The accompanying notes are an integral part of the interim financial
statements.
The accompanying notes are an integral part of the interim financial
statements.
The accompanying notes are an integral part of the interim financial
statements.
The accompanying notes are an integral part of the interim financial
statements.
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to June 30, 2011
(Unaudited)
NOTE A—DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
SCG Financial Acquisition Corp. (a corporation in the development
stage) (the “Company”) was incorporated in Delaware on January 5, 2011. The Company was formed for the purpose of acquiring,
through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, exchangeable share transaction or
other similar business transaction, one or more operating businesses or assets that the Company has not yet identified (“Business
Combination”). The Company has neither engaged in any operations nor generated any income, other than interest on the trust
account assets (the “Trust Account”). The Company intends to focus on identifying a prospective target business or
asset with which to consummate a Business Combination. The Company is considered to be in the development stage as defined in FASB
Accounting Standard Codification, or ASC 915, “Development Stage Entities,” and is subject to the risks associated
with activities of development stage companies. The Company has selected December 31 as its fiscal year end.
The Company is currently evaluating Business Combination candidates.
All activity through June 30, 2011 relates to the Company’s formation, initial public offering (“Offering”)
and identification and investigation of prospective target businesses with which to consummate a Business Combination.
The registration statement for the Offering was declared effective
April 8, 2011. The Company consummated the Offering on April 18, 2011 and received net proceeds of approximately $82,566,000, before
deducting underwriting compensation of $4,000,000 (which includes $2,000,000 of deferred contingent underwriting compensation payable
upon consummation of a Business Combination) and includes $3,000,000 received for the purchase of 4,000,000 warrants by SCG Financial
Holdings LLC (the ‘‘Sponsor’’). Deferred offering costs (excluding $2,000,000 in underwriting fees) as
of the date of the Offering was $414,428. From the date of the Offering through June 30, 2011, an additional $19,380 of deferred
offering costs was paid or accrued.
On April 12, 2011, the Sponsor purchased 4,000,000 warrants
(“Sponsor Warrants”) from the Company for an aggregate purchase price of $3,000,000. The Sponsor Warrants are identical
to the warrants sold in the Offering, except that if held by the original holder or its permitted assigns, they (i) may be exercised
for cash or on a cashless basis and (ii) are not subject to being called for redemption.
Total gross proceeds to the Company from the 8,000,000 units
sold in the offering was $80,000,000. The Company’s management has broad discretion with respect to the specific application
of the net proceeds of the Offering, although substantially all of the net proceeds of the Offering is intended to be generally
applied toward consummating a Business Combination. Furthermore, there is no assurance that the Company will be able to successfully
consummate a Business Combination.
On April 27, 2011, $80,000,000 from the Offering and Sponsor
Warrants that was placed in a trust account (“Trust Account”) was invested, as provided in the Company’s registration
statement. The Company is permitted to invest the proceeds of the Trust Account in U.S. “government securities,” within
the meaning of Section 2(a)(16) of the Investment Company Act of 1940 (the “1940 Act”) with a maturity of 180 days
or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the 1940 Act. The Trust Account assets
will be maintained until the earlier of (i) the consummation of a Business Combination or (ii) the distribution of the Trust Account
as described below.
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to June 30, 2011
The Company, after signing a definitive agreement for the
acquisition of one or more target businesses or assets, will not submit the transaction for stockholder approval, unless otherwise
required by law. The Company will proceed with a Business Combination if it is approved by the board of directors. Only in the
event that the Company is required to seek stockholder approval in connection with its initial Business Combination, the Company
will proceed with a Business Combination only if a majority of the outstanding shares of common stock voted are voted in favor
of the Business Combination. In connection with such a vote, if a Business Combination is approved and consummated, stockholders
that elect to redeem their shares of common stock will be entitled to receive their pro-rata portion of the Trust Account as follows:
(i) public stockholders voting against the Business Combination and electing to redeem shares of common stock shall be entitled
to receive a per share pro rata portion of the Trust Account (excluding interest and net of taxes) and (ii) public stockholders
voting in favor of the Business Combination and electing to redeem shares of common stock shall be entitled to receive a per share
pro rata portion of the Trust Account (together with interest thereon which was not previously used for working capital but net
of taxes). These shares of common stock are recorded at a fair value and classified as temporary equity, in accordance with ASC
480. The Sponsor, Gregory H. Sachs and each member of the Sponsor have agreed, in the event the Company is required to seek stockholder
approval of its Business Combination, to vote the initial shares in favor of approving a Business Combination. The Sponsor, Gregory
H. Sachs and each member of the Sponsor have also agreed to vote shares of common stock acquired by them in this offering or in
the aftermarket in favor of a Business Combination submitted to the Company’s stockholders for approval.
The Company’s Sponsors, officers and directors have agreed
that the Company will have until January 12, 2013 to consummate a Business Combination and one additional three month extension
subject to (i) a signed letter of intent to consummate its initial Business Combination by January 12, 2013 (and a Business Combination
relating thereto has not been consummated) and (ii) the approval of at least 65% of the holders of the Company’s common stock.
If the Company does not consummate a Business Combination within this period of time, it shall (i) cease all operations except
for the purposes of winding up, (ii) redeem the public shares of common stock for a per share pro rata portion of the Trust Account,
including a portion of the interest earned thereon which was not previously used for working capital, but net of any taxes (which
redemption would completely extinguish such holders’ rights as stockholders, including the right to receive further liquidation
distributions, if any) and (iii) as promptly as possible following such redemption, dissolve and liquidate the balance of the Company’s
net assets to its remaining stockholders, as part of its plan of dissolution and liquidation. The Sponsor, Gregory H. Sachs and
each member of the Sponsor have waived their rights to participate in any redemption with respect to its initial shares. However,
if the Sponsor, Gregory H. Sachs or any member of the Sponsor acquire shares of common stock in or after the Offering, they will
be entitled to a pro rata share of the Trust Account upon the Company’s redemption or liquidation in the event the Company
does not consummate a Business Combination within the required time period. In the event of such distribution, it is possible that
the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than
the initial public offering price per unit in the Offering.
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to June 30, 2011
NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying 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 of 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 June 30, 2011 and the results of operations for the period from January 5, 2011 (date of inception) to June 30,
2011 and the three months ended June 30, 2011. Certain information and disclosures normally included in interim financial statements
prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The results of operations
for the period January 5, 2011 (date of incorporation) to June 30, 2011 are not necessarily indicative of the results of operations
to be expected for a full fiscal year.
Development stage company
The Company complies with the reporting requirements of FASB
ASC 915, “Development Stage Entities.” At June 30, 2011, the Company had not commenced any operations nor generated
revenue to date, other than interest on the Trust Account balance. All activity through June 30, 2011 relates to the Company’s
formation, the Offering and the investigation of prospective target businesses with which to consummate a Business Combination.
Net loss per common share
The Company complies with accounting and disclosure requirements
of FASB ASC 260, “Earnings Per Share.” Net loss per common share is computed by dividing net loss applicable to common
stockholders by the weighted average number of common shares outstanding for the period. At June 30, 2011, the Company did not
have any dilutive securities and other contracts that could, potentially, be exercised or converted into common stock and then
share in the earnings of the Company. At June 30, 2011, the Company had outstanding warrants to purchase 12,000,000 shares of common
stock. For the period presented, the weighted average of these shares was excluded from the calculation of diluted loss per common
share because their inclusion would have been anti-dilutive. As a result, diluted loss per common share is the same as basic loss
per common share for the period.
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.
Restricted cash equivalents held in the Trust Account
The amounts held in the Trust Account represent substantially
all of the proceeds of the 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. The funds held in the Trust Account are invested primarily in United
States Treasury Securities.
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to June 30, 2011
Warrant Liability
The Company accounts for the 12,000,000 warrants issued in connection
with the Offering (consisting of 8,000,000 warrants issued in the Offering and the 4,000,000 Sponsor Warrants) in accordance with
the guidance contained in ASC 815-40-15-7D, "Contracts in Entity's Own Equity" whereby under that provision they 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 warrants issued
by the Company in connection with the Offering has been estimated using the warrants quoted market price.
Fair value of financial instruments
The fair value of the Company’s assets and liabilities,
which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,” approximates
the carrying amounts represented in the balance sheet.
Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Redeemable Common Stock
The 8,000,000 common shares sold as part the Offering
contain a redemption feature which allows for the redemption of common shares under the Company’s liquidation or tender
offer/stockholder approval provisions. In accordance with ASC 480 "Distinguishing Liabilities from Equity", 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 Charter provides that in no event will they redeem
its public shares in an amount that would cause its net tangible assets (stockholders’ equity) to be less than
$5,000,001.
The Company recognizes changes in redemption value
immediately as they occur and will adjust the carrying value of the security to equal the redemption value at the end of each
reporting period. Increases or decreases in the carrying amount of redeemable common stock shall be affected by charges
against the par value of common stock and retained earnings, or in the absence of retained earnings, by charges against
paid-in capital in accordance with ASC 480-10-S99. During the period from January 5, 2011 (date of inception) to June 30,
2011, the change from the initial redemption value was ($111,187), while the change from the initial number of shares subject
to redemption was (11,119). Changes in redemption value and amounts are primarily due to the net loss of the Company.
Accordingly, at June 30, 2011, 6,928,000 public shares are classified outside of permanent equity at its 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 franchise and income taxes payable (approximately $10.00 at June 30, 2011).
Securities held in Trust Account
Investment securities consist of United States Treasury securities.
The Company classifies its securities as held-to-maturity in accordance with FASB ASC 320 “Investments - Debt and Equity
Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to hold until
maturity. Held-to-maturity treasury securities are recorded at amortized cost and adjusted for the amortization or accretion of
premiums or discounts.
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to June 30, 2011
A decline in the market value of held-to-maturity securities
below cost that is deemed to be other than temporary, results in an impairment that reduces the carrying costs to such securities'
fair value. The impairment is charged to earnings and a new cost basis for the security is established. To determine whether an
impairment is other than temporary, the Company considers whether it has the ability and intent to hold the investment until a
market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to
the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and the duration of
the impairment, changes in value subsequent to year-end, forecasted performance of the investee, and the general market condition
in the geographic area or industry the investee operates in. Premiums and discounts are amortized or accreted over the life of
the related held-to-maturity security as an adjustment to yield using the effective-interest method. Such amortization and accretion
is included in the “interest income” line item in the statements of operations. Interest income is recognized when
earned.
Income tax
The Company complies with the accounting and reporting requirements
of Financial Accounting Standards Board Accounting Standard Codification, or FASB ASC, 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 interim 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.
There were no unrecognized tax benefits as of June 30, 2011.
FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the interim 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 recognizes accrued interest and
penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties
at June 30, 2011. 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 adoption of the provisions of FASB ASC 740 did not have a material impact on the Company’s
financial position and results of operation and cash flows as of and for the period ended June 30, 2011.
The Company is subject to income tax examinations by major taxing
authorities since its inception.
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to June 30, 2011
Recently issued accounting standards
In January 2010, the FASB issued “Fair Value Measurements
and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,” which provides guidance on how investment
assets and liabilities are to be valued and disclosed. Specifically, the amendment requires reporting entities to disclose (i)
the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements, for
Level 2 or Level 3 positions, (ii) transfers between all levels (including Level 1 and Level 2) will be required to be disclosed
on a gross basis (i.e. transfers out must be disclosed separately from transfers in) as well as the reason(s) for the transfers
and (iii) purchases, sales, issuances and settlements must be shown on a gross basis in the Level 3 roll forward rather than as
one net number. The effective date of the amendment is for interim and annual periods beginning after December 15, 2009. However,
the requirement to provide the Level 3 activity for purchases, sales, issuances and settlements on a gross basis will be effective
for interim and annual periods beginning after December 15, 2010. The adoption of the amendment did not have a material impact
on the Company’s interim financial statements.
The Company does not believe that the adoption of any other
recently issued, but not yet effective, accounting standards will have a material impact on its financial position and results
of operations.
NOTE C - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Company has restated its financial statements as of June
30, 2011 to correct its accounting for an adjustment related to the warrants issued in connection with the Offering. 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. There were no changes in the fair value of the warrants during any period
presented, therefore, there is no effect to the Company's statements of operations previously filed.
In March 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 warrant, concluded that the warrants should be accounted
for as a derivative liability. The warrants contain a price adjustment provision, such 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
formula that causes the warrants to not be indexed to the Company’s own stock. 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 table summarizes the adjustments made to the
previously reported June 30, 2011 balance sheet, statement of operations and statement of cash flows:
June 30, 2011
Selected balance sheet information
|
|
(as previously reported)
|
|
|
Effect of Restatement
|
|
|
(as restated)
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
-
|
|
|
$
|
4,200,000
|
|
|
$
|
4,200,000
|
|
Total Liabilities
|
|
|
2,087,042
|
|
|
|
4,200,000
|
|
|
|
6,287,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock, subject to possible redemption
|
|
|
73,480,004
|
|
|
|
(4,200,000
|
)
|
|
|
69,280,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
952
|
|
|
|
(693
|
)
|
|
|
259
|
|
Additional Paid-in Capital
|
|
|
5,110,236
|
|
|
|
(110,494
|
)
|
|
|
4,999,742
|
|
Deficit Accumulated during the Development Stage
|
|
|
(111,187
|
)
|
|
|
111,187
|
|
|
|
-
|
|
Total Stockholders' Equity
|
|
|
5,000,001
|
|
|
|
-
|
|
|
|
5,000,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
80,567,047
|
|
|
$
|
-
|
|
|
$
|
80,567,047
|
|
From the period from January 5, 2011 (date of inception) to June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
Selected statement of cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
(as previously
reported)
|
|
|
Effect of Restatement
|
|
|
(as restated)
|
|
Supplemental disclosure of non-cash financing
|
|
|
|
|
|
|
|
|
|
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for warrant liability in connection
|
|
|
|
|
|
|
|
|
|
with the public offering
|
|
$
|
-
|
|
|
$
|
4,200,000
|
|
|
$
|
4,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected statement of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(as previously reported)
|
|
|
Effect of
Restatement
|
|
|
(as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Loss per common share,
excludes shares subject to
possible redemption - basic and diluted
|
|
$
|
(0.05
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.04
|
)
|
NOTE D – WARRANT LIABILITY
Pursuant to the Company’s Offering, the Company sold 8,000,000
units, which subsequently separated into one warrant at an initial exercise price of $11.50 and one share of common stock. The
Sponsor also purchased 4,000,000 warrants in a private placement in connection with the 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 stock. Management used the quoted market price for the valuation of the
warrants to determine the warrant liability to be $4,200,000 as of June 30, 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 E—INITIAL PUBLIC OFFERING
The Company consummated its Offering on April 18, 2011. Pursuant
to the Offering, the Company sold 8,000,000 units at $10.00 per unit (“Units”). Each Unit consists of one share of
the Company’s common stock, $0.0001 par value, and one redeemable common stock purchase warrant (“Warrant”).
Each Warrant will entitle the holder to purchase from the Company one share of common stock at an exercise price of $11.50 commencing
on the later of (a) one year from the date of the prospectus for the Offering (April 12, 2012) or (b) 30 days after the completion
of a Business Combination, and will expire five years from the date of the consummation of the Business Combination. The Warrants
will be redeemable by the Company at a price of $0.01 per Warrant upon 30 days prior notice after the Warrants become exercisable,
only in the event that the last sale price of the common stock is at least $17.50 per share for any 20 trading days within a 30
trading day period ending on the third business day prior to the date on which notice of redemption is given.
NOTE F—RELATED PARTY TRANSACTIONS
The Company issued $75,000 and $100,000 unsecured promissory
notes to the Sponsor on January 28, 2011 and February 9, 2011, respectively. The notes were non-interest bearing and were payable
on the earlier of December 30, 2011 or the consummation of the Offering. The notes were repaid from the proceeds of the Company’s
Offering.
On January 28, 2011, the Company issued to the Sponsor 1,752,381
shares of restricted common stock for an aggregate purchase price of $25,000 in cash. The purchase price for each share of common
stock was approximately $0.0001 per share. These shares included 228,571 shares of common stock that were forfeited on June 2,
2011 upon the expiration of the underwriter’s overallotment option. The Sponsor and its permitted transferees own 16% of
the Company’s issued and outstanding shares after the Offering. A portion of the Sponsor’s shares in an amount equal
to 3% of the Company’s issued and outstanding shares will be subject to forfeiture by the Sponsor in the event the last sales
price of the Company’s stock does not equal or exceed $12.00 per share for any 20 trading days within any 30 trading day
period within 24 months following the closing of a Business Combination. The Sponsor, Gregory H. Sachs and each member of the Sponsor
have agreed that they will not sell or transfer their initial shares until one year following consummation of a Business Combination,
subject to earlier release in certain circumstances.
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to June 30, 2011
The Sponsor purchased, in a private placement, 4,000,000 warrants
prior to the Offering at a price of $0.75 per warrant (a purchase price of $3,000,000) from the Company. Based on the observable
market prices, the Company believes that the purchase price of $0.75 per warrant for such warrants exceeded the fair value of such
warrants on the date of the purchase. The valuation was based on comparable initial public offerings by previous blank check companies.
The Sponsor has agreed that the warrants purchased will not be sold or transferred until 30 days following consummation of a Business
Combination, subject to certain limited exceptions. If the Company does not complete a Business Combination, then the proceeds
will be part of the liquidating distribution to the public stockholders and the warrants issued to the Sponsor will expire worthless.
The private placement warrants are classified within permanent equity as additional paid-in capital in accordance with ASC 815-40-25-13.
The Company has entered into an Administrative Services Agreement,
effective as of April 12 2011, with Sachs Capital Group, LP, an affiliate of the Sponsor, for an estimated aggregate monthly fee
of $7,500 for office space, secretarial, and administrative services, with up to an additional $7,500 for its other operating expenses
incurred by the Sponsor. This agreement will expire upon the earlier of: (a) the successful completion of the Company’s Business
Combination, (b) January 12, 2013 (plus one additional 3 month extension subject to (i) a signed letter of intent and (ii) approval
of at least 65% of the holders of the Company’s common stock), or (c) the date on which the Company is dissolved and liquidated.
The Sponsor is entitled to registration rights pursuant to a
registration rights agreement. The Sponsor will be entitled to demand registration rights and certain “piggy-back”
registration rights with respect to its shares of common stock, the Sponsor Warrants and the common stock underlying the Sponsor
Warrants, commencing on the date such common stock or Sponsor Warrants are released from escrow. The Company will bear the expenses
incurred in connection with the filing of any such registration statements.
NOTE G—COMMITMENTS AND CONTINGENCIES
In conjunction with the Offering on April 18, 2011, the Company
granted the underwriters a 45-day option to purchase up to 1,200,000 additional Units to cover the over-allotment at
the initial offering price less the underwriting discounts and commissions. This option expired unexercised on June
2, 2011.
A contingent fee payable to the underwriters of the Offering
equal to 2.50% of the gross proceeds from the sale of the Units sold in the Offering will become payable from the amounts held
in the Trust Account solely in the event the Company consummates its initial Business Combination.
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to June 30, 2011
NOTE H—INVESTMENT IN TRUST ACCOUNT
On April 27, 2011, $80,000,000 from the Offering and Sponsor
Warrants that was placed in a Trust Account was invested, as provided in the Company’s registration statement. The
Company is permitted to invest the proceeds of the Trust Account in U.S. “government securities,” within the meaning
of Section 2(a)(16) of the Investment Company Act of 1940 (the “1940 Act”) with a maturity of 180 days or less or in
money market funds meeting certain conditions under Rule 2a-7 promulgated under the 1940 Act. The Trust Account assets
will be maintained until the earlier of (i) the consummation of a Business Combination or (ii) the distribution of the Trust Account.
As of June 30, 2011, investment securities in the Company’s
Trust Account consist of $80,025,096 in United States Treasury Bills and $632 of cash. The Company classifies its United States
Treasury and equivalent securities as held-to-maturity in accordance with FASB ASC 320, "Investments - Debt and Equity Securities.”
Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity
treasury securities are recorded at amortized cost on the accompanying balance sheets and adjusted for the amortization or accretion
of premiums or discounts. The carrying amount, excluding accrued interest income, gross unrealized holding gains and fair value
of held to maturity securities at June 30, 2011 are as follows:
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|
Carrying
Amount
|
|
|
Gross
Unrealized
Holding
Gains
|
|
|
Fair Value
|
|
Held-to-maturity:
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|
|
|
|
|
|
|
|
|
U.S. Treasury Securities
|
|
$
|
80,011,470
|
|
|
$
|
13,626
|
|
|
$
|
80,025,096
|
|
|
|
|
|
|
|
|
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|
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|
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NOTE I—FAIR VALUE MEASUREMENTS
The Company adopted 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. The adoption of ASC 820 did not have
an impact on the Company’s financial position or results of operations.
The Company defines fair value as the amount at which an asset
(or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other
than in a forced or liquidation sale. The fair value estimates presented in the table below are based on information available
to the Company as of June 30, 2011.
The accounting standard regarding fair value measurements discusses
valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income
or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The standard utilizes
a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.
The following is a brief description of those three levels:
• Level 1: Observable inputs such as
quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: Inputs other than quoted
prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets
or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
• Level 3: Unobservable inputs that
reflect the reporting entity's own assumptions.
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 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 June 30, 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:
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to June 30, 2011
Description
|
|
June 30, 2011
|
|
|
Quoted Prices
In
Active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Other
Unobservable
Inputs
(Level 3)
|
|
Assets:
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|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash equivalents held in Trust Account
|
|
$
|
80,025,096
|
|
|
$
|
80,025,096
|
|
|
|
—
|
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
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|
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|
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|
|
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|
Warrant Liability
|
|
$
|
4,200,000
|
|
|
|
—
|
|
|
$
|
4,200,000
|
|
|
|
—
|
|
NOTE J—PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of preferred
stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.
As of June 30, 2011, the Company has not issued any shares of preferred stock.