March 7, 2008
We are pleased to provide this Annual Report to shareholders of Millennium India Acquisition Company Inc. ("MIAC" or the "Company"), which covers the fiscal year ended December 31, 2007. The Annual Report includes information designed to help you understand your investment.
The past fiscal year, as well as the subsequent period, has been an eventful one for your Company. We began 2007 with the proceeds of our initial public offering invested in cash and cash equivalents while we continued our search for a suitable investment. In May 2007 we negotiated agreements to acquire minority interests in each of SMC Global Securities Limited ("SMC") and SAM Global Securities Limited ("SAM"). We refer to SMC and SAM together as the SMC Group.
Because MIAC planned to invest substantially all its assets in SMC Group stock, MIAC had to register with the U.S. Securities and Exchange Commission as an investment company. We registered with the SEC on December 20, as a closed-end, non-diversified "investment company" more commonly known as a "closed-end fund." As a registered investment company, we are subject to the Investment Company Act of 1940 and related rules, which contain detailed requirements for the organization and operation of investment companies. On January 16, 2008, MIAC obtained certain SEC approvals to permit us to acquire SMC Group stock.
The next day, January 17, 2008, the acquisition of SMC Group stock and other key proposals were overwhelmingly approved at a special meeting of stockholders.
On January 21, 2008, we completed the acquisition of a 14.75% equity interest in each of SMC and SAM for an aggregate consideration of $41,155,412. After payment of expenses and certain share redemptions, approximately $2.5 million remains invested in cash or cash equivalents as of the date of this letter. Also in connection with the acquisition, Suhel Kanuga, President of MIAC, and I became members of the Board of Directors of SMC and SAM, respectively.
Based in New Delhi, the SMC Group is a full service financial services firm. Its products and services include equities and commodities brokerage, online equities, commodities and derivatives trading, equity research, mutual fund and IPO distribution, depository and clearing services, merchant banking and corporate finance and insurance brokerage. The SMC Group also takes proprietary positions through trading and investing in equity products. Companies of the SMC Group are members of the Bombay Stock Exchange and the National Stock Exchange of India, among other exchanges.
The SMC Group currently has more than 1,100 employees and, in addition to its headquarters in New-Delhi, has regional offices in Mumbai (Bombay), Kolkata (Calcutta), Chennai, Cochin, Amhedabad, Hyderabad, Siliguri and Jaipur. The SMC Group also has an expanding retail distribution network of more than 6,000 independent financial advisors in 925 offices and more than 225 cities across India.
The year 2007 has been an exciting year for India-dedicated investors, with the countrys share market indices hitting new highs in December. Over the year, the BSE Sensex and CNX Nifty surged 47.1% and 54.8%, respectively, from their close on December 29, 2006. Despite a retreat from these highs so far in 2008, due in part to overall global market volatility, as well as recent structural reforms affecting access to certain sectors of the market to foreign investors, our view of the economy's fundamentals remains positive. In short, we remain bullish on India's growth story, particularly in the financial sector, but with full awareness of the short-term challenges.
While the past year has been an important one for your Company, we are excited about the prospects for the coming year. We thank you for your support of your Company so far and are looking forward to our continued relationship.
Sincerely,
F. Jacob Cherian
Chairman and Chief Executive Officer
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Millennium India Acquisition Company Inc.
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Statements of Financial Condition
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December 31, 2007
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December 31, 2006
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ASSETS
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Current Assets:
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Cash and cash equivalents
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$ 244,686
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$ 443,516
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Trust Fund (including accrued interest
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of $219,754 and $222,424)
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58,486,619
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57,004,924
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Deferred acquisition costs
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5,540,411
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-
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Restricted cash
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137,973
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-
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Total current assets
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64,409,689
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57,448,440
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Other assets
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11,905
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14,314
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Total assets
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$ 64,421,594
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$ 57,462,754
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Current Liabilities:
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Accounts payable and accrued expenses
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$ 843,301
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$ 101,364
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Accrued acquisition costs
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5,655,547
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-
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Income taxes payable
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312,333
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194,000
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Deferred underwriting fees
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1,557,500
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1,557,500
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Total current liabilities
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8,368,681
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1,852,864
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Common stock, subject to possible conversion to cash
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(1,449,275 shares at conversion value)
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11,668,659
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11,326,834
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Value of private placement warrants, subject to possible rescission
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2,250,000
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2,250,000
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Commitments
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Stockholders' Equity:
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Preferred stock, par value $.0001 per share, 5,000 shares authorized, 0
shares issued
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-
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-
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Common stock, par value $.0001 per share, 45,000,000 shares authorized,
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7,613,225 shares issued and outstanding
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761
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761
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Additional paid-in capital
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43,876,340
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44,371,165
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Accumulated deficit
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(1,742,847)
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(2,338,870)
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Total stockholders' equity
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42,134,254
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42,033,056
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Total liabilities and stockholders' equity
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$ 64,421,594
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$ 57,462,754
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See accompanying notes to financial
statements
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Millennium India Acquisition Company Inc.
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Statements of Operations
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From inception
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For the year
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(March 15, 2006)
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ended
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to
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December 31, 2007
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December 31, 2006
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Revenue:
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Interest income
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$ 36,414
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$ 11,665
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Interest income on Trust Fund
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2,912,658
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1,270,296
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Total revenue
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2,949,072
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1,281,961
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Operating expenses:
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General and administrative expenses
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2,033,599
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726,282
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Charge related to sale of common stock
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-
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2,700,549
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Total operating expenses
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2,033,599
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3,426,831
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Income (loss) before provision for income taxes
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915,473
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(2,144,870)
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Provision for income taxes
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319,450
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194,000
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Net income (loss)
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596,023
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(2,338,870)
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Accretion of Trust Fund relating to common
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stock, subject to possible conversion to cash
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(341,825)
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-
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Net income (loss) accorded to common stockholders
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$ 254,198
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$ (2,338,870)
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Weighted average number of shares outstanding:
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Basic
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7,613,225
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8,149,117
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Diluted
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9,554,023
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8,149,117
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Net income (loss) per share:
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Basic
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$ 0.03
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$ (0.29)
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Diluted
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$ 0.03
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$ (0.29)
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Number of shares outstanding subject to possible conversion,
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basic and diluted
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1,449,275
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1,449,275
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Net income per share subject to possible conversion,
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basic and diluted
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$ 0.24
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-
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See accompanying notes to financial
statements
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Millennium India Acquisition Company Inc.
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Statements of Changes in Stockholders' Equity
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Common Stock
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Shares
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Amount
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Additional Paid-In Capital
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Treasury Stock
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Accumulated Deficit
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Total
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Balance, March 15, 2006
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-
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$ -
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$ -
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$ -
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$ -
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$ -
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Issuance of common stock
to
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initial stockholders
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1,753,496
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175
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24,825
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-
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-
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25,000
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Issuance of common stock
to
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initial stockholders
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371,504
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37
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2,704,512
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-
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-
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2,704,549
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Rescission of issuance of
common stock
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to initial stockholders
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-
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-
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2,700,549
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(2,704,549)
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-
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(4,000)
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Cancellation of common
stock
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to initial stockholders
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(371,504)
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(37)
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(2,704,512)
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2,704,549
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-
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-
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Issuance of
0.211865 to 1
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common stock dividend
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371,504
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37
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(37)
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-
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-
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-
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Contribution of 312,500
shares
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of common stock by initial
stockholders
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-
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-
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2,275,000
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(2,275,000)
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-
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-
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Cancellation of common
stock
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from initial shareholders
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(312,500)
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(31)
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(2,274,969)
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2,275,000
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-
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-
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Proceeds from sale of the
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unit Purchase Option
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-
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-
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100
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-
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-
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100
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Sale of 7,250 units
through public
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offering net of
underwriter's discount and
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offering
expenses and net of proceeds of
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$11,326,834 allocable to
1,449,275 shares of
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common stock, subject to
possible conversion
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5,800,725
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580
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41,645,697
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-
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-
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41,646,277
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Net loss for the period
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-
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-
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-
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-
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(2,338,870)
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(2,338,870)
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Balance, December 31,
2006
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7,613,225
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$
|
761
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$
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44,371,165
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$
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-
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$
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(2,338,870)
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$
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42,033,056
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Accretion related to
shares subject to
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possible conversion
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-
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-
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(341,825)
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-
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-
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(341,825)
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450,000 restricted shares
issued to finder
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on October 18, 2007
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450,000
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45
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3,415,455
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-
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-
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3,415,500
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450,000 restricted shares
returned and
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cancelled on December 19,
2007
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(450,000)
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(45)
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(3,568,455)
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-
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-
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(3,568,500)
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Net income for the year
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-
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-
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-
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-
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596,023
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596,023
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Balance, December 31,
2007
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7,613,225
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$
|
761
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$
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43,876,340
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$
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-
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$
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(1,742,847)
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$
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42,134,254
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See accompanying notes to financial
statements
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Millennium India Acquisition Company Inc.
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Statements of Cash Flows
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From inception
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For the year
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(March 15, 2006)
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ended
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to
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December 31, 2007
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December 31, 2006
|
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OPERATING
ACTIVITIES
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Net income (loss)
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$
596,023
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$ (2,338,870)
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Adjustments to
reconcile net income (loss) to net cash provided by (used in) operating activities:
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Charge related
to sale of common stock
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2,700,549
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Changes in operating
assets and liabilities:
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Accrued
interest income on Trust Fund
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(1,481,695)
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(342,424)
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Other assets
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2,409
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(14,314)
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Deferred acquisition costs
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(37,864)
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-
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Accounts payable and accrued
expenses
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741,937
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|
101,364
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Income taxes payable
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|
118,333
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194,000
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Restricted Cash
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(137,973)
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-
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Net cash
provided by (used in) operating activities
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(198,830)
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300,305
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INVESTING
ACTIVITIES
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Cash contributed to Trust
Fund
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|
-
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(56,662,500)
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Net cash used in
investing activities
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|
-
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(56,662,500)
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FINANCING
ACTIVITIES
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Proceeds from
issuance of common stock to initial stockholders
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|
-
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25,000
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Proceeds from issuance of common
stock to initial stockholders
|
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|
|
-
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|
4,000
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Rescission of issuance of common
stock to initial stockholders
|
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|
|
-
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|
(4,000)
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Proceeds from notes payable to
initial stockholders
|
|
|
|
-
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|
144,000
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Payment of notes payable to initial
stockholders
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|
|
-
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|
(144,000)
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Proceeds from sale of warrants
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|
|
-
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|
2,250,000
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Proceeds from sale of Unit Purchase
Option
|
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|
|
-
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|
100
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Portion of net proceeds from sale
of units through public offering allocable to
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|
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|
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shares of common stock, subject to
possible conversion
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|
-
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|
11,326,834
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Net proceeds from sale of units
through public offering allocable to:
|
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|
|
|
|
|
Deferred underwriting fees
|
|
|
|
-
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|
1,557,500
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Stockholders' equity
|
|
|
|
-
|
|
41,646,277
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Net cash provided by
financing activities
|
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|
|
-
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|
56,805,711
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|
|
|
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Net
(decrease) increase in cash and cash equivalents
|
|
(198,830)
|
|
443,516
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Cash and Cash
Equivalents
|
|
|
|
|
Beginning of period
|
|
|
443,516
|
|
-
|
End of period
|
|
|
$ 244,686
|
|
$ 443,516
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash activity:
|
|
|
|
|
Accrued acquisition costs
|
|
|
$ 5,655,547
|
|
$ -
|
|
|
|
|
|
|
|
Fair value of unit purchase option
included in offering costs
|
|
|
$ -
|
|
$ 1,535,000
|
|
|
|
|
|
|
|
Effect on paid- in capital of
recission and cancellation of issuance of common
|
|
|
|
|
|
stock to initial stockholders, net
|
|
|
$ -
|
|
$ (3,963)
|
|
|
|
|
|
|
|
Effect on paid-in capital of
contribution and cancellation of 312,500 shares of common
|
|
|
|
|
stock to initial stockholders
|
|
|
$ -
|
|
$ 31
|
See accompanying notes to financial
statements
Millennium India Acquisition Company Inc.
Notes to Financial Statements
NOTE 1 DISCUSSION OF THE COMPANYS ACTIVITIES
Organization and activities
Millennium India Acquisition Company Inc. (the Company) was incorporated in Delaware on March 15, 2006 for the purpose of effecting a merger, capital stock exchange, asset acquisition or other similar transaction (a Business Combination) with a operating business or businesses that have operations primarily in India (a Target Business).
The registration statement for the Companys initial public offering (Offering) was declared effective on July 19, 2006. On July 25, 2006, the Company consummated the Offering of 7,250,000 Units (the Units or a Unit) for gross proceeds of approximately $58 million, or $8.00 per Unit. All of the net proceeds of the Offering are intended to be applied toward consummating a merger, capital stock exchange, asset acquisition or other similar business combination with a Target Business (a Business Combination). Pending such a Business Combination, substantially all of the proceeds from the Offering will be held in trust. The Companys management will have broad authority with respect to the application of the interest earned on the monies held in the trust from the net proceeds of the Offering (see Note 5). There is no assurance that the Company will be able to successfully effect a Business Combination.
Management agreed that approximately $7.82 per Unit sold in the Offering will be held in a trust account (Trust Account) and invested in permitted United States government securities, of which, $0.21 per Unit will be paid to the underwriters upon the consummation of a Business Combination. The placing of 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, prospective target businesses or other entities it engages, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account, there is no guarantee that they will execute such agreements. Up to $1,975,000 in interest earned on the monies held in the Trust Account may be used to pay for due diligence of prospective Target Businesses, legal and accounting fees relating to Securities and Exchange Commission (SEC) reporting obligations and working capital to cover miscellaneous expenses, director and officer insurance and reserves.
Prior to the consummation of a Business Combination, the Company is obliged to submit such proposed Business Combination for approval by a majority of the stockholders of the Company. Stockholders that vote against such proposed Business Combination are, under certain conditions described below, entitled to convert their shares into a pro-rata distribution from the Trust Account (the Conversion Right). The actual per-share conversion price will be equal to the amount in the Trust Fund (inclusive of any interest thereon, and net of income taxes) as of two business days prior to the proposed Business Combination, divided by the number of Units sold in the Offering, or approximately $7.82 per unit on July 25, 2006. The Companys stockholders prior to the Offering (Initial Stockholders), have agreed to vote their 1,812,500 founding shares of common stock in accordance with the vote of the majority in interest of all other stockholders of the Company (Public Stockholders) with respect to any Business Combination. In the event that holders of a majority of the outstanding shares of common stock vote for the approval of the proposed Business Combination and that holders owning 20% or more of the outstanding common stock do not exercise their Conversion Right, the Business Combination may then be consummated.
If the Company does not execute a letter of intent, agreement in principle or definitive agreement for a Business Combination prior to 16 months from the date of the Offering, the Companys board of directors will, prior to such date, convene, adopt and recommend to their stockholders a plan of dissolution and distribution and on such date file a proxy statement with the SEC seeking stockholder approval for such plan. If, however, a letter of intent, agreement in principle or definitive agreement for a Business Combination has been executed prior to 18 months from the date of the Offering, the Company will abandon their plan of dissolution and distribution and seek the consummation of that Business Combination. If a proxy statement seeking the approval of the Companys stockholders for that Business Combination has not been filed prior to 22 months from the date of the Offering, the Companys board of directors will, prior to such date, convene, adopt and recommend to their stockholders a plan of dissolution and distribution and on such date file a proxy statement with the SEC seeking stockholder approval for such plan. In the event there is no Business Combination within the 18 and 24-month deadlines (the Target Business Combination Period), the Company will dissolve and distribute to its Public Stockholders, in proportion
Millennium India Acquisition Company Inc.
Notes to Financial Statements
(Cont NOTE 1)
to their respective equity interests, the amount held in the Trust Account, and any remaining net assets, after the distribution of the Trust Account. In the event of liquidation, it is likely that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per share in the Offering. Pursuant to letter agreements with the Company and the representative of the underwriters (the Representative) in the Offering, the Initial Stockholders have waived their right to receive distributions with respect to their existing shares in the event of the Companys liquidation.
With respect to a Business Combination which is approved and consummated, any Public Stockholder who voted against the Business Combination may exercise their Conversion Right and their common shares would be cancelled and returned to the status of authorized but unissued shares. The per share conversion price will equal the amount in the Trust Account, calculated as of two business days prior to the consummation of the proposed Business Combination, divided by the number of shares of common stock held by Public Stockholders at the consummation of the Offering. Accordingly, Public Stockholders holding 19.99% of the aggregate number of shares owned by all Public Stockholders may seek conversion of their shares in the event of a Business Combination. Such Public Stockholders are entitled to receive their per share interest in the Trust Account computed without regard to the shares held by Initial Stockholders.
Recent Events
On May 12, 2007, the Company entered into two substantially identical share subscription agreements to acquire a 14.90% equity interest in each of SMC Global Securities Limited (SMC) and SAM Global Securities Limited (SAM) , that collectively comprise the SMC Group of Companies (the SMC Group or the Group), for the aggregate fixed sum of INR 1,638,996,077. On June 6, 2007, the Company acquired options, exercisable within 30 days of the closing date of the share purchase transactions, to require the SMC Group to initiate regulatory approval proceedings that would permit the SMC Group to issue Global Depositary Receipts (GDRs), in which issuance the Company has the right to subscribe to such number of GDRs as would provide the Company, on conversion of the GDRs into equity shares, with up to an additional 6% equity interest in the SMC Group, in return for an aggregate payment of up to INR 659,998,420. In January 2008 the acquisition of a 14.75% equity interest in the SMC Group was consummated by the
Company upon approval by public stockholders (see Note 9). As a result of its plan to invest substantially all of its assets in SMC Group stock, MIAC was required to register with the SEC as a closed-end, non-diversified investment company under the Investment Company Act of 1940 (the Act). As a registered investment company, MIAC is subject to the Act and the related rules, which contain detailed requirements for the organization and operation of investment companies.
As a result the company has included financial highlights for the eleven days
ended December 31, 2007.
NOTE 2 OFFERING
In the Offering, effective July 19, 2006 (closed on July 25, 2006), the Company sold to the public 7,250,000 Units (the Units) at a price of $8.00 per Unit. Proceeds from the Offering, totaled approximately $52.9 million, which was net of approximately $3.5 million in underwriting and other Offering expenses paid in cash at the closing and approximately $1.6 million in deferred underwriting fees (see Note 5). Each Unit consists of one share of the Companys common stock and one warrant (a Public Warrant) (see Note 8).
The Company also sold to certain of the Representative for an aggregate of $100, an option (the Underwriters Purchase Option or UPO) to purchase up to a total of 500,000 additional Units (see Note 8).
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents are deposits with financial institutions as well as short-term money market instruments with maturities of three months or less when purchased.
Deferred Acquisition Costs
Costs related to the proposed acquisition of a minority interest in the SMC Group are capitalized. In the event the acquisition does not occur, the costs are expensed.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. The Company may maintain deposits in federally insured financial institutions in excess of federally insured limits. However, management
Millennium India Acquisition Company Inc.
Notes to Financial Statements
(Cont NOTE 3)
believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
Foreign Currency
During 2007, foreign transaction gains and losses were deemed to have not been material. Gains and losses from foreign currency transactions are included within other operating expense, net in the statements of operations.
Net Income (Loss) Per Share
Net income (loss) per share is computed based on the weighted average number of shares of common stock and common stock, subject to conversion outstanding. Basic income (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average common shares outstanding for the period. Basic net income (loss) per share is calculated by dividing net income (loss) attributable to common stockholders by their weighted average number of common shares outstanding during the period. Calculation of the weighted average common shares outstanding during the period is based on 2,125,000 initial shares outstanding throughout the period from March 15, 2006 (inception) to December 31, 2007, 312,500 initial shares cancelled by the Company on July 20, 2006 (retroactively restated to July 25, 2006) and 7,250,000 common shares outstanding after the completion of the Offering on July 25, 2006. Basic net income per share subject to possible conversion is calculated by dividing accretion of Trust Fund relating to common stock subject to possible conversion by 1,449,275 common shares subject to possible conversion. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
Fair Value of Financial Instruments
The fair values of the Companys assets and liabilities that qualify as financial instruments under Statement of Financial Accounting Standards (SFAS) No. 107
Disclosure About Fair Value of Financial Instruments
approximate their carrying amounts presented in the Statements of Financial Condition at December 31, 2007 and 2006.
The Company accounts for derivative instruments, if any, in accordance with SFAS No. 133 Accounting for
Derivative Instruments and Hedging Activities, as amended, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments imbedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value. Accounting for the changes in the fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of the relationships designated are based on the exposures hedged. Changes in the fair value of the derivative instruments which are not designated as hedges are recognized in earnings as other income (loss). The Company does not have any derivative instruments as of December 31, 2007.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes
Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts and are based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized.
New Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a companys financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in an income tax return.
Millennium India Acquisition Company Inc.
Notes to Financial Statements
(Cont NOTE 3)
FIN 48 also provides guidance in de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 did not have an effect on the Companys statements of financial condition, statements of operations or cash flows.
In September 2006, the FASB issued SFAS 157 Fair Value Measurements (SFAS 157). SFAS 157 provides guidance for using fair value to measure assets and liabilities. The standard also responds to investors requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 is effective for financial statements issued in fiscal years beginning after November 15, 2007 and to interim periods within those fiscal years. The Company does not believe the adoption of SFAS 157 will have a material impact, if any, on its financial statements.
In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 provides a Fair Value Option under which a company may irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities. SFAS 159 will be available on a contract-by-contract basis with changes in fair value recognized in earnings as those changes occur. SFAS 159 is effective for fiscal years after November 15, 2007. SFAS 159 also allows early adoption provided that the entity also adopts the requirements of SFAS 157. The Company does not believe the adoption of SFAS 159 will have a material impact, if any, on its financial statements.
In December 2007, the FASB issued SFAS No. 141(R) Business Combinations (SFAS 141(R)). SFAS 141(R) changes several underlying principles in applying the purchase method of accounting. Among the significant changes, SFAS 141(R) requires a redefining of the measurement date of a business combination, expensing direct transaction costs as incurred, capitalizing in-process research and development costs as an intangible asset and recording a liability for contingent consideration at the measurement date with subsequent re-measurements recorded in the results of operations. SFAS 141(R) also requires that costs for business restructuring and exit activities related to the acquired company will be included in the post-combination financial results of operations and also provides new guidance for the recognition and measurement of contingent assets and liabilities in a business combination. In addition, SFAS 141(R) requires several new disclosures, including the reasons for the business combination, the factors that contribute to the recognition of goodwill, the amount of acquisition related third-party expenses incurred, the nature and amount of contingent consideration, and a discussion of pre-existing relationships between the parties. SFAS 141(R) is effective for the Company as of January 1, 2009. While the Company is currently assessing the impact of SFAS 141(R) on its financial statements, the Company expects that upon adoption of SFAS 141(R), the application of the new standard is likely to have a significant impact on how the Company allocates the purchase price of an acquired business, including the expensing of direct transaction costs and costs to integrate the acquired business.
In December 2007, the FASB issued SFAS No. 160 Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51, (SFAS 160). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 requires noncontrolling interests in subsidiaries initially to be measured at fair value and classified as a separate component of equity. SFAS 160 also requires a new presentation on the face of the consolidated financial statements to separately report the amounts attributable to controlling and non-controlling interests. SFAS 160 is effective for the Company as of January 1, 2009.
Millennium India Acquisition Company Inc.
Notes to Financial Statements
NOTE 4 INCOME TAXES
No provision for state and local income taxes has been made since the Company was formed as a vehicle to effect a Business Combination and, as a result, does not conduct operations and is not engaged in a trade or business in any state.
Provision for income taxes consists of:
The provision for income taxes differs from the amount computed by applying the U.S
statutory income taxes rates for federal to loss before provision for income
taxes for the reasons set forth below for the period from inception (March 15,
2006) to December 31, 2006, and for the year ended December 31, 2007.
The Companys effective tax rate differs from the federal statutory rate in 2006 as a result of non-deductible expenses and other deductions comprised primarily of a charge related to the sale of the Companys common stock included on the accompanying statements of operations that will never be deductible from the Companys computation of taxable income.
Included in general and administrative expenses for the year ended December 31, 2007 and for the period from inception (March 15, 2006) to December 31, 2006 are $80,000 and $44,770, respectively, of expenses related to Delaware franchise tax.
NOTE 5 COMMITMENTS
Administrative Fees
The Company is permitted to utilize up to $2,025,000, which includes $50,000 transferred to the Company at closing on July 25, 2006 and $1,975,000 of the interest earned upon monies in the Trust Account for working capital purposes. The working capital will be used to pay for director and officer liability insurance premiums and general and administrative services, including office space, utilities and secretarial support, with the balance being held in reserve for other expenses, such as relocation of their full-time officers to India, due diligence, legal, accounting, and other fees and expenses for structuring and negotiating Business Combinations, and deposits, down payments and/or funding of no shop provisions in connection with Business Combinations as well as for reimbursement of any out-of-pocket expenses incurred by the Companys officers, directors or special advisors in connection with activities undertaken on the Companys behalf.
Underwriting Agreement
In connection with the Offering, the Company entered into an underwriting agreement (the Underwriting Agreement) with the Representative in the Offering.
Pursuant to the Underwriting Agreement, the Company is obligated to the underwriters for certain fees and expenses related to the Offering, including an underwriting discount of $3,480,000. The Company and the Representative have agreed that payment of $725,000, of the underwriting discount will be deferred until consummation of the Business Combination. The Company also agreed to pay the Representative a non-accountable expense allowance of $870,000, or 1.50% of the gross proceeds of the Offering. The Company and the
Millennium India Acquisition Company Inc.
Notes to Financial Statements
(Cont NOTE 5)
representative agreed that payment of $832,500 of the non-accountable expense allowance will be deferred until consummation of the Business Combination.
In addition, in accordance with the terms of the Underwriting Agreement, the Company has engaged the Representative, on a non-exclusive basis, to act as its agent for the solicitation of the exercise of the Companys Public Warrants. In consideration for solicitation services, the Company will pay the underwriters a commission equal to 6% of the exercise price for each Warrant exercised more than one year after the date of the Offering if the exercise is solicited by the underwriters.
Finders Fee
On October 18, 2007, in return for their assistance in searching for a potential target company and their advice to the Company during the negotiation process of the SMC Group transactions, including the extension of the deadline for the share purchase transactions to December 27, 2007, both Santa Jain & Associates (Santa Jain) and Step Two Advisors received an aggregate of 450,000 shares of the Companys common stock as a finders fees, of which Santa Jain received 250,000 shares and Step Two Advisors received 200,000 shares.
On December 3, 2007, the Company received a letter (the Letter) from the American Stock Exchange (AMEX) stating that the Company had failed to comply with AMEX procedures regarding the application for listing of additional securities in connection with the issuance of the 450,000 shares of our common stock to Santa Jain and Step Two Advisors as finders fees in connection with the Companys proposed purchase of equity interest in the SMC Group. On December 19, 2007 the 450,000 shares of the common stock previously issued to the finders were returned and cancelled. In return for their services, Santa Jain and Step Two Advisors agreed to receive an aggregate of approximately $3,550,000 in cash as finders fees at the closing of the SMC Group transactions, of which Santa Jain was to receive $1,972,222 and Step Two Advisors was to receive $1,577,778.
NOTE 6 RELATED PARTY
The Company had entered into an informal arrangement on a month-to-month basis for the use of office space in Mumbai, India with an entity affiliated with the Company through a family relationship with one of the Company's officers. Total rent expense paid to the affiliated party during 2007 was $63,000.
NOTE 7 STOCKHOLDERS EQUITY
During May 2006, the Company amended and restated its Certificate of Incorporation to authorize the issuance of an additional 10,000,000 shares of common stock for an aggregate authorization of 45,000,000 shares of common stock.
On June 5, 2006, the Company declared a stock dividend of 0.048951 shares for 1 share of common stock to stockholders of record on June 5, 2006. On June 16, 2006, the Company declared a reverse stock split of 0.708333 shares for 1 share of common stock to be effective on June 16, 2006 to stockholders of record on June 16, 2006. On July 6, 2006, the Company declared a stock dividend of 0.211865 shares for 1 share of common stock to stockholders of record on July 6, 2006. The accompanying financial statements and share amounts have been retroactively adjusted to include the impact of the stock dividends and reverse stock split.
Preferred Stock
The Company is authorized to issue 5,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.
Common Stock
In March 2006, the Companys Initial Stockholders purchased 1,753,496 post stock dividend and reverse stock split shares of the Companys common stock for an aggregate $25,000.
Millennium India Acquisition Company Inc.
Notes to Financial Statements
(Cont NOTE 7)
During May 2006, certain of the Initial Stockholders purchased 371,504 post stock dividend and reverse stock split shares of the Companys common stock for an aggregate $4,000. At the date of sale in May 2006, management determined the fair value of the Companys common stock to be $7.28 per share. This determination of value was based on managements evaluation of the value of common stock of similar companies, which had recently completed an initial public offering whose common stock had begun separate trading from the warrants. As a result, the Company recorded a charge of $2,700,549 to the 2006 statement of operations for the difference between the fair market value of the common stock sold of $2,704,549 and the $4,000 price paid by the Initial Stockholders in May 2006.
On July 5, 2006, certain of the May 2006 Initial Stockholders purchase of 371,504 post stock dividend and reverse stock split shares was rescinded in its entirety by mutual agreement of the Company and the Initial Stockholders. At the date of rescission, management re-evaluated the current fair value of the Companys common stock and determined the fair value to be $7.28 per share as no events had occurred since the date of sale which would provide another indication of value and the Companys circumstances were substantially the same as in May 2006. Accordingly, on July 5, 2006 the Company recorded the $2,704,549 value of the shares rescinded and reacquired to treasury stock and a $2,700,549 credit to additional paid-in capital based on the difference between fair market value of the common stock rescinded and the $4,000 price paid by the Company for such shares. Upon receipt, such shares were then immediately cancelled by the Company which resulted in the retirement of the treasury stock and a corresponding charge to additional paid-in capital and common stock.
On July 20, 2006, certain Initial Stockholders returned an aggregate of 312,500 shares of the Companys common stock to the Company for cancellation. At the date of return and cancellation, management re-evaluated the current fair value of the Companys common stock and determined the fair value to be $7.28 per share as no events had occurred which would provide another indication of value and the Companys circumstances were substantially the same as on July 5, 2006 when the Company performed its last valuation. Accordingly, on July 20, 2006, the Company recorded the $2,275,000 value of the shares contributed to treasury stock and a $2,275,000 corresponding credit to additional paid-in capital. Upon receipt, such shares were then immediately cancelled by the Company which resulted in the retirement of the treasury stock and a corresponding charge to additional paid-in capital and common stock.
For the year ended December 31, 2007, Trust Fund interest income accretion of $341,825 was allocated to common stock, subject to possible conversion to cash on the accompanying statements of financial condition and a corresponding
reduction of $341,825 was recorded to additional paid-in capital.
NOTE 8 WARRANTS AND OPTION TO PURCHASE COMMON STOCK
Public Warrants
Each Public Warrant sold in the Offering will be exercisable for one share of common stock. Except as set forth below, the Public Warrants will entitle the holder to purchase shares at $6.00 per share, subject to adjustment in the event of stock dividends and splits, reclassifications, combinations and similar events for a period commencing on the later of: (a) completion of a Business Combination and (b) July 19, 2007, and ending July 18, 2010. The Company has the ability to redeem the Public Warrants with the prior consent of the Representative, in whole or in part, at a price of $.01 per Public Warrant at any time after the Public Warrants become exercisable, upon a minimum of 30 days prior written notice of redemption, and if, and only if, the last sale price of the Companys common stock equals or exceeds $11.50 per share, for any 20 trading days within a 30 trading day period ending three business days before the Company sent the notice of redemption.
Private Warrants
On June 30, 2006, the Company sold to certain of the Initial Stockholders and other accredited investors 2,250,000 warrants (Private Warrants) for an aggregate purchase price of $2,250,000. All of the proceeds received from these purchases were placed in the Trust Account at the closing of the Offering. The Private Warrants are identical to the Public Warrants in the Offering except that they may be exercised on a cashless basis and the Private Warrants cannot be sold or transferred until after the consummation of a Business Combination.
Millennium India Acquisition Company Inc.
Notes to Financial Statements
(Cont NOTE 8)
Additionally, such individuals will waive their right to receive distributions in the event of the Companys liquidation prior to a Business Combination with respect to the shares of common stock underlying such Private Warrants. Based on certain circumstances in this transaction, the Private Warrant holders may have the right to rescind their purchases, which would require the Company to refund up to an aggregate of the purchase price paid for the Private Warrants. Due to the uncertainty related to the rescission rights regarding the Private Warrants, the Company has recorded the proceeds received from the purchase of Private Warrants in the private placement as temporary equity, outside of stockholders equity.
As the proceeds from the exercise of the Public Warrants and Private Warrants will not be received until after the completion of a Business Combination, the expected proceeds from the exercise will not have any effect on the Companys financial condition or results of operations prior to a Business Combination.
Underwriter Purchase Option
Upon closing of the Offering, the Company sold and issued the UPO for $100 to the Representative to purchase up to 500,000 Units at an exercise price of $10.80 per Unit. The Units underlying the UPO will be exercisable in whole or in part, solely at the Representatives discretion, commencing on the consummation of a Business Combination and expiring on the five-year anniversary of the Offering. The Company accounted for the fair value of the UPO, inclusive of the receipt of the $100 cash payment, as an expense of the public offering resulting in a charge directly to stockholders equity with an equivalent increase in additional paid-in capital. The fair value of the 500,000 Units underlying the UPO was approximately $1,535,000 ($3.07 per Unit) at the date of sale and issuance, which was determined by the Company using a Black-Scholes option-pricing model. The fair value of the UPO has been estimated using the following assumptions: (1) expected volatility of 46.702%, (2) risk-free interest rate of 5.10% and (3) contractual life of 5 years. The expected volatility of approximately 46% was estimated by management based on an evaluation of the historical volatilities of similar public entities which had completed a transaction with an operating company. The UPO may be exercised for cash or on a cashless basis, at the holders option, such that the holder may use the appreciated value of the UPO (the difference between the exercise price of the UPO and the market price of the securities underlying the Units) to exercise the UPO without the payment of any cash. Each of the Units included in the UPO are identical to the Units to be sold in the Offering, except that the exercise price of the Units will be $10.80 per Unit.
Registration Rights - Warrants and UPO
In accordance with the Warrant Agreement related to the Public Warrants and the Registration Rights Agreement associated with the Private Warrants (collectively the Public Warrants and Private Warrants are the Warrants), the Company is only required to use its best efforts to register the Warrants and the shares of common stock issuable upon exercise of the Warrants and once effective to use its best efforts to maintain the effectiveness of such registration statement. The Company is not obligated to deliver securities, and there are no contractual penalties for failure to deliver securities, if a registration statement is not effective at the time of exercise. Additionally, in the event that a registration statement is not effective at the time of exercise, the holder of such Warrants shall not be entitled to exercise. However, with regards to the Private Warrants, the Company may satisfy its obligation by delivering unregistered shares of common stock. In no event (whether in the case of a registration statement not being effective or otherwise) will the Company be required to net cash settle a Warrant exercise. Consequently, the Warrants may expire unexercised and unredeemed. The holders of Warrants do not have the rights or privileges of holders of the Companys common stock or any voting rights until such holders exercise their respective warrants and receive shares of the Companys common stock.
The Company is only required to use its best efforts to register the UPO and the securities underlying such UPO, and once effective to use its best efforts to maintain the effectiveness of such registration statement. The Company has no obligation to net cash settle the exercise of the UPO or the warrants underlying the UPO. The holder of the UPO is not entitled to exercise the UPO or the warrants underlying the UPO unless a registration statement covering the securities underlying the UPO is effective or an exemption from registration is available. If the holder is unable to exercise the UPO or underlying warrants, the UPO or the underlying securities, as applicable, will expire worthless.
Millennium India Acquisition Company Inc.
Notes to Financial Statements
NOTE 9
SUBSEQUENT EVENTS
In May 2007 MIAC negotiated agreements to acquire (1) a 14.90% equity interest in each of SMC and SAM for the aggregate fixed sum of INR 1,638,996,077, or approximately $41,500,000, and (2) certain options to acquire additional SMC Global Securities. The options expired unexercised on February 20, 2008.
We applied for, and received on January 16, 2008, an exemption from the SEC from the provisions of Section 12(d)(3) of the Act. Without this exemption, MIAC would have been prohibited, as an investment company, from completing the proposed acquisition of SMC Group stock.
Management expects to determine fair value to be the amount for which an investment could be exchanged in an orderly disposition over a reasonable period of time between willing parties other than in a forced or liquidation sale. The investment in the SMC Group, an entity for which there is currently no liquid public market, will be valued at fair value based on the enterprise value of the SMC Group, which will be determined using various factors, including cash flow from operations of the SMC Group, multiples at which private companies are bought and sold, and other pertinent factors, such as recent offers, if any, to purchase the SMC Group, recent transactions involving the purchase or sale of the
Companys equity securities, liquidation events, or other events.
Prior to the special meeting of stockholders on January 17, 2008 [certain officers and directors] agreed to sell to certain stockholders of the Company an aggregate of up to approximately 900,000 shares of MIAC common stock.
The proposals set forth below were approved at a special meeting of stockholders on January 17, 2008:
1.
the amendment to certificate of incorporation to clarify that the business combination contemplated by the certificate of incorporation includes the purchase of a minority interest in an operating business;
2.
a Share Subscription Agreement, dated as of May 12, 2007, among SMC Global Securities Limited and the promoters of SMC;
§
a Share Subscription Agreement, dated as of May 12, 2007, among SAM Global Securities Limited and the promoters of SAM;
§
the issuance of shares of common stock at below net asset value to registered holders of outstanding warrants and the holder of the unit purchase option; the Letter Agreement, dated as of June 6, 2007, among SMC and the promoters of SMC;
§
the Letter Agreement, dated as of June 6, 2007, among SAM and the promoters of SAM; and
§
the election of F. Jacob Cherian, Suhel Kanuga, Lawrence Burstein, Gul Asrani and C.P. Krishnan Nair as Directors of the
Company to serve for a term of one year and until their successors are elected and qualify.
A total of 846,225 shares, or 11.46% of the shares issued in the fund's initial public offering was cast in opposition to the acquisition.
On January 18, 2008, the proceeds of the sale of securities that had previously been held in trust were released to the Company.
On January 21, 2008, the Company consummated the acquisition of a 14.75% equity interest in each of SMC and SAM for an aggregate consideration of $41,155,412. In connection with the acquisition of SMG Group securities, Messrs. Cherian and Kanuga became members of the Board of Directors of SMC and SAM, respectively.
On January 25, 2008, Mr. Thomas Mathew was elected to the Board of Directors of the fund. Also on January 25, 2008, the Board of Directors of the fund approved compensation for Messrs. Cherian and Kanuga in the amount of $250,000 each, per year. Such amounts were paid to Messrs. Cherian and Kanuga at that time. On February 19, 2008, stockholders holding 842,625 shares of common stock of the fund redeemed their interests for $7.96 per share, representing cash payments of approximately $6.7 million.
On March 3, 2008, the fund's Board of Directors announced a net asset value for the fund of $9.91.
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Millennium India Acquisition Company Inc.
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Financial Highlights
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(For a share outstanding throughout each period)
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Period
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Ended
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December 31,
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2007 (1)
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Net Asset Value, Beginning of Period
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$ 5.53
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Activity from investment operations:
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Net investment income
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-
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Net realized and unrealized
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gain on investments
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-
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Total from investment operations
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-
|
|
|
|
|
Net Asset Value, End of Period
|
|
$ 5.53
|
|
|
|
|
Market Value, End of Period
|
|
$ 7.89
|
|
|
|
|
Total return (3)
|
|
(0.51)%
|
|
|
|
|
Net Assets, At End of Period
|
|
$ 42,134,254
|
|
|
|
|
Ratio of expenses to average
|
|
|
|
net assets (2)
|
|
17.27%
|
Ratio of net investment income
|
|
|
|
to average net assets (2)
|
|
0%
|
|
|
|
|
Portfolio Turnover Rate (4)
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|
0%
|
|
|
|
|
(1) The Millennium India Acquisition Fund Inc. commenced operations as an investment company under the Investment
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Company Act of 1940 on December 20, 2007.
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(2)
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Annualized for periods less than one year.
|
|
|
(3)
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Total returns are historical and assume changes in market price, reinvestment of dividends and capital gain distributions,
|
|
|
if any. Total returns for periods less than one year are not annualized. The beginning Market Price per share on
|
December 20, 2007 was $7.93.
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(4) Not annualized.
|
|
See
Report of Independent Registered Public Accounting Firm.
|
Report of
Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees
Millennium India Acquisition Company Inc.
We have audited the accompanying statements of financial condition as of December 31, 2007 and 2006, and the related statements of operations, changes in stockholders equity and cash flows for the year ended December 31, 2007 and for the period from inception (March 15, 2006) to December 31, 2006, and the financial highlights for the eleven days ended December 31, 2007. These financial statements and financial highlights are the responsibility of the management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Millennium India Acquisition Company Inc. as of December 31, 2007 and 2006, and its results of operations
and cash flows for the year then ended, and for the period from inception (March 15, 2006) through December 31, 2006, and financial highlights for the eleven days ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.
J.H. Cohn LLP
Jericho, New York
March 3, 2008