UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended August 31, 2016
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-37421
ELECTRUM SPECIAL ACQUISITION CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
| British Virgin Islands | 98-1245521 | |
| (State or other jurisdiction of incorporation) | (IRS Employer Identification Number) |
c/o The Electrum Group LLC
700 Madison Avenue, 5th Floor
New York, NY 10065
(Address of principal executive offices)
(646) 365-1600
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.þYes¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).þ Yes¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer¨ | Accelerated filer¨ | Non-accelerated filerþ (Do not check if a smaller reporting company) | Smaller reporting company¨ |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).þ Yes¨ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
The number of ordinary shares outstanding as of October 14, 2016 was 25,000,000.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION (UNAUDITED)
Electrum Special Acquisition Corporation
Condensed Interim Balance Sheets
| August 31, 2016 | November 30, 2015 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 439,669 | $ | 864,561 | ||||
| Prepaid expenses | 96,115 | 82,396 | ||||||
| Total Current Assets | 535,784 | 946,957 | ||||||
| Prepaid expenses – long term | - | 40,911 | ||||||
| Trust account | 200,617,138 | 200,061,928 | ||||||
| Total Assets | $ | 201,152,922 | $ | 201,049,796 | ||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 87,964 | $ | 47,997 | ||||
| Due to affiliate | 121,277 | 60,095 | ||||||
| Total Current Liabilities | 209,241 | 108,092 | ||||||
| Deferred underwriting compensation | 6,750,000 | 6,750,000 | ||||||
| Total Liabilities | 6,959,241 | 6,858,092 | ||||||
| Ordinary shares subject to possible redemption: 18,919,368 and 18,919,170 shares (at a redemption value of approximately $10 per share) at August 31, 2016 and November 30, 2015, respectively | 189,193,680 | 189,191,703 | ||||||
| Shareholders’ Equity: | ||||||||
| Preferred shares, no par value; five classes of unlimited shares authorized; none issued and outstanding | - | - | ||||||
| Ordinary shares, no par value, unlimited shares authorized, 6,080,632 and 6,080,830 shares issued and outstanding (excluding 18,919,368 and 18,919,170 shares subject to redemption) at August 31, 2016 and November 30, 2015, respectively | 5,263,062 | 5,265,038 | ||||||
| Accumulated deficit | (263,061 | ) | (265,037 | ) | ||||
| Total Shareholders’ Equity | 5,000,001 | 5,000,001 | ||||||
| Total Liabilities and Shareholders’ Equity | $ | 201,152,922 | $ | 201,049,796 | ||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
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Electrum Special Acquisition Corporation
Condensed Interim Statements of Operations (unaudited)
| Three Months Ended August 31, 2016 | Three Months Ended August 31, 2015 | Nine Months Ended August 31, 2016 | December 12, 2014 (date of inception) to August 31, 2015 | |||||||||||||
| Revenue | $ | - | $ | - | $ | - | $ | - | ||||||||
| Operating expenses | 204,604 | 156,807 | 553,234 | 169,638 | ||||||||||||
| Loss from operations | (204,604 | ) | (156,807 | ) | (553,234 | ) | (169,638 | ) | ||||||||
| Interest income | 186,999 | 27,657 | 555,210 | 27,657 | ||||||||||||
| Net income (loss) attributable to ordinary shares | $ | (17,605 | ) | $ | (129,150 | ) | $ | 1,976 | $ | (141,981 | ) | |||||
| Weighted average number of ordinary shares outstanding | 6,080,632 | 5,829,091 | 6,081,881 | 4,556,612 | ||||||||||||
| Basic and diluted net income (loss) per share | $ | (0.00 | ) | $ | (0.02 | ) | $ | 0.00 | $ | (0.03 | ) | |||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
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Electrum Special Acquisition Corporation
Condensed Interim Statement of Shareholders’ Equity (unaudited)
For the period from December 12, 2014 (date of
inception) to August 31, 2016
| Total | ||||||||||||||||
| Ordinary Shares | Accumulated | Shareholders’ | ||||||||||||||
| Shares | Amount | Deficit | Equity | |||||||||||||
| Balance, as of December 12, 2014 (date of inception) | - | $ | - | $ | - | $ | - | |||||||||
| Sale of ordinary shares to initial shareholders | 3,737,500 | 25,000 | - | 25,000 | ||||||||||||
| Net loss | - | - | (12,781 | ) | (12,781 | ) | ||||||||||
| Balance, as of February 28, 2015 | 3,737,500 | 25,000 | (12,781 | ) | 12,219 | |||||||||||
| Bonus share issuance | 136,615 | - | - | - | ||||||||||||
| Sale of ordinary shares | 438,385 | 2,932 | - | 2,932 | ||||||||||||
| Bonus share issuance | 718,750 | - | - | - | ||||||||||||
| Proceeds from the sale of 20,000,000 Units | 20,000,000 | 200,000,000 | - | 200,000,000 | ||||||||||||
| Underwriters’ discount and offering expenses | - | (12,596,191 | ) | - | (12,596,191 | ) | ||||||||||
| Proceeds from the sale of 14,050,000 warrants | - | 7,025,000 | - | 7,025,000 | ||||||||||||
| Forfeiture of 31,250 ordinary shares as a result of underwriter only partially exercising its over-allotment option | (31,250 | ) | - | - | - | |||||||||||
| Ordinary shares subject to possible redemption | (18,919,170 | ) | (189,191,703 | ) | - | (189,191,703 | ) | |||||||||
| Net loss | - | - | (252,256 | ) | (252,256 | ) | ||||||||||
| Balance, as of November 30, 2015 | 6,080,830 | 5,265,038 | (265,037 | ) | 5,000,001 | |||||||||||
| Changes in ordinary shares subject to possible redemption | (198 | ) | (1,976 | ) | - | (1,976 | ) | |||||||||
| Net income | - | - | 1,976 | 1,976 | ||||||||||||
| Balance, as of August 31, 2016 | 6,080,632 | $ | 5,263,062 | $ | (263,061 | ) | $ | 5,000,001 | ||||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
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Electrum Special Acquisition Corporation
Condensed Interim Statements of Cash Flows (unaudited)
| Nine Months Ended August 31, 2016 | December 12, 2014 (date of inception) to August 31, 2015 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net income (loss) | $ | 1,976 | $ | (141,981 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Change in operating assets and liabilities: | ||||||||
| (Increase) decrease in prepaid expenses | 27,192 | (139,471 | ) | |||||
| Increase in accounts payable and accrued expenses | 39,967 | 50,207 | ||||||
| Net cash provided by (used in) operating activities | 69,135 | (231,245 | ) | |||||
| Cash Flows From Investing Activities: | ||||||||
| Proceeds deposited in Trust Account | - | (200,000,000 | ) | |||||
| Interest reinvested in Trust Account | (555,210 | ) | (27,657 | ) | ||||
| Net cash used in investing activities | (555,210 | ) | (200,027,657 | ) | ||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from sale of ordinary shares | - | 27,932 | ||||||
| Proceeds from sales of units in Public Offering, net of Offering expenses paid | - | 194,153,809 | ||||||
| Proceeds from sale of warrants | - | 7,025,000 | ||||||
| Increase in due to affiliate | 61,183 | 76,170 | ||||||
| Net cash provided by financing activities | 61,183 | 201,282,911 | ||||||
| Net increase (decrease) in cash | (424,892 | ) | 1,024,009 | |||||
| Beginning cash | 864,561 | - | ||||||
| Ending cash | $ | 439,669 | $ | 1,024,009 | ||||
| Supplemental Schedule of Non-Cash Financing Activities: | ||||||||
| Deferred underwriters’ compensation | $ | - | $ | 6,750,000 | ||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
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Electrum Special Acquisition Corporation
Notes to Condensed Interim Financial Statements (unaudited)
August 31, 2016
1. Nature of Operations
Electrum Special Acquisition Corporation (the ‘‘Company,’’ ‘‘we,’’ ‘‘our’’ or ‘‘us’’) is a blank check company incorporated in the British Virgin Islands on December 12, 2014. The Company was formed for the purpose of acquiring, engaging in a share exchange, share reconstruction and amalgamation, purchasing all or substantially all of the assets of, entering into contractual arrangements, or engaging in any other similar business transaction, with one or more businesses or entities (‘‘Business Combination’’). The Company has neither engaged in any operations nor generated any operating revenue to date. The Company’s sponsor is ESAC Holdings LLC, a Delaware limited liability company (the ‘‘Sponsor’’).
The registration statement for the Company’s initial public offering (the “Offering”) (as described in Note 3) was declared effective by the United States Securities and Exchange Commission (“SEC”) on June 10, 2015. The Sponsor and an entity controlled by one of the Company’s directors purchased, simultaneously with the closing of the Offering, an aggregate of $7,025,000 of warrants in a private placement (Note 4).
Upon closing of the Offering and private placement, $200,000,000 was placed in the Trust Account and may be invested in United States government treasury bills, notes or bonds having a maturity of 180 days or less, or in money market funds meeting the applicable conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940 and that invest solely in U.S. treasuries, as determined by the Company, until the earlier of: (i) the consummation of a Business Combination or (ii) the distribution of the Trust Account as described below.
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 are intended to be generally applied toward consummating a Business Combination. Furthermore, there is no assurance that the Company will be able to successfully effect a Business Combination. The Company intends to finance a Business Combination in part with the Offering and the $7,025,000 private placement (see Note 3).
The Company will either (1) seek shareholder approval of our initial Business Combination at a meeting called for such purpose at which shareholders may seek to redeem their public shares, regardless of whether they vote for or against the proposed Business Combination, into their pro rata share of the aggregate amount then on deposit in the Trust Account (net of taxes payable), or (2) provide our shareholders with the opportunity to sell their public shares to us by means of a tender offer (and thereby avoid the need for a shareholder vote) for an amount equal to their pro rata share of the aggregate amount then on deposit in the Trust Account (net of taxes payable), in each case based on the number of public shares outstanding and subject to the limitations described herein. The decision as to whether we will seek shareholder approval of our proposed Business Combination or allow shareholders to sell their shares to us in a tender offer will be made by us, solely in our 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 us to seek shareholder approval. Unlike other blank check companies which require shareholder votes and conduct proxy solicitations in conjunction with their initial Business Combinations and related redemptions of public shares for cash upon consummation of such initial Business Combinations even when a vote is not required by law, we will have the flexibility to avoid such shareholder vote and allow our shareholders to sell their shares pursuant to the tender offer rules of the SEC. In that case, we will file tender offer documents with the SEC which will contain substantially the same financial and other information about the initial Business Combination as is required under the SEC’s proxy rules. We will consummate our initial Business Combination only if we have net tangible assets of at least $5,000,001 upon such consummation and, solely if we seek shareholder approval, a majority of the outstanding ordinary shares voted are voted in favor of the Business Combination.
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1. Nature of Operations – (continued)
We have until June 16, 2017 to consummate our initial Business Combination. If we are unable to consummate our initial Business Combination within such time period, we will distribute the aggregate amount then on deposit in the Trust Account pro rata to our public shareholders by way of the redemption of their shares and will cease all operations except for the purposes of winding up of our affairs, as further described herein. In such event, our warrants will expire worthless. We expect the per share redemption price to be $10.00 per ordinary share, without taking into account any interest earned on such funds. However, we may not be able to distribute such amounts as a result of claims of creditors which may take priority over the claims of our public shareholders. In that case, it may be possible that the per-share value of the residual assets remaining available for distribution will be less than the initial public offering price per Unit in the Offering.
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the ‘‘JOBS Act’’) permits emerging growth companies to delay complying with new or revised financial accounting standards that do not yet apply to private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act). The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
2. Summary of Significant Accounting Policies
Basis of presentation
The accompanying unaudited interim financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (‘‘GAAP’’) for interim information and in accordance with the instructions to Form 10-Q and Article 8 and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying financial statements do not include all of the information and notes required by GAAP for a complete financial statement presentation. In the opinion of management, the interim financial statements reflect all adjustments (consisting of normal, recurring adjustments) that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
Development stage company
The Company complies with the Financial Accounting Standards Board issued Accounting Standards Update (‘‘ASU’’) No. 2014-10, which eliminated certain financial reporting requirements of companies previously identified as ‘‘Development Stage Entities’’ (Topic 915). The amendments in this ASU simplify accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments also reduce data maintenance and, for those entities subject to audit, audit costs by eliminating the requirement for development stage entities to present inception-to-date information in the statements of income, cash flows, and shareholder equity. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915. For public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein.
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2. Summary of Significant Accounting Policies – (continued)
Liquidation and Going Concern
If the Company does not complete a Business Combination by June 16, 2017, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, divided by the number of then outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining holders of ordinary shares and our board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations to provide for claims of creditors and the requirements of other applicable law. The holders of the insider shares will not participate in any redemption distribution. Holders of warrants will receive no proceeds in connection withthe redemption or liquidation.
In the event of liquidation, 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 Public Offering.
These conditions raise substantial doubt about our ability to continue as a going concern.
Net earnings (loss) per ordinary share
The Company complies with the accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. Net earnings (loss) per ordinary share is computed by dividing net earnings (loss) applicable to ordinary shareholders by the weighted average number of ordinary shares outstanding for the period. At August 31, 2016 and November 30, 2015, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into ordinary shares and then share in the earnings of the Company. The Company has not considered the effect of warrants to purchase ordinary shares in the calculation of diluted loss per share, since the exercise of the warrants is contingent upon the occurrence of future events. As a result, diluted earnings (loss) per ordinary share is the same as basic earnings (loss) per ordinary share for the periods presented.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentration 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.
Fair value of financial instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC Topic 820, ‘‘Fair Value Measurements and Disclosures,’’ approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
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2. Summary of Significant Accounting Policies – (continued)
Offering costs
Offering costs consisted principally of legal, accounting and underwriting costs incurred through the balance sheet date that were directly related to the Offering. Offering costs amounting to $12,596,191 were charged to shareholders’ equity upon completion of the Offering.
Cash and securities held in Trust Account
The assets held in the Trust Account were held in cash and U.S. Treasury Bills.
Ordinary shares subject to possible redemption
The Company accounts for its ordinary shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. The Company’s ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at August 31, 2016 and November 30, 2015, the ordinary shares subject to possible redemption in the amount of $189,193,680 and $189,191,703 (or 18,919,368 and 18,919,170 shares), respectively, are presented as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheets.
Income taxes
The Company complies with the accounting and reporting requirements of FASB ASC Topic 740, ‘‘Income Taxes,’’ which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
FASB ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits as of August 31, 2016 and November 30, 2015. No amounts were accrued for the payment of interest and penalties at August 31, 2016 and November 30, 2015. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company 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. state 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.
Accounts payable, accrued expenses and due to affiliate
Accounts payable and accrued expenses represent amounts the Company owes to its vendors as of the balance sheet date. Due to affiliate represents general and administrative costs, professional fees and due diligence costs paid by an affiliate on behalf of the Company. These advances are non-interest bearing, unsecured and payable on demand.
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2. Summary of Significant Accounting Policies – (continued)
Recently issued accounting standards
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
3. Public Offering
On June 16, 2015, the Company sold 20,000,000 units at a price of $10.00 per unit (“Public Units”) in the Offering, including the sale of units upon partial exercise of the underwriters’ overallotment option. Each Public Unit consists of one of the Company’s ordinary shares, no par value, and one warrant. Each warrant entitles the registered holder to purchase one-half of one ordinary share at a price of $5.75 per half share, subject to adjustment as discussed below, at any time commencing on the later of 12 months from the closing of the Offering or 30 days after the completion of our initial Business Combination. Warrants may be exercised only for a whole number of ordinary shares. No fractional shares will be issued upon exercise of the warrants. The warrants will expire five years after the completion of an initial Business Combination, or earlier upon redemption, as described below.
Notwithstanding the foregoing, no public warrants will be exercisable for cash unless we have an effective and current registration statement covering the ordinary shares issuable upon exercise of the warrants and a current prospectus relating to such ordinary shares. Notwithstanding the foregoing, if a registration statement covering the ordinary shares issuable upon exercise of the public warrants is not effective within a specified period following the consummation of our initial Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when we shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis in the same manner as if we called the warrants for redemption and required all holders to exercise their warrants on a “cashless basis.” In such event, each holder would pay the exercise price by surrendering the warrants for that number of ordinary shares equal to the quotient obtained by dividing (x) the product of the number of ordinary shares underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” for this purpose will mean the average reported last sale price of the ordinary shares for the 10 trading days ending on the trading day prior to the date of exercise. There will be no net cash settlement of the warrants under any circumstances.
In connection with the Offering, the Sponsor and its designees, and an entity controlled by one of our directors, purchased from us an aggregate of 14,050,000 warrants (‘‘Private Warrants’’) at $0.50 per warrant (for a total purchase price of $7,025,000). These purchases took place on a private placement basis simultaneously with the consummation of the Offering. Each Private Warrant is exercisable to purchase one-half of one ordinary share at $5.75 per half share. All of the proceeds received from this private placement were placed in the Trust Account.
The Private Warrants are identical to the warrants included in the units sold in the Offering except the Private Warrants are non-redeemable and may be exercised on a cashless basis, at the holder’s option, in each case so long as they continue to be held by the initial purchasers or their permitted transferees. The purchasers have also agreed not to transfer, assign or sell any of the Private Warrants or underlying securities (except to the same permitted transferees as the insider shares and provided the transferees agree to the same terms and restrictions as the permitted transferees of the Private Warrants must agree to, each as described below) until 30 days after the completion of our initial Business Combination.
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4. Related Party Transactions
On April 8, 2015, our Sponsor subscribed for an aggregate of 3,737,500 of our ordinary shares (‘‘Insider Shares’’) for an aggregate purchase price of $25,000, or approximately $0.00669 per share.
On April 22, 2015, the Company effected a bonus share issue of 0.03655250836 ordinary shares for each outstanding ordinary share, resulting in the Sponsor owning an aggregate of 3,874,115 Insider Shares. Also on April 22, 2015, our four independent directors purchased an aggregate of 92,000 of our Insider Shares, and an entity controlled by another director purchased an aggregate of 346,385 of our Insider Shares, for an aggregate purchase price of approximately $2,932, or approximately $0.00669 per share. The Company accounted for the bonus share issue as a share dividend in form because the total issuance of additional shares was less than 20% of the number of previously outstanding shares.
On June 10, 2015, the entity controlled by a director transferred 45,994 of its 346,385 shares to the Sponsor for a price equal to the original subscription cost of approximately $0.00669 per share, resulting in the Sponsor owning 3,920,109 Insider Shares. Also on June 10, 2015, the Company effected a bonus share issue of 0.16666666666667 ordinary shares for each outstanding ordinary share, resulting in the Sponsor owning an aggregate of 4,573,461 Insider Shares, each of the four independent directors owning 26,833 Insider Shares, and an entity controlled by another director owning 350,457 Insider Shares. The Company accounted for this bonus share issue as a share dividend in form because the total issuance of additional shares was less than 20% of the number of previously outstanding shares.
On June 16, 2015, the Company’s initial shareholders forfeited an aggregate of 31,250 Insider Shares, so that the initial shareholders own 20.0% of the Company’s issued and outstanding ordinary shares after the Offering.
The Insider Shares are identical to the ordinary shares included in the units sold in the Offering. However, the holders have agreed (A) to vote the Insider Shares in favor of any proposed Business Combination, (B) not to propose, or vote in favor of, an amendment to our memorandum and articles of association with respect to our pre-Business Combination activities prior to the consummation of such a Business Combination unless we provide dissenting public shareholders with the opportunity to redeem their public shares in connection with any such vote, (C) not to redeem any shares (including the Insider Shares) into the right to receive cash from the Trust Account in connection with a shareholder vote to approve our proposed initial Business Combination (or sell any shares they hold to us in a tender offer in connection with a proposed initial Business Combination) or a vote to amend the provisions of our memorandum and articles of association relating to shareholders’ rights or pre-Business Combination activity and (D) that the Insider Shares shall not participate in any liquidating distribution upon winding up if a Business Combination is not consummated. Additionally, the holders have agreed not to transfer, assign or sell any of the Insider Shares (except to certain permitted transferees) until the earlier of (i) one year after the date of the consummation of our initial Business Combination or (ii) if after 150 days after our initial Business Combination, the closing price of our ordinary shares equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30 trading day period. Notwithstanding the foregoing, these transfer restrictions will be removed earlier if, after our initial Business Combination, we consummate a subsequent (i) liquidation, merger, stock exchange or other similar transaction which results in all of our shareholders having the right to exchange their ordinary shares for cash, securities or other property or (ii) consolidation, merger or other change in the majority of our management team.
In addition, our Sponsor and an entity controlled by one of our directors purchased an aggregate of 14,050,000 Private Warrants at a price of $0.50 per warrant ($7,025,000 in the aggregate) in a private placement that occurred simultaneously with the closing of the Offering. The proceeds from the private placement of the Private Warrants from the Offering were placed in the Trust Account.
The Private Warrants are identical to the warrants included in the units sold in the Offering except the Private Warrants are non-redeemable and may be exercised on a cashless basis, at the holder’s option, in each case so long as they continue to be held by the initial purchasers or their permitted transferees. The purchasers have also agreed not to transfer, assign or sell any of the Private Warrants or underlying securities (except to the same permitted transferees as the Insider Shares and provided the transferees agree to the same terms and restrictions as the permitted transferees of the Private Warrants must agree to, each as described above) until 30 days after the completion of our initial Business Combination.
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4. Related Party Transactions – (continued)
If the Company does not complete the Business Combination, then the Private Placement Warrants proceeds will be part of the liquidation distribution to the public shareholders and the Private Placement Warrants will expire worthless.
As of August 31, 2016 and November 30, 2015, an affiliate of our sponsor is owed $121,277 and $60,095, respectively for general and administrative costs, due diligence costs and professional fees paid on our behalf. These advances are non-interest bearing and unsecured.
Commencing on June 10, 2015, the date that our securities were first listed on Nasdaq, we have agreed to pay an affiliate of our Sponsor a total of $10,000 per month for general and administrative services including office space, utilities and secretarial support. For the three months and nine months ended August 31, 2016 total fees paid under this agreement were $30,000 and $90,000, respectively, compared to $26,666 for both the three months ended August 31, 2015 and for the period from December 12, 2014 (date of inception) through August 31, 2015.
5. Deferred Underwriting Compensation
The Company is committed to pay deferred underwriting compensation (“Deferred Discount”) totaling $6,750,000 (approximately 3.375%) of the gross offering proceeds of the Offering, to the underwriters upon the Company’s consummation of the Business Combination. The underwriters are not entitled to any interest accrued on the Deferred Discount, and no Deferred Discount is payable to the underwriters if there is no Business Combination.
6. Trust Account
A total of $200,000,000, which includes $192,975,000 of the net proceeds from the Offering and $7,025,000 from the sale of the Private Warrants, has been placed in the Trust Account. As of August 31, 2016 and November 30, 2015, the balance in the Trust Account was $200,617,138 and $200,061,928, respectively.
As of August 31, 2016, the Company’s Trust Account consisted of $200,478,941 in U.S. Treasury Bills, $134,921 in accrued interest and $3,276 in cash. The Company classifies its U. S. 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 August 31, 2016 and November 30, 2015 balance sheets and adjusted for the amortization or accretion of premiums or discounts.
The gross holding gains / (losses) and fair value of held-to-maturity securities at August 31, 2016 and November 30, 2015 is as follows:
| Held-To-Maturity | Amortized Cost | Gross Holding Gains / (Losses) | Fair Value | |||||||||||
| At August 31, 2016 | U.S. Treasury Securities (Mature on 12/29/2016) | $ | 200,613,862 | $ | 30,132 | $ | 200,643,994 | |||||||
| At November 30, 2015 | U.S. Treasury Securities (Mature on 12/24/2015) | $ | 200,060,961 | $ | (4,966 | ) | $ | 200,055,995 | ||||||
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7. Fair Value Measurements
The Company complies with ASC 820, “Fair Value Measurement”, 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 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, 2016 and November 30, 2015, 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:
| Description | August 31, 2016 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Cash and securities held in Trust Account | $ | 200,617,138 | $ | 200,617,138 | $ | - | $ | - | ||||||||
| Description | November 30, 2015 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Cash and securities held in Trust Account | $ | 200,061,928 | $ | 200,061,928 | $ | - | $ | - | ||||||||
8. Shareholders’ Equity
Ordinary Shares
The Company is authorized to issue an unlimited number of ordinary shares with no par value. At August 31, 2016 and November 30, 2015, there were 25,000,000 shares issued and outstanding, which includes 18,919,368 and 18,919,170 shares subject to possible redemption, respectively.
Preferred Shares
The Company is authorized to issue an unlimited number of preferred shares with no par value divided into five classes (Class A — Class E). At August 31, 2016 and November 30, 2015, there were no preferred shares issued and outstanding. The rights, privileges, restrictions and conditions of all five classes of preferred shares have not been determined and, accordingly, these features will be attached to each class as they are issued, through amendments to the Articles of Association.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References to the “Company,” “us” or “we” refer to Electrum Special Acquisition Corporation. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the interim financial statements and the notes thereto contained elsewhere in this quarterly report on Form 10-Q (“Report”). Additionally, the following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in our Annual Report on Form 10-K for the year ended November 30, 2015. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our business strategy and the plans and objectives of management for future operations, are forward looking statements. When used in this Report, 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 certain factors detailed in our filings with the Securities and Exchange Commission (the “SEC”). 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.
Overview
We are a blank check company incorporated in the British Virgin Islands as a business company and formed for the purpose of acquiring, engaging in a share exchange, share reconstruction and amalgamation, purchasing all or substantially all of the assets of, entering into contractual arrangements, or engaging in any other similar business combination with one or more businesses or entities, which we refer to throughout this Report as a target business. Our efforts to identify a target business will not be limited to a particular industry or geographic region, although we intend to focus our search on target businesses that operate in the metals and mining industry, with an emphasis on gold and other precious metals, which we refer to throughout this Report as our “Business Combination.” We consummated our initial public offering (the “Public Offering”) on June 16, 2015. We are currently in the process of evaluating and identifying targets for a business combination. We intend to use cash from the proceeds of our initial public offering (including proceeds from the partial exercise by the underwriters of their over-allotment option), the sale of the private placement warrants, our capital stock, and our debt or a combination of our cash, stock and debt to fund a business combination. We are evaluating acquisition opportunities and, at any given time, may be in various stages of due diligence or preliminary discussions with respect to a number of potential acquisitions. From time to time, we may enter into non-binding letters of intent, but we are currently not subject to any definitive agreement with respect to any business combination. However, we cannot assure you that we will identify any suitable target candidates or, if identified, that we will be able to complete the acquisition of such candidates on favorable terms or at all.
Results of Operations
For the three months and nine months ended August 31, 2016, we had a net loss of $17,605 and net earnings of $1,976, respectively, compared to a net loss of $129,150 and $141,181, respectively, for the three months ended August 31, 2015 and for the period from December 12, 2014 (inception) to August 31, 2015. The net earnings for the nine months ended August 31, 2016 consisted of $553,234 in operating costs offset by $555,210 in interest income earned on the funds held in the trust account. The net loss for the three months ended August 31, 2016 consisted of $204,604 in operating costs offset by $186,999 in interest income earned on the funds held in the trust account. The operating expenses principally consisted of due diligence expenses related to the search for a target business, professional fees related to the public filings and general operating expenses.
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The Company’s entire activity from December 12, 2014 (inception) through June 16, 2015, was in preparation for the Public Offering, which was consummated on that date. Since that date, the Company has engaged in a search for a target for the Business Combination. We believe that we have sufficient funds available to complete our efforts to effect a Business Combination with an operating business within the required 24 months from our Public Offering.
Liquidity and Capital Resources
As of August 31, 2016, we had cash of $439,669. Until the consummation of the Public Offering, the Company’s only source of liquidity was an initial purchase of our ordinary shares and a series of advances made by an affiliate of the Company. These advances are non-interest bearing and unsecured.
On June 16, 2015, we consummated the Public Offering of 20,000,000 units at a price of $10.00 per unit. Simultaneously with the consummation of the Public Offering, we consummated the private sale of an aggregate of 14,050,000 warrants, each exercisable to purchase one-half of one ordinary share at $5.75 per half share, to the Sponsor and an entity controlled by one of our directors at a price of $0.50 per warrant, generating gross proceeds of $7,025,000. We received net proceeds from the Company’s Public Offering and the sale of the Private Placement Warrants of approximately $201,175,000, net of the non-deferred portion of the underwriting commissions and fees of $5,250,000 and offering costs and other expenses of approximately $600,000. For a description of the proceeds generated in the Company’s Public Offering and a discussion of the use of such proceeds, refer to Note 3 and Note 5 of the unaudited financial statements included in Part I, Item 1 and Part II, Item 2 of this Report.
As of August 31, 2016, $200,617,138 was held in the Trust Account and we had cash outside of trust of $439,669 and $209,241 in accounts payable, accrued expenses and amounts due to an affiliate. Through August 31, 2016, the Company had not withdrawn any funds from interest earned on the trust proceeds. Other than the deferred underwriting compensation, no amounts are payable to the underwriters of the Public Offering in the event of a Business Combination.
Liquidation and Going Concern
If the Company does not complete a Business Combination by June 16, 2017, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, divided by the number of then outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining holders of ordinary shares and our board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to our obligations to provide for claims of creditors and the requirements of other applicable law. The holders of the insider shares will not participate in any redemption distribution. Holders of warrants will receive no proceeds in connection withthe redemption or liquidation.
In the event of liquidation, 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 Public Offering.
These conditions raise substantial doubt about our ability to continue as a going concern.
Off-Balance Sheet Arrangements
As of August 31, 2016, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
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Contractual Obligations
We do not have any long term debt, capital lease obligations, operating lease obligations or purchase obligations other than a monthly fee of $10,000 payable to The Electrum Group LLC, an affiliate of our Sponsor, for office space, utilities, secretarial and administrative services, effective as of June 10, 2015, the effective date of the registration statement for our initial public offering.
Critical Accounting Policies
The preparation of interim financial statements and related disclosures in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the interim financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. We have identified the following as our critical accounting policies:
Earnings (loss) per ordinary share
Earnings (loss) per ordinary share is computed by dividing net loss applicable to ordinary shareholders by the weighted average number of ordinary shares outstanding for the period.
Income taxes
Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Recent accounting pronouncements
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We were incorporated in the British Virgin Islands on December 12, 2014 for the purpose of effecting a business combination. As of August 31, 2016, we were considered in the development stage and had not yet commenced any operations or generated any revenues. All activity through August 31, 2016, relates to our formation, preparing for our initial public offering, general corporate matters, and searching for a target for the Business Combination. We did not have any financial instruments that were exposed to market risks as of August 31, 2016.
ITEM 4.Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer (who also serves as our principal financial officer), to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of August 31, 2016. Based upon his evaluation, our Chief Executive Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, out internal control over financial reporting.
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None.
Factors that could cause our actual results to differ materially from those in this Report are any of the risks described in our annual report on Form 10-K filed with the SEC on February 24, 2016. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
As of the date of this Report, there have been no material changes to the risk factors disclosed in our Form 10-K filed on February 24, 2016 with the SEC; however, we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Use of Proceeds from our Initial Public Offering
On June 16, 2015, we closed our initial public offering of 20,000,000 units (including 2,500,000 units issued pursuant to the underwriters’ partial exercise of their over-allotment option), with each unit consisting of one ordinary share and one warrant to purchase one-half of one ordinary share at an exercise price of $5.75 per half share. All of the units registered were sold at an offering price of $10.00 per unit and generated gross proceeds of $200,000,000. The securities sold in our initial public offering were registered under our registration statements on Form S-1 (Nos. 333-203599 and 333-204866), declared effective on June 10, 2015. On June 16, 2015, our sponsor and our other initial shareholders forfeited an aggregate of 31,250 ordinary shares in connection with the underwriters’ partial exercise of their over-allotment option, so that such shareholders continue to collectively own 20.0% of the Company’s issued and outstanding ordinary shares after the initial public offering.
We received net proceeds of approximately $201,175,000 from our initial public offering (including proceeds from the partial exercise by the underwriters of their over-allotment option). Of those net proceeds, $6,750,000 is attributable to the deferred underwriters’ discount. Expenses related to the offering totaled approximately $5,850,000. $200,000,000 of the net proceeds from the initial public offering were deposited into the Trust Account and will be part of the funds distributed to our public shareholders in the event we are unable to complete a business combination. Except with respect to interest earned on the funds held in the Trust Account that may be released to us to pay our franchise and income tax obligations, the proceeds from our initial public offering will not be released from the trust account until the earlier of (a) the completion of our business combination or (b) the redemption of our public shares if we are unable to complete our business combination within 24 months from June 16, 2015, subject to applicable law. The remaining net proceeds of approximately $1,175,000 not held in the trust account became available to use to cover operating expenses. This limitation on our working capital will preclude us from declaring and paying dividends.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
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None.
| Exhibit No. | Description | |
| 31* | Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32* | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Schema Document | |
| 101.CAL* | XBRL Calculation Linkbase Document | |
| 101.DEF* | XBRL Definition Linkbase Document | |
| 101.LAB* | XBRL Label Linkbase Document | |
| 101.PRE* | XBRL Presentation Linkbase Document |
* Filed herewith.
| 17 |
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ELECTRUM SPECIAL ACQUISITION CORPORATION | ||
| By: | /s/ Eric N. Vincent | |
| Eric N. Vincent | ||
| Chief Executive Officer and Secretary (principal executive officer and principal financial and accounting officer) | ||
Date: October 14, 2016
EXHIBIT INDEX
| Exhibit No. | Description | |
| 31* | Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32* | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Schema Document | |
| 101.CAL* | XBRL Calculation Linkbase Document | |
| 101.DEF* | XBRL Definition Linkbase Document | |
| 101.LAB* | XBRL Label Linkbase Document | |
| 101.PRE* | XBRL Presentation Linkbase Document | |
* Filed herewith.