The accompanying notes are an integral part of the unaudited
financial statements.
The accompanying notes are an integral part of the unaudited
financial statements.
The accompanying notes are an integral part of the unaudited
financial statements.
The accompanying notes are an integral part of the unaudited
financial statements.
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to March 31, 2013
(
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 had not yet identified (“Initial
Business Combination”). As of March 31, 2013, he Company had neither engaged in any operations nor generated any income,
other than interest on the trust account assets (the “Trust Account”). As of March 31, 2013, the Company was considered
to be in the development stage as defined in FASB Accounting Standards Codification 915, or FASB 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.
All activity through March 31, 2013 relates to the Company’s
formation, initial public offering (“Offering”) and identification and investigation of prospective target businesses
with which to consummate an Initial 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 originally
payable upon consummation of an Initial Business Combination, which amount was reduced to $500,000 in April 2013) and includes
$3,000,000 received for the purchase of 4,000,000 warrants by SCG Financial Holdings LLC (the “Sponsor”). Total offering
costs (excluding $2,000,000 in underwriting fees, which was subsequently reduced to $500,000) was $433,808.
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 were intended to be generally
applied toward consummating an Initial 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 was 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 were to be maintained until
the earlier of (i) the consummation of an Initial Business Combination or (ii) the distribution of the Trust Account as described
below.
On May 2, 2012, the Company’s common stock commenced trading on The Nasdaq Capital Market (“Nasdaq”),
under the symbol “SCGQ”. Prior to May 2, 2012, the common stock was quoted on the Over-the-Counter Bulletin Board
quotation system under the same symbol. The warrants and units continue to be quoted on the Over-the-Counter Bulletin Board quotation
system under the symbols SCGQW and SCGQU, respectively.
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to March 31, 2013
(Unaudited)
On January 11, 2013, the Company entered into an Agreement and
Plan of Merger (the “RMG Merger Agreement”) with Reach Media Group Holdings, Inc. (“RMG”), pursuant to
which the Company acquired RMG as its Initial Business Combination, effective April 8, 2013. Pursuant to the RMG Merger Agreement,
the Company conducted a tender offer pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act (the “Tender Offer”).
See Note J – Subsequent Events.
On March 1, 2013, the Company entered into
an Agreement and Plan of Merger (the “Symon Merger Agreement”) with Symon Holdings Corporation (“Symon”),
pursuant to which the Company acquired Symon, effective April 19, 2013. See Note J – Subsequent Events.
The Company formed SCG Financial Merger II Corp. and
SCG Financial Merger III Corp. for the purposes of its business combinations with RMG and Symon on January 10, 2013 and
February 27, 2013, respectively. These subsidiaries were inactive during the period ended March 31, 2013.
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to March 31, 2013
(Unaudited)
NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited interim financial statements should
be read in conjunction with the audited statements and notes thereto included in the Company’s 2012 Annual Report on Form
10-K filed with the SEC on March 14, 2013. The accompanying unaudited 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 March 31, 2013 and the results of operations for the three months ended March 31, 2013 and 2012 and the period from January
5, 2011 (date of inception) to March 31, 2013. The balance sheet as of December 31, 2012, as presented herein, was derived from
the Company’s audited financial statements as reported in previous filings with the SEC. 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.
Development stage company
The Company complies with the reporting requirements of FASB
ASC 915, “Development Stage Entities.” At March 31, 2013, the Company had not commenced any operations nor generated
revenue to date, other than interest on the Trust Account balance. All activity through March 31, 2013 relates to the Company’s
formation, the Offering and the investigation of prospective target businesses with which to consummate an Initial 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 March 31, 2013, 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. 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.
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to March 31, 2013
(Unaudited)
Restricted cash equivalents held in the Trust Account
The amounts held in the Trust Account represented substantially all of the proceeds of the Offering and
were classified as restricted assets since such amounts could only be used by the Company in connection with the consummation of
an Initial Business Combination. As of March 31, 2013, the funds held in the Trust Account were invested primarily in United States
Treasury Securities.
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 sheets.
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 of the Offering contain
a redemption feature which allowed for the redemption of common shares under the Company’s liquidation or tender offer/stockholder
approval provisions. In accordance with FASB ASC 480, redemption provisions not solely within the control of the Company require
the security to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation
of all of the entity’s equity instruments, are excluded from the provisions of FASB ASC 480. Although the Company does not
specify a maximum redemption threshold, its Charter provides that in no event will it redeem any of its public shares in an amount
that would cause its net tangible assets (stockholders’ equity) to be less than $5,000,001. In such case, the Company would
not proceed with the redemption of its public shares and the related Initial Business Combination, and instead would have been
entitled to search for an alternate Initial Business Combination.
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 three months
ended March 31, 2013 and period from January 5, 2011 (date of inception) to December 31, 2012, changes from the initial redemption
value were $657,555 and $68,420,583, respectively, while changes from the initial number of shares subject to redemption were 65,755
and 6,842,058, respectively. Changes in redemption value and amounts are primarily due to the net income of the Company. Accordingly,
at March 31, 2013 and December 31, 2012, 6,776,303 and 6,842,058 public shares, respectively, are classified outside of permanent
equity at their redemption value. The redemption value is equal to the pro rata share of the aggregate amount then on deposit in
the Trust Account, including interest but less franchise and income taxes payable (approximately $10.00 per share at March 31,
2013).
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 March 31, 2013
(Unaudited)
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.
Equity-based payments to non-employees
The
Company complies with the accounting and reporting requirements of FASB ASC 505-50 “Equity-Based Payments
to Non-Employees” which require companies to record compensation expense for transactions that involve the issuance
of equity instruments in exchange for goods or services with non-employees. The amount of the compensation expense is based
on the estimated fair value of the awards of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. During the three month period ended March 31, 2013, the Company issued
120,000 shares of common stock to DRW Commodities, LLC (“DRW”), as assignee of
2012
DOOH Investments LLC (“DOOH”), an entity controlled by Donald R. Wilson, Jr., pursuant to the terms of an
equity commitment letter entered into in December 2012 between the Company and DOOH (and subsequently assigned to DRW),
pursuant to which DRW agreed to purchase from the Company and/or in the open market or through privately negotiated
transactions, an aggregate of two million three hundred fifty thousand (2,350,000) shares of common stock of the
Company. DRW agreed not to redeem its shares from the Trust prior to the consummation of the Company’s
contemplated business combinations.
Income taxes
The Company complies with the accounting and reporting requirements
of Financial Accounting Standards Board Accounting Standards Codification 740, 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 March 31, 2013.
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 March 31, 2013. The Company is not currently 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 March 31, 2013.
The Company is subject to income tax examinations by major
taxing authorities and has been since its inception. The Company may be subject to potential examination by U.S. federal, U.S.
states or foreign jurisdiction authorities in the areas of income taxes. These potential examinations may include questioning
the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with U.S. federal, U.S.
state and foreign tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits
will materially change over the next twelve months.
Recently issued accounting standards
The Company does not believe that the adoption of any recently
issued, but not yet effective, accounting standards will have a material impact on its financial position and results of operations.
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to March 31, 2013
(Unaudited)
NOTE C—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 an Initial Business Combination, and will expire five years from the date of the consummation of the Initial 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 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 initial public offering. The warrants expire five years after the date of the Company's
initial business combination. The warrants issued contain a restructuring price adjustment provision in the event of 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 $4,440,000 and $3,000,000 as of March 31, 2013 and December 31, 2012, respectively. This valuation
is revised on a quarterly basis until the warrants are exercised or they expire with the changes in fair value recorded in the
statement of operations.
NOTE E—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. The Company issued two $100,000 unsecured promissory notes to the Sponsor on August 15, 2012 and
October 11, 2012. These notes are non-interest bearing and are payable upon the consummation of the Initial Business Combination
or liquidation. Both of the $100,000 promissory notes were transferred to Gregory H. Sachs, Chief Executive Officer, on November
18, 2012. The Company issued $100,000, $360,000, $150,000, $50,000 and $435,000 unsecured promissory notes to the Sponsor on
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to March 31, 2013
(Unaudited)
December 5, 2012, December 21, 2012, January 11, 2013, March 13, 2013 and March 28, 2013, respectively.
These notes are also non-interest bearing and were payable upon the consummation of the Initial Business Combination or liquidation.
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 (as a result of the underwriters not exercising their overallotment option) 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 an Initial 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 the consummation of an Initial Business Combination,
subject to earlier release in certain circumstances.
The Sponsor purchased, in a private placement,
4,000,000 warrants (the “Sponsor Warrants”) prior to the Offering at a price of $0.75 per warrant (an aggregate 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 Sponsor 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 Sponsor Warrants will
not be sold or transferred until 30 days following consummation of an Initial Business Combination, subject to certain limited
exceptions. The Sponsor Warrants are accounted for in accordance with ASC 480-10-S99.
The Company 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 and secretarial and administrative services, with
up to an additional $7,500 for other operating expenses incurred by the Sponsor on behalf of the Company. The Company has
paid Sachs Capital Group, L.P. $172,500 under this agreement. This agreement was to expire upon the earlier of: (a) the
successful completion of our Company’s Initial Business Combination, (b) January 12, 2013 (plus one 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. This agreement terminated upon the consummation of
the Initial Business Combination on April 9, 2013 and through the date of this report, the additional $7,500 has not been
paid to Sachs Capital Group LP.
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 F—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. On February 7, 2013, an Amendment
to the Underwriting Agreement by and between the Company and the underwriter was executed, whereby the deferred underwriting commission
was reduced from $2,000,000 to $500,000.
On February 5, 2013, the Company engaged
an investment bank in connection with the possible acquisition or purchase by the Company of RMG and Symon. For each transaction,
a fee of $750,000 would be payable upon consummation thereof, for a maximum fee of $1,500,000, plus expenses.
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to March 31, 2013
(Unaudited)
NOTE G—INVESTMENT IN TRUST ACCOUNT
On April 27, 2011, $80,000,000 from the Offering and the sale of the Sponsor Warrants that was placed
in a Trust Account was invested, as provided in the Company’s registration statement. The Company was permitted
to invest the proceeds of the Trust Account in U.S. “government securities,” within the meaning of Section 2(a)(16)
of 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 were to be maintained until the earlier of (i) the consummation of an Initial
Business Combination or (ii) the distribution of the Trust Account.
Investment securities in the Company’s Trust Account
consist of $80,000,000 and $79,999,200 in United States Treasury Bills and $10,661 and $2,592 of cash equivalents as of March
31, 2013 and December 31, 2012, respectively. 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, gross unrealized holding gains and fair value of held-to-maturity securities at March 31, 2013 and December
31, 2012 are as follows:
|
|
Carrying
Amount
|
|
|
Gross
Unrealized
Holding
Gains (Loss)
|
|
|
Fair Value
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Securities – March 31, 2013
|
|
$
|
79,999,870
|
|
|
$
|
130
|
|
|
$
|
80,000,000
|
|
U.S. Treasury Securities – December 31, 2012
|
|
$
|
79,997,945
|
|
|
$
|
1,255
|
|
|
$
|
79,999,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE H—FAIR VALUE MEASUREMENTS
The Company adopted FASB ASC 820, “Fair Value Measurements”
for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial
assets and liabilities that are re-measured and reported at fair value at least annually. The adoption of FASB 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 March 31, 2013 and December 31, 2012.
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.
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to March 31, 2013
(Unaudited)
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 the three month period ended March 31, 2013 or the year ended December 31, 2012. 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 March 31, 2013 and December 31, 2012, and indicates
the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values
determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values
determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair
values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there
is little, if any, market activity for the asset or liability:
Description
|
|
Fair Value
|
|
|
Quoted Prices
In
Active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Other
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Securities held in Trust Account:
March 31, 2013
|
|
$
|
80,000,000
|
|
|
$
|
80,000,000
|
|
|
|
—
|
|
|
|
—
|
|
December 31, 2012
|
|
$
|
79,999,200
|
|
|
$
|
79,999,200
|
|
|
|
—
|
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant Liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
$
|
4,440,000
|
|
|
|
—
|
|
|
$
|
4,440,000
|
|
|
|
—
|
|
December 31, 2012
|
|
$
|
3,000,000
|
|
|
|
—
|
|
|
$
|
3,000,000
|
|
|
|
—
|
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NOTE I—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 March 31, 2013, the Company has not issued any shares of preferred stock.
NOTE J—SUBSEQUENT EVENTS
On April 8, 2013, the Company consummated
its acquisition of RMG pursuant to the RMG Merger Agreement, among the Company, SCG Financial Merger II Corp., a Delaware corporation
and an indirect subsidiary of SCG (“RMG Merger Sub”), RMG, and Shareholder Representative Services LLC, a Colorado
limited liability company, solely in its capacity
as Stockholder Representative (the “Stockholder Representative”).
Pursuant to the terms of the RMG Merger Agreement, at the closing RMG was merged with and into RMG Merger Sub (the “RMG
Merger”), with RMG continuing as the surviving corporation. As a result of the RMG Merger, RMG became a wholly-owned, indirect
subsidiary of the Company. In connection with the RMG Merger, RMG’s former stockholders became entitled to receive (i) 400,001
shares of the Company’s common stock, of which 300,000 shares were deposited in an escrow account, (ii) $10,000 in cash,
payable pro rata to the former holders of RMG’s Series C Preferred Stock, and (iii) $10,000 in cash, all of which was deposited
in an escrow account to be used to reimburse the Stockholder Representative for any losses the Stockholder Representative might
incur pursuant to the terms and conditions of the RMG Merger Agreement. Additionally, at the closing of the RMG Merger, the Company
paid, on behalf of RMG and its subsidiaries, all indebtedness of RMG Networks, Inc., a Delaware corporation and a wholly-owned
subsidiary of RMG. The aggregate amount of indebtedness repaid was equal to $23,500,000 (consisting of $21,000,000 in cash and
250,000 shares of the Company’s common stock).
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to March 31, 2013
(Unaudited)
In connection with the RMG Merger, the Company provided its
stockholders with the opportunity to redeem their shares of common stock for cash equal to $10.00 per share, upon the consummation
of the RMG Merger, pursuant to the Tender Offer. The Tender Offer expired at 5:00 p.m. Eastern Time on April 5, 2013, and the Company
promptly purchased the 4,551,228 shares of common stock validly tendered and not withdrawn pursuant to the Tender Offer, for an
aggregate purchase price of approximately $45.5 million.
On April 8, 2013, the Company issued to each of Donald R. Wilson,
Jr. and Gregory H. Sachs warrants exercisable for 533,333 shares of the Company’s common stock (the “Note Conversion
Warrants”). The Note Conversion Warrants were issued upon the conversion by each of Mr. Wilson and Mr. Sachs of a Promissory
Note issued by the Company to the Sponsor in the aggregate principal amount of $800,000, which Promissory Note was subsequently
assigned by the Sponsor to Mr. Wilson and Mr. Sachs in the aggregate principal amount of $400,000 each. The conversion price of
the Promissory Notes was $0.75 per Note Conversion Warrant. The Company also repaid the remaining Promissory Notes issued by the
Company to (i) the Sponsor in an aggregate principal amount of $295,000 and (ii) Mr. Sachs in an aggregate principal amount of
$200,000, which Promissory Note had originally been issued by the Company to the Sponsor and was subsequently assigned to Mr. Sachs.
On April 19, 2013, the Company consummated its acquisition of Symon pursuant to the Symon Merger Agreement
among the Company, SCG Financial Merger III Corp., a Delaware corporation and an indirect wholly-owned Subsidiary of SCG (“Symon
Merger Sub”), Symon and Golden Gate Capital Investment Fund II, L.P., a Delaware limited partnership, solely in its capacity
as securityholders’ representative (the “Securityholders’ Representative”). Pursuant to the terms of the
Symon Merger Agreement, at the closing Symon Merger Sub was merged with and into Symon (the “Symon Merger”), with Symon
continuing as the surviving corporation. As a result of the Symon Merger, Symon became a wholly-owned subsidiary of the Company.
In connection with the Symon Merger, Symon’s stockholders received an aggregate of $45 million, minus (i) the amount of any
indebtedness of Symon and its subsidiaries as of the date, which indebtedness was repaid in full by us at the closing, (ii) $1,523,251,
representing the amount by which the expenses of Symon and its subsidiaries and securityholders in connection with the transactions
contemplated by the Symon Merger Agreement exceeded the permitted transaction-related costs of $2 million, and (iii) $250,000,
which amount was paid to the Securityholders’ Representative to be held in trust as a source of reimbursement for costs and
expenses incurred by the Securityholders’ Representative in such capacity. At the closing, the Company also paid the expenses
of Symon and its subsidiaries and securityholders incurred in connection with the transactions contemplated by the Symon Merger
Agreement.
On April 19, 2013, the Company entered into a Credit Agreement
by and among the Company and certain of its direct and indirect domestic subsidiaries party thereto from time to time as borrowers
(the “Borrowers”), certain of the Company’s direct and indirect domestic subsidiaries party thereto from time
to time as guarantors (the “Guarantors” and, together with the Borrowers, collectively, the “Loan Parties”),
the financial institutions from time to time party thereto as lenders (the “Senior Lenders”), Kayne Anderson Credit
Advisors, LLC, as administrative agent (the “Senior Administrative Agent”), and Comvest Capital II, L.P., as Documentation
Agent (the “Senior Credit Agreement”). The Senior Credit Agreement provides for a five-year $24 million senior secured
term loan facility (the “Senior Credit Facility”), which was funded in full on April 19, 2013. The Senior Credit Facility
is guaranteed jointly and severally by the Guarantors, and is secured by a first-priority security interest in substantially all
of the existing and future assets of the Loan Parties (the “Collateral”).
The Senior Credit Facility will bear
interest at a rate per annum equal to the Base Rate plus 7.25% or the LIBOR Rate plus 8.5%, at the election of the Borrowers.
If an event of default has occurred and is continuing under the Senior Credit Agreement, the interest rate applicable to borrowings
under the Senior Credit Agreement will automatically be increased by 2% per annum. The “Base Rate” and the “LIBOR
Rate” are defined in a manner customary for credit facilities of this type. The LIBOR Rate is subject to a floor of 1.5%.
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to March 31, 2013
(Unaudited)
The Company is required to make quarterly principal amortization
payments in the amount of $600,000 (subject to adjustment as provided in the Senior Credit Agreement), with the first such amortization
payment due on July 1, 2013. Subject to certain conditions contained in the Senior Credit Agreement, the Company may prepay the
principal of the Senior Credit Facility in whole or in part. In addition, the Company is required to prepay the principal of the
Senior Credit Facility (subject to certain basket amounts and exceptions) in amounts equal to (i) 50% of the “Excess Cash
Flow” of the Company and its subsidiaries for each fiscal year (as defined in the Senior Credit Agreement); (ii) 100% of
the net cash proceeds from asset sales, debt issuances or equity issuances by the Company or any of the other Loan Parties; and
(iii) 100% of any cash received by the Company or any of the other Loan Parties not in the ordinary course of business (excluding
cash from asset sales and debt and equity issuances), net of reasonable collection costs.
The Company will not be required to make any mandatory prepayment
to the extent that, after giving effect to such mandatory prepayment, the unrestricted cash on hand of the Loan Parties would be
less than $5 million. The amount of any mandatory prepayment not prepaid as a result of the foregoing sentence will be deferred
and shall be due and owing on the last day of each month thereafter, but in each case solely to the extent that unrestricted cash
on hand of the Loan Parties would exceed or equal $5 million after giving effect thereto.
On April 19, 2013, the Company entered into a Junior Credit
Agreement by and among the Borrowers, the Guarantors, the financial institutions from time to time party thereto as lenders (the
“Junior Credit Agreement Lenders”), and Plexus Fund II, L.P., as administrative agent for the Junior Credit Agreement
Lenders (the “Junior Credit Agreement Administrative Agent”) (the “Junior Credit Agreement”). The Junior
Credit Agreement provides for a five-year unsecured $2.5 million junior Term Loan A (issued with an original issue discount of
$315,000) and a five-year unsecured $7.5 million junior Term Loan B (the “Junior Loans”). Each of the Junior Loans
was funded in full on April 19, 2013. The Junior Loans are guaranteed jointly and severally by the Guarantors.
The Term Loan A will bear interest at a fixed rate of 12% per
annum and the Term Loan B will bear interest at a fixed rate equal to the greater of 16% per annum and the current rate of interest
under the Senior Credit Agreement relating to the Senior Credit Facility plus 4%. Interest owing under the Term B Loan shall be
paid quarterly in arrears of which 12% will be paid in cash and the remaining amount owed will be paid in kind. If an event of
default has occurred and is continuing under the Junior Credit Agreement, borrowings under the Junior Credit Agreement will automatically
be subject to an additional 2% per annum interest charge.
Borrowings under the Junior Credit
Agreement are generally due and payable on the maturity date, April 19, 2018. Following the repayment in full of the Senior Credit
Facility, the Company may voluntarily prepay the principal of the Junior Loans in whole or in part. In addition, the Company will
be required to prepay the Junior Loans in full upon the occurrence of a “change of control” under the Junior Credit
Agreement.
The required annual principal payments
on the Senior and Junior Credit Facilities are as follows:
|
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Principal Payments
|
|
|
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Senior Credit Facility
|
|
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Junior Credit Facility
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2013
|
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$
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1,200,000
|
|
|
$
|
-
|
|
2014
|
|
|
2,400,000
|
|
|
|
-
|
|
2015
|
|
|
2,400,000
|
|
|
|
-
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|
2016
|
|
|
2,400,000
|
|
|
|
-
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|
2017
|
|
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2,400,000
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|
|
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-
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2018
|
|
|
13,200,000
|
|
|
|
10,000,000
|
|
Total
|
|
$
|
24,000,000
|
|
|
$
|
10,000,000
|
|
SCG Financial Acquisition Corp.
(a development stage company)
NOTES TO INTERIM FINANCIAL STATEMENTS
For the period from January 5, 2011 (date
of inception) to March 31, 2013
(Unaudited)
In consideration for the Term Loan A under the Junior Credit
Agreement, the Company issued to the Junior Credit Agreement Lenders an aggregate of 31,500 SCG Common Shares on April 19, 2013.
In addition, on April 19, 2013 SCG also issued an aggregate of 31,500 SCG Common Shares to certain affiliates of Kayne Anderson
Mezzanine Partners in consideration for the assistance of Kayne Anderson Mezzanine Partners in arranging and structuring the financing
provided under the Junior Credit Agreement.
On April 19, 2013, the Company entered into a Common Stock Purchase
Agreement (the “DRW Purchase Agreement”) with DRW Commodities, LLC (“DRW”) pursuant to which DRW purchased
500,000 shares of the Company’s common stock, at a purchase price of $10 per share.
In April 2013, the Company issued 100,000 shares of the Company’s
common stock to the Donald R. Wilson, Jr. 2002 Trust (the "Trust"), pursuant to the terms of a financing commitment entered
into between the Company and the Trust on March 1, 2013, whereby the Trust provided a standby credit facility up to the aggregate
amount of (i) the Company’s obligations under the Symon Merger Agreement (ii) all out-of-pocket fees, expenses, and other
amounts payable by the Company under or in connection with the Symon Merger Agreement with Symon. Such amount was reduced by the
aggregate amount of cash available to the Company as of the closing date of the Symon Merger from cash on hand, cash from the sale
of shares in the IPO, and net cash proceeds from any alternative debt financing. The fixed rate of interest for the first twelve
months is 15% per annum, 5% of which will be payment-in-kind and added each month to the principal balance.
On April 25, 2012, SCG Financial Merger I Corp., a wholly-owned
subsidiary of the Company and the direct parent company of Symon and RMG (“SCG Intermediate”), entered into an employment
agreement with Garry K. McGuire, the Company’s Chief Executive Officer. Mr. McGuire is expected to provide his
services as Chief Executive Officer of the Company through this employment agreement with SCG Intermediate. Pursuant
to the employment agreement, Mr. McGuire has agreed to serve as Chief Executive Officer of SCG Intermediate for a three year term
commencing on April 25, 2013. Pursuant to the employment agreement, Mr. McGuire will also serve as a member of the Board
of Directors of SCG Intermediate. Under the employment agreement, Mr. McGuire is entitled to receive an annual salary
of $450,000 per year, subject to annual increases at the discretion of the Board of Directors. Mr. McGuire will also
be entitled to an annual bonus of up to $480,000 based on SCG Intermediate’s achievement of certain earnings before interest,
taxes and depreciation targets to be established by the Board of Directors on an annual basis. Bonus amounts payable
to Mr. McGuire payable to Mr. McGuire under his employment agreement will be calculated on a quarterly basis, and Mr. McGuire will
be paid a pro rata portion of the following the completion of each fiscal quarter. If Mr. McGuire receives quarterly
bonus payments in excess of the amount actually earned through the end of the fiscal year, Mr. McGuire will be required to repay
such excess bonus amounts to SCG Intermediate. Alternatively, SCG Intermediate may retain or forfeit other compensation,
payments or awards payable to Mr. McGuire until such excess bonus payments are recovered.
In May 2013, 120,000 shares of the
Company’s common stock that had been issued to DRW pursuant to an Equity Commitment Letter, dated December 14, 2012, between
the Company and DRW (as assignee of 2012 DOOH Investments, LLC), were returned to the Company and cancelled.
Our common stock is listed on the Nasdaq Capital Market, a national
securities exchange. On May 3, 2013, we received notification from the Nasdaq that it intends to delist our common stock, due to
our failure to satisfy the initial listing requirement that we have at least 300 “round lot” holders of our common
stock. We intend to submit an appeal letter to the Nasdaq hearings panel outlining our plan to remain in compliance with the listing
requirements, including by increasing our number of shareholders pursuant to a Form S-1 offering.