MD & A BUSINESS COMBINATION
On October 13, 2011, Exile Resources Inc. (“Exile”) (now named Oando Energy Resources Inc.) and Oando Plc announced that they had entered into a definitive master agreement dated September 27, 2011 providing for the previously announced proposed acquisition by Exile of certain shareholding interests in Oando subsidiaries via a reverse take-over in respect of OMLs and
OPLs of the upstream division of Oando Plc, the Oando Exploration &Production Division (“Oando E&P Division”), as first announced on August 2, 2011. The Acquisition was completed on July 24, 2012.
The transaction has been accounted for as the acquisition of Exile by the Oando E&P Division using reverse acquisition accounting principles as the Oando E&P Division is deemed to have obtained control over the operations of Exile. Thus the financial statements of the Company include the acquisition of Exile. The Company used the principles of IFRS 3, Business Combinations, to account for the reverse acquisition of Exile.
Purchase consideration
Pursuant to the Arrangement, all of the outstanding pre-Arrangement common shares of Exile were consolidated on the basis of one Common Share for every 16.28 pre-Arrangement Common Shares then outstanding. Exile issued 100,339,052 Common Shares to Oando Plc, resulting in Oando Plc obtaining control over Exile. The fair value of the5,714,276 Common Shares retained by the Exile shareholders to as part of the consideration paid for Exile was US$5,714,276 and the fair value was based on the published share price (Cdn$1.00) of July 30, 2012.
Also pursuant to the Arrangement, the Exile shareholders were issued two share purchase warrants of OER for every 16.28 pre-Arrangement Common Shares of OER held immediately prior to the Arrangement, one share purchase warrant exercisable to acquire one Common Share of OER at an exercise price of Cdn$1.50 per share for a period of 12 months (the “Cdn$1.50 warrants”), and the second share purchase warrant exercisable to acquire one Common Share of OER at an exercise price of Cdn$2.00 per share for a period of 24 months (together with the Cdn$1.50 warrants, the “Warrants”). The fair value of the Warrants, determined using the Black Scholes valuation model, was US$2.29 million. The significant inputs to the model were weighted average share price of $1.00, at the close date, exercise prices of C$1.50 and C$2.00 respectively, volatility of 78%, dividend yield of $nil, expected warrant life of 1 and 2 years respectively and a risk free rate of 0.18% and 0.22% respectively. The Company issued the Warrants in Canadian dollars, which is a currency other than its functional currency of US dollars. As