ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with our condensed consolidated financial statements and footnotes thereto contained in this report.
Forward Looking Statements
All statements other than statements of historical fact included in this Form 10-K including, without limitation, statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward looking statements. When used in this Form 10-K, words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to us or our management, identify forward looking statements. Such forward looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward looking statements as a result of the risk factors and other factors detailed in our filings with the Securities and Exchange Commission, including the risk factors set forth in Part I, Item 1A, above. All subsequent written or oral forward looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
We are a Delaware blank check company incorporated on April 19, 2013 in order to serve as a vehicle for the acquisition of a target business. Our efforts to identify a prospective target business are not limited to any particular industry or geographic region. We intend to utilize cash derived from the proceeds of our public offering, our capital stock, debt or a combination of cash, capital stock and debt, in effecting a business combination.
Critical Accounting Policies
For a more detailed discussion of the Critical Accounting Policies, please see Note 2 to the financial statements included in this Form 10-K.
Common stock subject to possible conversion
The Company accounts for its common stock subject to possible conversion in accordance with the guidance enumerated in ASC 480 "Distinguishing Liabilities from Equity". Common stock subject to mandatory conversion (if any) is classified as a liability instrument and is measured at fair value. Conditionally convertible common stock (including common stock that features conversion rights that are either within the control of the holder or subject to conversion upon the occurrence of uncertain events not solely within the Company's control) is classified as temporary equity. At all other times, common stock is classified as stockholders' equity. The Company's common stock features certain conversion rights that are considered by the Company to be outside of the Company's control and subject to the occurrence of uncertain future events. Accordingly at December 31, 2013, the common stock subject to possible conversion is presented as temporary equity, outside of the stockholders' equity section of the Company's 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 expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
Results of Operations
Our entire activity since inception up to the closing of our initial public offering on October 28, 2013 was in preparation for that event. Since the offering, our activity has been limited to the evaluation of business combination candidates, and we will not be generating any operating revenues until the closing and completion of our initial business combination. We expect to generate small amounts of non-operating income in the form of interest income on cash and cash equivalents. Interest income is not expected to be significant in view of current low interest rates on risk-free investments (treasury securities).
We incurred a net loss of $65,618 for the period from April 19, 2013 (inception) until December 31, 2013. This net loss was largely composed of a monthly administrative fees to Crescendo Advisors II, LLC (which is owned by our Chairman and Chief Executive Officer, Eric S. Rosenfeld) of approximately $21,000, public company costs of approximately $18,400, Delaware Franchise Taxes of $11,000 and accounting expenses of $7,500.
Financial Condition and Liquidity
The net proceeds from our initial public offering, after deducting offering expenses of approximately $466,000 and underwriting discounts of $3,139,500, were approximately $92,994,000. Of this amount, $92,410,500 and the $6,081,250 we received from the sale of the insider units, was placed in the trust account. The remaining net proceeds not in trust became available for use for working capital purposes. Generally, the proceeds held in the trust account will not be released to us until the earlier of our completion of an initial business combination and our redemption of 100% of the outstanding public shares upon our failure to consummate a business combination within the required time period. Notwithstanding the foregoing:
There can be released to us from the trust account any interest earned on the funds in the trust account that we need to pay our income or other tax obligations.
There can be released to us from the trust account any remaining interest earned on the funds in the trust account up to $750,000 that we need for our working capital requirements.
Prior to our initial public offering, we issued a $65,000 principal amount unsecured promissory note to Eric S. Rosenfeld, our Chairman and Chief Executive Officer and one of our initial stockholders, on June 26, 2013. The loan was payable without interest on the earlier of June 26, 2014 or the closing of our initial public offering. We repaid this loan on November 5, 2013, from the proceeds of our initial public offering that were not placed in the trust account. Commencing on October 28, 2013 and ending upon the consummation of a business combination or our liquidation, we began incurring a fee from Crescendo Advisors II, LLC of $10,000 per month for providing us with office space and certain general and administrative services.
As of December 31, 2013, we had approximately $485,000 in our operating bank account and approximately $98,503,000 in restricted cash and equivalents held in trust to be used for an initial business combination or to convert our common shares. As of December 31, 2013, approximately $11,300 of the amount on deposit in the trust account represented interest income, which is available to be withdrawn by us for working capital or tax purposes. As of December 31, 2013, we have not withdrawn any such interest income for working capital or tax purposes. As of December 31, 2013, U.S Treasury Bills with one, three, and six month maturities were yielding approximately 0.01%, 0.07%, and 0.10%, respectively. While we may invest in other securities, we believe such rates are representative of those we may receive on the balance of the trust account.
Until consummation of our initial business combination, we will be using the funds not held in the trust account for identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the business combination. We anticipate that in order to fund our working capital requirements, we will need to use all of the remaining funds not held in trust and the interest earned on the funds held in the trust account. We may need to enter into contingent fee arrangements with our vendors or raise additional capital through loans or additional investments from our initial shareholders, officers, directors, or third parties. If necessary to meet our working capital needs, our officers, directors, initial stockholders or their affiliates may, but are not obligated to, loan us funds, from time to time or at any time, in their sole discretion. Each loan would be evidenced by a promissory note. The notes would either be paid upon consummation of our initial business combination, without interest, or, at the lender's discretion, up to $500,000 of the notes may be converted upon consummation of our business combination into additional private units at a price of $10.00 per unit (which, for example, would result in the holders being issued 55,000 shares of common stock if $500,000 of notes were so converted since the 50,000 rights included in the private units would result in the issuance of 5,000 shares of common stock upon the closing of our business combination). If we do not complete a business combination, the loans will not be repaid.
Except as set forth above, we do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, we may need to raise additional funds through a private offering of debt or equity securities if such funds are required to consummate a business combination that is presented to us. We would only consummate such a financing simultaneously with the consummation of a business combination.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2013.
Mar 31, 2014