NOTES TO INTERIM FINANCIAL
STATEMENTS
(Unaudited)
Note 1. Interim Financial
Information and Basis of Presentation
The accompanying condensed interim financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (the “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 November 30, 2012 and the results of operations for the three months and
nine months ended November 30, 2012, the three months ended November 30, 2011, the period from March 11, 2011 (date of inception)
to November 30, 2011 and the period from March 11, 2011 (date of inception) to November 30, 2012. Certain information and disclosures
normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations.
Interim results 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 November 30, 2012, originally
filed on December 28, 2012. This Amendment is being filed to restate our unaudited interim financial statements as of November
30, 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.
These unaudited condensed financial statements should
be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K/A
filed with the SEC on May 14, 2013.
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 the last day of February
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 on 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 invest 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 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. In certain circumstances, the number of Public Shares the Company offers
to redeem may be further limited if the terms and conditions of the Initial Business Combination require the Company to retain
more than $5,000,001 in net tangible assets. In such case, if the Company were unable to satisfy the terms and conditions of the
Initial Business Combination, it 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, Accounting Standards
Codification (“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 Public Shares sold
in the Public Offering. All shares so purchased by the Company will be immediately cancelled.
Liquidation/Going Concern Consideration
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 winding up of its affairs. This redemption of Public
Shares 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 offered in the Public Offering discussed in Note 6).
The Company will pay the costs of liquidation from
its remaining assets outside the Trust Account. If such funds are insufficient to cover these costs and expenses, up to $50,000
of the net interest earned on the Trust Account may be released to the Company to pay these costs. This mandatory liquidation and
subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern.
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 November 30, 2012, the Company’s efforts have been limited to organizational activities,
activities relating to its Public Offering and activities relating to identifying and evaluating prospective acquisition candidates.
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 November 30, 2012 and February 29,
2012 principally consist of cash in a money market account held by the Company through its Trust Account.
Net Income / (Loss) Per
Share
Basic net income/(loss) per share is computed by
dividing net income/(loss) by the weighted average number of ordinary shares outstanding during the period in accordance with FASB
ASC 260, “Earnings Per Share”. Diluted net income/(loss) per share is computed by dividing net income/(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. For all
periods presented, the effect of the 12,216,667 warrants (including 4,166,667 warrants issued to the members of the Sponsor in
the private placement), has not been considered in the diluted income/(loss) per ordinary share because their effect would be anti-dilutive.
As a result, dilutive income/(loss) per ordinary share is equal to basic income/(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 Public Unit in the Public Offering contain a redemption feature which allows for their redemption 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 November 30, 2012 and February 29,
2012, 6,960,420 and 6,528,120 shares, respectively, of the 8,050,000 Public Shares were classified outside of permanent equity
at their redemption value. The redemption value (approximately $9.97 per share at November 30, 2012 and February 29, 2012) is equal
to the pro rata share of the aggregate amount then on deposit in the Trust Account, including interest but less taxes payable.
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 statements.
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 increases ending deficit accumulated during the development stage. Based on its analysis, the Company has determined that
it has not incurred any liability for unrecognized tax benefits as of November 30, 2012 or February 29, 2012. 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 November 30, 2012 and for the period from March 11, 2011 (date of inception) to November 30, 2012. 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, approximate their carrying amount due primarily to their short-term nature.
Recent Accounting Pronouncements
Management does not believe that any 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 November 30, 2012 to correct its accounting for
an adjustment related to 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:
November 30, 2012
Selected balance sheet
information
|
|
As Previously
Reported
|
|
|
Effect of
Restatement
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
-
|
|
|
$
|
3,542,833
|
|
|
$
|
3,542,833
|
|
Total liabilities
|
|
|
2,455,066
|
|
|
|
3,542,833
|
|
|
|
5,997,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares, subject to possible redemption
|
|
|
72,938,217
|
|
|
|
(3,542,833
|
)
|
|
|
69,395,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
2,604,973
|
|
|
|
2,395,029
|
|
|
|
5,000,002
|
|
Additional paid-in capital
|
|
|
3,125,000
|
|
|
|
(3,125,000
|
)
|
|
|
-
|
|
Deficit accumulated during the development stage
|
|
|
(729,971
|
)
|
|
|
729,971
|
|
|
|
-
|
|
Total shareholders' equity
|
|
|
5,000,002
|
|
|
|
-
|
|
|
|
5,000,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
80,393,285
|
|
|
$
|
-
|
|
|
$
|
80,393,285
|
|
For the Three Months
Ended November 30, 2012
Selected statement of operations
information
|
|
As Previously
Reported
|
|
|
Effect of
Restatement
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
Other income / (expense):
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liability
|
|
$
|
-
|
|
|
$
|
1,588,167
|
|
|
$
|
1,588,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income / (loss) attributable to ordinary shares not subject to possible redemption
|
|
$
|
(83,588
|
)
|
|
$
|
1,588,167
|
|
|
$
|
1,504,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares outstanding, excluding shares subject to possible redemption - basic and diluted
|
|
|
2,738,347
|
|
|
|
514,644
|
|
|
|
3,252,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
/ (loss) per ordinary share, excluding shares subject to possible redemption - basic and diluted
|
|
$
|
(0.03
|
)
|
|
$
|
0.49
|
|
|
$
|
0.46
|
|
For the Nine Months
Ended November 30, 2012
Selected statement of operations
information
|
|
As Previously
Reported
|
|
|
Effect of
Restatement
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
Other income / (expense):
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liability
|
|
$
|
-
|
|
|
$
|
4,642,333
|
|
|
$
|
4,642,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income / (loss) attributable to ordinary shares not subject to possible redemption
|
|
$
|
(332,318
|
)
|
|
$
|
4,642,333
|
|
|
$
|
4,310,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares outstanding, excluding shares subject to possible redemption - basic and diluted
|
|
|
2,726,286
|
|
|
|
711,412
|
|
|
|
3,437,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income /
(loss) per ordinary share, excluding shares subject to possible redemption - basic and diluted
|
|
$
|
(0.12
|
)
|
|
$
|
1.38
|
|
|
$
|
1.25
|
|
Selected cash flow information
|
|
As Previously
Reported
|
|
|
Effect of
Restatement
|
|
|
As Restated
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(332,318
|
)
|
|
$
|
4,642,333
|
|
|
$
|
4,310,015
|
|
Gain on change in fair value of warrant liability
|
|
$
|
-
|
|
|
$
|
(4,642,333
|
)
|
|
$
|
(4,642,333
|
)
|
For the Period from
March 11, 2011 (date of inception) to November 30, 2012
Selected statement of operations
information
|
|
As Previously
Reported
|
|
|
Effect of
Restatement
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
Other income / (expense):
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liability
|
|
$
|
-
|
|
|
$
|
5,619,667
|
|
|
$
|
5,619,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income / (loss) attributable to ordinary shares not subject to possible redemption
|
|
$
|
(729,971
|
)
|
|
$
|
5,619,667
|
|
|
$
|
4,889,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares outstanding, excluding shares subject to possible redemption - basic and diluted
|
|
|
2,562,913
|
|
|
|
639,466
|
|
|
|
3,202,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per ordinary share, excluding shares subject to possible redemption - basic and diluted
|
|
$
|
(0.28
|
)
|
|
$
|
1.81
|
|
|
$
|
1.53
|
|
Selected cash flow information
|
|
As Previously
Reported
|
|
|
Effect of
Restatement
|
|
|
As Restated
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(729,971
|
)
|
|
$
|
5,619,667
|
|
|
$
|
4,889,696
|
|
Gain on change in fair value of warrant liability
|
|
$
|
-
|
|
|
$
|
(5,619,667
|
)
|
|
$
|
(5,619,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $3,542,833 and
$8,185,167 as of November 30, 2012 and February 29, 2012, respectively. 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.
Registration 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 will 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 $2,012,500, or 2.5% of the Public Unit offering price, to the underwriters
at the closing of the Public Offering, with an additional fee of $2,415,000, or 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.
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 sale 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 sale 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 Public Shares except that (i) the Founder Shares are subject to certain transfer restrictions,
as described in more detail below, and (ii) the Sponsor agreed to waive its redemption rights with respect to (A) the Founder Shares
and any Public Shares it purchases in connection with the Initial Business Combination and (B) the Founder Shares upon liquidation
if the Company fails to consummate an Initial Business Combination by April 20, 2013.
Voting
— If the Company
seeks shareholder approval of its Initial Business Combination, the Sponsor will vote the Founder Shares and any Public Shares
it has purchased in favor of the Initial Business Combination.
Liquidation
—
Although the Sponsor has, and its permitted transferees must agree to, waive their redemption rights with respect to the Founder
Shares if the Company fails to consummate an Initial Business Combination by April 20, 2013, 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 for one ordinary share at $12.00 per share. The Sponsor Warrants are identical to the
Public Warrants except that the Sponsor Warrants (i) are not redeemable by the Company as long as they are held by the Sponsor,
members of the Sponsor or any of their permitted transferees, (ii) are 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 market
price of the warrants at each reporting date.
Transfer Restrictions
The Sponsor has agreed not to transfer, assign or
sell any of its Founder Shares (except in limited circumstances to permitted transferees) 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 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 entered into in connection with the Public
Offering. These shareholders are entitled to make up to three demands, excluding short form demands, that the Company register
such securities for sale under the Securities Act of 1933 (the “Securities Act”). In addition, these shareholders 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. 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. Services commenced on July 15, 2011 (the
date the Company’s securities were first listed on the NASDAQ Capital Market) and will terminate upon the earlier of (i)
the consummation of an Initial Business Combination or (ii) the liquidation of the Company. Approximately $30,000, $90,000, $30,000,
$50,000 and $170,000 was incurred under this agreement for the three and nine months ended November 30, 2012, the three months
ended November 30, 2012, the period from March 11, 2011 (date of inception) to November 30, 2011 and the period from March 11,
2011 (date of inception) to November 30, 2012, respectively. As of November 30, 2012 and February 29, 2012, $20,000 and nil was
payable to Sponsor for unpaid administrative fees, which is included in accrued expenses on the accompanying balance sheets.
Notes Payable
On April 1, 2011, the Company issued an unsecured
promissory note for $200,000 to Blue Wolf MHC Ltd. The proceeds from the note were used to fund a portion of the organizational
and offering costs 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 proceeds of 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 November 30, 2012 and February
29, 2012, 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 November 30, 2012
|
|
|
|
|
Quoted Prices
|
|
|
Significant Other
|
|
|
Significant Other
|
|
|
|
Balances, at
|
|
|
in
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
November 30,
|
|
|
Active Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
2012
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in Trust Account
|
|
$
|
80,247,812
|
|
|
$
|
80,247,812
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
|
$
|
80,247,812
|
|
|
$
|
80,247,812
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
3,542,833
|
|
|
$
|
—
|
|
|
$
|
3,542,833
|
|
|
$
|
—
|
|
Total
|
|
$
|
3,542,833
|
|
|
$
|
—
|
|
|
$
|
3,542,833
|
|
|
$
|
—
|
|
Fair Value of Financial Assets and Liabilities
as of February 29, 2012
|
|
|
|
|
Quoted Prices
|
|
|
Significant Other
|
|
|
Significant Other
|
|
|
|
Balances, at
|
|
|
in
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
February 29,
|
|
|
Active Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
2012
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in Trust Account
|
|
$
|
80,241,787
|
|
|
$
|
80,241,787
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
|
$
|
80,241,787
|
|
|
$
|
80,241,787
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
8,185,167
|
|
|
$
|
—
|
|
|
$
|
8,185,167
|
|
|
$
|
—
|
|
Total
|
|
$
|
8,815,167
|
|
|
$
|
—
|
|
|
$
|
8,185,167
|
|
|
$
|
—
|
|
Note 11. Commitments and Contingencies
The Company has committed to pay a deferred underwriters’
compensation of $2,415,000, or 3.0% of the gross Public Offering proceeds, to the underwriters upon the Company’s consummation
of an Initial Business Combination. This deferred underwriters’ compensation is reflected in the accompanying
interim balance sheets. The underwriters will not be entitled to any interest accrued on such deferred compensation.
Note 12. Shareholders’ Equity
Ordinary Shares
— The Company has unlimited ordinary shares authorized. Holders of the Company’s ordinary shares are entitled
to one vote for each ordinary share. At November 30, 2012 and February 29, 2012, there were 3,102,080 and 3,534,380 ordinary shares
outstanding, respectively. Ordinary shares outstanding at November 30, 2012 and February 29, 2012 excludes 6,960,420 and 6,528,120
ordinary shares subject to possible redemption, respectively.
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 November 30, 2012 and February 29,
2012, there were no preferred shares outstanding.