SELWAY CAPITAL ACQUISITION CORPORATION

PRO FORMA CONDENSED COMBINED BALANCE SHEET

as of March 31, 2013

                                       

 

												Business				Business						Pro Forma				Pro Forma						Pro Forma				Pro Forma
		SCAC										Combination				Combination						(No				(No						(Maximum				(Maximum
		(As				HCCA						Adjustments				Combined						shares tendered)				shares tendered)						shares tendered)				conversion)
		Reported)																				Adjustments				Combined						Adjustments				Combined
Assets
Cash		$	6,486			$	409,023			4		$	(56,311	)		$	5,274,525			10		$	8,483,647			$	13,758,172			11		$	(8,483,647	)		$	5,274,526
										2			(69,912	)
										7			5,722,309
										9			(737,070	)
Other current assets			6,082				4,370,242			4			(488,229	)			3,888,095										3,888,095						-				3,888,095
Property and equipment			-				1,339,541										1,339,541										1,339,541						-				1,339,541
Restricted cash held in trust			20,600,000				-			2			(2,900,006	)			8,651,640			10			(8,651,640	)			-										-
										7			(9,048,354	)
Other assets			3,554				67,131										70,685										70,685						-				70,685
Total Assets		$	20,616,122			$	6,185,937					$	(7,577,573	)		$	19,224,486					$	(167,993	)		$	19,056,493					$	(8,483,647	)		$	10,572,847
Liabilities and
Stockholders' Equity
Accounts payable, accrued expenses and other current liabilities		$	931,185			$	6,730,155			4		$	(56,311	)		$	7,061,034			10		$	(167,993	)		$	6,893,041									$	6,893,041
										2			(142,849	)
										7			(175,696	)
										9			(100,000	)
										9			(125,450	)
Customer Deposits							804,698										804,698										804,698						-				804,698
Note payable			70,000				4,804,265			1			5,610,858				5,537,510										5,537,510										5,537,510
										2			(4,947,613	)
Management incentive notes payable										6			1,753,393				1,753,393										1,753,393										1,753,393
Redeemable preferred stock			-				2,362,517			3			(458,800	)			1,903,717										1,903,717										1,903,717
Current portion of long-term debt							169,745										169,745										169,745						-				169,745
Total current liabilities			1,001,185				14,871,380						1,357,532				17,230,097						(167,993	)			17,062,104						-				17,062,104
Long term debt and other non-current liabilities			-				554,569										554,569										554,569										554,569
Warrant liability			3,900,000				242,287			5			(364,537	)			3,084,417										3,084,417										3,084,417
										8			(693,333	)
Total long term liabilities			3,900,000				796,856						(1,057,870	)			3,638,986						-				3,638,986						-				3,638,986
Total liabilities			4,901,185				15,668,236						299,662				20,869,083						(167,993	)			20,701,090						-				20,701,090
Ordinary shares subject to possible redemption, 1,500,000 shares (at redemption value)			15,150,000				-			7			(8,872,658	)			6,277,342			10			(6,277,342	)			-										-
Total Temporary Equity			15,150,000				-						(8,872,658	)			6,277,342						(6,277,342	)			-						-				-
Stockholders' equity (deficiency):
Preferred Stock																											-										-
Common stock			250				4,555,856			1			(3,936,056	)			620,704										620,704			11			(84	)			620,620
										1			554
										2			31
										3			59
										8			10
Warrants							250,000										250,000										250,000										250,000
Additional paid in capital			5,098,941				-			1			(6,209,610	)			6,903,258			10			6,277,342				13,180,600			11			(8,483,563	)			4,697,037
										2			3,097,900
										3			458,741
										6			(1,753,393	)
										7			5,722,309
										8			999,990
										9			(511,620	)
Accumulated deficit			(4,534,254	)			(14,288,155	)		1			4,534,254				(15,695,901	)									(15,695,901	)									(15,695,901	)
										2			(977,387	)
										4			(488,229	)
										8			(306,667	)
										5			364,537
Stockholders' equity (deficiency)			564,937				(9,482,299	)					995,423				(7,921,939	)					6,277,342				(1,644,597	)					(8,483,647	)			(10,128,244	)
Total Liabilities & Stockholders' Equity		$	20,616,122			$	6,185,937					$	(7,577,573	)		$	19,224,486					$	(167,993	)		$	19,056,493					$	(8,483,647	)		$	10,572,847

 

 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 $5,349,418.  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.

 

	Common stock HCCA		$	3,936,056
	Common stock issued in exchange for HCCA shares						$	554
	Additional paid in capital			6,209,610
	Accumulated deficit							4,534,254
	Notes payable							5,610,858

 

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 approimate borrowing rate on its senior facilities line.  The Company has projected its free cash flow as follows:

 

			Principal				PV
	Shareholder notes		$	8,000,000			$	5,610,858
	Manager-shareholder notes			2,500,000				1,753,393
			$	10,500,000			$	7,364,251
	Discount Rate			6.50	%

  

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			-				-				-
	03/31/17			5,000,000				750,000				583,798
	03/31/18			10,000,000				2,000,000				1,461,778
	03/31/19			31,000,000				7,750,000				5,318,675
	Total										$	7,364,251

   

2

To reflect repayment of $5,925,000 bridge notes payable, recognition of unamortized bridge loan discount of $977,387 as interest expense and payment of accrued interest payable of $69,918  and the conversion of $3,025,000 of principal and $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		$	4,947,613
	Retained earnings			977,387
	Accrued interest payable			142,849
	Common stock						$	31
	Cash in trust							2,900,006
	Cash							69,912
	Additional paid in capital							3,097,900

 

 

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	)
	Net Cash paid by HCCA						$	(126,223	)
	Principal paid via conversion of bridge loan into Series C common						$	3,025,000
	Interest paid via conversion into Series C common						$	72,931
	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 HCCA redeemable preferred stock into 592,500 Series C common shares

 

	Redeemable preferred stock		$	458,800
	Common stock						$	59
	Additional paid in capital							458,741

 

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 publicaly traded warrants at the date of the combination.

 

	Warrant liability			364,537
	Retained earnings							364,537

 

 

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 $1,753,393and 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		$	1,753,393
	Management incentive notes payable						$	1,753,393

 

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 approimate borrowing rate on its senior facilities line.  The Company has projected its free cash flow as follows:

 

				Principal				PV
	Shareholder notes		$	8,000,000			$	5,610,858
	Manager-shareholder notes			2,500,000				1,753,393
			$	10,500,000			$	7,364,251
	Discount Rate			6.50	%

 

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			-				-				-
	03/31/17			5,000,000				750,000				583,798
	03/31/18			10,000,000				2,000,000				1,461,778
	03/31/19			31,000,000				7,750,000				5,318,676
	Total										$	7,364,251

 

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 SCAC 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			693,333
	Additional paid in capital							999,990
	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		$	8,483,647
	Cash in trust						$	8,651,640
	Deferred underwriting compensation			167,993
	Shares subject to redemption			6,277,342
	Additional paid in capital							6,277,342

 

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 QUARTER ENDED MARCH 31, 2013

                                         

 

		For the Quater Ended
		March 31, 2013
		SCAC				HCA						Business Combination Adjustments				Business Combination Combined				Pro Forma (No shares Tendered)				Pro Forma Combined (No shares tendered)				Pro Forma Adjustments (Maximum Shares Tendered)				Pro Forma Combine (Maximum Shares Tendered)
		(AS Reported)																		Adjustments
Sales		$	-			$	11,961,723									$	11,961,723							$	11,961,723							$11,961,723
Cost of Sales			-				11,450,011										11,450,011								11,450,011							11,450,011
Gross Profit			-				511,712										511,712								511,712							511,712
General and administrative expense			192,625				2,974,020										3,166,645								3,166,645							3,166,645
Loss before other income (loss)			(192,625	)			(2,462,308	)									(2,654,933	)							(2,654,933	)						(2,654,933)
Change in fair value of warrants			(1,646,667	)													(1,646,667	)							(1,646,667	)						(1,646,667)
Stock-based compensation										1			(283,889	)			(283,889	)							(283,889	)						(283,889)
Interest Expense										2			(170,625	)			(170,625	)							(170,625	)						(170,625)
Other income (loss)			4,552				(1,186,389	)									(1,181,837	)							(1,181,837	)			-			(1,181,837)
Net loss		$	(1,834,740	)		$	(3,648,697	)				$	(454,514	)		$	(5,937,951	)		$	-			$	(5,937,951	)		$	-			$(5,937,951)
Net loss per common share to controlling interests
Basic net loss per ordinary share		$	(0.73	)		$	(0.09	)								$	(0.61	)						$	(0.61	)						$(0.66)
Weighted average ordinary shares outstanding			2,500,000				40,250,009			3							9,793,458								9,793,458							8,953,493

 

  

  

SELWAY CAPITAL ACQUISITION CORPORATION

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT

For the Quarter Ended March 31, 2013

                           

 

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

$

283,889

 

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

$

170,625

 

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							1,190,012				1,190,012				1,190,012				1,190,012
	Employee restricted shares to be released from escrow over 3 years			750,000				750,000				750,000				750,000
	Public shareholders							878,481				878,481				1,718,446				878,481
	Selway sponsor shares							600,000				600,000				600,000				600,000
	Other shareholders							335,000				335,000				335,000				335,000
	Total			839,965				8,953,493				9,793,458				9,793,458				8,953,493

 

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
	Total restricted shares and warrants			3,296,250