention target business candidates that they became aware of through their business contacts as a result of formal or informal inquiries or discussions they may have, as well as attending trade shows or conventions. In addition, we received a number of proprietary deal flow opportunities that would not otherwise necessarily be available to us as a result of the business relationships of our officers and directors.

We were not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, officers or directors. In the event we sought to complete our initial business combination with such a company, we, or a committee of independent directors, would have been required to obtain an opinion from an independent investment banking firm that such an initial business combination is fair to our unaffiliated shareholders from a financial point of view. The proposed Business Combination with Borqs does not involve any affiliates of our sponsor, officers or directors.

Selection of a target business and structuring of our initial business combination

Subject to the requirement that our initial business combination must be with one or more target businesses or assets having an aggregate fair market value of at least 80% of the value of the trust account (excluding any taxes) at the time of the agreement to enter into such initial business combination, our management had virtually unrestricted flexibility in identifying and selecting one or more prospective target businesses, although we were not permitted to effectuate our initial business combination with another blank check company or a similar company with nominal operations. In any case, we would only consummate an initial business combination in which we become the majority shareholder of the target (or control the target through contractual arrangements in limited circumstances for regulatory compliance purposes as discussed below) or were otherwise not required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”).

In evaluating a prospective target business, and in evaluating Borqs in particular, we have conducted a thorough due diligence review which has encompassed, among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspection of facilities, as well as a review of financial and other information which will be made available to us.

The time required to select and evaluate a target business and to structure and complete our initial business combination, and the costs associated with this process, are not currently ascertainable with any degree of certainty. The shareholders approved the Business Combination and related proposals at our special meeting of shareholders on August 10, 2017. Assuming all conditions to closing are met or otherwise waived, we expect to close the Business Combination by August 21, 2017. However, there are no assurances that the Business Combination will close by such date or at all.

Alternative structures to comply with regulations in certain Chinese industries

The PRC government has restricted or limited direct foreign ownership of certain kinds of assets and companies operating in a wide variety of industries, including certain aspects of telecommunications, advertising, food production, and heavy equipment manufacturers. As a result, it is not uncommon to employ alternative structures to acquire a target company. The Chinese government may apply these restrictions in other industries in the future. In addition, there can be restrictions on the foreign ownership of businesses that are determined from time to time to be in “important industries” that may affect the national economic security or having “famous Chinese brand names” or “well established Chinese brand names.” Subject to the review requirements of the Ministry of Commerce and other relevant agencies as discussed elsewhere for acquisitions of assets and companies in China and subject to the various percentage ownership limitations that exist from time to time, acquisitions involving foreign investors and parties in the various restricted categories of assets and industries may nonetheless sometimes be consummated using contractual arrangements with permitted Chinese parties which could, for example, result in a structure where, in exchange for our payment of the acquisition consideration, the target business would be majority or wholly owned by Chinese residents whom we designate, and the target business would continue to hold the requisite licenses necessary to operate its business. To the extent such agreements are employed, they may be for control of specific assets such as intellectual property or control of blocks of the equity ownership interests of a company. The agreements would be designed to secure for us economic benefits and to assume risk of losses and control over the subject assets or equity interests similar to the rights of full ownership, while leaving the technical ownership in the hands of Chinese parties.

For example, these contracts could result in a structure where, in exchange for our payment of the acquisition consideration: (i) the target company would be majority owned by Chinese residents whom would be likely designated by us and the target company would continue to hold the requisite licenses for the target business and (ii) we would establish a new subsidiary in China which would provide technology, technical support, consulting and related services to the target company in exchange for fees, which would transfer to us substantially all of the economic benefits of ownership of the target company.

These contractual arrangements would be designed to provide the following:

Our exercise of effective control over the target company;

We will assume economic benefits and risk of losses of the target company that are substantially similar to full ownership;

The shareholders of the target company would grant us a pledged interest in all of the issued and outstanding interests of the target company, including the right to vote such shares, as security for the performance of the target company’s obligations under the contractual arrangements;

The shareholders of the target company would grant us an irrevocable proxy for the maximum period permitted by law, to vote the shareholders’ shares in the target company in such manner and for or against such proposals as we may determine; and

We, or our designee, would have an exclusive option to purchase all or part of the equity interests in the target company owned by the Chinese residents whom we designate, or all or part of the assets of the target company, in each case when and to the extent permitted by Chinese regulations.

While we cannot predict the terms of any such contract that we will be able to negotiate, at a minimum, any contractual arrangement would need to provide us with effective control over the target’s operations and management either directly through board control or through affirmative and/or negative covenants and veto rights with respect to matters such as entry into material agreements, management changes and issuance of debt or equity securities, among other potential control provisions. We have not, however, established specific provisions which must be in an agreement in order to meet the definition of business combination.

These agreements likely also would provide for increased ownership or full ownership and control by us when and if permitted under Chinese law and regulation. If we choose to effect our initial business combination that employs the use of these types of control arrangements, we may have difficulty in enforcing our rights. Therefore, these contractual arrangements may not be as effective in providing us with the same economic benefits, accounting consolidation or control over a target business as would direct ownership through a merger or shares exchange. For example, if the target business or any other entity fails to perform its obligations under these contractual arrangements, we may have to incur substantial costs and expend substantial resources to enforce such arrangements, and rely on legal remedies under Chinese law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be sufficient to off-set the cost of enforcement and may adversely affect the benefits we expect to receive from the business combination.

We believe that under such contractual arrangement we will be considered the primary beneficiary and be able to consolidate financial results of the target company in our consolidated financial statements. However, in the event that in the future generally accepted accounting policies in the United States and the SEC accounting regulations change and we are deemed not to be the primary beneficiary by controlling the target company through such contractual arrangement, we would not be able to consolidate line by line the target company’s financial results in our consolidated financial statements.

Moreover, we expect that the contractual arrangements upon which we would be relying would be governed by Chinese law and would be the only basis of providing resolution of disputes which may arise through either arbitration or litigation in China. Accordingly, these contracts would be interpreted in accordance with Chinese law and any disputes would be resolved in accordance with Chinese legal procedures. Uncertainties in the Chinese legal system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements, we may not be able to exert the effective level of control over the target business.

Borqs utilizes the contractual arrangements described above and therefore, if we consummate the Business Combination, we would be subject to the uncertainties described above. As discussed in further detail in the Proxy Statement, we and our PRC counsel believe the ownership structure of Borqs, both currently and immediately after giving effect to the Business Combination, does not and will not violate any applicable PRC law or license currently in effect; and the contractual agreements by and among the Borqs entities and their respective shareholders are valid, binding and enforceable in accordance with their terms and applicable PRC laws and regulations currently in effect and will not violate any applicable PRC law currently in effect such as the PRC Laws regarding foreign ownership of Chinese businesses. However, there are substantial uncertainties regarding the interpretation and application of current PRC laws. Accordingly, the PRC regulatory authorities and PRC courts may in the future take a view that is contrary to our views and the views of our PRC legal counsel. If the PRC courts or regulatory authorities determine that the contractual agreements violate applicable PRC laws, our contractual arrangements will become invalid or unenforceable.

Fair market value of target business or businesses

The target business or businesses or assets with which we effect our initial business combination must have a collective fair market value equal to at least 80% of the value of the trust account (excluding taxes payable) at the time of the agreement to enter into such initial business combination. If we acquired less than 100% of one or more target businesses in our initial business combination, the aggregate fair market value of the portion or portions we acquire must have equaled at least 80% of the value of the trust account at the time of the agreement to enter into such initial business combination. However, we would always acquire at least a controlling interest in a target business. The fair market value of a portion of a target business or assets would likely be calculated by multiplying the fair market value of the entire business by the percentage of the target we acquire. We could have sought to consummate our initial business combination with an initial target business or businesses with a collective fair market value in excess of the balance in the trust account. In order to consummate such an initial business combination, we could have issued a significant amount of debt, equity or other securities to the sellers of such business and/or seek to raise additional funds through a private offering of debt, equity or other securities. If we issued securities in order to consummate such an initial business combination, our shareholders could end up owning a minority of the combined company’s voting securities as there is no requirement that our shareholders own a certain percentage of our company (or, depending on the structure of the initial business combination, an ultimate parent company that may be formed) after our business combination.

The fair market value of a target business or businesses or assets would be determined by our board of directors based upon standards generally accepted by the financial community, such as actual and potential gross margins, the values of comparable businesses, earnings and cash flow, book value and, where appropriate, upon the advice of appraisers or other professional consultants. If our board of directors was not able to independently determine that the target business or assets has a sufficient fair market value to meet the threshold criterion, we will obtain an opinion from an unaffiliated, independent investment banking firm with respect to the satisfaction of such criterion. Notwithstanding the foregoing, unless we consummated a business combination with an affiliated entity, we were not required to obtain an opinion from an independent investment banking firm that the price we were paying was fair to our shareholders. We believe that the fair market value of Borqs is equal to at least 80% of the value of the trust account (excluding taxes payable).

Lack of business diversification

For an indefinite period of time after consummation of our initial business combination, the prospects for our success might depend entirely on the future performance of a single business. Unlike other entities that have the resources to complete business combinations with multiple entities in one or several industries, it was probable that we would not have the resources to diversify our operations and mitigate the risks of being in a single line of business. By consummating our initial business combination with only a single entity, our lack of diversification may:

Redemption rights for public shareholders upon consummation of our initial business combination

Concurrently with the consummation of the Business Combination, we provided our shareholders with the opportunity to redeem their public shares for cash equal to their pro rata share of the aggregate amount then on deposit in the trust account. The amount in the trust account was initially anticipated to be $10.40 per share. In connection with the Extension Meeting, a total of 653,996 ordinary shares were redeemed. In connection with the Extension Meeting, our sponsor agreed to contribute to us as a loan $0.03 for each public share that was not redeemed, for each calendar month (commencing on April 20, 2017 and on the 20th day of each subsequent month), or portion thereof, that is needed by us to complete the Business Combination or another business combination from April 20, 2017 until August 21, 2017. Each contribution will be deposited in the trust account established in connection with the IPO within seven calendar days from the beginning of such calendar month (or portion thereof). As of August 15, 2017, our sponsor has contributed an aggregate of $612,000. Accordingly, the redemption amount per share at the meeting for such business combination or our subsequent liquidation is approximately $10.52 per share. On August 10, 2017, we held a special meeting of shareholders to approve the Business Combination. At such meeting, the Business Combination and related proposals were approved. In connection with the meeting, 3,841,131 of our public shares were validly presented to us for redemption. Our sponsor has agreed to waive its right to receive liquidating distributions if we fail to consummate our initial business combination within the requisite time period. However, if our sponsor or any of our officers, directors or affiliates acquires public shares, they will be entitled to receive liquidating distributions with respect to such public shares if we fail to consummate our initial business combination within the required time period.

Manner of Conducting Redemptions

On August 10, 2017, we held a special meeting of shareholders to approve the Business Combination. At such meeting, the Business Combination and related proposals were approved. In connection with the meeting, 3,841,131 of our public shares were validly presented to us for redemption.

Many blank check companies would not be able to consummate our initial business combination if the holders of the company’s public shares voted against a proposed business combination and elected to redeem more than a specified maximum percentage of the shares sold in such company’s initial public offering, which percentage threshold has typically been between 19.99% and 39.99%. As a result, many blank check companies have been unable to complete business combinations because the amount of shares voted by their public shareholders electing redemption exceeded the maximum redemption threshold pursuant to which such company could proceed with our initial business combination. Since we have no such specified maximum redemption threshold, our structure is different in this respect from the structure that has been used by many blank check companies. However, in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001. Furthermore, the redemption threshold may be further limited by the terms and conditions of our initial business combination. In such case, we would not proceed with the redemption of our public shares and the related business combination. The Merger Agreement with Borqs requires that, unless waived by mutual agreement of the parties, the amount in the Pacific trust account, together with the proceeds from the Backstop or any Commitment Investment, shall be no less than $24,000,000.

Limitation on redemption rights upon consummation of our initial business combination if we seek shareholder approval

Our memorandum and articles of association provides that a public shareholder, individually or together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of the shares sold in our initial public offering. We believe this restriction will discourage shareholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights as a means to force us or our management to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a public shareholder holding more than an aggregate of 15% of the shares sold in our initial public offering could threaten to exercise its redemption rights if such holder’s shares are not purchased by us or our management at a premium to the then-current market price or on other undesirable terms. By limiting our shareholders’ ability to redeem no more than 15% of the shares sold in our initial public offering, we believe we will limit the ability of a small group of shareholders to unreasonably attempt to block our ability to consummate our initial business combination, particularly in connection with our initial business combination with a target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. We will resolve any disputes relating to whether a public shareholder is acting in concert or as a “group” either by requiring certifications under the penalty of perjury to such effect by public shareholders or via adjudication in court.

Permitted purchases of our securities by our affiliates

Our sponsor, directors, officers, advisors or their affiliates may purchase shares in privately negotiated transactions either prior to or following the consummation of our initial business combination. Such a purchase would include a contractual acknowledgement that such shareholder, although still the record holder of our shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our sponsor, directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior elections to redeem their shares. Although very unlikely, our initial shareholders, officers, directors and their affiliates could purchase sufficient shares so that the initial business combination may be approved without the majority vote of public shares held by non-affiliates. It is intended that purchases will comply with Rule 10b-18 under the Exchange Act, which provides a safe harbor for purchases made under certain conditions, including with respect to timing, pricing and volume of purchases. As discussed above, in connection with the Business Combination, our sponsor agreed to purchase up to $24.0 million of Pacific ordinary shares through the Backstop, although our sponsor is entitled, at its sole election, to purchase additional Pacific ordinary shares in excess of such $24.0 million Closing Proceeds requirement.

The purpose of such purchases would be to (1) increase the likelihood of obtaining shareholder approval of the business combination or (2) to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of the business combination, where it appears that such requirement would otherwise not be met. This may result in the consummation of an initial business combination that may not otherwise have been possible.

As a consequence of any such purchases, the public “float” of our ordinary shares may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain the listing or trading of our securities on a national securities exchange following consummation of a business combination.

Tendering share certificates in connection with redemption rights

We will require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to either tender their certificates to our transfer agent up to two business days prior to the vote on the proposal to approve the business combination, or to deliver their shares to the transfer agent electronically using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option. Accordingly, a public shareholder would have up to two days prior to the vote on the business combination to tender its shares if it wishes to seek to exercise its redemption rights. Given the relatively short exercise period, it is advisable for shareholders to use electronic delivery of their public shares.

There is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC System. The transfer agent will typically charge the tendering broker $45.00 and it would be up to the broker whether or not to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights to tender their shares. The need to deliver shares is a requirement of exercising redemption rights regardless of the timing of when such delivery must be effectuated.

The foregoing is different from the procedures used by many blank check companies. In order to perfect redemption rights in connection with their business combinations, many blank check companies would distribute proxy materials for the shareholders’ vote on our initial business combination, and a holder could simply vote against a proposed business combination and check a box on the proxy card indicating such holder was seeking to exercise his redemption rights. After the business combination was approved, the company would contact such shareholder to arrange for him to deliver his certificate to verify ownership. As a result, the shareholder then had an “option window” after the consummation of the business combination during which he could monitor the price of the company’s shares in the market. If the price rose above the redemption price, he could sell his shares in the open market before actually delivering his shares to the company for cancellation. As a result, the redemption rights, to which shareholders were aware they needed to commit before the shareholder meeting, would become “option” rights surviving past the consummation of the business combination until the redeeming holder delivered its certificate. The requirement for physical or electronic delivery at or prior to the meeting ensures that a redeeming holder’s election to redeem is irrevocable once the business combination is approved.

Any request to redeem such shares, once made, may be withdrawn at any time up to the date of the shareholder meeting set forth in our proxy materials, as applicable. Furthermore, if a holder of a public share delivered its certificate in connection with an election of redemption rights and subsequently decides prior to the applicable date not to elect to exercise such rights, such holder may simply request that the transfer agent return the certificate (physically or electronically). It is anticipated that the funds to be distributed to holders of our public shares electing to redeem their shares will be distributed promptly after the completion of our initial business combination.

If the Business Combination is not consummated, we will not have sufficient time to try to consummate our initial business combination with a different target before our expiration date of August 21, 2017.

Redemption of public shares and liquidation if no initial business combination

We must complete the Business Combination by August 21, 2017. If we are unable to consummate the initial Business Combination by August 21, 2017, we will, as promptly as reasonably possible but not more than five business days thereafter, distribute the aggregate amount then on deposit in the trust account (net of taxes payable and less interest earned thereon that is released to us), pro rata to our public shareholders by way of redemption and cease all operations except for the purposes of winding up of our affairs. This redemption of public shareholders from the trust account shall be effected as required by function of our memorandum and articles of association and prior to any voluntary winding up, although at all times subject to the Companies Act.

Following the redemption of public shares, we intend to enter “voluntary liquidation” which is the statutory process for formally closing and dissolving a company under the laws of the British Virgin Islands. Given that we intend to enter voluntary liquidation following the redemption of public shareholders from the trust account, we do not expect that the voluntary liquidation process will cause any delay to the payment of redemption proceeds from our trust account. In connection with such a voluntary liquidation, the liquidator would give notice to creditors inviting them to submit their claims for payment, by notifying known creditors (if any) who have not submitted claims and by placing a public advertisement in at least one newspaper published in the British Virgin Islands newspaper and in at least one newspaper circulating in the location where the company has its principal place of business, and taking any other steps he considers appropriate to identify the company’s creditors, after which our remaining assets would be distributed. As soon as the affairs of the company are fully wound-up, the liquidator must complete his statement of account and make a notificational filing with the Registrar. We would be dissolved once the Registrar issues a Certificate of Dissolution.

Our sponsor has agreed to waive its redemption rights with respect to its founder shares and private units if we fail to consummate our initial business combination within the applicable period.

However, if our sponsor, or any of our officers, directors or affiliates acquire public shares after our initial public offering, they will be entitled to redemption rights with respect to such public shares if we fail to consummate our initial business combination within the required time period. There will be no redemption rights or liquidating distributions with respect to our rights or warrants, which will expire worthless in the event we do not consummate our initial business combination by August 21, 2017. We will pay the costs of our liquidation from our remaining assets outside of the trust account or interest earned on the funds held in the trust account. However, the liquidator may determine that he or she requires additional time to evaluate creditors’ claims (particularly if there is uncertainty over the validity or extent of the claims of any creditors). Also, a creditor or shareholder may file a petition with the BVI court which, if successful, may result in our liquidation being subject to the supervision of that court. Such events might delay distribution of some or all of our remaining assets.

Additionally, in any liquidation proceedings of the company under British Virgin Islands law, the funds held in our trust account may be included in our estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any such claims deplete the trust account we may not be able to return to our public shareholders the liquidation amounts payable to them.

If we were to expend all of the net proceeds of our initial public offering, other than the proceeds deposited in the trust account, and without taking into account interest, if any, earned on the trust account, the per-share redemption amount received by shareholders upon our dissolution would be $10.52. The proceeds deposited in the trust account could, however, become subject to the claims of our creditors, which would have higher priority than the claims of our public shareholders. The actual per-share redemption amount received by shareholders may be less than approximately $10.52, plus interest (net of any taxes payable).

Although we seek to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public shareholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the trust account including but not limited to fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving such claims to the monies held in the trust account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative. Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. In order to protect the amounts held in the trust account, Mr. Jian Tu, our Chairman, agreed that he will be liable to us, if and to the extent any claims by a vendor for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amounts in the trust account to below $10.40 per share, except as 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 our indemnity of the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. In the event that an executed waiver is deemed to be unenforceable against a third party, Mr. Tu will not be responsible to the extent of any liability for such third party claims. However, Mr. Tu may not be able to satisfy those obligations. None of our other officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses. We have not independently verified whether Mr. Tu has sufficient funds to satisfy his indemnity obligations. We believe the likelihood of Mr. Tu having to indemnify the trust account is limited because we will endeavor to have all vendors and prospective target businesses as well as other entities execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the trust account.

In the event that the proceeds in the trust account are reduced below $10.40 per share and Mr. Tu asserts that he is unable to satisfy any applicable obligations or that he has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against Mr. Tu to enforce his indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against Mr. Tu to enforce his indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. Accordingly, due to claims of creditors, the actual value of the per-share redemption price may be less than $10.40 per share.

We seek to reduce the possibility that Mr. Tu will have to indemnify the trust account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the trust account. Mr. Tu will also not be liable as to any claims under our indemnity of the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. We have access to up to $319,312 (as of June 30, 2017) not placed in the trust account, and the interest income earned on the balance of the trust account (net of taxes payable) with which to pay any such potential claims (including costs and expenses incurred in connection with our liquidation, currently estimated to be no more than approximately $20,000). In the event that we liquidate and it is subsequently determined that the reserve for claims and liabilities is insufficient, shareholders who received funds from our trust account could be liable for claims made by creditors.

If we are deemed insolvent for the purposes of the Insolvency Act (i.e. (i) we fail to comply with the requirements of a statutory demand that has not been set aside under section 157 of the Insolvency Act; (ii) execution or other process issued on a judgment, decree or order of a British Virgin Islands Court in favor of a creditor of the company is returned wholly or partly unsatisfied; or (iii) either the value of the company’s liabilities exceeds its assets, or the company is unable to pay its debts as they fall due), then there are very limited circumstances where prior payments made to shareholders or other parties may be deemed to be a “voidable transaction” for the purposes of the Insolvency Act. A voidable transaction would include, for these purposes, payments made as “unfair preferences” or “transactions at an undervalue”. A liquidator appointed over an insolvent company who considers that a particular transaction or payment is a voidable transaction under the Insolvency Act could apply to the British Virgin Islands Courts for an order setting aside that payment or transaction in whole or in part.

Additionally, if we enter insolvent liquidation under the Insolvency Act, the funds held in our trust account will likely be included in our estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any insolvency claims deplete the trust account you may not be able to return to our public shareholders the liquidation amounts due them.

Our public shareholders will be entitled to receive funds from the trust account only in the event of a redemption of the public shares prior to any winding up in the event we do not consummate our initial business combination by August 21, 2017 or if they redeem their shares in connection with an initial business combination that we consummate. In no other circumstances shall a shareholder have any right or interest of any kind to or in the trust account. In the event we seek shareholder approval in connection with our initial business combination, a shareholder’s voting in connection with the business combination alone will not result in a shareholder’s redeeming its shares to us for an applicable pro rata share of the trust account. Such shareholder must have also exercised its redemption rights described above.

Employees

We currently have three executive officers. These individuals are not obligated to devote any specific number of hours to our matters but they intend to devote as much of their time as they deem necessary to our affairs until we have completed our initial business combination. The amount of time they devote in any time period varies based on whether a target business has been selected for our initial business combination and the stage of the business combination process we are in. We do not intend to have any full time employees prior to the consummation of our initial business combination.

Periodic Reporting and Financial Information

Our units, ordinary shares, rights and warrants are registered under the Exchange Act and have reporting obligations, including the requirement that we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual reports contain financial statements audited and reported on by our independent registered public accountants.

We are required by the Sarbanes-Oxley Act to have our internal control procedures evaluated. A target company may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition.

We are an “emerging growth company,” as defined in the JOBS Act, and we 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. We will remain an “emerging growth company” for up to five years, although if our annual gross revenue exceeds $1.07 billion, our non-convertible debt issued within a three year period or revenues exceeds $1 billion, or if the market value of our ordinary shares that are held by non-affiliates exceeds $700 million on the last day of our second fiscal quarter, we would cease to be an “emerging growth company” as of the following fiscal year.

Item 1A. Risk Factors

An investment in our securities involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in this report, before making a decision to invest in our securities. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. The risk factors described below are not necessarily exhaustive and you are encouraged to perform your own investigation with respect to us and our business. This Report also contains forward-looking statements that involve risks and uncertainties. There can be no assurance that actual results will not materially differ from expectations. Important factors could cause actual results to differ materially from those indicated by such forward-looking statements. With respect to the proposed Business Combination, these factors include, but are not limited to: business conditions; natural disasters; changing interpretations of U.S. generally accepted accounting principles; outcomes of government reviews; inquiries and investigations and related litigation; continued compliance with government regulations; changes in legislation or regulatory environments, requirements or changes adversely affecting our business and the business of Borqs, including but not limited to difficulties in maintaining and managing continued growth, difficulties in ensuring performance of loans, fluctuations in revenue and margins and difficulties in meeting the earn-out targets, restrictions on the ability to make dividend payments, and difficulties in acquiring smaller competitors; general economic conditions; geopolitical events and regulatory changes; and the failure to maintain the listing of our securities on the Nasdaq Stock Market. Other factors include the possibility that the business combination does not close, including due to the failure to receive required security holder approvals, the failure to complete the contemplated private placement or the failure of other closing conditions. These risks, as well as other risks associated with the Business Combination, are more fully discussed in the Proxy Statement. Please also refer to the Proxy Statement for a discussion of risks associated with acquiring and operating a business in China, and in particular, those relating to the corporate structure of Borqs.

We are a blank check company in the development stage with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective.

We are a blank check company with no operating results, and we will not commence operations until consummating our initial business combination. Because we lack an operating history, you have no basis upon which to evaluate our ability to achieve our business objective of completing our initial business combination with one or more target businesses. We may be unable to complete our initial business combination. If we fail to complete our initial business combination, we will never generate any operating revenues.

The requirement that the target business or businesses that we acquire must collectively have a fair market value equal to at least 80% of the balance of the funds in the trust account at the time of the execution of a definitive agreement for our initial business combination may limit the type and number of companies that we may complete such a business combination with.

Pursuant to the Nasdaq listing rules, the target business or businesses that we acquire must collectively have a fair market value equal to at least 80% of the balance of the funds in the trust account at the time of the execution of a definitive agreement for our initial business combination. This restriction may limit the type and number of companies that we may complete a business combination with. If we are unable to locate a target business or businesses that satisfy this fair market value test, we may be forced to liquidate and you will only be entitled to receive your pro rata portion of the funds in the trust account.

The ability of our public shareholders to redeem their shares for cash may make our financial condition unattractive to potential business combination targets, which may make it difficult for us to enter into our initial business combination with a target.

We may enter into a transaction agreement with a prospective target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. If too many public shareholders exercise their redemption rights, we may not be able to meet such closing condition, and as a result, would not be able to proceed with the business combination. Furthermore, in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001. Our memorandum and articles of association requires us to provide all of our public shareholders with an opportunity to redeem all of their shares in connection with the consummation of any initial business combination. Consequently, if accepting all properly submitted redemption requests would cause our net tangible assets to be less than $5,000,001 or such greater amount necessary to satisfy a closing condition as described above, we would not proceed with such redemption and the related business combination. The Merger Agreement with Borqs requires that, unless waived by mutual agreement of the parties, the amount in the Pacific trust account, together with the proceeds from the Backstop or any Commitment Investment, shall be no less than $24,000,000. As discussed above, in connection with the Business Combination, our sponsor agreed to purchase up to $24.0 million of Pacific ordinary shares through the Backstop, although our sponsor is entitled, at its sole election, to purchase additional Pacific ordinary shares in excess of such $24.0 million Closing Proceeds requirement.

The ability of a large number of our shareholders to exercise redemption rights may not allow us to consummate the most desirable business combination or optimize our capital structure.

In connection with the successful consummation of our business combination, we may redeem up to that number of ordinary shares that would permit us to maintain net tangible assets of $5,000,001. If our business combination requires us to use substantially all of our cash to pay the purchase price, the redemption threshold may be further limited. Alternatively, we may need to arrange third party financing to help fund our business combination in case a larger percentage of shareholders exercise their redemption rights than we expect. If the acquisition involves the issuance of our shares as consideration, we may be required to issue a higher percentage of our shares to the target or its shareholders to make up for the failure to satisfy a minimum cash requirement. Raising additional funds to cover any shortfall may involve dilutive equity financing or incurring indebtedness at higher than desirable levels. This may limit our ability to effectuate the most attractive business combination available to us. The Merger Agreement with Borqs requires that, unless waived by mutual agreement of the parties, the amount in the Pacific trust account, together with the proceeds from the Backstop or any Commitment Investment, shall be no less than $24,000,000. As discussed above, in connection with the Business Combination, our sponsor agreed to purchase up to $24.0 million of Pacific ordinary shares through the Backstop, although our sponsor is entitled, at its sole election, to purchase additional Pacific ordinary shares in excess of such $24.0 million Closing Proceeds requirement.

We may not be able to consummate our initial business combination by August 21, 2017, in which case we would cease all operations except for the purpose of winding up and we would redeem our public shares and liquidate.

Following the amendment to our charter adopted as of April 19, 2017, we must complete our initial business combination by August 21, 2017. We may not be able to find a suitable target business and consummate our initial business combination within such time period. If we are unable to consummate our initial business combination within the require time period, we will, as promptly as reasonably possible but not more than five business days thereafter, distribute the aggregate amount then on deposit in the trust account (net of taxes payable and less any interest earned thereon that is released to us), pro rata to our public shareholders by way of redemption and cease all operations except for the purposes of winding up of our affairs, as further described herein. This redemption of public shareholders from the trust account shall be effected as required by function of our memorandum and articles of association and prior to any voluntary winding up.

Our sponsor, directors, officers, advisors and their affiliates may elect to purchase shares from shareholders, in which case they may influence a vote in favor of a proposed business combination that you do not support.

Our sponsor, directors, officers, advisors or their affiliates may purchase shares in privately negotiated transactions either prior to or following the consummation of our initial business combination. Such a purchase would include a contractual acknowledgement that such shareholder, although still the record holder of our shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our sponsor, directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior elections to redeem their shares.

The purpose of such purchases would be to (1) increase the likelihood of obtaining shareholder approval of the business combination or (2) satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of the business combination, where it appears that such requirement would otherwise not be met. This may result in the consummation of an initial business combination that may not otherwise have been possible.

Purchases of ordinary shares in the open market or in privately negotiated transactions by our sponsor, directors, officers, advisors or their affiliates may make it difficult for us to maintain the listing of our ordinary shares on a national securities exchange following the consummation of an initial business combination.

If our sponsor, directors, officers, advisors or their affiliates purchase ordinary shares in the open market or in privately negotiated transactions, the public “float” of our ordinary shares and the number of beneficial holders of our securities would both be reduced, possibly making it difficult to maintain the listing or trading of our securities on a national securities exchange following consummation of the business combination.

You will not have any rights or interests in funds from the trust account, except under certain limited circumstances. To liquidate your investment, therefore, you may be forced to sell your public shares, warrants or rights, potentially at a loss.

Our public shareholders shall be entitled to receive funds from the trust account only in the event of a redemption to public shareholders prior to any winding up in the event we do not consummate our initial business combination or our liquidation or if they redeem their shares pursuant to a tender offer in connection with an initial business combination that we consummate. In no other circumstances will a shareholder have any right or interest of any kind to the funds in the trust account. Accordingly, to liquidate your investment, you may be forced to sell your public shares, warrants or rights, potentially at a loss.

If we seek shareholder approval of our business combination and we do not conduct redemptions pursuant to the tender offer rules, and if you or a “group” of shareholders are deemed to hold in excess of 15% of our ordinary shares, you will lose the ability to redeem all such shares in excess of 15% of our ordinary shares.

If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our business combination pursuant to the tender offer rules, our memorandum and articles of association provides that a public shareholder, individually or together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of the shares sold in our initial public offering. Your inability to redeem more than an aggregate of 15% of the shares sold in our initial public offering will reduce your influence over our ability to consummate our initial business combination and you could suffer a material loss on your investment in us if you sell such excess shares in open market transactions. As a result, you will continue to hold that number of shares exceeding 15% and, in order to dispose of such shares, you would be required to sell your shares in open market transaction, potentially at a loss.

Subsequent to our consummation of our initial business combination, we may be required to subsequently take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our share price, which could cause you to lose some or all of your investment.

Even if we conduct thorough due diligence on a target business with which we combine, this diligence may not surface all material issues that may be present inside a particular target business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of the target business and outside of our control will not later arise. As a result of these factors, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even if our due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target business or by virtue of our obtaining post-combination debt financing.

If we liquidate, distributions, or part of them, may be delayed while the liquidator determines the extent of potential creditor claims.

Pursuant to, among other documents, our memorandum and articles of association, if we do not complete our initial business combination by August 21, 2017, this will trigger the required redemption of our ordinary shares using the available funds in the trust account, following which, we will proceed to commence a voluntary liquidation and thereby a formal dissolution of the company. In connection with such a voluntary liquidation, the liquidator would give notice to our creditors inviting them to submit their claims for payment, by notifying known creditors (if any) who have not submitted claims and by placing a public advertisement in at least one newspaper published in the British Virgin Islands newspaper and in at least one newspaper circulating in the location where the company has its principal place of business, and taking any other steps he considers appropriate, after which our remaining assets would be distributed.

As soon as our affairs are fully wound-up, if we were to liquidate, the liquidator must complete his statement of account and will then notify the Registrar of Corporate Affairs in the British Virgin Islands (the “Registrar”) that the liquidation has been completed. However, the liquidator may determine that he or she requires additional time to evaluate creditors’ claims (particularly if there is uncertainty over the validity or extent of the claims of any creditors). Also, a creditor or shareholder may file a petition with the British Virgin Islands Court, which, if successful, may result in our liquidation being subject to the supervision of that court. Such events might delay distribution of some or all of our remaining assets.

In any liquidation proceedings of the company under British Virgin Islands law, the funds held in our trust account may be included in our estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any such claims deplete the trust account we may not be able to return to our public shareholders the redemption amounts payable to them.

Our directors may decide not to enforce indemnification obligations against Mr. Jian Tu, our Chairman, resulting in a reduction in the amount of funds in the trust account available for distribution to our public shareholders.

In the event that the proceeds in the trust account are reduced below $10.40 per share and Mr. Tu asserts that he is unable to satisfy his obligations or that he has no indemnification obligations related to a particular claim, our independent directors would determine on our behalf whether to take legal action against Mr. Tu to enforce his indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against Mr. Tu to enforce his indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. If our independent directors choose not to enforce these indemnification obligations on our behalf, the amount of funds in the trust account available for distribution to our public shareholders may be reduced below $10.40 per share.

If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our initial business combination.

If we are deemed to be an investment company under the Investment Company Act, our activities may be restricted, including restrictions on the nature of our investments and restrictions on the issuance of securities, each of which may make it difficult for us to complete our initial business combination. In addition, we may have imposed upon us burdensome requirements, including registration as an investment company, adoption of a specific form of corporate structure and reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations.

If we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would require additional expenses for which we have not allotted funds and may hinder our ability to consummate our initial business combination.

Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results of operations.

We are subject to laws and regulations enacted by national, regional and local governments. In particular, we will be required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application also may change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business and results of operations.

We are not subject to the supervision of the Financial Services Commission of the British Virgin Islands and so our shareholders are not protected by any regulatory inspections in the British Virgin Islands.

We are not an entity subject to any regulatory supervision in the British Virgin Islands by the Financial Services Commission. As a result, shareholders are not protected by any regulatory supervision or inspections by any regulatory agency in the British Virgin Islands and the company is not required to observe any restrictions in respect of its conduct save as disclosed in this report or in our memorandum and articles of association.

If we are unable to consummate our initial business combination, our public shareholders may be forced to wait until August 21, 2017 before redemption from our trust account.

If we are unable to consummate our initial business combination by August 21, 2017, we will, as promptly as reasonably possible but not more than five business days thereafter, distribute the aggregate amount then on deposit in the trust account (less interest earned thereon that is released to us), pro rata to our public shareholders by way of redemption and cease all operations except for the purposes of winding up of our affairs by way of a voluntary liquidation, as further described herein. Any redemption of public shareholders from the trust account shall be effected as required by our memorandum and articles of association prior to our commencing any voluntary liquidation. If we are required to liquidate prior to distributing the aggregate amount then on deposit in the trust account (net of taxes payable and less any interest earned thereon that is released to us) pro rata to our public shareholders, then such winding up, liquidation and distribution must comply with the applicable provisions of the Business Companies Act, 2004 of the British Virgin Islands, as amended, or the Companies Act. In that case, investors may be forced to wait beyond August 21, 2017 before the redemption proceeds of our trust account become available to them, and they receive the return of their pro rata portion of the proceeds from our trust account. Except as otherwise described herein, we have no obligation to return funds to investors prior to the date of any redemption required as a result of our failure to consummate our initial business combination within the period described above or our liquidation, unless we consummate our initial business combination prior thereto and only then in cases where investors have sought to redeem their ordinary shares. Only upon any such redemption of public shares as we are required to effect or any liquidation will public shareholders be entitled to distributions if we are unable to complete our initial business combination.

If we are deemed to be insolvent, distributions, or part of them, may be delayed while the insolvency liquidator determines the extent of potential creditor claims. In these circumstances, prior payments made by the company may be deemed “voidable transactions.”

If we do not complete our initial business combination by August 21, 2017, we will be required to redeem our public shares from the trust account pursuant to our memorandum and articles of association.

However, if at any time we are deemed insolvent for the purposes of the Insolvency Act, 2003 of the British Virgin Islands, as amended, or the Insolvency Act (i.e. (i) we fail to comply with the requirements of a statutory demand that has not been set aside under Section 157 of the Insolvency Act; (ii) execution or other process issued on a judgment, decree or order of a British Virgin Islands Court in favor of a creditor of the company is returned wholly or partly unsatisfied; or (iii) either the value of the company’s liabilities exceeds its assets, or the company is unable to pay its debts as they fall due), we are required to immediately enter insolvent liquidation. In these circumstances, a liquidator will be appointed who will give notice to our creditors inviting them to submit their claims for payment, by notifying known creditors (if any) who have not submitted claims and by placing a public advertisement in at least one newspaper published in the British Virgin Islands newspaper and in at least one newspaper circulating in the location where the company has its principal place of business, and taking any other steps he considers appropriate, after which our assets would be distributed. Following the process of insolvent liquidation, the liquidator will complete its final report and accounts and will then notify the Registrar. The liquidator may determine that he requires additional time to evaluate creditors’ claims (particularly if there is uncertainty over the validity or extent of the claims of any creditors). Also, a creditor or shareholder may file a petition with the British Virgin Islands Court which, if successful, may result in our liquidation being subject to the supervision of that court. Such events might delay distribution of some or all of our assets to our public shareholders. In such liquidation proceedings, the funds held in our trust account may be included in our estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any such claims deplete the trust account we cannot assure you we will be able to return to our public shareholders the amounts otherwise payable to them.

If we are deemed insolvent, then there are also limited circumstances where prior payments made to shareholders or other parties may be deemed to be a “voidable transaction” for the purposes of the Insolvency Act. A voidable transaction would be, for these purposes, payments made as “unfair preferences” or “transactions at an undervalue.” Where a payment was a risk of being a voidable transaction, a liquidator appointed over an insolvent company could apply to the British Virgin Islands Court for an order, inter alia, for the transaction to be set aside as a voidable transaction in whole or in part.

Our initial shareholders have waived their right to participate in any liquidation distribution with respect to the initial shares. We will pay the costs of our liquidation and distribution of the trust account from our remaining assets outside of the trust account and may request the trustee to release to us interest earned on the trust account to pay dissolution expenses. In addition, Mr. Jian Tu, our Chairman, has agreed that he will be liable to us for all claims of creditors to the extent that we fail to obtain executed waivers from such entities in order to protect the amounts held in trust, except as to any claims under our indemnity of the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. However, we cannot assure you that the liquidator will not determine that he or she requires additional time to evaluate creditors’ claims (particularly if there is uncertainty over the validity or extent of the claims of any creditors). We also cannot assure you that a creditor or shareholder will not file a petition with the British Virgin Islands Court which, if successful, may result in our liquidation being subject to the supervision of that court. Such events might delay distribution of some or all of our assets to our public shareholders.

If deemed to be insolvent, distributions made to public shareholders, or part of them, from our trust account may be subject to claw back in certain circumstances.

If we do not complete our initial business combination by August 21, 2017, and instead distribute the aggregate amount then on deposit in the trust account (net of taxes payable and less interest earned thereon that is released to us), pro rata to our public shareholders by way of redemption, it will be necessary for our directors to pass a board resolution approving the redemption of those ordinary shares and the payment of the proceeds to public shareholders. Such board resolutions are required to confirm that we satisfy the solvency test prescribed by the Companies Act (namely that our assets exceed our liabilities; and that we are able to pay our debts as they fall due). If, after the redemption proceeds are paid to public shareholders, it transpires that our financial position at the time was such that it did not satisfy the solvency test, the Companies Act provides a mechanism by which those proceeds could be recovered from public shareholders. However, the Companies Act also provides for circumstances where such proceeds could not be subject to claw back, namely where (a) the public shareholders received the proceeds in good faith and without knowledge of our failure to satisfy the solvency test; (b) a public shareholder altered its position in reliance of the validity of the payment of the proceeds; or (c) it would be unfair to require repayment of the proceeds in full or at all.

The future exercise of registration rights may adversely affect the market price of our ordinary shares.

Pursuant to an agreement entered into with our initial shareholders and EarlyBirdCapital, Inc. (“EBC”), the lead underwriter of our initial public offering, and their permitted transferees can demand that we register the founder shares, the insider units and underlying securities and any securities issued upon conversion of working capital loans. We will bear the cost of registering these securities. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of our ordinary shares.

We are not required to obtain an opinion from an independent investment banking firm, and consequently, an independent source may not confirm that the price we are paying for the business is fair to our public shareholders from a financial point of view.

Unless we consummate our initial business combination with an affiliated entity, we are not required to obtain an opinion from an independent investment banking firm that the price we are paying is fair to our public shareholders from a financial point of view. If no opinion is obtained, our shareholders will be relying on the judgment of our board of directors, who will determine fair market value based on standards generally accepted by the financial community. Such standards used will be disclosed in our tender offer documents or proxy solicitation materials, as applicable, related to our initial business combination.

We may issue additional ordinary or preferred shares to complete our initial business combination or under an employee incentive plan after consummation of our initial business combination, which would dilute the interest of our shareholders and likely present other risks.

Our memorandum and articles of association authorize the issuance of an unlimited amount of both ordinary shares of no par value and preferred shares of no par value. We may issue a substantial number of additional ordinary or preferred shares to complete our initial business combination or under an employee incentive plan after consummation of our initial business combination. Although no such issuance of ordinary or preferred shares will affect the per share amount available for redemption from the trust account, the issuance of additional ordinary or preferred shares:

 For a discussion about the shares to be issued in connection with the Business Combination, see the Proxy Statement.

We believe we have been considered a passive foreign investment company, or “PFIC,” since our inception, which could result in adverse U.S. federal income tax consequences to U.S. taxpayers.

If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds our ordinary shares, warrants or rights, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements. Because of the composition of our assets and income, we believe we have been considered a PFIC since our inception. 

The discussion below of the U.S. federal income tax consequences to “U.S. Holders” will apply to a beneficial owner of our securities that is for U.S. federal income tax purposes (i) an individual citizen or resident of the United States; (ii) a corporation (or other entity treated as a corporation) that is created or organized (or treated as created or organized) in or under the laws of the United States, any state thereof or the District of Columbia; (iii) an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source; or (iv) a trust if (A) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust, or (B) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

A foreign (i.e., non-U.S.) corporation will be a PFIC for U.S. tax purposes if at least 75% of its gross income in a taxable year, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income. Alternatively, a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year of the foreign corporation, ordinarily determined based on fair market value and averaged quarterly over the year, including its pro rata share of the assets of any corporation in which it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.

Because we are a blank check company, and have not engaged in an active business of any kind, we believe that it is likely that we met the PFIC asset or income test for our initial taxable year ended June 30, 2016. However, pursuant to the PFIC start-up exception, a corporation will not be a PFIC for the first taxable year the corporation has gross income, if (1) no predecessor of the corporation was a PFIC; (2) the corporation satisfies the IRS that it will not be a PFIC for either of the first two taxable years following the start-up year; and (3) the corporation is not in fact a PFIC for either of those years. Because we did not complete a business combination on or prior to the end of our second taxable year (the taxable year ended June 30, 2017) we do not qualify for the PFIC start-up exception.

If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder of our ordinary shares, rights or warrants and, in the case of our ordinary shares, the U.S. Holder did not make either a timely “qualified electing fund” (a “QEF”) election for our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) ordinary shares or a timely “mark-to-market” election, in each case as described below, such holder generally will be subject to special rules with respect to:

In general, if we are determined to be a PFIC, a U.S. Holder may avoid the PFIC tax consequences described above in respect to our ordinary shares (but not our warrants) by making a timely QEF election (if eligible to do so) to include in income its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with which our taxable year ends. A U.S. Holder may make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge.

In order to comply with the requirements of a QEF election, a U.S. Holder must receive a PFIC annual information statement from us. If we determine we are a PFIC for any taxable year, we will endeavor to provide to a U.S. Holder such information as the IRS may require, including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a QEF election. However, there can be no assurance that we will provide any such required information. If we do not timely provide such required information, then a QEF election may not be available to U.S. Holders.

Alternatively, if a U.S. Holder makes a timely, valid “mark-to-market” election for the first taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) ordinary shares in us and for which we are determined to be a PFIC, such holder generally will not be subject to the PFIC rules described above in respect to its ordinary shares. Notwithstanding the foregoing, U.S. Holders who do not make a timely, valid mark-to-market election for such first taxable year but make a mark-to-market election with respect to a subsequent taxable year may be subject to special tax rules, and the discussion below does not address any mark-to-market election consequences to such U.S. Holders.

If a U.S. Holder makes a timely, valid mark-to-market election for the first taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) ordinary shares in us and for which we are determined to be a PFIC, in general, the U.S. Holder will include as ordinary income each year the excess, if any, of the fair market value of its ordinary shares at the end of its taxable year over the adjusted basis in its ordinary shares. The U.S. Holder also will be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of its ordinary shares over the fair market value of its ordinary shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). The U.S. Holder’s basis in its ordinary shares will be adjusted to reflect any such income or loss amounts, and any further gain recognized on a sale or other taxable disposition of the ordinary shares will be treated as ordinary income. Currently, a mark-to-market election may not be made with respect to our warrants and, as discussed below, it may not be available with respect to the rights to acquire our ordinary shares.

The mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission, including the Nasdaq Capital Market, or on a foreign exchange or market that the IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election in respect to our ordinary shares under their particular circumstances.

The application of the PFIC rules to the rights to acquire our ordinary shares is unclear. For example, the rights may be viewed as equity in our company from the time the rights are received. On the other hand, the rights may be viewed as a derivative security or similar interest in our company (analogous to a warrant or option with no exercise price), and thus the holder of the rights would not be viewed as owning the ordinary shares issuable pursuant to the rights until such shares are actually issued. There may be other alternative characterizations of the rights that the IRS may successfully assert that would reach different conclusions regarding the tax treatment of the rights under the PFIC rules. In any case, depending on which characterization is successfully applied to the rights, different PFIC consequences may result for U.S. Holders of the rights.

On the one hand, U.S. Holder may be permitted to make a QEF or mark-to-market election with respect to its rights to acquire our ordinary shares, in which case the PFIC tax consequences described above would not apply, and the QEF and mark-to-market rules described above would apply to such rights. On the other hand, if a U.S. Holder is not permitted to make a QEF or mark-to-market election with respect to such rights, then the PFIC tax consequences described above would apply to such rights, and not the QEF or mark to market rules. Because of the uncertainty regarding the characterization of the rights for PFIC purposes, this discussion of the PFIC rules does not assert which of the varying theories of the characterization of the rights will ultimately be upheld under U.S. federal income tax law. Therefore, potential investors are strongly urged to consult with their own tax advisors regarding an investment in the rights offered hereunder as part of units offering.

Although a determination as to our PFIC status will be made annually, an initial determination that we are a PFIC will generally apply for subsequent years to a U.S. Holder who held ordinary shares, rights or warrants while we were a PFIC, whether or not we meet the test for PFIC status in those subsequent years. A U.S. Holder who makes the QEF election discussed above for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) our ordinary shares, however, will not be subject to the PFIC tax and interest charge rules discussed above in respect to such shares. In addition, such U.S. Holder will not be subject to the QEF inclusion regime with respect to such shares for any taxable year of us that ends within or with a taxable year of the U.S. Holder and in which we are not a PFIC. On the other hand, if the QEF election is not effective for each of our taxable years in which we are a PFIC and the U.S. Holder holds (or is deemed to hold) our ordinary shares, the PFIC rules discussed above will continue to apply to such shares unless the holder makes a purging election, as described above, and pays the tax and interest charge with respect to the gain inherent in such shares attributable to the pre-QEF election period.

We urge U.S. Holders to consult their own tax advisors regarding the possible application of the PFIC rules in their particular situation.

An investor may be subject to adverse U.S. federal income tax consequences in the event the Internal Revenue Service (“IRS”) were to disagree with the U.S. federal income tax consequences described herein.

We have not sought a ruling from the IRS as to any U.S. federal income tax consequences described herein. The IRS may disagree with the descriptions of U.S. federal income tax consequences contained herein, and its determination may be upheld by a court. Any such determination could subject an investor or our company to adverse U.S. federal income tax consequences that would be different than those described herein. Accordingly, each prospective investor is urged to consult a tax advisor with respect to the specific tax consequences of the acquisition, ownership and disposition of our ordinary shares, rights and units, including the applicability and effect of state, local or non-U.S. tax laws, as well as U.S. federal tax laws.

After our initial business combination, it is likely that a majority of our directors and officers will live outside the United States and all of our assets will be located outside the United States; therefore investors may not be able to enforce federal securities laws or their other legal rights.

It is likely that after our initial business combination, a majority of our directors and officers will reside outside of the United States and all of our assets will be located outside of the United States. As a result, it may be difficult, or in some cases not possible, for investors in the United States to enforce their legal rights, to effect service of process upon all of our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on our directors and officers under United States laws.

Our ability to successfully effect our initial business combination and to be successful thereafter will be largely dependent upon the efforts of our officers, directors and key personnel, some of whom may join us following our initial business combination. The loss of our officers, directors, or key personnel could negatively impact the operations and profitability of our business.

Our operations are dependent upon a relatively small group of individuals and, in particular, our officers and directors. We believe that our success depends on the continued service of our officers and directors, at least until we have consummated our initial business combination. In addition, our officers and directors are not required to commit any specified amount of time to our affairs and, accordingly, have conflicts of interest in allocating management time among various business activities, including identifying potential business combinations and monitoring the related due diligence. We do not have an employment agreement with, or key-man insurance on the life of, any of our directors or officers. The unexpected loss of the services of one or more of our directors or officers could have a detrimental effect on us.

The role of such persons in the target business, however, cannot presently be ascertained. Although some of such persons may remain with the target business in senior management or advisory positions following our initial business combination, it is likely that some or all of the management of the target business will remain in place. While we intend to closely scrutinize any individuals we engage after our initial business combination, our assessment of these individuals may not prove to be correct. These individuals may be unfamiliar with the requirements of operating a company regulated by the SEC, which could cause us to have to expend time and resources helping them become familiar with such requirements.

Our key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business combination. These agreements may provide for them to receive compensation following our initial business combination and as a result, may cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous.

Our key personnel may be able to remain with the company after the consummation of our initial business combination only if they are able to negotiate employment or consulting agreements in connection with the business combination. Such negotiations would take place simultaneously with the negotiation of the business combination and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to us after the consummation of the business combination. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business. However, we believe the ability of such individuals to remain with us after the consummation of our initial business combination will not be the determining factor in our decision as to whether or not we will proceed with any potential business combination. There is no certainty, however, that any of our key personnel will remain with us after the consummation of our initial business combination. Our key personnel may not remain in senior management or advisory positions with us. The determination as to whether any of our key personnel will remain with us will be made at the time of our initial business combination.

We may have a limited ability to assess the management of a prospective target business and, as a result, may effect our initial business combination with a target business whose management may not have the skills, qualifications or abilities to manage a public company.

When evaluating the desirability of effecting our initial business combination with a prospective target business, our ability to assess the target business’ management may be limited due to a lack of time, resources or information. Our assessment of the capabilities of the target’s management, therefore, may prove to be incorrect and such management may lack the skills, qualifications or abilities we suspected. Should the target’s management not possess the skills, qualifications or abilities necessary to manage a public company, the operations and profitability of the post-combination business may be negatively impacted.

The officers and directors of an acquisition candidate may resign upon consummation of our initial business combination. The loss of an acquisition target’s key personnel could negatively impact the operations and profitability of our post-combination business.

The role of an acquisition candidate’s key personnel upon the consummation of our initial business combination cannot be ascertained at this time. Although we contemplate that certain members of an acquisition candidate’s management team will remain associated with the acquisition candidate following our initial business combination, it is possible that some members of the management team of an acquisition candidate will not wish to remain in place.

The shares beneficially owned by our officers and directors will not participate in liquidation distributions and, therefore, our officers and directors may have a conflict of interest in determining whether a particular target business is appropriate for our initial business combination.

Our officers and directors have waived their right to redeem their founder shares, private shares or any other ordinary shares acquired in our initial public offering or thereafter, or to receive distributions with respect to their founder shares or private shares upon our liquidation if we are unable to consummate our initial business combination. Accordingly, these securities will be worthless if we do not consummate our initial business combination. Any rights and warrants they hold, like those held by the public, will also be worthless if we do not consummate an initial business combination. The personal and financial interests of our directors and officers may influence their motivation in timely identifying and selecting a target business and completing a business combination. Consequently, our directors’ and officers’ discretion in identifying and selecting a suitable target business may result in a conflict of interest when determining whether the terms, conditions and timing of a particular business combination are appropriate and in our shareholders’ best interest.

Since our sponsor will lose its entire investment in us if our initial business combination is not consummated and our officers and directors have significant financial interests in us, a conflict of interest may arise in determining whether a particular acquisition target is appropriate for our initial business combination.

In July 2015, our initial shareholders purchased an aggregate of 1,437,500 founder shares for an aggregate purchase price of $25,000, or approximately $0.017 per share. The founder shares will be worthless if we do not consummate an initial business combination. In addition, our sponsor purchased an aggregate of 497,671 insider units, each consisting of one ordinary share, a right to receive 1/10 of an ordinary share, and a warrant to purchase 1/2 of one ordinary share, for an aggregate purchase price of $4,976,710 that will also be worthless if we do not consummate our initial business combination. In addition, our sponsor has loaned the Company $500,000 pursuant to a note, which becomes due on the date on which the Company consummates a business combination. All of the $500,000 is convertible, in whole or in part, at the payee’s election, upon the consummation of the Business Combination, into units, at a price of $10.00 per unit. These units will be identical to the private units issued in a private placement in connection with Company’s IPO. In addition, in connection with the Extension Meeting, our sponsor agreed to contribute an aggregate of approximately $153,000 to the Company within seven calendar days from the beginning of each such calendar month (or portion thereof), with the initial Contribution contributed by April 27, 2017. If the Company takes the full time through August 21, 2017 to complete the initial business combination (which is currently anticipated), the redemption amount per share at the meeting for such an initial business combination or the Company’s subsequent liquidation will be approximately $10.52 per share. The amount of the Contribution will not bear interest and will be repayable by the Company to the sponsor upon consummation of an initial business combination. If we do not consummate an initial business combination, the conversion feature of any such notes will be worthless, and the sponsor have limited recourse to be repaid any unpaid principal under such notes.

We may issue notes or other debt securities, or otherwise incur substantial debt, to complete our initial business combination, which may adversely affect our financial condition and thus negatively impact the value of our shareholders’ investment in us.

Although we have no commitments as of the date of this report to issue any notes or other debt securities, or to otherwise incur outstanding debt, we may choose to incur substantial debt to complete our initial business combination. We and our officers and directors have agreed that we will not incur any indebtedness unless we have obtained from the lender a waiver of any right, title, interest or claim of any kind in or to any monies held in the trust account. As such, no issuance of debt will affect the per share amount available for redemption from the trust account. Nevertheless, the incurrence of debt could have a variety of negative effects, including:

We may only be able to complete one business combination with the proceeds of our initial public offering, which will cause us to be solely dependent on a single business, which may have a limited number of products or services. This lack of diversification may negatively impact our operations and profitability.

The net proceeds from our initial public offering provided us with approximately $60,400,000 that we may use to complete our initial business combination. After redemptions of 653,996 ordinary shares, for an aggregate of approximately $6.8 million, in connection with the Extension Meeting, we have approximately $53,477,973 in the trust account.

We may effectuate our initial business combination with a single target business or multiple target businesses simultaneously. However, we may not be able to effectuate our initial business combination with more than one target business because of various factors, including the existence of complex accounting issues and the requirement that we prepare and file pro forma financial statements with the SEC that present operating results and the financial condition of several target businesses as if they had been operated on a combined basis. By consummating our initial business combination with only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory developments. Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities, which may have the resources to complete several business combinations in different industries or different areas of a single industry. Accordingly, the prospects for our success may be:

This lack of diversification may subject us to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to our initial business combination.

We may not be able to maintain control of a target business after our initial business combination.

We may structure our initial business combination to acquire less than 100% of the equity interests or assets of a target business, but we will only consummate such business combination if we will become the majority shareholder of the target (or control the target through contractual arrangements in limited circumstances for regulatory compliance purposes) or are otherwise not required to register as an investment company under the Investment Company Act. Even though we may own a majority interest in the target, our shareholders prior to the business combination may collectively own a minority interest in the post business combination company, depending on valuations ascribed to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our shareholders immediately prior to such transaction could own less than a majority of our outstanding shares subsequent to such transaction. In addition, other minority shareholders may subsequently combine their holdings resulting in a single person or group obtaining a larger share of the company’s stock than we initially acquired. Accordingly, this may make it more likely that we will not be able to maintain our control of the target business.

Unlike many blank check companies, we do not have a specified maximum redemption threshold. The absence of such a redemption threshold will make it easier for us to consummate our initial business combination with which a substantial majority of our shareholders do not agree.

Since we have no specified percentage threshold for redemption contained in our memorandum and articles of association, our structure is different in this respect from the structure that has been used by many blank check companies. Many blank check companies would not be able to consummate an initial business combination if the holders of the company’s public shares voted against a proposed business combination and elected to redeem more than a specified percentage of the shares sold in such company’s initial public offering, which percentage threshold has typically been between 19.99% and 39.99%. As a result, many blank check companies have been unable to complete business combinations because the amount of shares voted by their public shareholders electing redemption exceeded the maximum redemption threshold pursuant to which such company could proceed with our initial business combination. As a result, we may be able to consummate our initial business combination even though a substantial majority of our public shareholders do not agree with the transaction and have redeemed their shares or, if we seek shareholder approval of our initial business combination and do not conduct redemptions in connection with our business combination pursuant to the tender offer rules, have entered into privately negotiated agreements to sell their shares to us or our sponsor, officers, directors, advisors or their affiliates. However, in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001. Furthermore, the redemption threshold may be further limited by the terms and conditions of our initial business combination. In such case, we would not proceed with the redemption of our public shares and the related business combination, and instead may search for an alternate business combination. The Merger Agreement with Borqs requires that, unless waived by mutual agreement of the parties, the amount in the Pacific trust account, together with the proceeds from the Backstop or any Commitment Investment, shall be no less than $24,000,000. As discussed above, in connection with the Business Combination, our sponsor agreed to purchase up to $24.0 million of Pacific ordinary shares through the Backstop, although our sponsor is entitled, at its sole election, to purchase additional Pacific ordinary shares in excess of such $24.0 million Closing Proceeds requirement.

Holders of rights and warrants will not participate in liquidating distributions if we are unable to complete an initial business combination within the required time period.

If we are unable to complete an initial business combination within the required time period and we liquidate the funds held in the trust account, the rights and warrants will expire and holders will not receive any of such proceeds with respect to the rights and warrants. In this case, holders of rights and warrants are treated in the same manner as holders of rights and warrants of blank check companies whose units are comprised of shares, rights and warrants, as the rights and warrants in those companies do not participate in liquidating distributions. Nevertheless, the foregoing may provide a financial incentive to public shareholders to vote in favor of any proposed initial business combination as their rights would entitle the holder to receive one-tenth of a share of ordinary shares upon consummation of such business combination or to purchase one-half of one ordinary share, resulting in an increase in their overall economic stake in our company. If a business combination is not consummated, the rights and warrants will expire and will be worthless.

If we do not maintain a current and effective prospectus relating to the ordinary shares issuable upon exercise of the warrants, public holders will only be able to exercise such warrants on a “cashless basis” which would result in a fewer number of shares being issued to the holder had such holder exercised the warrants for cash.

If we do not maintain a current and effective prospectus relating to the ordinary shares issuable upon exercise of the public warrant at the time that holders wish to exercise such warrants, they will only be able to exercise them on a “cashless basis” provided that an exemption from registration is available. As a result, the number of ordinary shares that a holder will receive upon exercise of its public warrants will be fewer than it would have been had such holder exercised its warrant for cash. Further, if an exemption from registration is not available, holders would not be able to exercise their warrants on a cashless basis and would only be able to exercise their warrants for cash if a current and effective prospectus relating to the ordinary shares issuable upon exercise of the warrants is available. Under the terms of the warrant agreement, we have agreed to use our best efforts to meet these conditions and to maintain a current and effective prospectus relating to the ordinary shares issuable upon exercise of the warrants until the expiration of the warrants. However, we cannot assure you that we will be able to do so. If we are unable to do so, the potential “upside” of the holder’s investment in our company may be reduced or the warrants may expire worthless. Notwithstanding the foregoing, the private warrants may be exercisable for unregistered ordinary shares for cash even if the prospectus relating to the ordinary shares issuable upon exercise of the warrants is not current and effective.

An investor will only be able to exercise a warrant if the issuance of ordinary shares upon such exercise has been registered or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the warrants.

No public warrants will be exercisable for cash and we will not be obligated to issue ordinary shares unless the ordinary shares issuable upon such exercise has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. At the time that the warrants become exercisable, we expect to continue to be listed on a national securities exchange, which would provide an exemption from registration in every state. However, we cannot assure you of this fact. If the ordinary shares issuable upon exercise of the warrants are not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside, the warrants may be deprived of any value, the market for the warrants may be limited and they may expire worthless if they cannot be sold.

Our management’s ability to require holders of our warrants to exercise such warrants on a cashless basis will cause holders to receive fewer ordinary shares upon their exercise of the warrants than they would have received had they been able to exercise their warrants for cash.

If we call our public warrants for redemption after the redemption criteria described elsewhere in this report have been satisfied, our management will have the option to require any holder that wishes to exercise his warrant (including any warrants held by our initial shareholders or their permitted transferees) to do so on a “cashless basis.” If our management chooses to require holders to exercise their warrants on a cashless basis, the number of ordinary shares received by a holder upon exercise will be fewer than it would have been had such holder exercised his warrant for cash. This will have the effect of reducing the potential “upside” of the holder’s investment in our company.

We may amend the terms of the warrants in a way that may be adverse to holders with the approval by the holders of a majority of the then outstanding warrants.

Our warrants have been issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision. The warrant agreement requires the approval by the holders of a majority of the then outstanding warrants (including the private warrants) in order to make any change that adversely affects the interests of the registered holders.

The ability of our public shareholders to exercise their redemption rights may not allow us to effectuate the most desirable business combination or optimize our capital structure.

If our initial business combination requires us to use substantially all of our cash to pay the purchase price, because we will not know how many public shareholders may exercise redemption rights, we may either need to reserve part of the trust account for possible payment upon such redemption, or we may need to arrange third party financing to help fund our initial business combination. In the event that the acquisition involves the issuance of our stock as consideration, we may be required to issue a higher percentage of our stock to make up for a shortfall in funds. Raising additional funds to cover any shortfall may involve dilutive equity financing or incurring indebtedness at higher than desirable levels. This may limit our ability to effectuate the most attractive business combination available to us.

We may be unable to consummate an initial business combination if a target business requires that we have a certain amount of cash at closing, in which case public shareholders may have to remain shareholders of our company and wait until our redemption of the public shares to receive a pro rata share of the trust account or attempt to sell their shares in the open market.

A potential target may make it a closing condition to our initial business combination that we have a certain amount of cash in excess of the $5,000,001 of net tangible assets we are required to have pursuant to our organizational documents available at the time of closing. In addition, pursuant to the terms of the Merger Agreement with Borqs, upon the closing, after giving effect to the redemptions and the Backstop or Commitment Investments, there must be at least $24 million in cash (unless waived by mutual agreement of the parties) available at the closing from the trust funds and the shares issued in the Backstop or Commitment Investments. If the number of our public shareholders electing to exercise their redemption rights has the effect of reducing the amount of money available to us to consummate an initial business combination below such minimum amount required by the target business and we are not able to locate an alternative source of funding, we will not be able to consummate such initial business combination and we may not be able to locate another suitable target within the applicable time period, if at all. In that case, public shareholders may have to remain shareholders of our company and wait until August 21, 2017 in order to be able to receive a portion of the trust account, or attempt to sell their shares in the open market prior to such time, in which case they may receive less than they would have in a liquidation of the trust account.

We will offer each public shareholder the option to vote in favor of the proposed business combination and still seek redemption of his, her or its shares.

In connection with any meeting held to approve an initial business combination, we will offer each public shareholder (but not our initial shareholders, officers or directors) the right to have his, her or its ordinary shares redeemed for cash (subject to the limitations described elsewhere in this report) regardless of whether such shareholder votes for or against such proposed business combination; provided that a shareholder must in fact vote for or against a proposed business combination in order to have his, her or its ordinary shares redeemed for cash. If a shareholder fails to vote for or against a proposed business combination, that shareholder would not be able to have his ordinary shares so redeemed. We will consummate our initial business combination only if we have net tangible assets of at least $5,000,001 upon such consummation and a majority of the outstanding ordinary shares voted are voted in favor of the business combination. This is different than other similarly structured blank check companies where shareholders are offered the right to redeem their shares only when they vote against a proposed business combination. This threshold and the ability to seek redemption while voting in favor of a proposed business combination may make it more likely that we will consummate our initial business combination. The Merger Agreement with Borqs requires that, unless waived by mutual agreement of the parties, the amount in the Pacific trust account, together with the proceeds from the Backstop or any Commitment Investment, shall be no less than $24,000,000. As discussed above, in connection with the Business Combination, our sponsor agreed to purchase up to $24.0 million of Pacific ordinary shares through the Backstop, although our sponsor is entitled, at its sole election, to purchase additional Pacific ordinary shares in excess of such $24.0 million Closing Proceeds requirement.

A public shareholder that fails to vote either in favor of or against a proposed business combination will not be able to have his shares redeemed for cash.

In order for a public shareholder to have his shares redeemed for cash in connection with any proposed business combination, that public shareholder must vote either in favor of or against a proposed business combination. If a public shareholder fails to vote in favor of or against a proposed business combination, whether that shareholder abstains from the vote or simply does not vote, that shareholder would not be able to have his ordinary shares so redeemed to cash in connection with such business combination.

We will require public shareholders who wish to redeem their ordinary shares in connection with a proposed business combination to comply with specific requirements for redemption that may make it more difficult for them to exercise their redemption rights prior to the deadline for exercising their rights.

We will require our public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to either tender their certificates to our transfer agent prior to the expiration date set forth in the tender offer documents mailed to such holders, or in the event we distribute proxy materials, up to two business days prior to the vote on the proposal to approve the business combination, or to deliver their shares to the transfer agent electronically using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option. In order to obtain a physical stock certificate, a shareholder’s broker and/or clearing broker, DTC and our transfer agent will need to act to facilitate this request. It is our understanding that shareholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, because we do not have any control over this process or over the brokers or DTC, it may take significantly longer than two weeks to obtain a physical stock certificate. While we have been advised that it takes a short time to deliver shares through the DWAC System, this may not be the case. Under our memorandum and articles of association, we are required to provide at least 10 days advance notice of any shareholder meeting, which would be the minimum amount of time a shareholder would have to determine whether to exercise redemption rights. Accordingly, if it takes longer than we anticipate for shareholders to deliver their shares, shareholders who wish to redeem may be unable to meet the deadline for exercising their redemption rights and thus may be unable to redeem their shares.

Because of our structure, other companies may have a competitive advantage and we may not be able to consummate an attractive business combination.

We have encountered, and expect to continue to encounter, intense competition from entities other than blank check companies having a business objective similar to ours, including venture capital funds, leveraged buyout funds and operating businesses competing for acquisitions. Many of these entities are well established and have extensive experience in identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources than we do and our financial resources are relatively limited when contrasted with those of many of these competitors. Therefore, our ability to compete in acquiring certain sizable target businesses may be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Furthermore, seeking shareholder approval of our initial business combination may delay the consummation of a transaction. Additionally, our rights, and the future dilution they represent (entitling the holders to receive ordinary shares on consummation of our initial business combination), may not be viewed favorably by certain target businesses. Any of the foregoing may place us at a competitive disadvantage in successfully negotiating our initial business combination. 

The provisions of our memorandum and articles of association relating to the rights and obligations attaching to our ordinary shares may be amended prior to the consummation of our initial business combination with the approval of the holders of 65% (or 50% if for the purposes of approving, or in conjunction with, the consummation of our initial business combination) of our outstanding ordinary shares attending and voting on such amendment at the relevant meeting, which is a lower amendment threshold than that of many blank check companies. It may be easier for us, therefore, to amend our memorandum and articles of association to facilitate the consummation of our initial business combination that a significant number of our shareholders may not support.

Many blank check companies have a provision in their charter which prohibits the amendment of certain of its provisions, including those which relate to a company’s pre-business combination activity, without approval by a certain percentage of the company’s shareholders. Typically, amendment of these provisions requires approval by between 90% and 100% of the company’s public shareholders. Our memorandum and articles of association provides that, prior to the consummation of our initial business combination, its provisions related to pre-business combination activity and the rights and obligations attaching to the ordinary shares, may be amended if approved by holders of 65% (or 50% if approved in connection with our initial business combination) of our outstanding ordinary shares attending and voting on such amendment. Prior to our initial business combination, if we seek to amend any provisions of our memorandum and articles of association relating to shareholders’ rights or pre-business combination activity, we will provide dissenting public shareholders with the opportunity to redeem their public shares in connection with any such vote on any proposed amendments to our memorandum and articles of association. Other provisions of our memorandum and articles of association may be amended prior to the consummation of our initial business combination if approved by a majority of the votes of shareholders attending and voting on such amendment or by resolution of the directors. Following the consummation of our initial business combination, the rights and obligations attaching to our ordinary shares and other provisions of our memorandum and articles of association may be amended if approved by a majority of the votes of shareholders attending and voting on such amendment or by resolution of the directors. Our initial shareholders, which beneficially own approximately 27.4% of our ordinary shares, will participate in any vote to amend our memorandum and articles of association and will have the discretion to vote in any manner they choose. As a result, we may be able to amend the provisions of our memorandum and articles of association which govern our pre-business combination and the rights and obligations attaching to the ordinary shares behavior more easily that many blank check companies, and this may increase our ability to consummate our initial business combination with which you do not agree. However, we and our directors and officers have agreed not to propose any amendment to our memorandum and articles of association that would affect the substance and timing of our obligation to redeem the public shares of any public shareholder without the consent of that holder, if we are unable to consummate our initial business combination by August 21, 2017.

Our initial shareholders control a substantial interest in us and thus may exert a substantial influence on actions requiring a shareholder vote, potentially in a manner that you do not support.

Our initial shareholders own approximately 27.4% of our issued and outstanding ordinary shares. Accordingly, they may exert a substantial influence on actions requiring a shareholder vote, potentially in a manner that you do not support, including amendments to our memorandum and articles of association. If we or any of our initial shareholders purchase any additional ordinary shares in the aftermarket or in privately negotiated transactions, this would increase their control. Neither our initial shareholders nor, to our knowledge, any of our officers or directors, has any current intention to purchase additional securities. Factors that would be considered in making such additional purchases would include consideration of the current trading price of our ordinary shares. In addition, our board of directors, is and will be divided into two classes, each of which will generally serve for a term of two years with only one class of directors being elected in each year. It is possible that there will not be an annual meeting of shareholders to elect new directors prior to the consummation of our initial business combination, in which case all of the current directors will continue in office until at least the consummation of the business combination. If there is an annual meeting, as a consequence of our “staggered” board of directors, only a minority of the board of directors will be considered for election and our initial shareholders, because of their ownership position, will have considerable influence regarding the outcome. Accordingly, our initial shareholders will continue to exert control at least until the consummation of our initial business combination.

A market for our securities may not develop, which would adversely affect the liquidity and price of our securities.

The price of our securities may vary significantly due to one or more potential business combinations and general market or economic conditions. An active trading market for our securities may never develop or, if developed, it may not be sustained. Additionally, if our securities become delisted from the Nasdaq Capital Market for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities not listed on a national exchange, the liquidity and price of our securities may be more limited than if we were listed on the Nasdaq Capital Market or another national exchange. You may be unable to sell your securities unless a market can be established and sustained.

Our securities may not continue to be listed on the Nasdaq Capital Market in the future, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.

We cannot assure you that our securities will continue to be listed on the Nasdaq Capital Market in the future. Additionally, in connection with our business combination, the Nasdaq Capital Market will require us to file a new initial listing application and meet its initial listing requirements as opposed to its more lenient continued listing requirements. We cannot assure you that we will be able to meet those initial listing requirements at that time. If the Nasdaq Capital Market delists our securities from trading on its exchange, we could face significant material adverse consequences, including:

Compliance obligations under the Sarbanes-Oxley Act of 2002 may make it more difficult for us to effectuate our initial business combination, require substantial financial and management resources, and increase the time and costs of completing an acquisition.

Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires that we evaluate and report on our system of internal controls beginning with this Report. The fact that we are a blank check company makes compliance with the requirements of the Sarbanes-Oxley Act particularly burdensome on us as compared to all public companies because a target company with which we seek to complete our initial business combination may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of its internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition.

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because we are incorporated under British Virgin Islands law.

We are a company incorporated under the laws of the British Virgin Islands. As a result, it may be difficult for investors to enforce judgments obtained in the United States courts against our directors or officers.

Our corporate affairs are governed by our memorandum and articles of association, the Companies Act and the common law of the British Virgin Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under British Virgin Islands law are governed by the Companies Act and the common law of the British Virgin Islands. The common law of the British Virgin Islands is derived from English common law, and while the decisions of the English courts are of persuasive authority, they are not binding on a court in the British Virgin Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law may not be as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United States, and some states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law. In addition, while statutory provisions do exist in British Virgin Islands law for derivative actions to be brought in certain circumstances, shareholders in BVI companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a BVI company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred.

The British Virgin Islands Courts are also unlikely:

There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will in certain circumstances recognize such a foreign judgment and treat it as a cause of action in itself which may be sued upon as a debt at common law so that no retrial of the issues would be necessary provided that:

In appropriate circumstances, a British Virgin Islands Court may give effect in the British Virgin Islands to other kinds of final foreign judgments such as declaratory orders, orders for performance of contracts and injunctions.

As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by our board of directors, management or controlling shareholders than they would as public shareholders of a U.S. company.

Our memorandum and articles of association permit the board of directors by resolution to amend our memorandum and articles of association, including to create additional classes of securities, including shares with rights, preferences, designations and limitations as they determine which may have an anti-takeover effect.

Our memorandum and articles of association permits the board of directors by resolution to amend the memorandum and articles of association including to designate rights, preferences, designations and limitations attaching to the preferred shares as they determine in their discretion, without shareholder approval with respect the terms or the issuance. If issued, the rights, preferences, designations and limitations of the preferred shares would be set by the board of directors and could operate to the disadvantage of the outstanding ordinary shares the holders of which would not have any pre-emption rights in respect of such an issue of preferred shares. Such terms could include, among others, preferences as to dividends and distributions on liquidation, or could be used to prevent possible corporate takeovers. We may issue some or all of such preferred shares in connection with our initial business combination. Notwithstanding the foregoing, we and our directors and officers have agreed not to propose any amendment to our memorandum and articles of association that would affect the substance and timing of our obligation to redeem our public shares if we are unable to consummate our initial business combination by August 21, 2017.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our securities less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. We will remain an “emerging growth company” for up to five years. However, if our non-convertible debt issued within a three-year period or revenues exceeds $1.07 billion, or the market value of our ordinary shares that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease to be an emerging growth company as of the following fiscal year. As an emerging growth company, we are not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, we have reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and we are exempt from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, will not adopt the new or revised standard until the time private companies are required to adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used. We cannot predict if investors will find our ordinary shares less attractive because we may rely on these provisions. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our shares and our share price may be more volatile.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We do not own any real estate or other physical properties materially important to our operation. We currently maintain our executive offices at 855 Pudong South Road, The World Plaza, 27th Floor, Pudong, Shanghai, China 200120. The cost for this space is included in the $10,000 per month fee that we pay an affiliate of our Chairman for office space, utilities and secretarial and administrative services. We consider our current office space adequate for our current operations.

Item 3. Legal Proceedings

To the knowledge of our management, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Market Information

Our units, ordinary shares, rights and warrants are each traded on the NASDAQ Capital Market under the symbols “PAACU,” “PAAC,” “PAACR” and “PAACW,” respectively. Our units commenced public trading on October 15, 2016, and our ordinary shares, rights and warrants commenced public trading on October 29, 2016.

The table below sets forth, for the calendar quarter indicated, the high and low bid prices of our units, ordinary shares, rights and warrants as reported on the NASDAQ Capital Market for the years ended June 30, 2016 and 2017.

On August 14, 2017, our units had a closing price of $10.50, our ordinary shares had a closing price of $9.60, our warrants had a closing price of $0.33 and our rights had a closing price of $0.585.

Holders

On August 14, 2017, there were three holders of record of our units, ten holders of record of our ordinary shares, one holder of record of our warrants and one holder of record of our rights.

Dividends

We have not paid any cash dividends on our ordinary shares to date and do not intend to pay cash dividends prior to the completion of our initial business combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of our initial business combination. The payment of any cash dividends subsequent to our initial business combination will be within the discretion of our board of directors at such time. In addition, our board of directors is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future. Further, if we incur any indebtedness in connection with our business combination, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.

Securities Authorized for Issuance Under Equity Compensation Plans.

None.

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None. 

Item 6. Selected Financial Data

Not required.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our 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.

Overview

We are a blank check company incorporated on July 1, 2015 in the British Virgin Islands and formed for the purpose of consummating a Business Combination. We intend to effectuate our Business Combination using cash from the proceeds of our Initial Public Offering and the sale of Private Units that occurred simultaneously with the completion of our Initial Public Offering, our capital stock, debt or a combination of cash, stock and debt.

Recent Developments

Extension Meeting

In connection with the Company’s April 19, 2017 meeting of shareholders to approve an extension of the date to complete an initial business combination from April 20, 2017 to August 21, 2017, a total of 653,996 ordinary shares were redeemed. As a result, an aggregate of approximately $6.8 million (or approximately $10.40 per share) was removed from the Trust Account to pay such holders.

As indicated in the Company’s proxy statement and related supplement for the Extension Meeting, our sponsor agreed to contribute to the Company as a loan $0.03 for each public share that was not redeemed, for each calendar month (commencing on April 20, 2017 and on the 20th day of each subsequent month), or portion thereof, that is needed by the Company to complete an initial business combination from April 20, 2017 until August 21, 2017, to be deposited in the trust account within seven calendar days from the beginning of such calendar month (or portion thereof). Accordingly, our sponsor agreed to contribute an aggregate of approximately $153,000 to the Company within seven calendar days from the beginning of each such calendar month (or portion thereof), with the initial Contribution contributed by April 27, 2017. If the Company takes the full time through August 21, 2017 to complete the initial business combination (which is currently anticipated), the redemption amount per share at the meeting for such an initial business combination or the Company’s subsequent liquidation will be approximately $10.52 per share. The amount of the Contribution will not bear interest and will be repayable by the Company to the sponsor upon consummation of an initial business combination.

Merger Agreement

As discussed above, on December 27, 2016, we entered into a Merger Agreement, pursuant to which, among other things and subject to the terms and conditions contained therein, the Company will effect an acquisition of Borqs.

The Merger shall become effective at the time when the Plan of Merger is registered by the Registrar of Companies of the Cayman Islands. As a result of the consummation of the Merger, at the Effective Time, and subject to the terms and conditions set forth in the Merger Agreement, the holders of the issued and outstanding shares in the share capital of Borqs will receive Pacific ordinary shares, the holders of Borqs issued and outstanding warrants will receive Replacement Warrants, and the holders of Borqs issued and outstanding options will have their options assumed by Pacific and will instead acquire Assumed Options.

The total number of Pacific ordinary shares to be received by Sellers at the Effective Time will be based on the adjusted equity valuation of Borqs as of the Closing, with such adjusted equity valuation divided by US$10.40. The adjusted equity valuation of Borqs as of the Closing will be determined by starting with a base valuation of US$270.0 million, deducting the amount of indebtedness (net of cash) of Borqs as of the last business day before the Closing (but treating any amounts contingent upon the Closing as not being contingent), increasing such valuation to the extent that the net working capital (excluding indebtedness and cash) of Borqs as of the Reference Time is greater than US$11.0 million or decreasing such valuation to the extent that the net working capital (excluding indebtedness and cash) of Borqs as of the Reference Time is less than US$9.0 million, and increasing such valuation to the extent that Pacific’s outside accounting and legal expenses incurred in connection with the negotiation, preparation and consummation of the Merger Agreement (but excluding any deferred initial public offering costs or costs incurred with any Commitment Investment or any costs incurred in connection with an extension of Pacific’s deadline to consummate a business combination, if sought) exceed US$1.0 million. The adjusted equity valuation will be determined by mutual agreement of Borqs and Pacific based on estimates of the foregoing factors as of the Closing, without any post-Closing adjustments.

Of the Merger Consideration Shares to be issued, between 2,352,285 and 3,846,154 of such shares will be contingent and deposited in escrow to be released (or with respect to the Backstop Guarantee Shares and Commitment Escrow Shares, as described below, to be cancelled in connection with an issuance of replacement shares by Pacific) to the Sellers in the event certain net income earnout conditions are met during the period from July 1, 2017 to June 30, 2018. Four percent (4%) of (a) the shares otherwise due to the Sellers at the Closing (excluding any Earnout Shares), or approximately 885,315 shares assuming that the full 3,846,154 Earnout Shares are issued and that, based on the unaudited pro forma financial statements included in this proxy statement, the adjusted equity valuation of Borqs is $270,182,000 as of the closing and (b) any Earnout Shares earned by the Sellers will be deposited in escrow to support certain indemnification obligations under the Merger Agreement, and released on the 18 month anniversary of the Closing, subject to amounts reserved for indemnification claims then pending or unpaid. Each Borqs shareholder as of the Effective Time will receive its pro rata portion of the Merger Consideration Shares, less its pro rata portion of the Earnout Shares and the Indemnity Escrow Shares as described above, based on the number of Borqs shares held by such Seller (with any Borqs preferred shares treated on an as-converted into Borqs ordinary share basis), except that any Seller who validly exercises dissenters rights under Part XVI of the Companies Law (2016 Revision) of the Cayman Islands will not be entitled to receive its pro rata share of the Merger Consideration Shares.

The number of Earnout Shares due to the Sellers shall be based on the consolidated net income of Pacific and its subsidiaries, subject to certain adjustments, for the twelve month period from July 1, 2017 to June 30, 2018. The exact number of Earnout Shares will be based on the aggregate of the funds left in Pacific’s trust account after redemptions in connection with the Merger and the proceeds from any third party equity financing to be conducted by Pacific prior to the closing of the Merger, including pursuant to the Backstop and any Commitment Investment, with there being 2,352,285 Earnout Shares if the Closing Proceeds are $24.0 million and the number of Earnout Shares increasing on a linear sliding scale, up to 3,846,154 Earnout Shares if the Closing Proceeds are $57.5 million. In order for the Sellers to receive the full Earnout Shares, Pacific will need to achieve at least $20.0 million in Adjusted Net Income during the Earnout Period, and if the Adjusted Net Income is greater than $18.0 million but less than $20.0 million, the Sellers will receive a pro-rated amount of the Earnout Shares on a linear sliding scale with zero Earnout Shares earned at $18.0 million in Adjusted Net Income and the full Earnout Shares earned at $20.0 million in Adjusted Net Income. We believe that the aggregate funds left in the trust account and private placement after the redemption of 3,841,131 of our public shares and the Closing Proceeds pursuant to the Backstop and any Commitment Investment will aggregate $24.0 million.

Between 1,282,051 and 2,352,285 of the Earnout Shares will be issued in the name of the sponsor in consideration of entering into the Backstop and Subscription Agreement (as described below). To the extent there is any Commitment Investment, up to 2,564,103 of the Earnout Shares will be issued in the name of qualified institutional buyers or institutional accredited investors who enter into agreements with the Purchaser to commit to purchase or otherwise continue to own (and not redeem) Purchaser Ordinary Shares through the Closing pursuant to such Commitment Investment. Commitment Investors will be allocated Commitment Escrow Shares at a rate equal to approximately 44,593 Commitment Escrow Shares per $1,000,000 of committed investment, and the total number of Commitment Escrow Shares will depend on the amount of aggregate investment from all Commitment Investors. The Commitment Escrow Shares will be derived from either the Backstop Guarantee Shares or the Net Income Shares, depending on the amount and source of the funds left in Pacific’s trust account after redemptions. Any remaining Earnout Shares, after accounting for the Backstop Guarantee Shares and the Commitment Escrow Shares, will be issued in the name of the Sellers and deposited into escrow.

The sponsor and the Commitment Investors will be entitled to all voting rights and dividend rights (other than equity securities paid as dividends) with respect to the Backstop Guarantee Shares and the Commitment Escrow Shares while they are held in escrow. The Sellers will be entitled to all voting rights and dividend rights (other than equity securities paid as dividends) with respect to the Net Income Shares while such Net Income Shares are held in escrow. To the extent the Earnout conditions are not met, the Backstop Guarantee Shares will be released to the sponsor, the Commitment Escrow Shares will be released to the Commitment Investors, and the Net Income Shares will be cancelled. To the extent that the Earnout conditions are met or partially met, the resulting portion of Backstop Guarantee Shares and the Commitment Escrow Shares will be cancelled and equivalent replacement shares will be issued to the Sellers, and the resulting portion of Net Income Shares will be released to the Sellers; in each case, 4% of all such shares will be deposited in escrow and added to the existing indemnity escrow as described in further detail below. The indemnity escrow will be the sole source to pay for the Sellers’ indemnification obligations under the Merger Agreement, to be released on the 18 month anniversary of the Closing, subject to amounts reserved for indemnification claims then pending or unpaid.

Holders of issued and outstanding Borqs warrants will receive Replacement Warrants, which will be subject to substantially the same terms and conditions as Pacific’s warrants issued as part of the units in Pacific’s IPO, except that the number of shares and exercise price thereunder will each be equitably adjusted for the Merger based on the number of Merger Consideration Shares as compared to the number of issued and outstanding Borqs shares immediately prior to the Effective Time.

Pursuant to the terms of the lock-up agreements to be entered into by each Seller and each holder of a Borqs warrant, Sellers will not transfer, assign or sell any remaining Merger Consideration Shares received and held outside of escrow or the Replacement Warrants for a period of one year from the closing of the Business Combination (which period may be shortened under certain circumstances).

Pacific will assume the obligations under the Assumed Options (including the applicable provisions of the plan under which they were issued), except that the number of shares and exercise price thereunder will be based on the number of Borqs shares and exercise price under the applicable Assumed Option, with each equitably adjusted for the Merger based on the number of Merger Consideration Shares as compared to the number of issued and outstanding Borqs shares immediately prior to the Effective Time.

Backstop and Subscription Agreement

In connection with the execution of an amendment to the Merger Agreement on May 10, 2017 (with such amendment further amended with the execution of a second amendment to Merger Agreement on June 29, 2017), Pacific and our sponsor entered into a Backstop and Subscription Agreement on May 11, 2017, pursuant to which our sponsor agreed to purchase up to $24.0 million of Pacific ordinary shares through (i) open market or privately negotiated transactions with third parties (with the sponsor not obligated to pay a price of greater than $10.40 per share), (ii) a private placement at a price of $10.40 per share with consummation to occur concurrently with that of the Business Combination or (iii) a combination thereof, in order to ensure that there is at least $24.0 million in Closing Proceeds, although the sponsor is entitled, at its sole election, to purchase additional Pacific ordinary shares in excess of such $24.0 million Closing Proceeds requirement. As consideration for the Backstop, the sponsor will be entitled to receive the Backstop Guarantee Shares subject to the terms and conditions of the Merger Agreement, as amended. In connection with the Backstop and Subscription Agreement, at the Closing, Pacific and the sponsor will enter into a registration rights agreement, in a form to be agreed upon, with respect to the shares purchased in connection with the Backstop and Subscription Agreement and any Backstop Guarantee Shares released from escrow to and retained by the sponsor. We believe that the aggregate funds left in the trust account and private placement after the redemption of 3,841,131 of our public shares and the Closing Proceeds pursuant to the Backstop and any Commitment Investment will aggregate $24.0 million.

Pacific and Borqs may also obtain commitments from Commitment Investors to participate in a Commitment Investment to purchase Pacific’s ordinary shares through (i) open market or privately negotiated transactions with third parties, (ii) purchases of restricted shares to occur concurrently with that of the Business Combination, or (iii) a combination thereof. Any such Commitment Investors who participate in a Commitment Investment will have the right to receive Commitment Escrow Shares, and may receive registration rights in connection with the Commitment Investment. As of the date hereof, no such commitments have been made, and we are not required to obtain any such commitments.

Special Meeting of Shareholders

On August 10, 2017, we held a special meeting of shareholders to approve the Business Combination. At such meeting, the Business Combination and related proposals were approved. In connection with the meeting, 3,841,131 of our public shares were validly presented to us for redemption. Investors should review the Proxy Statement filed on July 14, 2017 for additional information regarding anticipated ownership.

Results of Operations

We have neither engaged in any operations nor generated any revenues to date. Our only activities from inception to June 30, 2017 relates to our formation, our Initial Public Offering and private placement and the identification and evaluation of prospective candidates for a Business Combination. Since the completion of our Initial Public Offering, we have not generated any operating revenues and will not generate such revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on cash and securities held, which we expect to be insignificant in view of the low interest rates on risk-free investments. We have incurred expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses and other expenses relating to our efforts to consummate a Business Combination

For the year ended June 30, 2017, we had a net loss of $1,765,534, mainly consisting of operating costs, target identification expenses and expenses related to the Merger with Borqs of $1,966,191, offset by interest income on marketable securities held in our Trust Account of $185,047, and an unrealized gain on marketable securities held in our Trust Account of $15,610.

For the year ended June 30, 2016, we had a net loss of $392,286, mainly consisting of formation, operating costs and target identification expenses of $469,484 and an unrealized loss on marketable securities held in our Trust Account of $14,290, offset by interest income on marketable securities held in our Trust Account of $91,488.

Liquidity and Capital Resources

On October 20, 2015, we consummated the Initial Public Offering of 5,000,000 Units, at a price of $10.00 per Unit, generating gross proceeds of $50,000,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 477,500 Private Units, of which 452,500 Private Units were purchased by our sponsor and 25,000 Private Units were purchased by EarlyBirdCapital, Inc. (“EBC”), in each case, at a price of $10.00 per Unit, generating gross proceeds of $4,775,000.

On October 23, 2015, the underwriters elected to fully exercise their over-allotment option to purchase 750,000 Over-allotment Units at a purchase price of $10.00 per Unit, generating gross proceeds of $7,500,000. In addition, on October 23, 2015, we consummated the sale of an additional 54,375 Private Units at a price of $10.00 per Unit, of which 45,171 Units were purchased by our sponsor and 9,204 Units were purchased by EBC, generating gross proceeds of $543,750.

Following the Initial Public Offering and the exercise of the over-allotment option, a total of $59,800,000 was placed in the Trust Account, while the remaining funds of $722,827 were placed in an account outside of the Trust Account for working capital purposes. We incurred $2,295,923 in Initial Public Offering related costs, including $1,868,750 of underwriting fees and $427,173 of Initial Public Offering costs.

As of June 30, 2017, we had marketable securities held in the Trust Account of $53,550,304, substantially all of which is invested in U.S. treasury bills with a maturity of 180 days or less. Interest income earned on the balance in the Trust Account may be available to us to pay taxes or for working capital purposes. Since inception, we have withdrawn approximately $185,000 of interest income from the Trust Account in order to fund working capital requirements.

As of June 30, 2017, we had cash of $319,312 held outside the Trust Account, which is available for use by us to cover the costs associated with identifying a target business, negotiating a Business Combination, due diligence procedures and other general corporate uses. In addition, as of June 30, 2017, we had accounts payable and accrued expenses of $265,820.

For the year ended June 30, 2017, cash used in operating activities amounted to $1,023,816, mainly resulting from a net loss of $1,765,534, interest earned on marketable securities held in the Trust Account of $185,047 and an unrealized gain on marketable securities held in the Trust Account of $15,610, offset by non-cash compensation expense of $800,000. Changes in our operating assets and liabilities provided cash of $142,375.

For the year ended June 30, 2016, cash used in operating activities amounted to $376,038, mainly resulting from a net loss of $392,286 and interest earned on marketable securities held in the Trust Account of $91,488, offset by an unrealized loss on marketable securities held in the Trust Account of $14,290. Changes in our operating assets and liabilities provided cash of $93,446.

As of June 30, 2017, certain members of our management incurred an aggregate of $286,246 of target identification expenses. The advances are non-interest bearing, unsecured and are payable upon the consummation of the Business Combination.

We intend to use substantially all of the funds held in the Trust Account to acquire Borqs and to pay our expenses relating thereto, including a fee payable to EBC for its services in connection with our Business Combination upon the consummation of such combination in an amount equal to $1,750,000. To the extent that our capital stock is used in whole or in part as consideration to effect our Business Combination, the remaining proceeds held in the Trust Account, as well as any other net proceeds not expended, will be used as working capital to finance the operations of Borqs. Such working capital funds could be used in a variety of ways including continuing or expanding Borqs’ operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also be used to repay any operating expenses or finders’ fees which we had incurred prior to the completion of our Business Combination if the funds available to us outside of the Trust Account were insufficient to cover such expenses.

We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. We could seek such additional capital through loans or additional investments from members of our management team, but such members of our management team are not under any obligation to advance funds to, or invest in, us. In the event that the Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no proceeds from our Trust Account would be used for such repayment. Such loans would be evidenced by promissory notes. The notes would either be paid upon consummation of our Business Combination, without interest, or, at the lender’s discretion, up to $500,000 of the notes may be converted upon consummation of our Business Combination into additional Private Units at a price of $10.00 per unit.

On November 9, 2016, the sponsor loaned us $500,000 to be used for expenses relating to investigating and selecting a target business and other working capital requirements. The Convertible Promissory Note, as amended in January 2017, is non-interest bearing and is payable upon the consummation of a Business Combination. The Convertible Promissory Note is convertible, in whole or in part, at the election of the sponsor, upon the consummation of Business Combination. Upon such election, the Convertible Promissory Note will convert into Private Units, at a price of $10.00 per Unit.

During the three months ended June 30, 2017, the sponsor loaned us $459,000 to fund the Extension Amendment. The Contribution is non-interest bearing and payable upon the consummation of a Business Combination. On July 27, 2017, the sponsor loaned us an additional $153,000.

Off-Balance Sheet Arrangements

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

Contractual Obligations

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities other than an agreement to pay an affiliate of the Company’s Chairman a monthly fee of $10,000 for office space, utilities and secretarial support provided to the Company. We began incurring these fees on October 14, 2015 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and the Company’s liquidation. In addition, we will pay each of our independent directors an annual retainer of $30,000 (to be prorated for a partial term), payable in arrears commencing on the first anniversary of the Initial Public Offering and ending on the earlier of a Business Combination and our liquidation. We are also obligated to pay one of our directors a cash fee of $50,000 under a Director’s Agreement for services to be provided in connection with the Merger with Borqs. 

Critical Accounting Policies

The preparation of consolidated 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 condensed financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The net proceeds of our initial public offering and the sale of the private units 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 8. Financial Statements and Supplementary Data

Reference is made to Pages F-1 through F-15 comprising a portion of this Report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report.

Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Controls Over Financial Reporting

As required by the SEC rules and regulations for the implementation of Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that: 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting at June 30, 2017. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessments and those criteria, management determined that we maintained effective internal control over financial reporting at June 30, 2017.

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. As we are an emerging growth company, management's report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management's report in this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Directors and Executive Officers 

As of the date of this Report, our directors and officers are as follows:

Mr. Jian Tu has been our President and Chairman of the Board since July 2015. From 2006 to 2010, Mr. Tu was a Director of Pacific Securities Co., Ltd. (601099.SH), or Pacific Securities, and since 2007, he has served as the Chairman of the Strategic Planning Committee of Pacific Securities as well as the Vice Chairman of the Board of the China-Laos Securities Co., Ltd., a joint venture between Pacific Securities and Laos Securities Exchange and the first securities brokerage firm in Laos. He also worked as General Counsel of Shanghai Stock Exchange and a Committee Member of the Shanghai Stock Exchange Review Committee. Mr. Tu has been an independent director to several public companies, including North China Pharmaceutical Co., Ltd. (600812.SH) (2005 – 2008), China Asset Management Co., Ltd. (2001 – 2012), Beijing Gehua CATV Network Co., Ltd. (600037.SH) and GTJA Allianz Funds (a joint venture between Guotai Junan Securities and Allianz AG). Mr. Tu was also a Member of the China South Securities Co., Ltd. Internal Review Committee, the China Merchants Securities Co., Ltd. (formerly known as Guotong Securities Co., Ltd.) Internal Review Committee, and the Huatai Securities Co., Ltd. Internal Review Committee. Mr. Tu worked as the Head of China Council for the Promotion of International Trade, Asset Management Center from 2004 to 2006. Mr. Tu started his career in China University of Geoscience (formerly known as Beijing Geographic Management Officers College) from 1982 to 1993 and he was the Vice Managing Partner and the Shanghai Office Managing Partner of China Lawyer Association Center (now known as Deheng Law Offices) from 1993 to 2004. Mr. Tu graduated from Peking University with a Bachelor’s Degree in Economy in 1982.

We believe Mr. Tu is well-qualified to serve as a member of the board due to his in-depth knowledge and experience in the Chinese and global capital markets and his experience in the fields of securities, financial and legal services. for over 20 years.

Mr. Zhouhong Peng has been our Chief Executive Officer and Chief Financial Officer since July 2015. Since May 2015, Mr. Peng has served as the General Manager of Pacific Securities Investment Management Co., Ltd., a wholly owned subsidiary of Pacific Securities Capital Management Co., Ltd. From 2006 to 2012, Mr. Peng was the president assistant, chief manager of investment banking department head office, as well as the President of Investment Banking Department of Pacific Securities Co., Ltd. From 2012 to May 2015, Mr. Peng worked at Pacific Securities Capital Management Co., Ltd., a wholly owned subsidiary of Pacific Securities, as its Chief Manager. From 1994 to 2005, he worked as Vice President in the investment banking department and the President in the internal review department in South Securities Co., Ltd. In 2006, he worked as the Chief Executive Manager in the M&A Department of Shanghai Securities Co., Ltd. Mr. Peng worked at Shanghai Runfeng Global Commodity Futures Co., Ltd. as a broker from 1992 and the Shanghai Newland Securities Investment Consultants Co., Ltd. as the head of research department from 1993. Mr. Peng also served as the director, advisor and reviewing committee member to several public and private companies, including the Little Swan Group Co., Ltd. (000418.SZ) (200418.SZ) and the Harbin Pharmaceutical Group Co., Ltd. (600664.SH). Mr. Peng graduated from East China Normal University with a Bachelor’s Degree in 1988 and from the City University of Macau with a Master’s Degree in Business Management in 2003. He has the China securities practice permit and license.

Mr. Guoxiong Luo has been one of our directors since October 2015. Since 2007, Mr. Luo has served as the Assistant Chairman and the Head of Global Business Department for Pacific Securities Co., Ltd. Mr. Luo worked as the Chief Financial Officer and President of China Exhibition Investment and Development Co., Ltd. from 2005 to 2007. From 1990 to 2005, he worked at Zhongjingxin Investment Co., Ltd., most recently as Vice General Manager and Chairman of the Board. Mr. Luo worked as the accountant in the China Council for the Promotion of International Trade from 1988 to 1990. Mr. Luo received a Bachelor’s Degree in Economy, Finance and Accounting from Zhongnan University of Economics and Law in the year of 1988.

We believe Mr. Luo is well-qualified to serve as a member of the board because of his experience in global trade and investment management activities.

Mr. David Boris has been one of our directors since July 2015. He has over 30 years of Wall Street experience in mergers and corporate finance and has been involved in 13 SPAC transactions as an advisor, investment banker and/or board member, including nine business combinations totaling over $3.4 billion. Since November 2016, he has served as co-Chief Executive Officer, Chief Financial Officer and a director of Forum Merger Corporation, a SPAC that consummated its initial public offering in April 2017. He served as advisor to Limbach Holdings in connection with its merger with 1347 Capital Corp., a SPAC, from 2015 to 2016. From November 2010 to May 2013, Mr. Boris served as Chairman of Primcogent Solutions LLC, leading the board during the period of the company’s preparation to seek reorganization by way of a voluntary bankruptcy petition, which was filed in 2013. Mr. Boris served as a director of Trio Merger Corp., a SPAC, from its inception through its business combination with SAExploration. Mr. Boris served as Senior Managing Director and Head of Investment Banking at Pali Capital, Inc., an investment banking firm, from 2007 to 2010, and was a founding member and Managing Director of Morgan Joseph & Co. Inc., an investment banking firm, from 2001 to 2007, where he was head of both the Financial Sponsors and Media Groups. Mr. Boris served as President of Ladenburg Thalmann Group Inc. from 1999 to 2000, and was also Executive Vice President and Head of Investment Banking at Ladenburg Thalmann & Co. Inc. from 1998 to 2000. In addition, he was a co-founder, director, and a principal shareholder of Brenner Securities Corporation and its successors. Prior to Brenner, Mr. Boris was at Oppenheimer & Company, as a Senior Vice President and Limited Partner. 

Mr. Boris began his career as a member of the Business Development Group of W.R. Grace & Company, from 1984 to 1985. He is an active member of the Young Presidents’ Organization. Mr. Boris received a MBA from Columbia University Business School and a BA from Vassar College, cum laude. We believe Mr. Boris is well-qualified to serve as a member of the board due to his wide range of experience in capital market activities as well as his activities in cross-border investments and asset management.  

Mr. Jason Zexian Shen has been one of our directors since July 2015. Mr. Shen started his own business in 2012 to open Jason Z. Shen CPA Firm, a local CPA accounting firm in the State of New York. From 2007 to 2012, Mr. Shen worked in the AIG Corporate Comptrollers in New York as a senior accountant. He worked in Alliance Building Services from 2006 to 2007. He was the accounting manager in Gandhi Engineering, Inc. from 1994 to 2001, and the accounting manager in Berger Lehman Associates, PC from 2001 to 2006. Mr. Shen has worked as the accounting manager in the New China News Agency Hong Kong Office (Now Liaison Office of the Central People’s Government in Hong Kong from 1982 to 1991. Mr. Shen graduated from Peking University with the Bachelor’s Degree in Economy in 1982 and Master’s Degree in Accounting from Binghamton University in 1993. He is the Certified Public Accountant licensed in the State of New York. 

We believe Mr. Shen is well-qualified to serve as a member of the board due to his experience in accounting in China and the U.S., his entrepreneurship and his financial expertise.  

Dr. Honghui Deng has been one of our directors since October 2015. Dr. Deng started his education professional career in 1990 as a lecturer in Chongqing University in China. Dr. Deng has been serving as the independent director at 500.com, Ltd. (WBAI.NYSE) since May, 2011. Dr. Deng was the founder and served as the Chief Executive Officer of HHD Consulting Service LLC from 2003 to 2008. He has been serving as a fellow at the Innovation Creativity Capital Institute (IC2) of the University of Texas at Austin since 2010. Dr. Deng also has been teaching as an EMBA/MBA professor at Peking University Guanghua School of Management since 2005. He has been working as an assistant professor at the School of Business of University of Nevada, Las Vegas since 2003. From 1993 to 1997, he worked as an official in the Ministry of Education of China. Dr. Deng has extensive consulting experiences for business firms on long-term strategy, finance and management. He received a Bachelor’s Degree in Electronic Engineering and Business Administration from the School of Electronic Engineering of Chongqing University in 1990 and 1994, and a Ph.D. Degree in Business Administration from Red McCombs School of Business, University of Texas at Austin in 2003. 

We believe Dr. Deng well-qualified to serve as a member of the board due to his profound academic training background and his wide range of experience in business management research and practice, as well as his independent director’s practice with other public companies.  

Ms. Yaqi Feng has been our Chief Operating Officer and Secretary to the Board of Directors since July 2015. Ms. Feng has been working as the Executive Director of the Global Business Department in Pacific Securities Co., Ltd. since 2013, where she is responsible for Chinese companies’ overseas IPOs, cross border M&A transactions, and global investment management. From 2012 to 2013, she worked as the Managing Director of Regeneration Capital Group LLC in New York, where she was responsible for IPOs and listing projects for emerging market companies, business development, project due diligence as well as transaction management. From 2010 to 2012, Ms. Feng worked as a VP for Griffin Financial Group, a mid-sized investment bank; in this capacity she was responsible for public offerings, private placements, deal structuring, financial modeling as well as institutional sales. She also served as a manager for Asian Legend Asset Management Inc. a private equity firm based in China and New York that specialized in China related projects, from 2009 to 2010. Ms. Feng worked as an associate in the New York office of the Jun He law firm from 2007 to 2008. Ms. Feng received an LL.M from Boston University School of Law and an LL.B from the School of International Law, China University of Political Science and Law in Beijing, China, where she also earned a B.A. in Business.  

Number and Terms of Office of Officers and Directors  

Our board of directors is divided into two classes with only one class of directors being elected in each year and each class serving a two-year term. The term of office of the Class I directors, consisting of Messrs. Boris and Shen and Dr. Deng, will expire at the 2019 annual meeting of shareholders. The term of office of the Class II directors, consisting of Messrs. Tu and Luo, will expire at the 2018 annual meeting of shareholders. 

Our officers are appointed by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our memorandum and articles of association as it deems appropriate. Our memorandum and articles of association provide that our officers may consist of a Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, Vice Presidents, Secretary, Treasurer and such other offices as may be determined by the board of directors.  

At the closing of the Business Combination, our board of directors and officers will change, as described in the section entitled “Management After the Business Combination” in the Proxy Statement. 

Committees of the Board of Directors  

Our board of directors has two standing committees: an audit committee and a compensation committee. The rules of NASDAQ and Rule 10A-3 of the Exchange Act as required by the rules of the NASDAQ, require that the audit committee and the compensation committee of a listed company be comprised solely of independent directors. 

Audit Committee 

We have established an audit committee of the board of directors. The rules of NASDAQ require that the audit committee of a listed company be comprised solely of at least three independent directors. The members of our audit committee are Messrs. Boris and Shen and Dr. Deng. Mr. Boris serves as chairman of the audit committee. Messrs. Boris and Shen and Dr. Deng meet the independent director standard under NASDAQ’s listing standards. 

Each member of the audit committee is financially literate and our board of directors has determined that Mr. Boris qualifies as an “audit committee financial expert” as defined in applicable SEC rules. 

Responsibilities of the audit committee include: 

Compensation Committee

 We have established a compensation committee of the board of directors as required by the rules of the NASDAQ. The rules of NASDAQ require that the compensation committee of a listed company be comprised solely of independent directors. The members of our Compensation Committee are Messrs. Boris and Shen and Dr. Deng. Mr. Shen serves as chairman of the compensation committee. Messrs. Boris and Shen and Dr. Deng meet the independent director standard under NASDAQ’s listing standards. We have adopted a compensation committee charter, which details the principal functions of the compensation committee, as required by the rules of the NASDAQ, including: 

The charter also provides that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required by NASDAQ and the SEC.

Director Nominations

We do not have a standing nominating committee, though we intend to form a corporate governance and nominating committee as and when required to do so by law or NASDAQ rules. In accordance with Rule 5605(e)(2) of the NASDAQ rules, a majority of the independent directors may recommend a director nominee for selection by the board of directors. The board of directors believes that the independent directors can satisfactorily carry out the responsibility of properly selecting or approving director nominees without the formation of a standing nominating committee. The directors who shall participate in the consideration and recommendation of director nominees are Messrs. Boris and Shen and Dr. Deng. In accordance with Rule 5605(e)(1)(A) of the NASDAQ rules, all such directors are independent. As there is no standing nominating committee, we do not have a nominating committee charter in place.

The board of directors will also consider director candidates recommended for nomination by our shareholders during such times as they are seeking proposed nominees to stand for election at the next annual meeting of shareholders (or, if applicable, a special meeting of shareholders). Our shareholders that wish to nominate a director for election to the board of directors should follow the procedures set forth in our memorandum and articles of association.

We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, the board of directors considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our shareholders.

Compensation Committee Interlocks and Insider Participation

None of our executive officers currently serves, and in the past year has not served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our officers, directors and persons who beneficially own more than ten percent of our ordinary shares to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of such Forms, we believe that during the year ended June 30, 2017 there were no delinquent filers.

Code of Ethics

We have adopted a Code of Ethics applicable to our directors, officers and employees. We have filed a copy of our Code of Ethics, our audit committee charter and our compensation committee charter as exhibits to the registration statement in connection with our initial public offering. You will be able to review these documents by accessing our public filings at the SEC’s web site at www.sec.gov. In addition, a copy of the Code of Ethics will be provided without charge upon request from us. We intend to disclose any amendments to or waivers of certain provisions of our Code of Ethics in a Current Report on Form 8-K.

Item 11. Executive Compensation

We pay each of our independent directors an annual retainer of $30,000 (prorated for a partial term), payable in arrears commencing on October 20, 2016 and ending on the earlier of the consummation of our initial business combination and our liquidation. Our sponsor paid Mr. Boris, one of our directors, a $50,000 consulting fee as compensation for advisory services provided by Mr. Boris to our sponsor prior to our initial public offering in connection with selecting potential underwriters, attorneys, accountants and other necessary professionals for such offering.

Additionally, on January 10, 2017, we entered into an agreement (the “Director’s Agreement”) to pay Mr. Boris certain additional fees to act a special director to our board of directors in our efforts in closing the Business Combination. Such agreement is effective December 23, 2016 and will continue until the earlier of (i) April 20, 2017, (ii) the closing date of the Business Combination or (iii) Mr. Boris’ resignation or removal as a director of the board or until his successor is duly elected and qualified. The Company will pay Mr. Boris a cash fee of $50,000 payable as follows: (i) $10,000 paid upon execution of the Director’s Agreement, and (ii) thereafter, $10,000 to be paid on a monthly basis; provided, that if any portion of the cash fee remains unpaid at the time the Business Combination is consummated, all such unpaid amounts will be paid at the closing of the Business Combination. As additional compensation, as of December 23, 2016, our Sponsor sold Mr. Boris 80,000 shares of Pacific’s ordinary shares at a purchase price of $0.017 per share, provided, that a portion of the such shares are subject to forfeiture in the event that the Director’s Agreement is terminated for any reason prior to the date of consummation of the Merger (the “Separation Event”) as follows: (i) 75% will be forfeited if a Separation Event occurs before the one month anniversary of the date of the Director’s Agreement; (ii) 50% will be forfeited if a Separation Event occurs on or after the one month anniversary of the Director’s Agreement and prior to the two month anniversary of the Director’s Agreement; (iii) 25% will be forfeited if a Separation Event occurs on or after the three month anniversary of the Director’s Agreement and prior to the four month anniversary of the Director’s Agreement; and (iv) no shares will be forfeited from and after the four month anniversary of the Director’s Agreement. Such shares are expected to be transferred from the Sponsor to Mr. Boris after the closing of the Business Combination.

Until the earlier of the consummation of our initial business combination and our liquidation, we pay an affiliate of our Chairman a total of $10,000 per month for office space, utilities and secretarial and administrative services. We believe that such fees are at least as favorable as we could have obtained from an unaffiliated third party for such services. Except as set forth above, no compensation will be paid to our sponsor, executive officers and directors, or any of their respective affiliates, prior to or in connection with the consummation of our initial business combination. Additionally, these individuals will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our independent directors review on a quarterly basis all payments that were made to our sponsor, officers, directors or our or their affiliates.

After the completion of our initial business combination, members of our management team who remain with us may be paid consulting, management or other fees from the combined company. All such fees would be fully disclosed to shareholders, to the extent then known, in the tender offer materials or proxy solicitation materials furnished to our shareholders in connection with a proposed business combination. It is unlikely the amount of such compensation will be known at the time, as it will be up to the directors of the post-combination business to determine executive and director compensation. Any compensation to be paid to our officers will be determined, or recommenced, to the board of directors for determination, either by a committee constituted solely by independent directors or by a majority of the independent directors on our board of directors.

We do not intend to take any action to ensure that members of our management team maintain their positions with us after the consummation of our initial business combination, although it is possible that some or all of our executive officers and directors may negotiate employment or consulting arrangements to remain with us after the initial business combination. The existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management’s motivation in identifying or selecting a target business but we do not believe that the ability of our management to remain with us after the consummation of our initial business combination will be a determining factor in our decision to proceed with any potential business combination. We are not party to any agreements with our executive officers and directors that provide for benefits upon termination of employment.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth information regarding the beneficial ownership of our ordinary shares as of August 15, 2017 based on information obtained from the persons named below, with respect to the beneficial ownership of our ordinary shares, by:

Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all ordinary shares beneficially owned by them.

Changes in Control

Pursuant to the Merger Agreement, upon or before the closing of the Business Combination, we anticipate increasing the size of our board of directors from five to seven directors and reclassifying our board into three classes. All incumbent directors of Pacific except Dr. Deng and Mr. Shen have informed us that they will resign from our board of directors upon closing of the Business Combination. Our board of directors intends to appoint five directors to fill the vacancies left by these directors and by the increase in board size. One of the directors will be nominated by Pacific, three will be nominated by Borqs (at least one of whom will be required to be independent), and one (who will be required to be independent) will be nominated jointly by Pacific and Borqs. If the Business Combination is consummated, our board of directors will consist of: Yaqi Feng, the current Chief Operating Officer and Secretary of Pacific; Pat Sek Yuen Chan and Joseph Wai Leung Wong, incumbent directors of Borqs; Jason Zexian Shen and Honghui Deng, incumbent independent directors of Pacific; and two new independent directors, Eric Tao and Bill Huang. It is presently contemplated that, immediately following the consummation of the Business Combination and subject to our amended charter becoming effective under the laws of the British Virgin Islands, our new board of directors will exercise its rights under our memorandum and articles of association as then amended (if approved) to reclassify our board into three classes pursuant to our amended charter, it is anticipated that Dr. Deng and Mr. Huang will serve as Class I directors, Mr. Shen and Mr. Wong will serve as Class II directors and Mr. Tao, Mr. Chan and Ms. Feng will serve as Class III directors. In the event that the board of directors is so reclassified, our amended charter, if adopted, allows for the terms and classification of any continuing directors elected prior to the Business Combination or their successors or replacements to modified and changed in order to align with the classifications and terms set out above and below. Members of Class I will serve as directors until our annual meeting in 2018, members of Class II will serve as directors until our annual meeting in 2019 and members of Class III will serve as directors until our annual meeting in 2020.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Certain Relationships and Related Transactions

In July 2015, we issued an aggregate of 1,437,500 founder shares to our initial shareholders for an aggregate purchase price of $25,000 in cash, or approximately $0.017 per share. On or about August 3, 2015, our sponsor transferred an aggregate of 410,000 ordinary shares to the members of our board of directors (other than Mr. Shen, who purchased 30,000 ordinary shares directly from us) and our Chief Executive Officer and Chief Operating Officer. All of the founder shares were placed in escrow with Continental Stock Transfer & Trust Company, as escrow agent, at the time of our initial public offering.

Our initial shareholders have agreed not to transfer, assign or sell any of the founder shares (except to certain permitted transferees as described below) until, with respect to 50% of the founder shares, the earlier of (i) one year after the date of the consummation of our initial business combination or (ii) the date on which the closing price of our ordinary shares equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after our initial business combination, with respect to the remaining 50% of the founder shares, upon one year after the date of the consummation of our initial business combination, or earlier, in either case, if, subsequent to our initial business combination, we consummate a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of our shareholders having the right to exchange their ordinary shares for cash, securities or other property.

Our sponsor purchased an aggregate of 497,671 insider units in a private placement that closed simultaneously with the closing of our initial public offering and the closing of the over-allotment option for our initial public offering. Our sponsor has agreed not to transfer, assign or sell any of the ordinary shares included in the insider units and the respective ordinary shares underlying the rights and the warrants included in the insider units until after the completion of our initial business combination.

Our Chairman agreed, through the earlier of our consummation of our initial business combination and our liquidation, to make available to us, through one of his affiliates, office space, utilities and secretarial and administrative services, as we may require from time to time. We have agreed to pay an affiliate of our Chairman $10,000 per month for these services. We believe, based on rents and fees for similar services in the Shanghai area, that the fee charged by our Chairman is at least as favorable as we could have obtained from an unaffiliated person.

Other than the $10,000 per-month administrative fee as described above, the $30,000 annual retainer payments to our independent directors as described below and reimbursement of any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations, no compensation or fees of any kind, including finder’s fees, consulting fees or other similar compensation, will be paid to our sponsor, officers or directors, or to any of their respective affiliates, prior to or with respect to our initial business combination (regardless of the type of transaction that it is). Our independent directors review on a quarterly basis all payments that were made to our sponsor, officers, directors or our or their affiliates and are responsible for reviewing and approving all related party transactions as defined under Item 404 of Regulation S-K, after reviewing each such transaction for potential conflicts of interests and other improprieties.

We pay each of our independent directors an annual retainer of $30,000 (to be prorated for a partial term), payable in arrears commencing on October 20, 2016 and ending on the earlier of the consummation of our initial business combination and our liquidation. Our sponsor paid Mr. Boris, one of our directors, a $50,000 consulting fee as compensation for advisory services provided by Mr. Boris to our sponsor prior to our initial public offering in connection with selecting potential underwriters, attorneys, accountants and other necessary professionals for such offering. In addition, as of December 23, 2016, our Sponsor sold Mr. Boris 80,000 shares of Pacific’s ordinary shares at a purchase price of $0.017 per share, provided, that a portion of such shares were subject to forfeiture, as described in Item 11. Such shares will be transferred following the consummation of the Business Combination.

Prior to our initial public offering, our sponsor advanced to us an aggregate of $90,917 and loaned to us $300,000 to cover expenses related to such offering. We repaid these advances and loan from the proceeds of our initial public offering not placed in the trust account.

As of June 30, 2017, certain members of our management incurred an aggregate of $286,246 of target identification expenses. The advances are non-interest bearing, unsecured and are payable upon the consummation of the Business Combination.

In addition, in order to finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or our officers and directors may, but are not obligated to, loan us funds as may be required. If we consummate our initial business combination, we would repay such loaned amounts. In the event that the initial business combination does not close, we may use a portion of the offering proceeds held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment, other than the interest on such proceeds that may be released to us for working capital purposes. Such loans would be evidenced by promissory notes. The notes would either be paid upon consummation of our initial business combination, without interest, or, at the lender’s discretion, up to $500,000 of the notes may be converted upon consummation of our business combination into additional private units at a price of $10.00 per unit (which, for example, would result in the holders being issued 55,000 private shares if $500,000 of notes were so converted since the 50,000 private rights included in the private units would result in the issuance of an additional 5,000 private shares upon the closing of our business combination, as well as 50,000 warrants to purchase 25,000 ordinary shares).

Our sponsor has loaned the Company $500,000 pursuant to a note, which becomes due on the date on which the Company consummates a business combination. All of the $500,000 is convertible, in whole or in part, at the payee’s election, upon the consummation of the Business Combination, into units, at a price of $10.00 per unit. These units will be identical to the private units issued in a private placement in connection with Company’s IPO.

In connection with the Extension Meeting, our sponsor agreed to contribute an aggregate of approximately $153,000 to the Company within seven calendar days from the beginning of each such calendar month (or portion thereof), with the initial Contribution contributed by April 27, 2017. If the Company takes the full time through August 21, 2017 to complete the initial business combination (which is currently anticipated), the redemption amount per share at the meeting for such an initial business combination or the Company’s subsequent liquidation will be approximately $10.52 per share. The amount of the Contribution will not bear interest and will be repayable by the Company to the sponsor upon consummation of an initial business combination.

In connection with the execution of an amendment to the Merger Agreement on May 10, 2017 (with such amendment further amended with the execution of a second amendment to Merger Agreement on June 29, 2017), Pacific and our sponsor entered into a Backstop and Subscription Agreement on May 11, 2017, pursuant to which our sponsor agreed to purchase up to $24.0 million of Pacific ordinary shares through (i) open market or privately negotiated transactions with third parties (with the sponsor not obligated to pay a price of greater than $10.40 per share), (ii) a private placement at a price of $10.40 per share with consummation to occur concurrently with that of the Business Combination or (iii) a combination thereof, in order to ensure that there is at least $24.0 million in Closing Proceeds, although the sponsor is entitled, at its sole election, to purchase additional Pacific ordinary shares in excess of such $24.0 million Closing Proceeds requirement. As consideration for the Backstop, the sponsor will be entitled to receive the Backstop Guarantee Shares subject to the terms and conditions of the Merger Agreement, as amended. In connection with the Backstop and Subscription Agreement, at the Closing, Pacific and the sponsor will enter into a registration rights agreement, in a form to be agreed upon, with respect to the shares purchased in connection with the Backstop and Subscription Agreement and any Backstop Guarantee Shares released from escrow to and retained by the sponsor.

Pacific and Borqs may also obtain commitments from Commitment Investors to participate in a Commitment Investment to purchase Pacific’s ordinary shares through (i) open market or privately negotiated transactions with third parties, (ii) purchases of restricted shares to occur concurrently with that of the Business Combination, or (iii) a combination thereof. Any such Commitment Investors who participate in a Commitment Investment will have the right to receive Commitment Escrow Shares, and may receive registration rights in connection with the Commitment Investment. As of the date hereof, no such commitments have been made, and we are not required to obtain any such commitments.

After our initial business combination, members of our management team who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to our shareholders, to the extent then known, in the tender offer or proxy solicitation materials, as applicable, furnished to our shareholders. It is unlikely the amount of such compensation will be known at the time of distribution of such tender offer materials or at the time of a shareholder meeting held to consider our initial business combination, as applicable, as it will be up to the directors of the post-combination business to determine executive and director compensation.

All ongoing and future transactions between us and any member of our management team or his or her respective affiliates will be on terms believed by us at that time, based upon other similar arrangements known to us, to be no less favorable to us than are available from unaffiliated third parties. It is our intention to obtain estimates from unaffiliated third parties for similar goods or services to ascertain whether such transactions with affiliates are on terms that are no less favorable to us than are otherwise available from such unaffiliated third parties. If a transaction with an affiliated third party were found to be on terms less favorable to us than with an unaffiliated third party, we would not engage in such transaction.

We are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, officers or directors. In the event we seek to complete our initial business combination with a company that is affiliated with our sponsor, officers or directors, we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm that our initial business combination is fair to our public shareholders from a financial point of view.

Pursuant to a registration rights agreement we entered into on October 14, 2016, our initial shareholders and EBC and their permitted transferees can demand that we register the founder shares, the private units and underlying securities and any securities issued upon conversion of working capital loans. The holders of the majority of the founder shares are entitled to demand that we register these shares at any time commencing three months prior to the first anniversary of the consummation of our initial business combination. The holders of the private units (or underlying securities) are entitled to demand that we register these securities at any time after we consummate our initial business combination. In addition, the holders have certain “piggy-back” registration rights on registration statements filed after the consummation of our initial business combination.

Director Independence

NASDAQ listing standards require that a majority of our board of directors be independent. An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that each of Messrs. Boris and Shen and Dr. Deng is an “independent director” as defined in the NASDAQ listing standards and applicable SEC rules. Our independent directors have regularly scheduled meetings at which only independent directors are present.

Item 14. Principal Accountant Fees and Services.

The following is a summary of fees paid or to be paid to Marcum LLP, or Marcum, for services rendered.

Audit Fees. Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services that are normally provided by Marcum in connection with regulatory filings. The aggregate fees billed by Marcum for professional services rendered for the audit of our annual financial statements, review of the financial information included in our Forms 10-Q for the respective periods, and other required filings with the SEC for the year ended June 30, 2016 totaled $63,630 and for the year ended June 30, 2017 totaled $54,364. The above amount includes interim procedures and audit fees, as well as attendance at audit committee meetings.

Audit-Related Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under “Audit Fees,” including fees related to our proxy statement filed in connection with our acquisition of Borqs. These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. During the year ended June 30, 2017, fees for audit-related services totaled $40,000. We did not pay Marcum for consultations concerning financial accounting and reporting standards during the year ended June 30, 2016. During the years ended June 30, 2016 and 2017, we did not pay Marcum for consultations concerning financial accounting and reporting standards.

Tax Fees. We did not pay Marcum for tax planning and tax advice for the years ended June 30, 2016 and June 30, 2017.

All Other Fees. We did not pay Marcum for other services for the years ended June 30, 2016 and 2017.

Pre-Approval Policy

Our audit committee was formed upon the consummation of our initial public offering. As a result, the audit committee did not pre-approve all of the foregoing services, although any services rendered prior to the formation of our audit committee were approved by our board of directors. Since the formation of our audit committee, and on a going-forward basis, the audit committee has and will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit).

PART IV

Item 15. Exhibits, Financial Statement Schedules

All financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in the financial statements and notes thereto in is Item 15 of Part IV below.

We hereby file as part of this Report the exhibits listed in the attached Exhibit Index. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington D.C. 20549. Copies of such material can also be obtained from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates or on the SEC website at http://www.sec.gov.

EXHIBIT INDEX

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PACIFIC SPECIAL ACQUISITION CORP.

INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee of the Board of Directors and Shareholders

of Pacific Special Acquisition Corp.

We have audited the accompanying consolidated balance sheets of Pacific Special Acquisition Corp. (the “Company”) as of June 30, 2017 and 2016, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pacific Special Acquisition Corp. as of June 30, 2017 and 2016, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Marcum LLP

Marcum LLP

New York, NY

August 16, 2017

PACIFIC SPECIAL ACQUISITION CORP.

CONSOLIDATED BALANCE SHEETS

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

PACIFIC SPECIAL ACQUISITION CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

PACIFIC SPECIAL ACQUISITION CORP.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

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

PACIFIC SPECIAL ACQUISITION CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements.

PACIFIC SPECIAL ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2017

NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

Pacific Special Acquisition Corp. (the “Company”) is an organized blank check company incorporated in the British Virgin Islands on July 1, 2015. The Company was formed for the purpose of acquiring, engaging in a share exchange, share reconstruction and amalgamation, purchasing all or substantially all of the assets of, entering into contractual arrangements, or engaging in any other similar business combination with one or more businesses or entities (“Business Combination”). The Company has one wholly-owned subsidiary, PAAC Merger Subsidiary Limited, which was incorporated in the Cayman Islands on November 24, 2016 for the purpose of the transaction described in Note 8.

At June 30, 2017, the Company had not yet commenced any operations. All activity through June 30, 2017 relates to the Company’s formation, its initial public offering (“Initial Public Offering”), which is described below, identifying a target company for a Business Combination and activities in connection with the pending acquisition of Borqs International Holding Corp. (“Borqs”) described in Note 8.

On August 10, 2017, the Company held a special meeting of shareholders pursuant to which the Business Combination with Borqs was approved by the Company’s shareholders. In connection with the meeting, 3,841,131 of the Company’s ordinary shares were presented for redemption. The parties are seeking to satisfy or negotiate waivers to any remaining closing conditions to the proposed business combination. Without satisfying all remaining closing conditions or receiving all waivers, no assurance can be made as to whether the proposed business combination will be consummated. If the Company does not consummate the Business Combination by the close of business on August 21, 2017, the Company will be required to dissolve and liquidate the Trust Account by returning the then remaining funds in such account to the Company’s then-public shareholders.

The registration statement for the Company’s Initial Public Offering was declared effective on October 14, 2015. On October 20, 2015, the Company consummated the Initial Public Offering of 5,000,000 units (“Units” and, with respect to the ordinary shares included in the Units, the “Public Shares”) at $10.00 per Unit, generating gross proceeds of $50,000,000, which is described in Note 4.

Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 477,500 Units (the “Private Units” and, with respect to the ordinary shares included in the Private Units, the “Private Shares”), of which 452,500 Private Units were purchased by the Company’s sponsor and 25,000 Private Units were purchased by EarlyBirdCapital, Inc. (“EBC”), in each case, at a price of $10.00 per Unit in a private placement, generating gross proceeds of $4,775,000, which is described in Note 5.

Following the closing of the Initial Public Offering on October 20, 2015, an amount of $52,000,000 ($10.40 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the Private Units 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 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 October 23, 2015, EBC elected to fully exercise their over-allotment option to purchase 750,000 Units (the “Over-allotment Units”) at a purchase price of $10.00 per Unit, generating gross proceeds of $7,500,000. In addition, on October 23, 2015, the Company consummated the sale of an additional 54,375 Private Units at a price of $10.00 per Unit, of which 45,171 Units were purchased by the Company’s sponsor and 9,204 Units were purchased by EBC, generating gross proceeds of $543,750. Following the closing, an additional $7,800,000 of net proceeds ($10.40 per Unit) was placed in the Trust Account, resulting in $59,800,000 ($10.40 per Unit) held in the Trust Account.

Transaction costs amounted to $2,295,923, consisting of $1,868,750 of underwriting fees and $427,173 of Initial Public Offering costs. In addition, following the closing of the Initial Public Offering, $722,827 of cash was held outside of the Trust Account and was available for working capital purposes.

On April 19, 2017, the Company’s shareholder’s approved to extend the period of time for which the Company is required to consummate a Business Combination until August 21, 2017 (the “Extension Amendment”). The number of ordinary shares presented for redemption in connection with the Extension Amendment was 653,996. The Company paid cash in the aggregate amount of $6,801,558, or approximately $10.40 per share, to redeeming shareholders. In addition, the Company’s sponsor has agreed to contribute $0.03 per share to the Trust Account for each Public Share that was not redeemed in connection with the approval of the Extension Amendment, for each 30-day period, or portion thereof, that is needed by the Company to complete a Business Combination from April 20, 2017 through August 21, 2017. Through July 27, 2017, the Company’s sponsor has contributed an aggregate of $612,000 into the Company’s Trust Account (the “Contribution”).

The Company’s management has broad discretion with respect to the specific application of the net proceeds of its Initial Public Offering and Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. The Company’s Units are listed on the Nasdaq Capital Market (“NASDAQ”). Pursuant to the NASDAQ listing rules, the Company’s Business Combination must be with a target business or businesses whose collective fair market value is equal to at least 80% of the balance in the Trust Account at the time of the execution of a definitive agreement for such Business Combination. There is no assurance that the Company will be able to successfully effect a Business Combination.

PACIFIC SPECIAL ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2017

The Company will provide its shareholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) by means of a tender offer. In connection with a proposed Business Combination, the Company may seek shareholder approval of a Business Combination at a meeting called for such purpose at which shareholders may seek to redeem their shares, regardless of whether they vote for or against a Business Combination. The shareholders will be entitled to redeem their shares for a pro rata portion of the amount then in the Trust Account (plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations or working capital requirements). In such case, the Company will proceed with a Business Combination only if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and a majority of the outstanding shares voted are voted in favor of the Business Combination. If a shareholder vote is not required and the Company does not decide to hold a shareholder vote for business or other legal reasons, the Company will, pursuant to its Memorandum and Articles of Association, conduct the redemptions pursuant to the tender offer rules of the Securities and Exchange Commission (“SEC”), and file tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC prior to completing a Business Combination. Notwithstanding the foregoing, a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from seeking redemption rights with respect to 15% or more of the ordinary shares sold in the Initial Public Offering without the Company’s prior written consent.

The Company’s sponsor, officers and directors (the “initial shareholders”) have agreed (a) to vote their founder shares (as defined in Note 6), Public Shares and Private Shares in favor of a Business Combination, (b) not to propose an amendment to the Company’s Memorandum and Articles of Association with respect to the Company’s pre-Business Combination activities prior to the consummation of a Business Combination unless the Company provides dissenting public shareholders with the opportunity to redeem their shares in conjunction with any such amendment; (c) not to redeem any shares (including the founder shares and Private Shares) into the right to receive cash from the Trust Account in connection with a shareholder vote to approve a Business Combination (or to sell any shares in a tender offer in connection with a Business Combination if the Company does not seek shareholder approval in connection therewith) or a vote to amend the provisions of the Memorandum and Articles of Association relating to shareholders’ rights of pre-Business Combination activity and (d) that the founder shares and Private Shares shall not participate in any liquidating distributions upon winding up if a Business Combination is not consummated.

In connection with the Extension Amendment approved by the Company’s shareholders on April 19, 2017, the Company has until August 21, 2017 (the “Combination Period”) to complete a Business Combination. However, if the Company is unable to complete a Business Combination by the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than five business days thereafter, redeem 100% of the outstanding Public Shares which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and the Company’s board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case to its obligations to provide for claims of creditors and the requirements of applicable law.

In connection with the redemption of 100% of the Company’s outstanding Public Shares for a portion of the funds held in the Trust Account, each holder will receive a full pro rata portion of the amount then in the Trust Account, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company for its working capital requirements or necessary to pay the Company’s taxes payable. 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.

The initial shareholders have agreed to waive their redemption rights with respect to the founder shares and the Private Shares (i) in connection with the consummation of a Business Combination and (ii) if the Company fails to consummate a Business Combination within the Combination Period. However, if the Company’s initial shareholders should acquire Public Shares in or after the Initial Public Offering, they will be entitled to redemption rights with respect to such Public Shares if the Company fails to consummate a Business Combination within the Combination Period.

Jian Tu, the President and Chairman of the Board of the Company, has agreed that he will indemnify the Company to the extent necessary to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by the Company for services rendered or contracted for or products sold to the Company, but only if such a vendor or prospective target business does not execute such a waiver. However, Mr. Tu may not be able to meet such obligation as the Company has not required Mr. Tu to retain any assets to provide for his indemnification obligations, nor has the Company taken any further steps to ensure that Mr. Tu will be able to satisfy any indemnification obligations that arise. Moreover, Mr. Tu will not be personally liable to the Company’s public shareholders if Mr. Tu should fail to satisfy his obligations under this agreement and instead will only be liable to the Company. The Company will seek to reduce the possibility that Mr. Tu will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (other than the Company’s independent auditors), prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account. Therefore, the distribution from the Trust Account to each holder of ordinary shares may be less than approximately $10.40 per share.

PACIFIC SPECIAL ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2017

NOTE 2. LIQUIDITY

As of June 30, 2017, the Company had $319,312 in its operating bank account, $53,550,304 in cash and marketable securities held in the Trust Account to be used for a Business Combination or to repurchase or redeem its ordinary shares in connection therewith and a working capital deficit of $1,161,755. As of June 30, 2017, approximately $93,000 of the amount on deposit in the Trust Account represented interest income, which is available to pay the Company’s tax obligations or fund its working capital requirements. Since inception, the Company has withdrawn approximately $185,000 of interest income from the Trust Account in order to fund working capital requirements.

Until the consummation of a Business Combination, the Company uses the funds not held in the Trust Account for identifying and evaluating prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to acquire, structuring, negotiating and consummating the Business Combination, paying for public company expenses and annual outside directors fees.

As of a June 30, 2017, the Company received an aggregate of $286,246 in advances from management, $500,000 in convertible loans from the Company’s sponsor (see Note 6) and $459,000 in loans from the sponsor to fund the Extension Amendment (see Note 6). The Company does not believe it will need to raise additional funds in order to meet the expenditures required for operating its business through the consummation of the Merger (as defined in Note 8) or its liquidation. However, in order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Company’s sponsor or an affiliate of the sponsor, officers or directors may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion (see Note 6).

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying consolidated financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC.

Emerging growth company

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements 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 its 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.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of estimates

The preparation of consolidated 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 consolidated 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 consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.

PACIFIC SPECIAL ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2017

Cash and cash equivalents

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

Cash and marketable securities held in Trust Account

The amounts held in the Trust Account represent substantially all of the proceeds of the Initial Public Offering and are classified as restricted assets since such amounts can only be used by the Company in connection with the consummation of a Business Combination. As of June 30, 2017 and 2016, cash and marketable securities held in the Trust Account consisted of United States Treasury Bills with a maturity date of 180 days or less 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, ordinary shares subject to possible redemption are presented as temporary equity, outside of the shareholders’ equity section of the Company’s consolidated balance sheet.

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. There were no unrecognized tax benefits as of June 30, 2017 and 2016, and no amounts accrued for interest and penalties. 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 area 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 provision for income taxes was deemed to be immaterial for the periods ended June 30, 2017 and 2016.

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. For the year ending June 30, 2016, weighted average shares were reduced for the effect of an aggregate of 187,500 ordinary shares that were subject to forfeiture if the over-allotment option was not exercised by the underwriters (see Note 6). As a result of the underwriters’ election to exercise their over-allotment option on October 23, 2015, 187,500 ordinary shares were no longer subject to forfeiture and are therefore included in the calculation of basic loss per share as of such date. Ordinary shares subject to possible redemption at June 30, 2017 and 2016 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. The Company has not considered the effect of (1) warrants included in the Units sold in the Initial Public Offering and the Private Units sold in the private placement to purchase an aggregate of 3,140,937 ordinary shares, (2) rights included in the Units sold in the Initial Public Offering and the Private Units sold in the private placement that convert into an aggregate of 628,187 ordinary shares and (3) 400,000 ordinary shares, warrants to purchase 200,000 ordinary shares and rights that convert into 40,000 ordinary shares underlying the unit purchase option sold to the underwriter, in the calculation of diluted loss per share, since the exercise of the warrants and the conversion of the rights into ordinary shares is contingent upon the occurrence of future events. As a result, diluted loss per share is the same as basic loss per share for the periods presented.

PACIFIC SPECIAL ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2017

Concentration of credit risk

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

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 consolidated balance sheets, primarily due to their short-term nature.

Recently issued accounting standards

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

NOTE 4. INITIAL PUBLIC OFFERING

Pursuant to the Initial Public Offering, the Company sold 5,750,000 Units at a purchase price of $10.00 per Unit, inclusive of 750,000 Over-allotment Units sold to the underwriters on October 23, 2015 upon the underwriters’ election to fully exercise their over-allotment option. Each Unit consists of one ordinary share, no par value, one right (“Public Right”) and one redeemable warrant (“Public Warrant”). Each right will convert into one-tenth (1/10) of one ordinary share upon consummation of a Business Combination (see Note 9). Each warrant will entitle the holder to purchase one half of one ordinary share at an exercise price of $12.00 per whole share (see Note 9).

NOTE 5. PRIVATE PLACEMENT

Simultaneously with the Initial Public Offering, the Company’s sponsor and EBC purchased an aggregate of 531,875 Private Units at $10.00 per Unit, of which 497,671 Private Units were purchased by the Company’s sponsor and 34,204 Private Units were purchased by EBC, generating gross proceeds of $5,318,750 in the aggregate. The proceeds from the Private Units were added to the net proceeds from the Initial Public Offering held in the Trust Account. The Private Units are identical to the Units sold in the Initial Public Offering, except with respect to the warrants underlying the Private Units (“Private Warrants”), as described in Note 9. Additionally, the holders have agreed not to transfer, assign or sell any of the Private Units or underlying securities (except to certain permitted transferees and provided the transferees agree to the same terms and restrictions as the permitted transferees of the founder shares must agree to) until after the completion of a Business Combination.

NOTE 6. RELATED PARTY TRANSACTIONS

Founder Shares

In July 2015, the Company issued 1,437,500 ordinary shares to its initial shareholders (the “founder shares”) for an aggregate purchase price of $25,000. 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) the initial shareholders have agreed (i) to waive their redemption rights with respect to their founder shares and Public Shares in connection with the consummation of a Business Combination and (ii) to waive their liquidation rights with respect to their founder shares if the Company fails to complete a Business Combination within the Combination Period.

The 1,437,500 founder shares included an aggregate of up to 187,500 shares which were subject to forfeiture by the sponsor to the extent that the underwriters’ over-allotment was not exercised in full or in part, so that the initial shareholders would collectively own 20% of the Company’s issued and outstanding shares after the Initial Public Offering (excluding the sale of the Private Units). As a result of the underwriters’ election to fully exercise their over-allotment option, 187,500 founder shares are no longer subject to forfeiture.

Additionally, the initial shareholders have agreed not to transfer, assign or sell any of the founder shares (except to certain permitted transferees) until, with respect to 50% of the founder shares, the earlier of (i) one year after the date of the consummation of a Business Combination, or (ii) the date on which the closing price of the Company’s ordinary shares equals or exceeds $12.50 per share for any 20 trading days within any 30-trading day period commencing after a Business Combination, with respect to the remaining 50% of the founder shares, upon one year after the date of the consummation of a Business Combination, or earlier, in each case, if, subsequent to a Business Combination, the Company consummates a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of the Company’s shareholders having the right to exchange their ordinary shares for cash, securities or other property.

PACIFIC SPECIAL ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2017

Related Party Advances

As of June 30, 2017, certain members of the Company’s management incurred an aggregate of $286,246 of target identification expenses. These expenses have been paid by management on behalf of the Company and are therefore recorded as advances from related parties in the accompanying consolidated balance sheets at June 30, 2017. The advances are non-interest bearing, unsecured and are payable upon the consummation of a Business Combination.

Administrative Services Arrangement

The Company entered into an agreement with its Chairman whereby, commencing on October 20, 2015 through the earlier of the Company’s consummation of a Business Combination and its liquidation, an affiliate of the Chairman makes available to the Company certain services, including office space, utilities and administrative services, as the Company may require from time to time. The Company has agreed to pay the affiliate of the Chairman $10,000 per month for these services. For the years ended June 30, 2017 and 2016, the Company incurred $120,000 and $80,000, respectively, in fees for these services, of which $80,000 and $50,000, respectively, are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets at June 30, 2017 and 2016, respectively.

Related Party Loans

In order to finance transaction costs in connection with a Business Combination, the Company’s sponsor or an affiliate of the sponsor, officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans, other than the interest on such proceeds that may be released for working capital purposes. Such Working Capital Loans would be evidenced by promissory notes. The notes would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $500,000 of notes may be converted upon consummation of a Business Combination into additional Private Units at a price of $10.00 per Unit.

On November 9, 2016, the sponsor loaned the Company $500,000 (“Convertible Promissory Note”) to be used for the Company’s expenses relating to investigating and selecting a target business and other working capital requirements. The Convertible Promissory Note, as amended in January 2017, is non-interest bearing and is payable upon the consummation of a Business Combination. The Convertible Promissory Note is convertible, in whole or in part, at the election of the sponsor, upon the consummation of Business Combination. Upon such election, the Convertible Promissory Note will convert into Private Units, at a price of $10.00 per Unit.

During the three months ended June 30, 2017, the sponsor loaned the Company $459,000 to fund the Extension Amendment. The Contribution is non-interest bearing and payable upon the consummation of a Business Combination. On July 27, 2017, the sponsor loaned the Company an additional $153,000.  

NOTE 7. COMMITMENTS AND CONTINGENCIES

Director Compensation

The Company will pay each of its independent directors an annual retainer of $30,000 (to be prorated for a partial term), payable in arrears commencing on the first anniversary of the Initial Public Offering and ending on the earlier of a Business Combination and the Company’s liquidation. As of June 30, 2017 and 2016, the Company paid $90,000 and $0, respectively, of directors’ fees and had accrued $72,000 and $80,000, respectively, of directors’ fees payable, which is included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.

Director’s Agreement

On January 10, 2017, the Company entered into an agreement (the “Director’s Agreement”) with the sponsor and David Boris, a director of the Company, pursuant to which Mr. Boris will act as a special director to the Company’s Board of Directors in its efforts in closing the Merger with Borqs (see Note 8). The Director’s Agreement is effective December 23, 2016 and will continue until the earlier of (i) April 20, 2017, (ii) the closing date of the Merger or (iii) Mr. Boris’ resignation or removal as a director of the board or until his successor is duly elected and qualified. The Company paid Mr. Boris a cash fee of $50,000.

PACIFIC SPECIAL ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2017

As additional compensation, as of December 23, 2016, the sponsor sold Mr. Boris 80,000 shares of the Company’s ordinary shares at a purchase price of $0.017 per share, provided, that a portion of the such shares are subject to forfeiture in the event that the Director’s Agreement is terminated for any reason prior to the date of consummation of the Merger (the “Separation Event”) as follows: (i) 75% will be forfeited if a Separation Event occurs before the one month anniversary of the date of the Director’s Agreement; (ii) 50% will be forfeited if a Separation Event occurs on or after the one month anniversary of the Director’s Agreement and prior to the two month anniversary of the Director’s Agreement; (iii) 25% will be forfeited if a Separation Event occurs on or after the three month anniversary of the Director’s Agreement and prior to the four month anniversary of the Director’s Agreement; and (iv) no shares will be forfeited from and after the four month anniversary of the Director’s Agreement. No shares were forfeited as of June 30, 2017 and the sponsor expects to transfer such shares upon consummation of the Merger.

The Company determined the fair value of the shares sold to Mr. Boris to be $800,000, or $10.00 per share, which was recognized ratably as non-cash compensation expense over the service period provided.

As of June 30, 2017, the Company recorded $850,000 of compensation expense.

Registration Rights

Pursuant to a registration rights agreement entered into on October 14, 2015, the holders of the majority of the founder shares and Private Units (and underlying securities) are entitled to registration rights. They are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the consummation of a Business Combination. 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.  

Merger and Acquisition Agreement

On October 14, 2015, the Company entered into a Merger and Acquisition Agreement with EBC wherein EBC will act as an advisor in connection with a Business Combination to assist the Company in holding meetings with its shareholders to discuss the potential Business Combination and the target business’ attributes, introduce the Company to potential investors that are interested in purchasing the Company’s securities, assist the Company in obtaining shareholder approval for the Business Combination and assist the Company with its press releases and public filings in connection with the Business Combination.

The Company will pay EBC a cash fee for such services upon the consummation of a Business Combination in an amount equal to $1,750,000 (exclusive of any applicable finders’ fees which might become payable). Such amount may be paid out of the funds held in the Trust Account.

Unit Purchase Option

On October 20, 2015, the Company sold to EBC, for $100, an option to purchase up to a total of 400,000 Units exercisable at $10.00 per Unit (or an aggregate exercise price of $4,000,000) commencing on the later of the first anniversary of the effective date of the registration statement related to the Initial Public Offering and the consummation of a Business Combination. The unit purchase option may be exercised for cash or on a cashless basis, at the holder’s option, and expires five years from the effective date of the registration statement related to the Initial Public Offering. The Units issuable upon exercise of this option are identical to those offered in the Initial Public Offering. The Company accounted for the unit purchase option, inclusive of the receipt of $100 cash payment, as an expense of the Initial Public Offering resulting in a charge directly to shareholders’ equity. The Company estimated that the fair value of this unit purchase option was approximately $1,315,901 (or $3.29 per Unit) using the Black-Scholes option-pricing model. The fair value of the unit purchase option to be granted to the underwriters was estimated as of the date of grant using the following assumptions: (1) expected volatility of 35%, (2) risk-free interest rate of 1.40% and (3) expected life of five years. The option and such units purchased pursuant to the option, as well as the ordinary shares underlying such units, the rights included in such units, the ordinary shares that are issuable for the rights included in such units, the warrants included in such units, and the shares underlying such warrants, have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA’s NASDAQ Conduct Rules. Additionally, the option may not be sold, transferred, assigned, pledged or hypothecated for a one-year period (including the foregoing 180-day period) following the date of Initial Public Offering except to any underwriter and selected dealer participating in the Initial Public Offering and their bona fide officers or partners. The option grants to holders demand and “piggy back” rights for periods of five and seven years, respectively, from the effective date of the registration statement with respect to the registration under the Securities Act of the securities directly and indirectly issuable upon exercise of the option. The Company will bear all fees and expenses attendant to registering the securities, other than underwriting commissions which will be paid for by the holders themselves.

The exercise price and number of units issuable upon exercise of the option may be adjusted in certain circumstances including in the event of a stock dividend, or the Company’s recapitalization, reorganization, merger or consolidation. However, the option will not be adjusted for issuances of ordinary shares at a price below its exercise price.

PACIFIC SPECIAL ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2017

NOTE 8. MERGER AGREEMENT

On December 27, 2016, the Company entered into a Merger Agreement (the “Merger Agreement”) with Borqs International Holding Corp., an exempted company incorporated under the laws of the Cayman Islands with limited liability (“Borqs”), PAAC Merger Subsidiary Limited, an exempted company incorporated under the laws of the Cayman Islands with limited liability and a wholly-owned subsidiary of the Company (“Merger Sub”), Zhengqi International Holding Limited, a company incorporated in the British Virgin Islands (the “sponsor”), in the capacity as the representative from and after the Effective Time (as defined below) for the shareholders of the Company other than the shareholders of Borqs as of immediately prior to the Effective Time and their successors and assignees (the “Purchaser Representative”), Zhengdong Zou, in the capacity as the representative from and after the Effective Time for the shareholders of Borqs (the “Sellers”) as of immediately prior to the Effective Time (the “Seller Representative”), and for certain limited purposes thereof, the sponsor.

Pursuant to the Merger Agreement, as amended, subject to the terms and conditions set forth therein, at the closing of the transactions contemplated by the Merger Agreement (the “Closing”), Merger Sub will merge with and into Borqs, with Borqs continuing as the surviving entity (the “Merger”). As a result of the consummation of the Merger, at the effective time of the Merger (the “Effective Time”), and subject to the terms and conditions set forth in the Merger Agreement, the holders of Borqs issued and outstanding capital shares will receive ordinary shares of the Company, the holders of Borqs issued and outstanding warrants will receive replacement warrants to acquire ordinary shares of the Company (“Replacement Warrants”), and the holders of Borqs issued and outstanding options will have their options assumed by the Company and will instead acquire ordinary shares of the Company upon exercise of such options (the “Business Combination”).

The total number of the Company’s ordinary shares to be received by Sellers at the Effective Time (the “Merger Consideration Shares”) will be based on the adjusted equity valuation of Borqs as of the Closing, with such adjusted equity valuation divided by US$10.40. The adjusted equity valuation of Borqs as of the Closing will be determined by starting with a base valuation of US$270.0 million, deducting the amount of indebtedness (net of cash) of Borqs as of the last business day before the Closing (but treating any amounts contingent upon the Closing as not being contingent) (the “Reference Time”), increasing such valuation to the extent that the net working capital (excluding indebtedness and cash) of Borqs as of the Reference Time is greater than US$11.0 million or decreasing such valuation to the extent that the net working capital (excluding indebtedness and cash) of Borqs as of the Reference Time is less than US$9.0 million, and increasing such valuation to the extent that the Company’s outside accounting and legal expenses incurred in connection with the negotiation, preparation and consummation of the Merger Agreement (but excluding any deferred initial public offering costs or costs incurred with any third party financing that may be obtained by the Company pursuant to commitments made by certain qualified institutional buyers or institutional accredited investors (“Commitment Investors”) on terms and conditions mutually agreeable to the Company and Borqs (each, a “Commitment Investment”) or any costs incurred in connection with an extension of the Company’s deadline to consummate a Business Combination, if sought) exceed US$1.0 million. The adjusted equity valuation will be determined by mutual agreement of Borqs and the Company based on estimates of the foregoing factors as of the Closing, without any post-Closing adjustments.

Of the Merger Consideration Shares to be issued, between 2,352,285 and 3,846,154 of such shares will be contingent and deposited in escrow (together with any equity securities paid as dividends or distributions with respect to such shares or into which such shares are exchanged or converted, the “Earnout Shares”) to be released (or with respect to the Backstop Guarantee Shares and Commitment Escrow Shares, as described below, to be cancelled in connection with an issuance of replacement shares by the Company) to the Sellers in the event certain net income earnout conditions are met during the period from July 1, 2017 to June 30, 2018. Four percent (4%) of (a) the shares otherwise due to the Sellers at the Closing (excluding any Earnout Shares), and (b) any Earnout Shares earned by the Sellers (collectively, the “Indemnity Escrow Shares”, and together any other dividends, distributions or other income on the Indemnity Escrow Shares, the “Indemnity Escrow Property”) will be deposited in escrow to support certain indemnification obligations under the Merger Agreement, and released on the 18 month anniversary of the Closing, subject to amounts reserved for indemnification claims then pending or unpaid (the “Escrow Indemnification Period”). Each Seller as of the Effective Time will receive its pro rata portion of the Merger Consideration Shares, less its pro rata portion of the Earnout Shares and the Indemnity Escrow Shares as described above, based on the number of Borqs shares held by such Seller (with any Borqs preferred shares treated on an as-converted into Borqs ordinary share basis), except that any Seller who validly exercises dissenters rights under Part XVI of the Companies Law (2016 Revision) of the Cayman Islands will not be entitled to receive its pro rata share of the Merger Consideration Shares.

The number of Earnout Shares due to the Sellers shall be based on the consolidated net income of the Company and its subsidiaries, subject to certain adjustments (the “Adjusted Net Income”), for the twelve month period from July 1, 2017 to June 30, 2018 (the “Earnout Period”). The exact number of Earnout Shares will be based on the aggregate of the funds left in the Company’s Trust Account after redemptions in connection with the Merger and the proceeds from any third party equity financing to be conducted by the Company prior to the closing of the Merger, including pursuant to the Backstop and any Commitment Investment (the “Closing Proceeds”), with there being 2,352,285 Earnout Shares if the Closing Proceeds are $24.0 million and the number of Earnout Shares increasing on a linear sliding scale, up to 3,846,154 Earnout Shares if the Closing Proceeds are $57.5 million. In order for the Sellers to receive the full Earnout Shares, the Company will need to achieve at least $20.0 million in Adjusted Net Income during the Earnout Period, and if the Adjusted Net Income is greater than $18.0 million but less than $20.0 million, the Sellers will receive a pro-rated amount of the Earnout Shares on a linear sliding scale with zero Earnout Shares earned at $18.0 million in Adjusted Net Income and the full Earnout Shares earned at $20.0 million in Adjusted Net Income.

PACIFIC SPECIAL ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2017

Between 1,282,051 and 2,352,285 of the Earnout Shares (the “Backstop Guarantee Shares”) will be issued in the name of the sponsor in consideration of entering into the Backstop and Subscription Agreement (as described below). To the extent there is any Commitment Investment, up to 2,564,103 of the Earnout Shares (the “Commitment Escrow Shares”) will be issued in the name of the Commitment Investors pursuant to such Commitment Investment. Commitment Investors will be allocated Commitment Escrow Shares at a rate equal to approximately 44,593 Commitment Escrow Shares per $1,000,000 of committed investment, and the total number of Commitment Escrow Shares will depend on the amount of aggregate investment from all Commitment Investors. The Commitment Escrow Shares will be derived from either the Backstop Guarantee Shares or the Net Income Shares, depending on the amount and source of the funds left in the Company’s Trust Account after redemptions. Any remaining Earnout Shares, after accounting for the Backstop Guarantee Shares and the Commitment Escrow Shares (the “Net Income Shares”), will be issued in the name of the Sellers and deposited into escrow.

The sponsor and the Commitment Investors will be entitled to all voting rights and dividend rights (other than equity securities paid as dividends) with respect to the Backstop Guarantee Shares and the Commitment Escrow Shares while they are held in escrow. The Sellers will be entitled to all voting rights and dividend rights (other than equity securities paid as dividends) with respect to the Net Income Shares while such Net Income Shares are held in escrow. To the extent the Earnout conditions are not met, the Backstop Guarantee Shares will be released to the sponsor, the Commitment Escrow Shares will be released to the Commitment Investors, and the Net Income Shares will be cancelled. To the extent that the Earnout conditions are met or partially met, the resulting portion of Backstop Guarantee Shares and the Commitment Escrow Shares will be cancelled and equivalent replacement shares will be issued to the Sellers, and the resulting portion of Net Income Shares will be released to the Sellers; in each case, 4% of all such shares will be deposited in escrow and added to the existing indemnity escrow as described in further detail below. The indemnity escrow will be the sole source to pay for the Sellers’ indemnification obligations under the Merger Agreement, to be released on the 18 month anniversary of the Closing, subject to amounts reserved for indemnification claims then pending or unpaid.

Holders of issued and outstanding Borqs warrants will receive Replacement Warrants, which will be subject to substantially the same terms and conditions as the Company’s warrants issued as part of the Units in the Company’s Initial Public Offering, except that the number of shares and exercise price thereunder will each be equitably adjusted for the Merger based on the number of Merger Consideration Shares as compared to the number of issued and outstanding Borqs shares immediately prior to the Effective Time.

Pursuant to the terms of the lock-up agreements to be entered into by each Seller and each holder of a Borqs warrant, Sellers will not transfer, assign or sell any remaining Merger Consideration Shares received and held outside of escrow or the Replacement Warrants for a period of one year from the closing of the Business Combination (which period may be shortened under certain circumstances).

The Company will assume the obligations under the Assumed Options (including the applicable provisions of the plan under which they were issued), except that the number of shares and exercise price thereunder will be based on the number of Borqs shares and exercise price under the applicable Assumed Option, with each equitably adjusted for the Merger based on the number of Merger Consideration Shares as compared to the number of issued and outstanding Borqs shares immediately prior to the Effective Time.

Backstop and Subscription Agreement

In connection with the execution of an amendment to the Merger Agreement on May 10, 2017 (with such amendment further amended with the execution of a second amendment to Merger Agreement on June 29, 2017), the Company and the sponsor entered into a Backstop and Subscription Agreement (the “Backstop and Subscription Agreement”) on May 11, 2017, pursuant to which the sponsor agreed to purchase up to $24.0 million of the Company’s ordinary shares through (i) open market or privately negotiated transactions with third parties (with the sponsor not obligated to pay a price of greater than $10.40 per share), (ii) a private placement at a price of $10.40 per share with consummation to occur concurrently with that of the Business Combination or (iii) a combination thereof, in order to ensure that there is at least $24.0 million in Closing Proceeds (the “Backstop”), although the sponsor is entitled, at its sole election, to purchase additional Company ordinary shares in excess of such $24.0 million Closing Proceeds requirement. As consideration for the Backstop, the sponsor will be entitled to receive the Backstop Guarantee Shares subject to the terms and conditions of the Merger Agreement, as amended. In connection with the Backstop and Subscription Agreement, at the Closing, the Company and the sponsor will enter into a registration rights agreement, in a form to be agreed upon, with respect to the shares purchased in connection with the Backstop and Subscription Agreement and any Backstop Guarantee Shares released from escrow to and retained by the sponsor.

The Company and Borqs may also obtain commitments from Commitment Investors to participate in a Commitment Investment to purchase the Company’s ordinary shares through (i) open market or privately negotiated transactions with third parties, (ii) purchases of restricted shares to occur concurrently with that of the Business Combination, or (iii) a combination thereof. Any such Commitment Investors who participate in a Commitment Investment will have the right to receive Commitment Escrow Shares, and may receive registration rights in connection with the Commitment Investment. As of the date hereof, no such commitments have been made, and we are not required to obtain any such commitments.

The Merger will be accounted for as a reverse merger in accordance with GAAP. Under this method of accounting, the Company will be treated as the “acquired” company for financial reporting purposes. This determination was primarily based on Borqs comprising the ongoing operations of the combined entity, Borqs’ senior management comprising the senior management of the combined company, and Borqs’ shareholders having a majority of the voting power of the combined company. Accordingly, for accounting purposes, the Merger will be treated as the equivalent of Borqs issuing stock for the net assets of the Company, accompanied by a recapitalization. The net assets of the Company will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger will be those of Borqs.

PACIFIC SPECIAL ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2017

NOTE 9. STOCKHOLDERS’ 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 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 June 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 June 30, 2017 and 2016, there were 2,555,746 and 2,422,786 ordinary shares issued and outstanding (excluding 4,509,633 and 5,296,589 ordinary shares subject to possible redemption).  

Rights - Each holder of a right will receive one-tenth (1/10) of one ordinary share upon consummation of a Business Combination, even if the holder of such right redeemed all ordinary shares held by him, her or it in connection with a Business Combination or an amendment to the Company’s Memorandum and Articles of Association with respect to the Company’s pre-Business Combination activities. No additional consideration will be required to be paid by a holder of rights in order to receive his, her or its additional ordinary shares upon consummation of a Business Combination as the consideration related thereto has been included in the Unit purchase price paid for by investors in the Initial Public Offering. The shares issuable upon exchange of the rights will be freely tradable (except to the extent held by affiliates of the Company). If the Company enters into a definitive agreement for a Business Combination in which the Company will not be the surviving entity, the definitive agreement will provide for the holders of rights to receive the same per share consideration the holders of the ordinary shares will receive in the transaction on an as-converted into ordinary share basis.

If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of rights will not receive any of such funds with respect to their rights, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such rights, and the rights will expire worthless. Further, there are no contractual penalties for failure to deliver securities to the holders of the rights upon consummation of a Business Combination. Additionally, in no event will the Company be required to net cash settle the rights. Accordingly, the rights may expire worthless.

Warrants - Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will become exercisable on the later of (a) the consummation of a Business Combination or (b) 12 months from the effective date of the registration statement relating to the Initial Public Offering. No Public Warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the ordinary shares issuable upon exercise of the Public Warrants and a current prospectus relating to such ordinary shares. Notwithstanding the foregoing, if a registration statement covering the ordinary shares issuable upon the exercise of the Public Warrants is not effective within 90 days from the consummation of a Business Combination, the holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise the Public Warrants on a cashless basis pursuant to an available exemption from registration under the Securities Act. If an exemption from registration is not available, holders will not be able to exercise their Public Warrants on a cashless basis. The Public Warrants will expire five years from the consummation of a Business Combination or earlier upon redemption or liquidation.

The Company may call the warrants for redemption (excluding the Private Warrants but including any outstanding warrants issued upon exercise of the unit purchase option issued to EBC and/or its designees), in whole and not in part, at a price of $.01 per warrant:

If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.

The Private Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except the Private Warrants are exercisable for cash (even if a registration statement covering the ordinary shares issuable upon exercise of such Private Warrants is not effective) or on a cashless basis, at the holder’s option, and will not redeemable by the Company, in each case so long as they are still held by the initial shareholders or their affiliates. Additionally, EBC has agreed that it and its designees will not be permitted to exercise any Private Warrants underlying the Private Units after the five year anniversary of the effective date of the Initial Public Offering.

The exercise price and number of ordinary shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of ordinary shares at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such warrants. Accordingly, the warrants may expire worthless.

PACIFIC SPECIAL ACQUISITION CORP.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2017

NOTE 10. 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:

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

NOTE 11. INCOME TAX

The domestic and foreign components of loss before income taxes for the years ended June 30, 2017 and 2016 is as follows:

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.

A reconciliation of the statutory United States federal income tax rate to the Company’s effective tax is as follows:

NOTE 12. SUBSEQUENT EVENTS

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

On July 27, 2017, the sponsor loaned the Company an additional $153,000 to fund the Extension Amendment.

On August 10, 2017, the Company held a special meeting of shareholders pursuant to which the Business Combination with Borqs was approved by the Company’s shareholders. In connection with the meeting, 3,841,131 of the Company’s ordinary shares were presented for redemption. The parties are seeking to satisfy or negotiate waivers to any remaining closing conditions to the proposed business combination. Without satisfying all remaining closing conditions or receiving all waivers, no assurance can be made as to whether the proposed business combination will be consummated. If the Company does not consummate the Business Combination by the close of business on August 21, 2017, the Company will be required to dissolve and liquidate the Trust Account by returning the then remaining funds in such account to the Company’s then-public shareholders.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.