SELWAY CAPITAL ACQUISITION CORPORATION

PRO FORMA CONDENSED COMBINED BALANCE SHEET

as of December 31, 2012

 

																				Pro Forma								Pro Forma				Pro Forma								Pro Forma
		SCAC										Business				Business				(No								(No shares				(Maximum								(Maximum
		(As				HCCA						Combination				Combination				shares tendered)								tendered)				shares tendered)								conversion)
		Reported)				(As Restated)						Adjustments				Combined				Adjustments								Combined				Adjustments								Combined
Assets
Cash		$	5,036			$	1,791,134			4		$	(56,311	)		$	6,595,868				10			$	8,483,733			$	15,079,601				11			($	8,483,647	)		$	6,595,955
										2			(129,230	)
										7			5,722,309
										9		$	(737,070	)
Other current assets			6,739				3,613,595			4			(488,229	)			3,132,105												3,132,105								-				3,132,105
Property and equipment			-				1,114,055										1,114,055												1,114,055								-				1,114,055
Restricted cash held in trust			20,600,086				-			2			(2,900,006	)			8,651,726				10				(8,651,726	)			-												-
										7			(9,048,354	)
Other assets			3,554				83,686										87,240												87,240								-				87,240
Total Assets		$	20,615,415			$	6,602,470					$	(7,636,891	)		$	19,580,994							$	(167,993	)		$	19,413,001							$	(8,483,647	)		$	10,929,355
Liabilities and
Stockholders' Equity
Accounts payable, accrued expenses and other current liabilities		$	812,405			$	5,775,820			4		$	(56,311	)		$	5,987,919				10			$	(167,993	)		$	5,819,926											$	5,819,926
										2			(142,849	)
										7			(175,696	)
										9			(100,000	)
										9			(125,450	)
Note payable			-				4,192,954			1			2,111,273				2,111,273												2,111,273												2,111,273
										2			(4,192,954	)
Management incentive notes payable										6			659,773				659,773												659,773												659,773
Redeemable preferred stock			-				2,362,517			3			(2,362,517	)			-												-												-
Total current liabilities			812,405				12,331,291						(4,384,732	)			8,758,964								(167,993	)			8,590,971								-				8,590,971
Long term debt and other non-current liabilities			-				463,515										463,515												463,515												463,515
Warrant liability			2,253,333				121,350			5			(121,350	)			226,667												226,667												226,667
										8			(2,026,666	)
Total long term liabilities			2,253,333				584,865						(2,148,016	)			690,182								-				690,182								-				690,182
Total liabilities			3,065,738				12,916,156						(6,532,748	)			9,449,146								(167,993	)			9,281,153								-				9,281,153
Ordinary shares subject to possible redemption, 1,500,000 shares (at redemption value)			15,150,000				-			7			(8,872,658	)			6,277,342				10				(8,651,639	)			(2,374,297	)											(2,374,297	)
Total Temporary Equity			15,150,000				-						(8,872,658	)			6,277,342								(8,651,639	)			(2,374,297	)							-				(2,374,297	)
Stockholders' equity (deficiency):
Preferred Stock																													-												-
Common stock			250				4,175,856			1			(4,175,856	)			905												905				11				(84	)			821
										1			554
										2			32
										3			59
										8			10
Additional paid in capital			5,098,941				-			1			(455,485	)			16,196,623				10				8,651,639				24,848,262				11				(8,483,563	)			16,364,699
										2			2,306,469
										3			2,362,458
										6			(659,773	)
										7			5,722,309
										8			2,333,323
										9			(511,620	)
Stock Redemption			-				(100,000	)		1			100,000				-												-
Warrants			-				250,000			1			(250,000	)			-												-
Accumulated deficit			(2,699,514	)			(10,639,542	)		1			2,669,514				(12,343,022	)											(12,343,022	)											(12,343,022	)
										2			(999,934	)
										4			(488,229	)
										8			(306,667	)
										5			121,350
Stockholders' equity (deficiency)			2,399,677				(6,313,686	)					7,768,515				3,854,506								8,651,639				12,506,145								(8,483,647	)			4,022,498
Total Liabilities & Stockholders' Equity		$	20,615,415			$	6,602,470					$	(7,636,891	)		$	19,580,994							$	(167,993	)		$	19,413,001							$	(8,483,647	)		$	10,929,355

 

See notes to unaudited condensed combined pro forma balance sheet

 

 

SELWAY CAPITAL ACQUISITION CORPORATION

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

December 31, 2012  

 

1

To recognize reverse recapitalization at closing, consideration to HCCA shareholders and to combine the shareholders' deficiency of HCCA, the accounting acquirer, with the stockholders’ equity of SCAC and give effect to the issuance of 5,535,000 shares of SCAC’s $.0001 par value common stock and $8.0 million of noninterest bearing promissory sellers' notes, which have a present value of $5,610,858.  5,200,000 shares are closing consideration to HCCA shareholders and 335,000 shares are consideration for HCCA's M&A advisor.  $7,500,000 of the notes are consideration for HCCA selling shareholders and $500,000 are notes to the HCCA M&A advisor, which have been discounted based upon anticipated future cash flow payments at a discount rate of 6.5%. Under a reverse recapitalization, HCCA’s (accounting acquirer) common stock is restated to reflect the par value of SCAC (legal acquirer) with the difference being reflected as an adjustment to additional paid-in capital.  Also, HCCA’s accumulated deficit continues with SCAC’s accumulated deficit being eliminated against additional paid-in capital.  In addition, notes payable issued to HCCA’s shareholders and advisors is being reflected as a liability and is offset against additional paid in capital, as is the elimination of the stock redemption payable

 

Common stock HCCA		$	4,175,856
Commons stock issued in exchange for HCCA shares						$	554
Additional paid in capital			455,485
Stock redemption							100,000
Warrants		$	250,000
Accumulated deficit							2,669,514
Notes payable							2,111,273

 

The non-interest bearing promissory notes are repayable from 25% of free cash flow, as defined, over $2 million in any fiscal year.  The 6.5% discount rate reflects the Company's approximate borrowing rate on its senior facilities line.  The Company has projected its free cash flow as follows:

 

		Principal				PV
Shareholder notes		$	7,500,000			$	1,979,318.06
Placement notes		$	500,000			$	131,954.54
Manager-shareholder notes			2,500,000				659,773
		$	10,500,000			$	2,771,045
Discount Rate			30.00	%
FCF Estimates for Fiscal Years Ending:
			FCF Estimate				Payment (25% of FCF above $2M)				PV
04/09/13
03/31/14		$	(3,500,000	)		$	-			$	-
03/31/15			(1,500,000	)			-				-
03/31/16			3,596,000				399,000				182,659
03/31/17			9,156,000				1,789,000				629,991
03/31/18			16,488,000				3,622,000				981,136
03/31/19			18,760,000				4,690,000				977,260
Total										$	2,771,045

 

2

To reflect repayment of $5,925,000 bridge notes payable, recognition of unamortized bridge loan discount of $2,445,243 as interest expense,  payment of accrued interest payable of $69,918, the conversion of $3,025,000 of principal, $72,931 of accrued interest into 316,456 Series C common shares, and payment of $2,900,000 of principal through release of cash in trust.

 

Notes payable		$	4,192,954
Retained earnings			999,934
Accrued interest payable			142,849
Common stock						$	32
Cash in trust							2,900,006
Cash							129,230
Additional paid in capital							2,306,469
The repayment of the HCCA bridge loans is computed as follows:
Bridge loan principal amount						$	5,925,000
Shares of 5% Shareholders who are also bridge loan holders, and who are electing to convert their shares from Redeemable Series A Redeemable Common to Series C Common. HCCA used the cash released from trust related to these shares pay down the bridge loan of these investors							281,554
Cash released from Trust from these investors (281,554 shares X $10.30/share)						$	2,900,006
- Underwriters' discount in trust, paid to UW		$	0.20			$	(56,311	)
- Payment of bridge principal						$	(2,900,000	)
Net Cash to HCCA from share conversion and payment of bridge loan						$	(56,305	)
-  Interest paid in cash related to re-paid portion of bridge loan						$	(69,918	)			(a)
Net Cash paid by HCCA						$	(126,222	)
Principal paid via conversion of bridge loan into Series C common						$	3,025,000
Interest paid via conversion into Series C common						$	72,931				(a)
Total to be converted into Series C common due to bridge loan (as of 12/31/2012)						$	3,097,931

 

 

3

To reflect conversion of redeemable preferred stock into 592,500 Series C common shares.

 

Redeemable preferred stock		$	2,362,517
Common stock						$	59
Additional paid in capital							2,362,458

 

4

To reflect payment of deferred underwriters fee upon release of cash in trust, and to expense prepaid loan fees upon repayment of bridge loans payable.

 

Deferred underwriting compensation		$	56,311
Retained earnings			488,229
Cash						$	56,311
Prepaid loan fees							488,229

 

5

To reflects conversion of 296,250 warrants held by bridge loan holders valued by HCCA at $518,587, into warrants of the Company and valued at the Selway  warrants, at $0.52/warrant, or $154,050, as of the business combination.  The $0.52 per warrant was the quoted market price of SCAC's publicly traded warrants at the date of the combination.

 

Warrant liability			121,350
Retained earnings							121,350

 

6

To reflect the issuance of $2,500,000 of non-interest bearing Management Sellers' Notes, which are part of the consideration, and which have a present value of $659,773and have been discounted based upon anticipated future cash flow payments at 6.5%.  Managers are also shareholders and part of the transaction has these managers receiving extra consideration for their stakes in HCCA.

 

Additional paid-in capital		$	659,773
Management incentive notes payable						$	659,773

 

The non-interest bearing promissory notes are repayable from 25% of free cash flow, as defined, over $2 million in any fiscal year.  The 6.5% discount rate reflects the Company's approximate borrowing rate on its senior facilities line.  The Company has projected its free cash flow as follows:

     

		Principal				PV
Shareholder notes		$	8,000,000			$	2,111,273
Manager-shareholder notes			2,500,000				659,773
		$	10,500,000			$	2,771,045
Discount Rate			30.00	%
FCF Estimates for Fiscal Years Ending:
			FCF Estimate				Payment (25% of FCF above $2M)				PV
04/09/13
03/31/14		$	(3,500,000	)		$	-			$	-
03/31/15			(1,500,000	)			-				-
03/31/16			3,596,000				399,000				182,659
03/31/17			9,156,000				1,789,000				629,991
03/31/18			16,488,000				3,622,000				981,136
03/31/19			18,760,000				4,690,000				977,260
Total										$	2,771,045

 

 

7

To reflect sale of new 878,481 Series C Common shares to third parties upon holders of 878,481 Series A Redeemable Common shares agreeing to waive redemption rights and convert their shares into Series C common shares, as follows:

 

Cash			5,722,309
Cash in trust							9,048,354
Deferred underwriting compensation			175,696
Shares subject to redemption			8,872,658
Additional paid in capital							5,722,309

 

The sale of the shares has been computed as follows:

 

Size of offering to investors						$	6,149,367
Price per share						$	7.00
Shares converting from Series A Redeemable Common (backed by cash in trust) to Series C							878,481				( c)
Cash in trust per Series A Redeemable Common Share						$	10.30
Cash Released from Trust						$	9,048,354				( c)
- Underwriters' discount in trust plus placement fees		$	0.20			$	175,696
- Placement fees		$	0.06			$	49,311
- Cash back to shareholder of Series A  Redeemable Common		$	3.53			$	3,101,038
= Net Cash to HCCA						$	5,722,309
Net Cash per Share to HCCA						$	6.51

 

(c)

Shareholders owning these shares shall agree not to redeem, causing the trust to release $10.30/share to HCCA, and HCCA shall pay these shareholders $3.53/share in cash, pay the underwriters $0.20/share, pay $0.06/share in placement fees, and keep $6.51/share

 

8

To reflect conversion of 1,333,333 sponsor warrants into 100,000 Series C common shares at a price of $10 per share and to reflect compensation expense of $306,667 on the difference in value between the warrants exchanged for shares

 

Common stock							10
Warrant liability			2,026,666
Additional paid in capital							2,333,323
Retained earnings			306,667

 

9

To reflect payment of deferred legal fees paid at closing of business combination, payment of accounts payable at closing, and transaction-related costs due to legal, accounting and filing fees which reduced Additional paid in capital

 

Deferred legal fees			100,000
Accounts payable due at business combination			125,450
Additional paid in capital			511,620
Cash							737,070

 

10

To reflect the release of funds raised by Selway Capital Acquisition Corporation's initial public offering and reclassification of shares subject to redemption

 

Cash		$	8,483,733
Cash in trust						$	8,651,726
Deferred underwriting compensation			167,993
Shares subject to redemption			8,651,639
Additional paid in capital							8,651,639

 

11

To record the payment of common stock subject to conversion assuming minimum stockholder conversion to Series C Common, post business combination, (839,965 shares at $10.30 per share) and return of accrued underwriters fees of $167,993

 

Cash						$	8,483,647
Common stock		$	84
Additional Paid-in capital			8,483,563

 

 

    SELWAY CAPITAL ACQUISITION CORPORATION

    PRO FORMA CONDENSED  COMBINED INCOME STATEMENT

    FOR  THE YEAR ENDED DECEMBER 31, 2012

 

		For the Year Ended												Business				Business								Pro Forma				Pro Forma				Pro Forma
		December 31, 2012												Combination				Combination				Pro Forma				Combined				Adjustments				Combined
		SCAC				HCA								Adjustments				Combined				(No shares tendered)				(No shares tendered)				(Maximum Shares Tendered)				(Maximum Shares Tendered)
		(As Reported)				(As Restated)																Adjustments
Sales		$	-			$	27,305,795											$	27,305,795							$	27,305,795							$	27,305,795
Cost of Sales			-				26,148,118												26,148,118								26,148,118								26,148,118
Gross Profit			-				1,157,677												1,157,677								1,157,677								1,157,677
General and administrative expense			348,091				6,916,707												7,264,798								7,264,798								7,264,798
Loss before other income (loss)			(348,091	)			(5,759,030	)											(6,107,121	)							(6,107,121	)							(6,107,121	)
Change in fair value of warrants			(2,253,333	)															(2,253,333	)							(2,253,333	)							(2,253,333	)
Stock-based compensation											1				(2,271,111	)			(2,271,111	)							(2,271,111	)							(2,271,111	)
Interest Expense											2				(682,500	)			(682,500	)							(682,500	)							(682,500	)
Other income (loss)			17,474				(685,734	)											(668,260	)							(668,260	)			-				(668,260	)
Net loss		$	(2,583,950	)		$	(6,444,764	)						$	(2,953,611	)		$	(11,982,325	)		$	-			$	(11,982,325	)		$	-			$	(11,982,325	)
Net loss per common share to controlling interests
Basic net loss per ordinary share		$	(1.03	)		$	(0.17	)										$	(1.22	)						$	(1.13	)						$	(1.22	)
Weighted average ordinary shares outstanding			2,500,000				38,939,909				3								9,793,459								10,633,424								9,793,459

 

 

SELWAY CAPITAL ACQUISITION CORPORATION

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT

For the Year Ended December 31, 2012

                           

1

To reflect stock-based compensation to HCCA management related to the 350,000 shares of SCAC, which were granted at the business combination but are being held in escrow, at a price per share of $7.30, which is the price per share of SCAC shares at the combination date.  The shares vest over 27 months.  400,000 shares were issued to managment at the combination date valued at 2,920,000 are not included as stock based compensation since it has been deemed to be a non-recurring charge directly related to the reverse recapitalization.

Stock-based compensation		$	2,271,111

 

2

To reflect imputed interest on Sellers' Notes, which collectively total $10.5 million with $7,500,000 being for the benefit of all shareholders, $2,500,000 being consideration for the benefit of the manager-owners, and $500,000 being consideration for the M&A advisor. The interest rate used is HCCA's estimated borrowing cost of 6.5%, and no principal payments are assumed during 2013. This pro forma expense shows the imputed interest as if the notes were in place  for all of 2013.

Interest Expense		$	682,500

 

3

Pro forma net loss per share was calculated by dividing pro forma net loss by the weighted average number of shares as follows:

 

		Series B				Series C				Pro Forma (At Business Combination)				Pro Forma (No shares tendered)				Pro Forma (Maximum shares tendered)
Redeemable stock backed by cash in trust			839,965				(839,965	)			-				-				-
HCCA selling shareholders							5,200,000				5,200,000				5,200,000				5,200,000
Conversion of HCCA note holders and preferred stockholders							908,459				908,459				908,459				908,459
Employee restricted shares to be released from escrow over 3 years							750,000				750,000				750,000				750,000
Public shareholders							100,000				100,000				939,965				100,000
Selway sponsor shares							2,500,000				2,500,000				2,500,000				2,500,000
Other shareholders							335,000				335,000				335,000				335,000
Total			839,965				8,953,494				9,793,459				10,633,424				9,793,459

 

Series B shares shown above are the result of conversion of Selway's Series A redeemable shares at the business combination.  These are identical to Series A and are redeemable in cash.  The company is holding restricted cash in trust equal to $10.30 per share for the possible redemption of these Series B shares.  At the business combination, 1,160,035 shares of Selway's Series A redeemable stock were converted to non-redeemable Series C shares, and these include the Public Shareholders listed above as well as certain note holders in HCCA, who were also Series A holders.

 

In the scenario listed above, Pro Forma (No shares tendered), the Redeemable Series B convert to Series C and are included in the Public Shareholders total.

 

For the scenario list above, Pro Forma (Maximum shares tendered), the 839,965 Series B Redeemable common shares are all redeemed by shareholders, all other shares described above remain the same.

 

The Scenarios above represent the basic shares at the business combination, and none of the scenarios include the following:

 

Warrants held by public and other investors, which have a strike price of $7.50			2,296,250
Warrants held by the Selway sponsor, which have a strike price of $10			1,000,000
Warrants held by Dragonfly			17,773
Warrants held by MagnaCare			84,525
Warrants held by Chardon Capital			92,500
Total restricted shares and warrants			3,491,048