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| GAC > SEC Filings for GAC > Form 10-Q on 12-Aug-2008 | All Recent SEC Filings |
12-Aug-2008
Quarterly Report
The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the related notes and schedules thereto.
General
We were formed on June 2, 2006, for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition or other similar business combination, an operating business. On February 16, 2007 and March 8, 2007, we consummated the public offering of an aggregate of 11,500,000 units, which we refer to as our Initial Public Offering. Our efforts in identifying a prospective target business will not be limited to a particular industry. Our initial business combination must be with a target business whose fair market value is at least equal to 80% of our net assets (all of our assets, including the funds then held in the trust account (described below) less our liabilities) at the time of such acquisition. We intend to use cash derived from the proceeds of our Initial Public Offering and our concurrent warrant private placement (described below), our capital stock, debt or a combination of cash, capital stock and debt, to effect such business combination.
Since our Initial Public Offering, we have been actively searching for a suitable business combination candidate. We have met with potential target companies, service professionals and other intermediaries to discuss our company, the background of our management and our combination preferences. In the course of these discussions, we have also spent time explaining the capital structure of the Initial Public Offering, the business combination approval process and the timeline within which we must either enter into a letter of intent or definitive agreement for a business combination, or return to investors the proceeds of the Initial Public Offering, which are held in trust. Our Certificate of Incorporation provides that we will continue in existence only until February 12, 2009, 24 months from the effective date of our Initial Public Offering. If we have not completed a business combination by such date, our corporate existence will cease and we will dissolve and liquidate for the purposes of winding up our affairs. We cannot assure investors that we will find a suitable business combination in the allotted time.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities since inception have been organizational activities and those necessary to prepare for our Initial Public Offering, and thereafter, activities related to pursuing a business combination with target businesses. We will not generate any operating revenues until after completion of a business combination. We have generated non-operating income in the form of interest income on our cash and cash equivalents and short term investments.
Net income of $106,996 for the three months ended June 30, 2008 consisted of interest income on the trust account investments of $412,609, reduced by $242,388 of general and administrative expenses and income tax expense of $63,225.
Net income of $450,378 for the three months ended June 30, 2007 consisted of interest income on the trust account investments of $866,544, reduced by $184,196 of general and administrative expenses and income tax expense of $231,970.
Net income of $367,794 for the six months ended June 30, 2008 consisted of interest income on the trust account investments of $1,014,866, reduced by $440,693 of general and administrative expenses and income tax expense of $206,399.
Net income of $668,721 for the six months ended June 30, 2007 consisted of interest income on the trust account investments of $1,270,348, reduced by $235,657 of general and administrative expenses and income tax expense of $365,970.
The decrease in interest income for the three and six months ended June 30, 2008, as compared to the three and six months ended June 30, 2007, was attributable to the decrease in interest rates as compared to the prior period as well as a portion of the 2008 interest income being deferred for any potential shareholders who elect to vote no on any proposed transaction and choose to redeem their shares.
Substantially all of the increase in general and administrative expenses for the three and six months ended June 30, 2008, as compared to the six months ended June 30, 2007, was attributable to the increased expenses incurred in searching for a suitable business combination candidate during the entire six-month period in 2008. In 2007, such process did not commence until after we had completed our Initial Public Offering and concurrent private placement of warrants.
Net income of $1,926,413 for the period from June 2, 2006 (inception) to June 30, 2008 (cumulative) consisted of interest income on trust account investments of $3,971,231, reduced by $987,965 of general and administrative expenses and income tax expense of $1,056,853.
Liquidity and Capital Resources
On February 16, 2007, we closed our Initial Public Offering of 10,000,000 units. On March 8, 2007, the underwriters consummated the full exercise of their over-allotment option, resulting in the sale of an additional 1,500,000 units. Each unit consisted of one share of common stock and two warrants. Each warrant entitles the holder thereof to purchase one share of our common stock at an exercise price of $5.00. Simultaneously with the consummation of our Initial Public Offering, certain officers and directors and our initial stockholders purchased from us in a private placement an aggregate of 2,923,077 warrants at $0.65 per warrant. The warrants sold in this private placement are identical to the warrants sold in the Initial Public Offering, except that if we call the public warrants for redemption, the warrants sold in the private placement will be exercisable on a cashless basis so long as they are still held by the initial purchasers thereof. We received net proceeds from the warrant private placement and the Initial Public Offering, including the proceeds received upon the full exercise of the over-allotment option, of approximately $65,409,000.
Our management has discretion with respect to the specific application of the net proceeds of the Initial Public Offering, although substantially all of the net proceeds of the Initial Public Offering are intended to be generally applied toward consummating the business combination, which may not necessarily constitute the acquisition of a majority of the outstanding equity of such business and may not necessarily constitute a business combination for accounting purposes. Furthermore, there is no assurance that we will be able to successfully effect a business combination. Upon the closing of the Public Offering, $67,440,000 was deposited in the trust account and, commencing February 16, 2007, was to be invested in government securities, or qualified money market funds, until the earlier of (i) the consummation of our first business combination or (ii) our liquidation.
We are entitled to receive up to $1,600,000, plus amounts for corporate income and franchise taxes, from interest earned on the trust account (plus $50,000 received from the net proceeds of the Initial Public Offering) to finance our operations prior to consummating a business combination. We currently anticipate incurring expenses for the following purposes until we consummate a business combination:
• costs incurred to identify one or more potential target businesses;
• due diligence and investigation of prospective target businesses;
• legal and accounting fees relating to our SEC reporting obligations and general corporate matters;
• structuring and negotiating a business combination, including the making of a down payment or the payment of exclusivity or similar fees and expenses;
• payment of $108,000 in administrative fees due to an affiliate of two of our initial stockholders; and
• miscellaneous expenses.
As of June 30, 2008, $812,052 has been withdrawn from the trust account to finance our operations, leaving an available balance to be withdrawn of $787,948, plus amounts to pay corporate income and franchise tax obligations.
Beginning on February 12, 2007 and ending upon the acquisition of a target business, we are incurring a fee of $4,500 per month for office space and certain administrative, technology and secretarial services from NEGF Advisory Company Inc., an affiliate of two of our initial stockholders. In addition, in 2006, certain initial stockholders advanced us an aggregate of $127,000 for payment of offering expenses on our behalf. A total of $124,699 of these advances was repaid from the proceeds of the Initial Public Offering that were allocated to pay offering expenses.
We may use all or substantially all of the proceeds held in trust, other than the deferred portion of the underwriters' discount and amounts used for working capital and for taxes, to acquire or merge with one or more target businesses. We may not use all of the proceeds held in the trust account in connection with a business combination, either because the consideration for the business combination is less than the proceeds in trust or because we will finance a portion of the consideration with capital stock or debt securities that we can issue. In that event, the proceeds held in the trust account as well as any other net proceeds not expended will be used to finance the operations of the target business or businesses. The operating businesses that we acquire or merge with in such business combination must have, individually or collectively, a fair market value equal to at least 80% of our net assets (all of our assets, including the funds then held in the trust account, less our liabilities) at the time of such acquisition. If we consummate multiple business combinations that collectively have a fair market value of 80% of our net assets, then we would require that such transactions are consummated simultaneously.
We may issue additional capital stock or debt securities to finance a business combination. The issuance of additional capital stock, including the conversion of any convertible debt securities we may issue, or the incurrence of debt, could have material consequences on our business and financial condition. We anticipate that we would only consummate such a financing simultaneously with the consummation of a business combination.
If we are unable to complete a business combination by February 12, 2009, we will be forced to liquidate. If we are forced to liquidate, the per share liquidation amount may be less than the initial per unit Initial Public Offering price because of the underwriting commissions and expenses related to our Initial Public Offering and because of the value of the warrants in the per unit offering price. Additionally, if third parties make claims against us, the offering proceeds held in the trust account could be subject to those claims, resulting in a further reduction to the per share liquidation price. Under Delaware law, our stockholders who have received distributions from us may be held liable for claims by third parties to the extent such claims are paid by us. Furthermore, our warrants will expire worthless if we liquidate before the completion of the business combination.
It is possible that we could use a portion of the funds not in the trust account to make a deposit, down payment or fund an exclusivity provision with respect to a particular proposed business combination. In the event we were ultimately required to forfeit such funds (whether as a result of our breach of agreement relating to such payment or otherwise), we may not have a sufficient amount of working capital available outside of the trust account to pay expenses related to finding a suitable business combination without securing additional financing. If we were unable to secure additional financing, we would most likely fail to consummate a business combination in the allotted time and would be forced to liquidate.
Off-Balance Sheet Arrangements
Options and warrants issued in conjunction with our Initial Public Offering are equity linked derivatives and accordingly represent off-balance sheet arrangements. The options and warrants meet the scope exception in paragraph 11(a) of Financial Accounting Standards Board Statement No. 133 ("FASB 133") and are accordingly not accounted for as derivatives for purposes of FASB 133, but instead are accounted for as equity. See the notes to our financial statements for a discussion of the options and warrants.
The securities held in the trust account are in the name of our wholly owned subsidiary, Geneva Acquisition Security Corporation, which was formed on February 16, 2007 specifically for such purpose.
Contractual Obligations
In connection with our Initial Public Offering, we agreed to pay the underwriters a deferred underwriting discount of $2,070,000 upon the consummation of our initial business combination. We expect that such allowance will be paid out of the proceeds in the trust account. Beginning on February 12, 2007 and ending upon the acquisition of a target business, we are incurring a fee of $4,500 per month for office space and certain administrative, technology and secretarial services from NEGF Advisory Company Inc., an affiliate of two of our initial stockholders. Other than contractual obligations incurred in the ordinary course of business, we do not have any other long-term contractual obligations.
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