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| HDS > SEC Filings for HDS > Form 10-Q on 14-Aug-2008 | All Recent SEC Filings |
14-Aug-2008
Quarterly Report
Forward Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. We have based
these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements are subject to known and
unknown risks, uncertainties and assumptions about us that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described under "Risk Factors" (pages
16-36) in our final prospectus dated March 23, 2007, as amended, relating to the
Public Offering, and in our other Securities and Exchange Commission filings.
The following discussion should be read in conjunction with our Financial
Statements and related Notes thereto included elsewhere in this report.
Overview
We were formed on April 20, 2005, to serve as a vehicle to acquire one or more domestic or international operating businesses in the U.S. homeland security or defense industries or a combination thereof, through a merger, capital stock exchange, asset acquisition or other similar business combination. Our initial business combination must be with a target business or businesses whose fair market value is equal to at least 80% of our net assets at the time of such acquisition. Since our offering, we have been actively searching for a suitable business combination candidate. We currently have not entered into any definitive agreement with any potential target businesses. We are not engaged in, and will not engage in, any substantive commercial business until we consummate an initial transaction. We intend to utilize cash derived from the proceeds of our recently completed public offering and private placement, our capital stock, debt or a combination thereof, in effecting a business combination.
We cannot assure investors that we will find a suitable business combination in the allotted time.
Results of Operations for The Three-Month Periods Ended March 31, 2008 and March 31, 2007
We reported net income of $5,261 for the three-month period ended June 30, 2008. Net income consisted of interest income of $329,060 reduced by of $266,539 of operating expenses. Operating expenses consisted of consulting and professional fees of $73,254, insurance expense of $9,708, travel expense of $55,750, Delaware franchise fees of $15,563 and other operating costs of $112,264.
The trust account earned interest of $329,060 during the three months ended June 30, 2008, none of which is attributable to common stock subject to possible redemption. The decrease in earned interest was due to a reduction in interest rates for the three months ended June 30, 2008. We had $60,735,326 in trust as of June 30, 2008.
Until we enter into a business combination, we will not generate operating revenues.
We reported net income of $254,628 for the three-month period ended June 30, 2007. Net income consisted of interest income of $720,902 reduced by of $193,394 of operating expenses. Operating expenses consisted of consulting and professional fees of $60,495, insurance expense of $15,062, travel expense of $47,505, Delaware franchise fees of $15,332 and other operating costs of $55,000.
The trust account earned interest of $720,902 during the three months ended June 30, 2007, none of which is attributable to common stock subject to possible redemption. We had $60,144,501 in trust as of June 30, 2007.
Results of operations for the six-month periods ended June 30, 2008 and June 30, 2007
We reported net income of $197,679 for the six-month period ended June 30, 2008. Net income consisted of interest income of $869,634 reduced by of $424,890 of operating expenses. Operating expenses consisted of consulting and professional fees of $117,121, insurance expense of $25,820, travel expense of $94,740, Delaware franchise fees of $31,125 and other operating costs of $156,084.
The trust account earned interest of $869,634 during the six months ended June 30, 2008, none of which is attributable to common stock subject to possible redemption. We had $60,735,326 in trust as of June 30, 2008.
Until we enter into a business combination, we will not generate operating revenues.
We reported net income of $279,129 for the six-month period ended June 30, 2007. Net income consisted of interest income of $771,125 reduced by of $219,116 of operating expenses. Operating expenses consisted of consulting and professional fees of $63,713, insurance expense of $15,062, travel expense of $60,014, Delaware franchise fees of $25,885 and other operating costs of $54,442.
The trust account earned interest of $763,429 during the three months ended June 30, 2007, none of which is attributable to common stock subject to possible redemption. We had $60,144,501 in trust as of June 30, 2007.
Liquidity and Capital Resources
On March 21, 2007, we sold to Steven M. Wasserman (500,000 warrants), our Chief Executive Officer, President and Co-Chairman of the board of directors, and Constantinos Tsakiris (2,700,000 warrants), a former director, an aggregate of 3,200,000 warrants in a private placement for $1.00 per warrant or aggregate consideration of $3,200,000. The warrants in the private placement have identical terms to the warrants included in the units offered as part of the public offering. On March 28, 2007, we consummated our initial public offering of 6,000,000 units at a purchase price of $10.00 per unit or gross proceeds of $60,000,000. Each unit in the public offering consisted of one share of common stock and one redeemable common stock purchase warrant. Each warrant entitles the holder to purchase from us one share of common stock at an exercise price of $7.50 per share. Prior to the closing, Steven M. Wasserman loaned us $250,000 for expenses of the public offering, which loan will be repaid within 90 days of the closing.
On March 28, 2007, the closing date of our public offering, $60,002,831 was placed in the Trust Account at JP Morgan Chase New York, New York. This amount includes net proceeds of the public offering of $54,628,431 and the private placement of $3,200,000 plus interest of $2,831 thereon. The funds in the Trust Account will be invested until the earlier of (i) consummation of a business combination or (ii) the liquidation of the Trust Account as part of a plan of distribution and liquidation approved by our stockholders.
In addition to the net proceeds from the sale of the units in this offering and the sale of warrants in our private placement, on the closing date of the public offering the trust account included $1,800,000 of deferred underwriting compensation to be paid to Maxim Group LLC with accrued interest if and only if a business combination is consummated, and $90,000 of deferred legal fees to be paid, without contingency, from interest income earned on the trust account released to us.
While funds are held in the trust account, they will only be invested in Treasury Bills issued by the United States government having a maturity of 180 days or less or money market funds meeting the criteria under Rule 2a-7 under the 1940 Act. Interest earned will be applied in the following order of priority:
· payment of taxes on trust account interest income;
· payment of State of Delaware franchise taxes;
· repayment of up to $250,000 of an additional officer loan made prior to the closing of this offering by Steven M. Wasserman;
· our working capital requirements before we complete a business combination and, if necessary, funding the costs of our potential dissolution and liquidation;
· solely if we complete a business combination, interest on the amount of deferred underwriters' compensation payable to the underwriters; and
· the balance, if any, to us if we complete a business combination or to our public stockholders if we do not complete a business combination.
We believe that the interest income earned on trust account funds in the period before we effect a business combination will be sufficient to fund the costs and expenses relating to our liquidation and dissolution if we do not consummate a business combination.
We will use substantially all of the net proceeds of the public offering and from the private placement, and interest income earned on the funds in the trust account, to acquire a target business, including identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating the business combination. Costs and expenses incurred prior to the consummation of a business combination, including those that relate to a business combination that is not consummated, will be paid from the interest earned on funds held in the trust account (to the extent such interest is released to us). To the extent that our capital stock is used in whole or in part as consideration to effect a business combination, 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.
We believe that the funds available to us from interest income earned on the trust account ($1,825,000) will be sufficient to allow us to operate for at least 24 months or March 2009, assuming that a business combination is not consummated during that time. Over this time period, the following estimated expenditures are anticipated: $400,000 of expenses for legal, accounting and other expenses attendant to the structuring, negotiating and consummation of a business combination, $500,000 of expenses for identification, evaluation and due diligence investigation of a target business, $180,000 for administrative services and support payable to an affiliated third party ($7,500 per month for 24 months), $100,000 of expenses in legal and accounting fees relating to our SEC reporting obligations, $150,000 for directors' and officers' liability insurance and $495,000 for general working capital that will be used for miscellaneous expenses and reserves, deferred legal fees of $90,000, costs of dissolution and liquidation and reserves, if any, which we currently estimate to be approximately $50,000 to $75,000, potential deposits, down payments or funding of a "no-shop" provision in connection with a particular business combination and key-man insurance.
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business prior to consummating a business combination. However, we may need to raise additional funds through a private offering of debt or equity securities if such funds are required to consummate a business combination.
In addition to the above described allocation of interest accrued on the trust account, at June 30, 2008, we had funds aggregating $14,558 held outside of the trust account.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations, purchase obligations or other long-term liabilities.
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