NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
Note 1. Interim Financial Information and Basis of Presentation
The accompanying interim financial statements have
been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and pursuant to the accounting
and disclosure rules and regulations of the Securities and Exchange Commission (SEC), and reflect all adjustments, consisting only
of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position
as of August 31, 2011 and the results of operations for the period from March 11, 2011 (date of inception) to August 31, 2011 and
the three month period ending August 31, 2011. Certain information and disclosures normally included in financial statements prepared
in accordance with GAAP have been omitted pursuant to such rules and regulations. The results of operations for the
period from March 11, 2011 (date of inception) to August 31, 2011 are not necessarily indicative of the results of operations to
be expected for a full fiscal year.
Blue Wolf Mongolia Holdings Corp. is filing this Amendment No. 1 to Quarterly Report on Form 10-Q/A (this “Amendment”)
to amend and restate its Quarterly Report on Form 10-Q for the period ended August 31, 2011, originally filed on October 12,
2011. This Amendment is being filed to restate our unaudited interim financial statements as of August 31, 2011 to correct
the accounting for our outstanding warrants. Our original accounting treatment did not recognize a liability for the warrant
liability and did not recognize changes in the fair value of that warrant liability in our statement of operations. For additional
information regarding this restatement, see “Note 4 - Restatement of Previously Issued Financial Statements”.
Note 2. Organization and Business Operations
Incorporation
Blue Wolf Mongolia Holdings Corp. (the “Company”)
was incorporated in the British Virgin Islands on March 11, 2011.
Sponsor
The Company’s sponsor is Blue Wolf MHC Ltd.,
an exempt company incorporated in the Cayman Islands with limited liability (the “Sponsor”).
Fiscal Year End
The Company has selected February 28 as its fiscal
year end.
Business Purpose
The Company was formed to effect a merger, capital
share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (an
“Initial Business Combination”).
Financing
The registration statement for the Company’s
initial public offering (the “Public Offering”) (as described in Note 6) was declared effective July 14, 2011. On July
20, 2011, simultaneously with the closing of the Public Offering, the Sponsor purchased $3,125,000 of warrants in a private placement
(Note 7).
Upon the closing of the Public Offering and the private
placement, $80,237,500 was placed in the Trust Account (discussed below).
Trust Account
The trust account (the “Trust Account”)
may only be invested in United States government treasury bills having a maturity of 180 days or less or in money market funds
meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act and which invests solely in U.S. Treasuries.
The funds in the Trust Account are held in the name of Blue Wolf Mongolia Holdings Corp. (see Note 9).
Except for a portion of the interest income (net
of taxes payable) that may be released to the Company to pay any taxes and to fund the Company’s working capital requirements,
and any amounts necessary to purchase up to 15% of the Company’s Public Shares (as defined in Note 6) if the Company seeks
shareholder approval of its Initial Business Combination, as discussed below, none of the funds will be released from the Trust
Account until the earlier of: (i) the consummation of an Initial Business Combination no later than April 20, 2013, (ii) a redemption
to public shareholders prior to any voluntary winding-up in the event the Company does not consummate an Initial Business Combination
or (iii) pursuant to any liquidation.
Business Combination
An Initial Business Combination is subject to the
following size, focus and shareholder approval provisions:
Size
— The prospective
target business will not have a limitation to size, except that it must have 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 the Initial Business Combination. The
Company will not consummate an Initial Business Combination unless it acquires a controlling interest in a target company or is
otherwise not required to register as an investment company under the Investment Company Act.
Focus
— The
Company’s efforts in identifying prospective target businesses will initially be focused on businesses within Mongolia that
complement the management team’s background such as in the natural resources sectors and related sectors. The
Company may, however, pursue opportunities in other business sectors or geographic regions.
Tender Offer/Shareholder Approval
— The Company, after signing a definitive agreement for an Initial Business Combination, will either (i) provide
shareholders with the opportunity to sell their shares to the Company by means of a tender offer (and thereby avoid the need for
a shareholder vote) for an amount in cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account,
including interest but less taxes payable, or (ii) seek shareholder approval of the Initial Business Combination at a meeting called
for such purpose in connection with which shareholders may seek to redeem their shares, regardless of whether they vote for or
against the Initial Business Combination, for cash equal to their pro rata share of the aggregate amount then on deposit in the
Trust Account, including interest but less (a) taxes payable, (b) amounts released to fund working capital requirements and (c)
any amounts released to the Company and used to purchase up to 15% of the Public Shares sold in the Public Offering. The decision
as to whether the Company will seek shareholder approval of the Initial Business Combination or will allow shareholders to sell
their shares in a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors
such as the timing of the transaction and whether the terms of the transaction would otherwise require the Company to seek shareholder
approval. If the Company seeks shareholder approval, it will consummate its Initial Business Combination only if a majority of
the ordinary shares voted are voted in favor of the Initial Business Combination. However, in no event will the Company redeem
its Public Shares in an amount that would cause its net tangible assets to be less than $5,000,001. Furthermore, the redemption
threshold may be further limited by the terms and conditions of the Initial Business Combination. In such case, the Company would
not proceed with the redemption of its Public Shares and the related Initial Business Combination, and instead may search for an
alternate Initial Business Combination.
Regardless of whether the Company holds a shareholder
vote or a tender offer in connection with an Initial Business Combination, a public shareholder will have the right to redeem its
shares for an amount in cash equal to its pro rata share of the aggregate amount then on deposit in the Trust Account, including
interest but less taxes payable plus amounts released to fund working capital requirements and any amounts necessary to purchase
up to 15% of the Public Shares sold in the Public Offering. As a result, such ordinary shares are recorded at conversion/tender
value and classified as temporary equity, in accordance with Financial Accounting Standards Board, or FASB, ASC Topic 480, “Distinguishing
Liabilities from Equity.”
Permitted Purchase of Public Shares
— If the Company seeks shareholder approval of its Initial Business Combination and does not conduct redemptions pursuant
to the tender offer rules, prior to the Initial Business Combination, the Company’s memorandum and articles of association
will permit the release to the Company from the Trust Account, amounts necessary to purchase up to 15% of the shares sold in the
Public Offering. All shares so purchased by the Company will be immediately cancelled.
Liquidation
If the Company does not consummate an Initial Business
Combination by April 20, 2013, the Company (i) will distribute the aggregate amount then on deposit in the Trust Account (less
up to $50,000 of the net interest earned thereon to pay dissolution expenses), pro rata, to holders of Public Shares by way of
redemption and (ii) intends to cease all operations except for the purposes of any winding up of its affairs. This redemption of
public shareholders from the Trust Account shall be done automatically by function of the Company’s memorandum
and articles of association and prior to any voluntary winding up, although at all times subject to the BVI Business Companies
Act, 2004 of the British Virgin Islands.
In the event of liquidation, it is likely 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 share in the Public Offering (assuming no value is attributed to the warrants contained in
the units to be offered in the Public Offering discussed in Note 6).
Note 3. Significant Accounting Policies
Development Stage Company
The Company is considered to be in the development
stage as defined by FASB ASC 915, “Development Stage Entities,” and is subject to the risks associated with activities
of development stage companies. Through August 31, 2011, the Company’s efforts have been limited to organizational activities,
activities relating to its Public Offering, activities relating to identifying and evaluating prospective acquisition candidates
and activities relating to general corporate matters. The Company has not generated any revenues, other than interest income earned
on the proceeds held in the Trust Account. The Company will not generate any operating revenues until after completion of an Initial
Business Combination, at the earliest. The Company will continue to generate non-operating income in the form of interest income
on the designated Trust Account.
Cash Equivalents
The Company considers all highly-liquid investments
with original maturities of three months or less to be cash equivalents. Cash equivalents at August 31, 2011 principally consist
of cash in a money market account held by the Company through its Trust Account.
Net Loss Per Share
Basic net loss per share is computed by dividing
net loss by the weighted average number of ordinary shares outstanding during the period in accordance with FASB ASC 260, “Earnings
Per Share”. Diluted net loss per share is computed by dividing net loss by the weighted average number of ordinary
shares outstanding, plus to the extent dilutive, the incremental number of ordinary shares to settle warrants issued in the Public
Offering and private placement, as calculated using the treasury stock method. As the Company reported a net loss for
the three months ended August 31, 2011, the effect of the 12,216,667 warrants (including 4,166,667 warrants issued to the members
of the Sponsor in the private placement), have not been considered in the diluted loss per ordinary share because their effect
would be anti-dilutive. As a result, dilutive loss per ordinary share is equal to basic loss per ordinary share.
Reclassifications
Certain reclassifications have been made to amounts
previously reported to conform with the current presentation. Such reclassifications have no effect on previously reported net
losses.
Redeemable Ordinary Shares
As discussed in Note 2, all of the 8,050,000 ordinary
shares sold as part of a Unit in the Public Offering contain a redemption feature which allows for the redemption of ordinary shares
under the Company's Liquidation or Tender Offer/Stockholder Approval provisions. In accordance with ASC 480, redemption provisions
not solely within the control of the Company require the security to be classified outside of permanent equity. Ordinary liquidation
events, which involve the redemption and liquidation of all of the entity's equity instruments, are excluded from the provisions
of ASC 480. Although the Company does not specify a maximum redemption threshold, its Memorandum and Articles of Association provides
that in no event will the Company redeem its public shares in an amount that would cause its net tangible assets (shareholders'
equity) to be less than $5,000,001.
The Company recognizes changes in redemption value
immediately as they occur and will adjust the carrying value of the security to equal the redemption value at the end of each reporting
period. Increases or decreases in the carrying amount of redeemable ordinary shares shall be affected by charges against paid-in
capital.
Accordingly, at August 31, 2011, 6,343,373 of the
8,050,000 public shares are classified outside of permanent equity at their redemption value. The redemption value is equal to
the pro rata share of the aggregate amount then on deposit in the Trust Account, including interest but less taxes payable (approximately
$9.97 at August 31, 2011).
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the
Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times may exceed the federal
depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management believes the
Company is not exposed to significant risks on such accounts.
Income Taxes
Under the laws of the British Virgin Islands, the
Company is generally not subject to income taxes. Accordingly, no provision for income taxes has been made in the accompanying
financial statement.
The Company is required to determine whether its
tax positions are more likely than not to be sustained upon examination by the applicable taxing authority, including resolution
of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit recognized is measured
as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with
the relevant taxing authority. De-recognition of a tax benefit previously recognized results in the Company recording a tax liability
that reduces ending retained earnings. Based on its analysis, the Company has determined that it has not incurred any liability
for unrecognized tax benefits as of August 31, 2011. The Company’s conclusions may be subject to review and adjustment at
a later date based on factors including, but not limited to, ongoing analyses of and changes to tax laws, regulations and interpretations
thereof.
The Company recognizes interest and penalties related
to unrecognized tax benefits in interest expense and other expenses, respectively. No interest expense or penalties have been recognized
as of and for the period ended August 31, 2011. The Company is subject to income tax examinations by major taxing authorities since
inception.
The Company may be subject to potential examination
by U.S. federal, U.S. states or foreign jurisdiction authorities in the areas of income taxes. These potential examinations may
include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with
U.S. federal, U.S. state and foreign tax laws. The Company’s management does not expect that the total amount of unrecognized
tax benefits will materially change over the next twelve months.
Warrant Liability
The Company accounts for its 12,216,667
warrants (consisting of 8,050,000 warrants issued in the Public Offering and 4,166,667 Sponsor Warrants) in accordance with the
guidance contained in ASC 815-40-15-7D, "Contracts in Entity's Own Equity" whereby under that provision the warrants
do not meet the criteria for equity treatment and must be recorded as a liability. Accordingly, the Company classifies the
warrant instrument as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability
is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company's
statement of operations. The fair value of the warrants issued by the Company in connection with the Public Offering has been estimated
using the quoted market price of the warrants at the end of the reporting period.
Fair Value of Financial Instruments
Unless otherwise disclosed, the fair values of financial
instruments, including cash and the note payable to related party, approximate their carrying amount due primarily to their short-term
nature.
Recent Accounting Pronouncements
Management does not believe that any other recently
issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial
statements.
Note
4. Restatement of Previously Issued Financial Statements
The Company has restated its financial
statements as of August 31, 2011 to correct its accounting for its outstanding warrants. The Company’s
original accounting treatment did not recognize a derivative liability and did not recognize any changes in the fair value of that
derivative liability in its statements of operations. In April 2013, the Company concluded it should correct its accounting related
to the Company’s outstanding warrants. The Company had initially accounted for the warrants as a component of equity but
upon further evaluation of the terms of the warrants, concluded that the warrants should be accounted for as a derivative liability.
The warrants contain a price adjustment provision that in the event the Company completes a business combination subsequent to
the initial business combination which results in the Company’s shares no longer being listed on a national exchange or the
OTC Bulletin Board, the exercise price of the warrants will decrease by a formula that causes the warrants to not be indexed to
the Company’s own shares. As a result of this provision, the Company has restated its financial statements to reflect the
Company’s warrants as a derivative liability with changes in the fair value recorded in the current period earnings.
The following tables summarize the
adjustments made to the previously reported balance sheets, statements of operations and statements of cash flows:
August 31, 2011
Selected balance sheet
information
|
|
As Previously
|
|
|
Effect of
|
|
|
|
|
|
|
Reported
|
|
|
Restatement
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
-
|
|
|
$
|
10,384,167
|
|
|
$
|
10,384,167
|
|
Total liabilities
|
|
|
2,437,369
|
|
|
|
10,384,167
|
|
|
|
12,821,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares, subject to possible redemption
|
|
|
73,627,600
|
|
|
|
(10,384,167
|
)
|
|
|
63,243,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
1,915,590
|
|
|
|
3,084,420
|
|
|
|
5,000,010
|
|
Additional paid-in capital
|
|
|
3,125,000
|
|
|
|
(3,125,000
|
)
|
|
|
-
|
|
Deficit accumulated during the development stage
|
|
|
(40,580
|
)
|
|
|
40,580
|
|
|
|
-
|
|
Total shareholders' equity
|
|
|
5,000,010
|
|
|
|
-
|
|
|
|
5,000,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
81,064,979
|
|
|
$
|
-
|
|
|
$
|
81,064,979
|
|
For the Three Months
Ended August 31, 2011
Selected statement of operations
information
|
|
As Previously
|
|
|
Effect of
|
|
|
|
|
|
|
Reported
|
|
|
Restatement
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
Other income / (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liability
|
|
$
|
-
|
|
|
$
|
(1,221,667
|
)
|
|
$
|
(1,221,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income / (loss) attributable to ordinary shares not subject to possible redemption
|
|
$
|
(35,580
|
)
|
|
$
|
(1,221,667
|
)
|
|
$
|
(1,257,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares outstanding, excluding shares subject to possible redemption - basic and diluted
|
|
|
2,321,743
|
|
|
|
429,246
|
|
|
|
2,750,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per ordinary share, excluding shares subject to possible redemption - basic and diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(0.46
|
)
|
For the Period from
March 11, 2011 (date of inception) to August 31, 2011
Selected statement of operations
information
|
|
As Previously
|
|
|
Effect of
|
|
|
|
|
|
|
Reported
|
|
|
Restatement
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
Other income / (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liability
|
|
$
|
-
|
|
|
$
|
(1,221,667
|
)
|
|
$
|
(1,221,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income / (loss) attributable to ordinary shares not subject to possible redemption
|
|
$
|
(40,580
|
)
|
|
$
|
(1,221,667
|
)
|
|
$
|
(1,262,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares outstanding, excluding shares subject to possible redemption - basic and diluted
|
|
|
2,533,349
|
|
|
|
(130,384
|
)
|
|
|
2,402,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per ordinary share, excluding shares subject to possible redemption - basic and diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.51
|
)
|
|
$
|
(0.53
|
)
|
Selected cash flow information
|
|
As Previously
|
|
|
Effect of
|
|
|
|
|
|
|
Reported
|
|
|
Restatement
|
|
|
As Restated
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(40,580
|
)
|
|
$
|
(1,221,667
|
)
|
|
$
|
(1,262,247
|
)
|
Loss on change in fair value of warrant liability
|
|
$
|
-
|
|
|
$
|
1,221,667
|
|
|
$
|
1,221,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for warrant liability in connection with the Public Offering
|
|
$
|
-
|
|
|
$
|
9,162,500
|
|
|
$
|
9,162,500
|
|
Note 5. Warrant Liability
The Company sold 8,050,000 units
in the Public Offering, which subsequently separated into one warrant at an initial exercise price of $12.00 and one ordinary share.
The Sponsor also purchased 4,166,667 warrants in a private placement in connection with the Public Offering. The warrants expire
five years after the date of the Company’s initial business combination. The warrants issued contain a restructuring price
adjustment provision in the event of any merger or consolidation of the Company with or into another corporation, subsequent to
the initial business combination, where the surviving entity is not the Company and whose stock is not listed for trading on a
national securities exchange or on the OTC Bulletin Board, or is not to be so listed for trading immediately following such event
(the “Applicable Event”). The exercise price of the warrant is decreased immediately following an Applicable Event
by a formula that causes the warrants to not be indexed to the Company’s own shares. Management used the quoted market price
for the valuation of the warrants to determine the warrant liability to be $10,384,167 as of August 31, 2011. This valuation is
revised on a quarterly basis until the warrants are exercised or they expire with the changes in fair value recorded in the statement
of operations.
Note 6. Public Offering
Public Units
On July 20, 2011, the Company sold 8,050,000 units
(including units sold pursuant to the underwriters’ exercise of their over-allotment option ) at a price of $10.00 per unit
(the “Public Units”) in the Public Offering. Each unit consists of one ordinary share of the Company, no
par value (the “Public Shares”), and one warrant to purchase one ordinary share (the “Public Warrants”).
Public Warrant Terms and Conditions
Exercise Conditions
— Each
Public Warrant will entitle the holder to purchase from the Company one ordinary share at an exercise price of $12.00 per share
commencing on the later of: (i) 30 days after the consummation of an Initial Business Combination, or (ii) July 20, 2012, provided
that the Company has an effective registration statement covering the ordinary shares issuable upon exercise of the Public Warrants
and such shares are registered or qualified under the securities laws of the state of the exercising holder. The Public Warrants
expire five years from the date of the Initial Business Combination, unless earlier redeemed. The Public Warrants will be redeemable
in whole and not in part at a price of $0.01 per warrant upon a minimum of 30 days notice after the warrants become exercisable,
only in the event that the last sale price of the Company’s ordinary shares exceeds $18.00 per share for any 20 trading days
within a 30-trading day period. If the Public Warrants are redeemed by the Company, management will have the option to require
all holders that wish to exercise warrants to do so on a cashless basis.
Registation Risk
— In
accordance with a warrant agreement relating to the Public Warrants, the Company will be required to use its best efforts to maintain
the effectiveness of a registration statement relating to the ordinary shares which would be issued upon exercise of the Public
Warrants. The Company will not be obligated to deliver securities, and there are no contractual penalties for failure to deliver
securities, if a registration statement is not effective at the time of exercise. Additionally, in the event that a registration
statement is not effective at the time of exercise, the holders of such Public Warrants shall not be entitled to exercise such
Public Warrants (except on a cashless basis under certain circumstances) and in no event (whether in the case of a registration
statement not being effective or otherwise) will the Company be required to net cash settle or cash settle the Public Warrants.
Consequently, the Public Warrants may expire unexercised, unredeemed and worthless, and an investor in the Public Offering may
effectively pay the full unit price solely for the ordinary shares included in the Public Units.
Accounting
— The Company accounts for the warrants in accordance with the guidance on Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity, which provides that the Company classifies the warrant
instrument as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability
is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the
Company’s statement of operations. The fair value of warrants issued by the Company in connection with the Public
Offering has been estimated using the market price of the Warrants at each reporting date.
Underwriting Agreement
The Company paid an underwriting discount of 2.5% of the public unit offering price to the underwriters at the closing of the Public
Offering, with an additional fee of 3.0% of the gross offering proceeds payable upon the Company’s consummation of an Initial
Business Combination. The underwriters will not be entitled to any interest accrued on the deferred discount.
Note 7. Related Party Transactions
Founder Shares
— In
March 2011, the Sponsor purchased 2,012,500 ordinary shares (the “Founder Shares”) for $25,000, or approximately $0.012
per share.
Forfeiture
— The
Founder Shares included 262,500 ordinary shares that were subject to forfeiture if and to the extent the underwriters’ over-allotment
option was not exercised, so that the Sponsor would own 20.0% of the Company’s issued and outstanding shares after the Public
Offering. The underwriters exercised the over-allotment option in full and therefore no such ordinary shares were forfeited.
Earnout Shares
— In
addition, a portion of the Founder Shares in an amount equal to 591,912 shares will be subject to forfeiture by the Sponsor as
follows: (1) 304,924 shares are subject to forfeiture in the event the last sales price of the Company’s shares does not
equal or exceed $15.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like)
for any 20 trading days within at least one 30-trading day period within 36 months following the closing of the Company’s
Initial Business Combination and (2) 286,988 shares are subject to forfeiture in the event the last sales price of the
Company’s shares does not equal or exceed $12.50 per share (as adjusted for share splits, share dividends, reorganizations,
recapitalizations and the like) for any 20 trading days within at least one 30-trading day period within 36 months following the
closing of the Company’s Initial Business Combination.
Rights
— The
Founder Shares are identical to the ordinary shares included in the Public Units being sold in the Public Offering except that
(i) the Founder Shares will be subject to certain transfer restrictions, as described in more detail below, and (ii) the Sponsor
will agree to waive its redemption rights with respect to the Founder Shares and Public Shares it purchases in connection with
the Initial Business Combination and will also waive its redemption rights with respect to the Founder Shares if the Company fails
to consummate an Initial Business Combination within 21 months from the closing of the Public Offering.
Voting
— If the Company
seeks shareholder approval of its Initial Business Combination, the Sponsor will agree to vote the Founder Shares and any Public
Shares purchased during or after the Public Offering in favor of the Initial Business Combination.
Liquidation
—
Although the Sponsor and its permitted transferees will waive their redemption rights with respect to the Founder Shares if the
Company fails to consummate an Initial Business Combination within 21 months from the closing of the Public Offering, they will
be entitled to redemption rights with respect to any Public Shares they may own.
Sponsor Warrants
— The Sponsor
purchased 4,166,667 warrants (the “Sponsor Warrants”) at $0.75 per warrant (for an aggregate purchase price of $3,125,000)
from the Company on a private placement basis simultaneously with the closing of the Public Offering.
Exercise Conditions
— Each Sponsor Warrant is exercisable into one ordinary share at $12.00 per share. The proceeds from the Sponsor Warrant
will be added to the proceeds from the Public Offering held in the Trust Account. The Sponsor Warrants will be identical to the
warrants included in the units sold in the Public Offering except that the Sponsor Warrants (i) will not be redeemable by the Company
as long as they are held by the Sponsor, members of the Sponsor or any of their permitted transferees, (ii) will be subject to
certain transfer restrictions described in more detail below and (iii) may be exercised for cash or on a cashless basis.
Accounting
— The
Company accounts for the warrants in accordance with the guidance on Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity, which provides that the Company classifies the warrant instrument as a liability at its fair value
and adjusts the instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance
sheet date until exercised, and any change in fair value is recognized in the Company’s statement of operations. The fair
value of warrants issued by the Company in connection with private placements of securities has been estimated using the warrants
quoted market price at each reporting date.
Disposition Restrictions
The Sponsor will agree not to transfer, assign or
sell any of its Founder Shares (except in limited circumstances to permitted assigns) until the earlier of (1) one year after the
completion of the Company’s Initial Business Combination and (2) the date on which the Company consummates a liquidation,
share exchange, share reconstruction and amalgamation, or other similar transaction after its Initial Business Combination that
results in all of its shareholders having the right to exchange their ordinary shares for cash, securities or other property (the
“Lock-Up Period”). Notwithstanding the foregoing, if the Company’s share price reaches or exceeds $11.50 for
any 20 trading days within at least one 30-trading day period during the Lock-Up Period, 50% of the Founder Shares will be released
from the lock-up and, if the Company’s share price reaches or exceeds $15.00 for any 20 trading days within at least one
30-trading day period during such Lock Up Period, the remaining 50% of the Founder Shares shall be released from the lock-up. In
addition, notwithstanding the above, the Sponsor has agreed not to transfer, sell or assign the Founder Earnout Shares (whether
to a permitted transferee or otherwise) before the applicable forfeiture condition lapses. The Sponsor has agreed not to transfer,
assign or sell any of the Sponsor Warrants including the ordinary shares issuable upon exercise of the Sponsor Warrants until 30
days after the completion of an Initial Business Combination.
Registration Rights
The holders of the Founder Shares, Sponsor Warrants
and warrants that may be issued upon conversion of working capital loans will hold registration rights to require the Company to
register a sale of any of the securities held by them pursuant to a registration rights agreement to be signed prior to or on the
effective date of this offering. These shareholders will be entitled to make up to three demands, excluding short form demands,
that the Company register such securities for sale under the Securities Act. In addition, these shareholders will have “piggy-back”
registration rights to include their securities in other registration statements filed by the Company. 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, which occurs (i) in the case of the Founder Shares, upon the earlier
of (1) one year after the completion of the Company’s Initial Business Combination or (2) the date on which the Company consummates
a liquidation, merger, share exchange or other similar transaction after the Company’s Initial Business Combination that
results in all of the Company’s shareholders having the right to exchange their ordinary shares for cash, securities or other
property, and (ii) in the case of the Sponsor Warrants and the respective ordinary shares underlying such warrants, 30 days after
the completion of the Company’s Initial Business Combination. Notwithstanding the foregoing, in the event the sales price
of the Company’s shares reaches or exceeds $11.50 for any 20 trading days within any 30-trading day period during such one
year period, 50% of the Founder Shares shall be released from the lock-up and, if the sales price of the Company’s shares
reaches or exceeds $15.00 for any 20 trading days within any 30-trading day period during such one year period, the remaining 50%
of the Founder Shares shall be released from the lock-up. In addition, members of the Company’s Sponsor have agreed not to,
subject to certain limited exceptions, transfer, assign or sell any of the Sponsor Warrants (including the ordinary shares issuable
upon exercise of the Sponsor Warrants) until 30 days after the completion of the Company’s Initial Business Combination.
In addition, notwithstanding the Company’s sponsor’s ability to transfer, assign or sell its Founder Shares to permitted
transferees during the applicable Lock-Up Period, the Company’s Sponsor has agreed not to transfer, assign or sell the founder
earn out shares (whether to a permitted transferee or otherwise) before the applicable forfeiture provisions with respect to such
shares lapse. The Company will bear the costs and expenses of filing any such registration statements.
Note 8. Other Related Party Transactions
Administrative Services
The Company has agreed to pay up to $10,000 a month
for office space, utilities and secretarial and administrative services to the Sponsor or its affiliates. Services commenced on
July 15, 2011 (the date the Company’s securities were first listed on the NASDAQ) and will terminate upon the earlier of
(i) the consummation of an Initial Business Combination or (ii) the liquidation of the Company.
Notes Payable
On April 1, 2011 the Company issued an unsecured
promissory note for $200,000 to Blue Wolf MHC Holdings Ltd. The proceeds from the notes were used to fund a portion
of the organizational and offering expenses owed by the Company to third parties. This note was repaid on July 20, 2011.
Note 9. Trust Account
A total of $80,237,500, which includes $77,112,500
of the net proceeds from the Public Offering and $3,125,000 from the private placement, has been placed in the Trust Account. The
trust proceeds are invested in a money market fund which invests exclusively in U.S. Treasuries and meets certain conditions under
Rule 2a-7 under the Investment Company Act.
Note 10. Fair Value Measurement
The Company complies with FASB ASC 820, Fair Value
Measurements, 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.
Cash Equivalents
and Investments Held in Trust Account
The fair values of the Company’s cash equivalents
and investments held in the Trust Account are determined through market, observable and corroborated sources.
Warrant Liability
The fair value of the derivative
warrant liability was determined by the Company using the quoted market prices for the publicly traded warrants. On reporting dates
where there are no active trades, the Company uses the last reported closing trade price of the warrants to determine the fair
value (Level 2).
There were no transfers between Level
1, 2 or 3 during any periods presented. There are no assets written down to fair value on a non-recurring basis.
The following table presents information about the
Company’s assets and liabilities that are measured at fair value on a recurring basis as of August 31, 2011, and indicates
the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values
determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values
determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair
values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there
is little, if any, market activity for the asset or liability:
Fair Value of Financial Assets and Liabilities
as of August 31, 2011
|
|
|
|
|
Quoted Prices
|
|
|
Significant Other
|
|
|
Significant Other
|
|
|
|
Balances, at
|
|
|
in
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
August 31,
|
|
|
Active Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
2011
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in Trust Account
|
|
$
|
80,237,742
|
|
|
$
|
80,237,742
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
|
$
|
80,237,742
|
|
|
$
|
80,237,742
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
10,384,167
|
|
|
$
|
—
|
|
|
$
|
10,384,167
|
|
|
$
|
—
|
|
Total
|
|
$
|
10,384,167
|
|
|
$
|
—
|
|
|
$
|
10,384,167
|
|
|
$
|
—
|
|
Note 11. Commitments and Contingencies
The Company has committed to pay a deferred underwriters’
compensation of 3.0% of the gross offering proceeds to the underwriters upon the Company’s consummation of an Initial Business
Combination. The deferred underwriters’ compensation of $2,415,000 is reflected in the accompanying interim balance
sheet. The underwriters will not be entitled to any interest accrued on the deferred fee.
Note 12. Shareholders’ Equity
Ordinary Shares
— The Company
is authorized to issue an unlimited number of ordinary shares. Holders of the Company’s ordinary shares are entitled to one
vote for each ordinary share. At August 31, 2011, there were 3,719,127 ordinary shares outstanding. Ordinary shares outstanding
at August 31, 2011 excludes 6,343,373 ordinary shares subject to possible redemption.
Preferred Shares
— The Company
is authorized to issue an unlimited number of preferred shares in five different classes with such designations, voting and other
rights and preferences as may be determined from time to time by the Board of Directors. At August 31, 2011, the Company
has not issued any preferred shares.