News Column

QUARTET MERGER CORP. - 10-Q - Management's Discussion and Analysis.

August 14, 2014

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "continue," or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission ("SEC") filings. References to "we", "us", "our" or the "Company" are to Quartet Merger Corp., except where the context requires otherwise. The following discussion should be read in conjunction with our condensed financial statements and related notes thereto included elsewhere in this report.

Overview



We are a blank check company formed on April 19, 2013 to acquire, through a merger, share exchange, asset acquisition, stock purchase, plan of arrangement, recapitalization, reorganization or other similar business combination, one or more businesses or entities.

On April 30, 2014, we entered into an Agreement and Plan of Reorganization (the "Merger Agreement") by and among our company, Quartet Holdco Ltd., a Bermuda company and our wholly-owned subsidiary ("Holdco"), Quartet Merger Sub, Ltd., a Bermuda company and a wholly-owned subsidiary of Holdco ("Merger Sub"), Pangaea Logistics Solutions Ltd., a Bermuda company ("Pangaea"), and the securityholders of Pangaea ("Signing Holders"). Upon the consummation of the transactions contemplated by the Merger Agreement, (i) we will be merged with and into Holdco, with Holdco surviving the merger (the "Redomestication Merger") and (ii) Merger Sub will be merged with and into Pangaea, with Pangaea surviving the merger and becoming the wholly-owned subsidiary of Holdco (the "Transaction Merger" and together with the Redomestication Merger, the "Mergers").

Pangaea is a growth oriented global logistics company focused on providing seaborne drybulk transportation services. It is headquartered in Newport, Rhode Island and conducts all operations through its direct and indirect subsidiaries.

The transaction is expected to be consummated in the third quarter of 2014, after the required approval by our stockholders and the fulfillment of certain other conditions.

We presently have no revenue, have had losses since inception from incurring formation costs and have no other operations other than the active solicitation of a target business with which to complete a business combination. We have relied upon the sale of our securities and loans from our officers and directors to fund our operations.

The Company consummated the Offering of 8,400,000 units on November 1, 2013 generating gross proceeds of $84,000,000 and net proceeds of $80,779,839 after deducting $3,220,161 of transaction costs, which is discussed in Note 3 ("Initial Public Offering") and $5,425,000 from the private placement to the initial stockholders of the Company ("Initial Stockholders") and the underwriters which is described in Note 4.

On November 1, 2013, the underwriters exercised their over-allotment option and on November 5, 2013, the Company consummated the closing of the over-allotment option ("Overallotment"). The initial public offering and the Overallotment are collectively referred to as the "Offering." The units sold pursuant to the Overallotment were sold at an offering price of $10.00 per Unit, generating gross proceeds of $12,600,000. In a private placement that took place simultaneously with the consummation of the exercise of the over-allotment option, certain of the Initial Stockholders and the underwriters purchased an additional 65,625 Private Units at $10.00 per unit.

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Our management has broad discretion with respect to the specific application of the net proceeds of the offering and the Private Placement, although substantially all of the net proceeds are intended to be applied generally towards consummating a business combination successfully.

Results of Operations



Our entire activity since inception up to the closing of our initial public offering on November 1, 2013 was in preparation for that event. Since the offering, our activity has been limited to the evaluation of business combination candidates, and we will not be generating any operating revenues until the closing and completion of our initial business combination. We expect to generate small amounts of non-operating income in the form of interest income on cash and cash equivalents. Interest income is not expected to be significant in view of current low interest rates on risk-free investments (treasury securities).

For the three months ended June 30, 2014, we had a net loss of $535,086. The significant increase in expenditures relative to prior periods was largely the result of costs associated with legal, accounting and business due diligence on Pangaea; legal costs for the preparation of a merger agreement and Registration Statement on Form S-4; and a fairness opinion related to the Pangaea transaction. More specifically, our losses resulted from $30,000 in administrative fees to Crescendo Advisors II, LLC, an affiliate of our Chairman and CEO, Eric Rosenfeld, legal expenses of approximately $218,600, fairness opinion services of approximately $82,700, printing costs of approximately $68,300, public company costs of approximately $58,500, accounting/audit expenses of approximately $42,800, and incorporation taxes of approximately $10,900, which were offset by interest income of approximately $13,700. For the period from April 19, 2013 (inception) through June 30, 2013, we had net losses of $563, which primarily consisted of business startup costs.

For the six months ended June 30, 2014, we had a net loss of $648,962. As detailed above, the majority of this loss was generated in the second quarter of 2014 and resulted from the pending transaction with Pangaea. Generally, our losses resulted from $60,000 in administrative fees to Crescendo Advisors II, LLC, legal expenses of approximately $246,100, fairness opinion services of approximately $82,700, printing costs of approximately $72,400, public company costs of approximately $67,200, accounting/audit expenses of approximately $65,800, and incorporation taxes of approximately $23,000, which were offset by interest income of approximately $35,300. For the period from April 19, 2013 (inception) through June 30, 2013, we had net losses of $563, which primarily consisted of business startup costs.

Liquidity and Capital Resources

As of June 30, 2014, we had cash of $76,125 outside of our trust account and $236,588 of accounts payable. In addition, we had $98,497,018 in restricted cash and equivalents in our trust account, of which, $5,268 of interest income may be released to us in order to fund working capital requirements or tax payments. We intend to use the remainder of the proceeds not held in the trust account plus the interest earned on the funds held in the trust account that may be released to us to fund our operations and the costs associated with the Business Combination announced on April 30, 2014. As of June 30, 2014, U.S Treasury Bills with one month, three month, and six month maturities were yielding approximately 0.02%, 0.04%, and 0.07%, respectively. While we may invest in other securities, we believe such rates are representative of those we may receive on the balance of the trust account.

We anticipate that in order to fund our working capital requirements and complete a Business Combination, we will need to use all of the remaining funds not held in trust and the interest earned on the funds held in the trust account. We may need to enter into contingent fee arrangements with our vendors or raise additional capital through loans or additional investments from our initial shareholders, officers, directors, or third parties. None of the initial shareholders, officers or directors is under any obligation to advance funds to, or invest in, us. Accordingly, we may not be able to obtain additional financing. If we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of our business plan, and controlling overhead expenses. We cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all. The Company has no present revenue, and the Company's cash and working capital as of June 30, 2014 are not sufficient to complete its planned activities for the current year. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

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Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2014.


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Source: Edgar Glimpses


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