The accompanying notes
are an integral part of these unaudited condensed financial statements.
The accompanying notes are an integral part
of these unaudited condensed financial statements.
Notes to Financial Statements
Note 1 — Organization and Plan of Business Operations
HF2 Financial Management Inc. (a company
in the development stage) (the “Company”) is a Delaware corporation formed on October 5, 2012 as a blank check company
whose objective is to acquire, through a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization
or other similar business combination, one or more businesses or entities (a “Business Combination”).
The accompanying unaudited condensed financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) for interim financial information and pursuant to the accounting and disclosure rules and regulations of the U.S.
Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes
required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal accruals) considered for a fair presentation
have been included. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2014.
On February 13, 2013, the Company changed
its name from H2 Financial Management Inc. to HF2 Financial Management Inc. to avoid any potential confusion with other entities
using similar versions of the “H2” name in their respective businesses.
All activity from October 5, 2012 (inception)
through June 30, 2014 relates to the Company’s formation, initial public offering (described below) and the identification
and investigation of prospective target businesses with which to consummate a Business Combination.
The Company is considered to be a development
stage company and, as such, the Company’s financial statements are prepared in accordance with the Accounting Standards Codification
(“ASC”) topic 915 “Development Stage Entities.” The Company is subject to all of the risks associated with
development stage companies.
The registration statement for the Company’s
initial public offering was declared effective on March 21, 2013. On March 27, 2013, the Company consummated its initial public
offering (the “Public Offering”) through the sale of 15,300,000 shares (the “Public Shares”) of Class A
common stock, par value $0.0001 per share (“Class A Common Stock”) at $10.00 per share and received proceeds, net of
the underwriters’ discount and offering expenses, of $147,763,000. Simultaneously with the consummation of the Public Offering,
the Company sold 1,414,875 shares of Class A Common Stock (the “Sponsors’ Shares”) to the Company’s initial
stockholders (collectively, the “Sponsors”) at $10.00 per share in a private placement (the “Private Placement”)
and raised $13,910,939, net of commissions.
In connection with the Public Offering,
the Company granted the underwriters a 45-day option to purchase up to an additional 2,295,000 Public Shares to cover over-allotments.
On March 28, 2013, the underwriters elected to exercise the over-allotment option to the full extent of 2,295,000 Public Shares.
The Company closed the sale of the Public Shares pursuant to the exercise of the over-allotment option on April 1, 2013 and received
proceeds, net of the underwriters’ discount, of $22,284,450. Simultaneously with the closing of the sale of the Public Shares
pursuant to the exercise of the over-allotment option, the Company raised an additional $1,801,401, net of commissions, through
the sale of an additional 183,525 Sponsors’ Shares to the Sponsors in a private placement to maintain in the Trust Account
an amount equal to $10.50 per Public Share sold. See Note 3 – Public Offering and Private Placement.
The Company’s management has broad
discretion with respect to the specific application of the net proceeds of the Public Offering and the Private Placement, although
substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. However,
there is no assurance that the Company will be able to effect a Business Combination successfully. Upon the closing of the Public
Offering, including the over-allotment option, $184,747,500 (representing $10.50 per Public Share sold in the Public Offering),
including the proceeds of the Private Placements, was deposited in a trust account (the “Trust Account”). Substantially
all of the proceeds held in the Trust Account have been and will continue to be invested in United States government treasury bills
having a maturity of 180 days or less and/or in money market funds meeting certain conditions under Rule 2a-7 promulgated under
the Investment Company Act of 1940, as amended, that invest solely in U.S. treasuries until the earlier of the consummation of
its first Business Combination and the Company’s failure to consummate a Business
HF2 Financial Management Inc.
(A Company in the Development Stage)
Notes to Financial Statements
Combination within the prescribed time.
Placing funds in the Trust Account may not protect those funds from third party claims against the Company. Although the Company
will seek to have all vendors, service providers, prospective target businesses or other entities it engages, execute agreements
with the Company waiving any claim of any kind in or to any monies held in the Trust Account, there is no guarantee that such persons
will execute such agreements. Two of the Company’s officers and the estate of one of the Company’s former officers
have agreed to be jointly and severally liable under certain circumstances to ensure that the proceeds in the Trust Account are
not reduced by the claims of target businesses or vendors or other entities that are owed money by the Company for services rendered,
contracted for or products sold to the Company. However, they may not be able to satisfy those obligations should they arise. The
remaining net proceeds (not held in the Trust Account) may be used to pay for business, legal and accounting due diligence on prospective
acquisitions and continuing general and administrative expenses. In addition, interest income on the funds held in the Trust Account
may be released to the Company to pay its income, franchise and other tax obligations and to pay for its working capital requirements
in connection with searching for a Business Combination.
The Company’s shares are listed on
the Nasdaq Capital Market (“Nasdaq”). Pursuant to the Nasdaq listing rules, the target business or businesses that
the Company acquires must collectively have a fair market value equal to at least 80% of the balance of the funds in the Trust
Account at the time of the execution of a definitive agreement for its Business Combination, although the Company may acquire a
target business whose fair market value significantly exceeds 80% of the Trust Account balance.
The Company will seek stockholder approval
of any Business Combination at a meeting called for such purpose at which Public Stockholders (as defined below) may seek to convert
their shares into their pro rata share of the aggregate amount then on deposit in the Trust Account (net of taxes payable and interest
income). The Company will proceed with a Business Combination only if it has net tangible assets of at least $5,000,001 upon consummation
of the Business Combination and a majority of the outstanding shares of the Company voted are voted in favor of the Business Combination.
Notwithstanding the foregoing, a Public Stockholder, together with any affiliate of his or any other person with whom he is acting
in concert or as a “group” (as defined in Section 13(d) (3) of the Securities Exchange Act of 1934, as amended) will
be restricted from seeking conversion rights with respect to 20% or more of the Public Shares without the Company’s prior
written consent. In order to determine whether a stockholder is acting in concert or as a group with another stockholder, each
Public Stockholder seeking to exercise conversion rights will be required to certify whether such stockholder is acting in concert
or as a group with any other stockholder. These certifications, together with any other information relating to stock ownership
available at that time, will be the sole basis on which the above-referenced determination is made. If it is determined that a
stockholder is acting in concert or as a group with any other stockholder, the stockholder will be notified of the determination
and will be offered an opportunity to dispute the finding. The final determination as to whether a stockholder is acting in concert
or as a group with any other stockholder will ultimately be made in good faith by the Company’s board of directors. In connection
with any stockholder vote required to approve any Business Combination, the Sponsors have agreed (1) to vote any of their respective
Founders’ Shares (as defined below), Sponsors Shares and any Public Shares they acquired in the proposed public offering
or may acquire in the aftermarket in favor of the Business Combination and (2) not to convert any of their respective Founders’
Shares and Sponsors Shares.
The Company’s amended and restated
Certificate of Incorporation provides that the Company will continue in existence only until September 21, 2014 (or March 21, 2015
if the Company has executed a letter of intent, agreement in principle or a definitive agreement for a Business Combination before
September 21, 2014 but the Business Combination has not been completed by September 21, 2014). If the Company has not completed
a Business Combination by such date, 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 held by the
public stockholders of the Company (“Public Stockholders”), at a per-share price, payable in cash, equal to the aggregate
amount then on deposit in the Trust Account, including any interest but net of franchise taxes and income taxes payable with respect
to interest earned on the Trust Account, divided by the number of then outstanding Public Shares, which redemption will completely
extinguish Public Stockholders’ rights as stockholders (except for 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 the Company’s remaining stockholders and its board of directors dissolve and liquidate, subject (in the case of (ii) and
(iii) above) to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other
applicable law. In such event, the Public Stockholders will be entitled to receive a full pro rata interest in the Trust Account
(initially $10.50 per share, plus any pro rata interest earned on the Trust Account not previously released to the Company).
HF2 Financial Management Inc.
(A Company in the Development Stage)
Notes to Financial Statements
Note 2 — Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all short-term investments
with an original maturity of three months or less when purchased to be cash equivalents. The Company maintains its cash deposits
with major financial institutions.
Concentration of Credit Risk
The Company maintains its cash with high
credit quality financial institutions. At times, the Company’s cash and cash equivalents may be uninsured or in deposit accounts
that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit.
Fair Value of Financial Instruments
Fair value is defined as an exit price,
representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction
between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants
would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair
value as follows:
|
·
|
Level 1
. Quoted prices in active markets for identical assets or liabilities.
|
|
·
|
Level 2
. Quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly
or indirectly.
|
|
·
|
Level 3
. Significant unobservable inputs that cannot be corroborated by market data.
|
The Company considers its investments in
U.S. treasury bills as trading securities and carries them at fair value based on quoted market prices, a Level 1 input. The increase
in fair value subsequent to the purchase of these securities, amounting to $23,415 and $57,384, for the three months ended June
30, 2014 and 2013 respectively, $51,424 and $57,384 for the six months ended June 30, 2014 and 2013 respectively, and $150,444
for the period from October 5, 2012 (Inception) to June 30, 2014, is recorded as interest income in the accompanying unaudited
condensed statements of operations.
Net Loss per Share
Net Loss per share is computed by dividing
net loss by the weighted-average number of shares of common stock outstanding during the period. The Company does not have any
dilutive securities outstanding. As such, basic net loss per share equals dilutive net loss per share for the period. Shares of
the Company’s Class B Common Stock have no economic rights, other than the right to be redeemed at par value upon liquidation.
As such shares of Class B Common Stock are not considered participating securities and therefore not included in the calculation
of net loss per share.
Common Stock, Subject to Possible Conversion
The Company accounts for its shares subject
to possible conversion in accordance with the guidance enumerated in ASC 480 “Distinguishing Liabilities from Equity”.
Under such standard, shares subject to mandatory conversion (if any) are classified as liability instruments and are measured at
fair value. Under ASC 480, conditionally redeemable common shares (including shares that feature 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, shares are classified as shareholders’ equity. The Company’s
Public Shares feature certain conversion rights that are considered by the Company to be outside of the Company’s control
and subject to the occurrence of uncertain future events. Accordingly at June 30, 2014, the shares subject to possible conversion
are presented as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet.
HF2 Financial Management Inc.
(A Company in the Development Stage)
Notes to Financial Statements
Use of Estimates
The preparation of financial statements
in conformity with U.S. 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 expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes
The Company accounts for income taxes under
ASC Topic 740 “Income Taxes” (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities
for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the
expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation
allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
The Company’s policy for recording
interest and penalties associated with audits is to record such expense as a component of income tax expense. There were no amounts
accrued for penalties or interest as of or during the period from October 5, 2012 (inception) through June 30, 2014.
Recent Accounting Pronouncements
Management does not believe that any recently
issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial
statements.
Note 3 — Public Offering and Private Placement
On March 27, 2013, the Company sold 15,300,000
shares of Class A Common Stock at an offering price of $10.00 per share generating gross proceeds of $153,000,000 in the Public
Offering. Simultaneously with the consummation of the Public Offering, the Company consummated the Private Placement with the sale
of 1,414,875 Sponsors’ Shares to its initial stockholders at a price of $10.00 per share, generating total proceeds of $14,148,750.
The Sponsors’ Shares are identical to the shares of Class A Common Stock sold in the Public Offering, except that the Sponsors
have agreed to vote the Sponsors’ Shares in favor of any proposed Business Combination, and not to convert any Sponsors’
Shares in connection with a stockholder vote to approve a proposed Business Combination. In the event of a liquidation prior to
a Business Combination, the Sponsors have agreed that the Sponsors’ Shares will not participate in liquidating distributions.
Additionally, the Sponsors have agreed not to transfer, assign or sell any of the Sponsors’ Shares (except to certain permitted
transferees) until 30 days after the completion of the Company’s initial Business Combination.
In connection with the Public Offering,
the Company granted the underwriters a 45-day option to purchase up to an additional 2,295,000 Public Shares to cover over-allotments.
On March 28, 2013, the underwriters elected to exercise the over-allotment option to the full extent of 2,295,000 Public Shares.
The Company closed the sale of the Public Shares pursuant to the exercise of the over-allotment option on April 1, 2013 generating
gross proceeds of $22,950,000 at an offering price of $10.00 per share. Simultaneously with the closing of the sale of the Public
Shares pursuant to the exercise of the over-allotment option, the Company raised an additional $1,835,250 of gross proceeds through
the sale of an additional 183,525 Sponsors’ Shares to its initial stockholders at a price of $10.00 per share in a private
placement.
Upon the closing of the Public Offering,
including the over-allotment option, $184,747,500 (representing $10.50 per Public Share sold in the Public Offering), including
the proceeds of the Private Placements, was deposited in the Trust Account.
The Company entered into an agreement with
the underwriters of the Public Offering (“Underwriting Agreement”) after the registration statement for the Company’s
initial public offering was declared effective on March 21, 2013. Pursuant to the Underwriting Agreement, the Company paid 2.9%
of the gross proceeds of the Public Offering, including the over-allotment option, or $5,102,550, as an underwriting discount.
The Company also paid EarlyBirdCapital,
Inc. commissions of $170,200 upon the sales of the Sponsors’ Shares and has agreed to pay deferred commissions of $101,460
upon the closing of the Company’s initial Business Combination. At its option, the Company may pay the deferred commissions
in cash or in shares of the Company’s Class A Common Stock based on a price of $10.50 per share (“Deferred Commission
Shares”).
HF2 Financial Management Inc.
(A Company in the Development Stage)
Notes to Financial Statements
The Company has also engaged EarlyBirdCapital,
Inc. and Sandler O’Neill & Partners, L.P. as advisors and investment bankers in connection with a Business Combination,
and will pay such firms an aggregate cash advisory fee of 4.0% of the gross proceeds of the Public Offering if the Company consummates
a Business Combination.
The Sponsors are entitled to registration
rights with respect to the Founders’ Shares and the Sponsors’ Shares, EarlyBirdCapital, Inc. will be entitled to registration
rights with respect to the Deferred Commission Shares and the Sponsors and the Company’s officers, directors and Advisory
Board members will be entitled to registration rights with respect to any shares they may be issued in payment of working capital
loans made to the Company, pursuant to a registration rights agreement. The holders of the majority of the Founders’ Shares
are entitled to demand that the Company register these shares at any time commencing three months prior to the first anniversary
of the consummation of a Business Combination. The holders of the Sponsors’ Shares or shares issued in payment of working
capital loans made to the Company or holders of Deferred Commission Shares are entitled to demand that the Company register these
securities at any time after the Company consummates a Business Combination. In addition, the Sponsors, the holders of shares issued
in payment of working capital loans made to the Company and the holders of Deferred Commission Shares have certain “piggyback”
registration rights on registration statements filed after the Company’s consummation of a Business Combination.
Note 4 — Trust Account
Upon the closing of the Public Offering,
including the over-allotment option, $184,747,500 (representing $10.50 per Public Share sold in the Public Offering), including
the proceeds of the Private Placements, was deposited in the Trust Account. Substantially all of the proceeds held in the Trust
Account have been and will continue to be invested in United States government treasury bills having a maturity of 180 days or
less and/or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940,
as amended, that invest solely in U.S. treasuries until the earlier of the consummation of its first Business Combination and the
Company’s failure to consummate a Business Combination within the prescribed time.
As of June 30, 2014, cash and investment
securities held in the Trust Account consisted of the following:
|
|
Maturity
|
|
Fair Value
|
|
U.S. Treasury Bill
|
|
July 17, 2014
|
|
$
|
92,444,076
|
|
U.S. Treasury Bill
|
|
August 28, 2014
|
|
|
92,450,226
|
|
Cash and cash equivalents
|
|
NA
|
|
|
3,643
|
|
Total
|
|
|
|
$
|
184,897,945
|
|
Note 5 — Notes Payable to Stockholders — Related
Party
On November 30, 2012, the Company issued
unsecured promissory notes to some of its initial stockholders in an aggregate principal amount of $150,000. On March 21, 2013,
the Company issued an additional unsecured promissory note to one of its initial stockholders in the principal amount of $50,000.
All of the notes were non-interest bearing and payable on the earliest to occur of (i) November 29, 2013, (ii) the consummation
of the Public Offering or (iii) the date on which the Company determined not to proceed with the Public Offering. The notes were
repaid immediately following the consummation of the Public Offering from the net proceeds of such Public Offering.
Note 6 — Commitments
The Company receives general and administrative
services including office space, utilities and secretarial support from Berkshire Capital Securities LLC, an affiliate of the Company’s
Chairman and CEO. The Company agreed to pay Berkshire Capital a monthly fee of $10,000 for such services beginning March 21, 2013,
the effective date of the registration statement for the Public Offering. This arrangement will terminate upon completion of the
Company’s Business Combination or the distribution of the Trust Account to the Public Stockholders.
HF2 Financial Management Inc.
(A Company in the Development Stage)
Notes to Financial Statements
The Company incurred expenses of $30,000
and $30,000 for the three months ended June 30, 2014 and 2013 respectively, $60,000 and $33,226 for the six months ended June 30,
2014 and 2013 respectively, and $153,226 for the period from October 5, 2012 (Inception) to June 30 2014, related to this arrangement.
The expense is reflected in the Unaudited Condensed Statements of Operations as Administrative expense.
Note 7 — Income Taxes
The Company has recorded deferred tax assets
relating to expenses deferred for income tax purposes at June 30, 2014 and December 31, 2013 amounting to $306,725 and $195,756,
respectively, as well as offsetting full valuation allowances, as the Company is not currently generating income that will allow
this asset to be realized. The table below sets forth the Company’s deferred tax assets. The Company has year to date net
operating losses of $37,556 through June 30, 2014, and net operating losses of $83,035 and $500 for tax years 2013 and 2012, respectively,
which may be carried forward until 2034, 2033 and 2032, respectively.
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Development stage expenses capitalized
|
|
$
|
(260,699
|
)
|
|
$
|
(164,007
|
)
|
Net operating loss carry-forward
|
|
|
(46,027
|
)
|
|
|
(31,749
|
)
|
Less: valuation allowance
|
|
|
306,726
|
|
|
|
195,756
|
|
Net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
ASC 740 also clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and
measurement process for financial statement recognition and measurement of a tax position 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. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period,
disclosure and transition. The Company is required to file income tax returns in the United States (federal) and in various state
and local jurisdictions. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain
tax positions requiring recognition in the Company’s financial statements. The Company was incorporated on October 5, 2012,
and the evaluation was performed for the tax years ended December 31, 2012 and 2013, which are the only periods subject to examination.
Note 8 — Stockholder Equity
Preferred Stock
The Company is authorized to issue 2,000,000
shares of preferred stock with a par value of $0.0001 per share with such designation, rights and preferences as may be determined
from time to time by the Company’s board of directors.
As of June 30, 2014, there are no shares
of preferred stock issued or outstanding.
Class A Common Stock
The Company is authorized to issue 180,000,000
shares of Class A Common Stock with a par value of $0.0001 per share.
In connection with the organization of
the Company, on December 5, 2012, a total of 4,255,000 shares of the Company’s Class A Common Stock were sold to certain
of the Sponsors at a price of approximately $0.005875 per share for an aggregate of $25,000 (the “Founders’ Shares”).
On February 26, 2013, the Company repurchased 1,320,707 Founders’ Shares from certain of the Sponsors at the original sale
price of approximately $0.005875 per share for an aggregate of $7,760. On the same date, the Company also sold 1,464,457 Founders’
Shares to certain existing and new Sponsors at the same price of approximately $0.005875 per share for an aggregate of $8,605.
HF2 Financial Management Inc.
(A Company in the Development Stage)
Notes to Financial Statements
The Founders’ Shares were placed
into an escrow account maintained by Continental Stock Transfer & Trust Company, acting as escrow agent. Such shares will be
released from escrow on the first anniversary of the closing date of the Business Combination. Subject to certain limited exceptions,
these shares will not be transferable during the escrow period.
As of June 30, 2014, 7,122,260 shares of
Class A Common Stock were issued and outstanding, excluding 16,469,890 shares of Class A Common Stock subject to possible conversion.
Class B Common Stock
The Company is authorized to issue 20,000,000
shares of Class B Common Stock with a par value of $0.000001 per share.
In connection with the organization of
the Company, on December 3, 2012, a total of 20,000,000 shares of the Company’s Class B Common Stock were sold to R. Bruce
Cameron, the Company’s Chairman and Chief Executive Officer at a price of approximately $0.000001 per share for an aggregate
of $20. Shares of Class B Common Stock are entitled to ten votes per share and vote with the holders of Class A Common Stock, as
a single class, on all matters presented to holders of the Company’s common stock for a vote. Shares of Class B Common Stock
have no economic rights (other than the right to be redeemed at par value upon liquidation). Prior to the Company’s Business
Combination and in connection with any vote on the Business Combination, the shares of Class B Common Stock will be voted on all
matters presented to holders of the Company’s common stock for a vote in proportion to the vote of the holders of the Class
A Common Stock. As a result, prior to the consummation of the Business Combination, holders of a majority of the shares of Class
A Common Stock will control the vote on any matter submitted to stockholders for a vote. If the shares of Class B Common Stock
remain outstanding following the consummation of the Business Combination, the holders of the Class B Common Stock will be entitled
to vote the shares of Class B Common Stock in their own discretion.