Pro forma assumptions and adjustments
The pro forma consolidated statement of financial position includes the following pro forma assumptions and adjustments:
(a) The Corporation will issue a total of 33,440,486 Common Shares in exchange for 33,440,486 issued Common Shares of CapGain and 4,538,185 Common Shares in exchange for the issued 4,538,185 Preferred Shares, Series A of CapGain. In addition, the Corporation will issue one Common Share in exchange for each Common Share of CapGain issued by CapGain through the Private Placement. The Private Placement expects to raise $550,000 from the issuance of 5,500,000 Common Shares at $0.10 per share, of which, 2,385,000 common shares amounting to $238,500 was raised as of September 30, 2012.
(b) Sponsorship shares were issued to Union Securities, Ltd. totaling 50,000 common shares at $0.10 per share as partial compensation for acting as Sponsor. The amount of $5,000 was charged to Deficit.
(c) Options to acquire common shares of the Corporation at an exercise price of $0.10 per share, for up to 1,300,000 common shares were granted to directors of the Corporation. The value assigned for each option is $0.07 and in total amount of $97,000 which has been recorded under contributed surplus. The fair value of the options has been estimated using the Black Scholes option pricing model with the following assumptions: Exercise and share price $0.10; Risk-free interest rate 1.64%; Expected volatility 100%; Expected dividend yield Nil; Weighted average life 5 years; and Forfeiture rate Nil.
Prior to the proposed Qualifying Transaction, the Corporation had granted 400,000 stock options to its officers and directors. The options will expire 90 days following cessation of office, directorship or technical consulting arrangement. Upon completion of the Qualifying Transactions, holders of the 300,000 stock options will no longer continue as officers and directors of the Corporation, hence, CapGain, being the accounting parent, was deemed to have issued replacement options to provide opportunity to the former officers and directors to exercise their options within 90 days from the date of the completion of Qualifying Transaction. In addition, replacement options were also issued for the existing 100,000 stock options owned by a director of the Corporation who will continue as a director of the consolidated entity.
Consequently, additional share-based payment expense was recorded in the amount of $41.439. The Corporation also has Agent's Options of 200,000 outstanding and exercisable as at September 30, 2012. These options have an exercise price of $0.10 per share and expire on March 7, 2013. Costs incurred related to the Qualifying Transaction were written off to Deficit in the amount of $135,010. Additional transaction costs totaling $61,500 were incurred and charged to Deficit. The existing 400,000 stock options granted to directors and officers of the Corporation, 200,000 existing agent options and costs incurred related to the Qualifying Transactions are a portion of the consideration for the transaction.
(d) IFRS 2 states that for equity-settled share based payment transactions, the entity shall measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless the fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity will measure their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted. When the transaction is accounted for under IFRS 2, no goodwill will arise on the transaction; rather the amount is recognized as a listing expense in Profit and Loss, eventually to Deficit.
The transactions described in the Share Purchase Agreement in Note 3 will result in the elimination of the Corporation's equity accounts as at September 30, 2012, along with the recognition of the fair value of the consideration granted by CapGain for the net liabilities of the Corporation, the difference being treated as a listing expense. The fair value of the common shares of the Corporation was calculated at a deemed price of $0.181163 per share.
Consideration (in US $)
Fair value of common shares issued (4,000,000 shares at $0.181163): 724,652
Fair value of replacement stock options granted to former officers and directors of the Corporation (400,000 stock options): 41,439
Fair value of agent stock options (200,000 stock options): 17,822
Transaction costs: 201,510
Net liability received
Accounts payable and accrued liabilities: (73,865)
Listing expense: 1,059,263
CapGain is an investment company that purchases, re-structures when applicable, and sells real estate in the United States, with a forward moving focus on income producing real estate. CapGain's contacts within the real estate and finance industries allow the purchase of properties significantly below market value.
Additional information on the operations or financial results of CapGain is included in reports on file with applicable securities regulatory authorities and may be accessed through the TMX website (www.tmx.com) and the SEDAR website (www.sedar.com) under the profile for CapGain.
This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included in this report and the documents that we incorporate by reference, are forward-looking statements and can generally be identified by words such as "will," "allow," "outlook," or the negative of these terms, and other comparable terminology.
Various risks and other factors could cause actual results, and actual events that occur, to differ materially from those contemplated by the forward looking statements, such as whether CapGain is able to meet price, performance, quality and delivery requirements. Although CapGain believes that the expectations represented by any forward-looking statements and forward-looking information contained herein are reasonable based on the information available to them on the date of this document, management cannot assure investors that actual results, performance or achievements will be consistent with these forward-looking statements or forward-looking information. CapGain undertakes no obligation to update the information in this press release to reflect events or circumstances after the date hereof or to reflect the occurrence of anticipated or unanticipated events.
The TSXV has neither approved nor disapproved the contents of this press release. The TSXV does not accept responsibility for the adequacy or accuracy of this release.
CapGain Properties Inc.
Chief Executive Officer
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