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| TMI > SEC Filings for TMI > Form 10-Q on 14-Aug-2008 | All Recent SEC Filings |
14-Aug-2008
Quarterly Report
• Success in retaining or recruiting, or changes required in, our management or directors following a business combination;
• Potential inability to obtain additional financing to complete a business combination;
• Limited pool of prospective target businesses;
• Potential change in control if we acquire one of more target businesses for stock;
• Public securities' limited liquidity and trading;
• The delisting of our securities from the American Stock Exchange or an inability to have our securities listed on the American Stock Exchange following a business combination;
• Use of proceeds not in trust or available to us from interest income on the trust account of the Company ("Trust Account") balance; or
• Financial performance.
The forward-looking statements contained or incorporated by reference in this
quarterly report on Form 10-Q are based on our current expectation and beliefs
concerning future developments and their potential effects on us and speak only
as of the date of such statements. There can be no assurance that future
developments affecting us will be those that we have anticipated. These
forward-looking statements involve a number of risks, uncertainties (some of
which are beyond our control) or other assumptions that may cause actual results
or performance to be materially different from those expressed or implied by
these forward-looking statements. These risks and uncertainties include, but are
not limited to, those factors described under the heading "Risk Factors" in our
Annual Report on Form 10-K for the year ended December 31, 2007. Should one or
more of these risks or uncertainties materialize, or should any of our
assumptions prove incorrect, actual results may vary in material respects from
those projected in these forward-looking statements. We undertake no obligation
to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required under
applicable securities laws.
References in this report as to "we," "us" or "our Company" refer to TM
Entertainment and Media, Inc. References to "public stockholders" refer to
holders of shares of common stock, $0.001 par value ("Common Stock"), sold as
part of the units in our initial public offering, including any of our
stockholders existing prior to our initial public offering to the extent that
they purchased or acquired such shares.
Overview
Our Company was formed under the laws of the State of Delaware on May 1, 2007
to serve as a vehicle to effect a merger, capital stock exchange, asset
acquisition or other similar business combination with an operating business in
the entertainment, media, digital and communication industries. We intend to
utilize cash derived from the proceeds of our initial public offering, our
capital stock, debt or a combination of cash, capital stock and debt, in
effecting a business combination.
On October 17, 2007, our initial public offering of 9,000,000 units at $8.00
per unit was declared effective and we sold an additional aggregate 1,255,000
units pursuant to the underwriters' over-allotment option. Simultaneously with
the consummation of our initial public offering we sold an aggregate of
2,100,000 insider warrants to certain initial shareholders including Theodore S.
Green, Malcolm Bird, Jonathan F. Miller and the John W. Hyde Living Trust, at a
price of $1.00 per warrant, for an aggregate price of $2,100,000. The total
gross proceeds from the initial public offering, excluding the warrants sold on
a private placement basis but including the over-allotment, amounted to
$82,040,000. After the payment of offering expenses, inclusive of the deferred
underwriting fees, the net proceeds to us amounted to $75,748,282. Each unit
consists of one share of our 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 $5.50 commencing the later of the
completion of an initial business combination or one year from the effective
date of the initial public offering (October 17, 2008) and expiring four years
from the effective date of the initial public offering (October 17, 2011).
In connection with our initial public offering, we issued an option, for
$100, to the representatives of the underwriters in our initial public offering,
to purchase 700,000 units. This option is exercisable at $10.00 per unit, and
may be exercised on a cashless basis, commencing on the later of the
consummation of a business combination and one year from the date of our initial
public offering and expiring five years from the date of our initial public
offering. The option and the 700,000 units, the 700,000 shares of Common Stock
and the 700,000 warrants underlying such units, and the 700,000 shares of Common
Stock underlying such warrants, have been deemed compensation by the NASD and
are therefore subject to a 180-day lock-up pursuant to Rule 2710(g)(1) of the
NASD Conduct Rules. The underwriters will not sell, transfer, assign, pledge, or
hypothecate this option or the securities underlying this option, nor will they
engage in any hedging, short sale, derivative, put, or call transaction that
would result in the effective economic disposition of this option or the
underlying securities for a period of 360 days from the effective date of our
initial public offering.
We estimate that the value of the representative's unit purchase option is
approximately $2,207,000 using a Black-Scholes option pricing model. The fair
value of the representative's unit purchase option is estimated as of the date
of the grant using the following assumptions: (1) expected volatility of 45.2%,
(2) risk-free discount rate of 4.95%, (3) contractual life of five years and
(4) dividend rate of zero. Additionally, the option may not be sold,
transferred, assigned, pledged or hypothecated for a one-year period (including
the foregoing 180-day period) following the date of our initial public offering
except to any underwriter and selected dealers participating in the offering and
their bona fide officers or partners. Although the purchase option and its
underlying securities have been registered under the registration statement of
which our initial public offering forms a part, the option grants to holders
demand and "piggy back" rights for periods of five and seven years,
respectively, from the date of our initial public offering with respect to the
registration under the Securities Act of the securities directly and indirectly
issuable upon exercise of the option. We will bear all fees and expenses
attendant to registering the securities, other than underwriting commissions
which will be paid for by the holders themselves. The exercise price and number
of units issuable upon exercise of the option may be adjusted in certain
circumstances including in the event of a stock dividend, or our
recapitalization, reorganization, merger or consolidation. However, the option
will not be adjusted for issuances of Common Stock at a price below its exercise
price.
We intend to utilize cash derived from the proceeds of our initial public
offering, the private placement, our capital stock, debt or a combination of
cash, capital stock and debt, in effecting an initial transaction. The issuance
of additional shares of our capital stock:
• may significantly reduce the equity interest of our current stockholders;
• may subordinate the rights of holders of Common Stock if preferred stock is issued with rights senior to those afforded to our Common Stock;
• may cause a change in control if a substantial number of our shares of Common Stock or preferred stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and most likely also result in the resignation or removal of one or more of our present officers and directors; or
• could enhance or adversely affect prevailing market prices for our securities.
Similarly, if we issued debt securities, it could result in:
• default and foreclosure on our assets, if our operating revenues after an
initial transaction were insufficient to pay our debt obligations;
• acceleration of our obligations to repay the indebtedness, even if we have made all principal and interest payments when due, if the debt security contained covenants that required the maintenance of certain financial ratios or reserves and any such covenant were breached without a waiver or renegotiation of that covenant;
• our immediate payment of all principal and accrued interest, if any, if the debt security was payable on demand; or
• our inability to obtain additional financing, if necessary, if the debt security contained covenants restricting our ability to obtain additional financing while such security was outstanding.
We anticipate that we would only consummate such a financing simultaneously
with the consummation of a business combination, although nothing would preclude
us from raising more capital in anticipation of a possible business combination.
We may use all or substantially all of the proceeds held in trust other than
the deferred portion of the underwriter's fee to acquire 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 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 expenses associated with
the acquisition or the operations of the target business or businesses. The
operating businesses that we acquire 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 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.
Up to an aggregate of $1,500,000 of interest earned on the Trust Account
balance may be released to us to fund working capital requirements and
additional amounts may be released to us as necessary to satisfy tax
obligations. This interest will be used to pay business, legal, and accounting
due diligence costs incurred in connection with prospective business
combinations and to pay continuing general and administrative expenses. During
the six month period ended June 30, 2008, approximately $804,000 of the net
interest income was earned on the Trust Account. For the period from May 1, 2007
(inception) through June 30, 2008, approximately $1,292,000 of net interest
income was earned on the Trust Account.
If we are unable to find a suitable target business by October 17, 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 offering price because
of the underwriting commissions and expenses related to our initial public
offering. Additionally, if third parties make claims against us, the initial
public 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 have not
been paid by us. Furthermore, our warrants will expire worthless if we liquidate
before the completion of a business combination.
Results of Operations
For the six months ended June 30, 2008, we have neither engaged in any
operations nor generated any revenues to date, other than in connection with our
initial public offering. Our entire activity since inception has been to prepare
for and consummate our initial public offering and to identify and investigate
targets for a potential business combination. We will not generate any operating
revenues until consummation of a business combination. We will generate
non-operating income in the form of interest income on cash and cash equivalents
from the funds held in our Trust Account which we invested mainly in a New York
Tax Free Money Market.
Net loss for the three month period ended June 30, 2008 was $(331,519) and
consisted of interest income of approximately $336,100 earned predominantly on
the trust account, offset by a $34,040 provision for New York State, New York
City, and Delaware Franchise and Capital Taxes and $633,600 of general and
administrative expenses (primarily attributable to $487,500 of due diligence
expenses related to potential acquisitions, $48,000 of legal and accounting
expenses, $32,000 of insurance expense, $19,200 of fees for a monthly
administrative services agreement and approximately $19,800 of travel and
business expenses).
Net loss for the six month period ended June 30, 2008 was $(714,598) and
consisted of interest income of approximately $806,100 earned predominantly on
the trust account, offset by a $78,080 provision for New York State, New York
City, and Delaware Franchise and Capital Taxes and $1,442,500 of general and
administrative expenses (primarily attributable to $1,125,000 of due diligence
expenses related to potential acquisitions, $133,000 of legal and accounting
expenses, $57,700 of insurance expense, $38,400 of fees for a monthly
administrative services agreement and approximately $34,500 of travel and
business expenses).
For the period from May 1, 2007 (inception) to June 30, 2008, we had a net
loss of $(524,502) consisting of $1,294,456 of interest income, less
$(1,816,294) of formation and operating expenses and interest expense of
(2,664). The main components of the formation and operating expenses include
$1,125,000 of due diligence expenses related to potential acquisitions, $196,750
of New York State, New York City, and Delaware Franchise and Capital Taxes,
approximately $75,000 of travel and business expense, $219,000 of legal and
accounting fees.
Interest income in the first half of 2008 was primarily earned on the net
proceeds from our initial public offering which was placed in a Trust Account.
Liquidity and Capital Resources
$80,978,800 of the net proceeds of our initial public offering,
over-allotment exercise, private sale of warrants, and a portion of the
underwriters' fees were deposited in trust, with the remaining net proceeds
being placed in our operating account. We plan to use the interest income earned
on the trust proceeds (up to a maximum of $1,500,000) in excess of funds
required to pay taxes, to identify, evaluate and negotiate with prospective
acquisition candidates as well as cover our ongoing operating expenses until a
transaction is approved by our shareholders or the trust funds are returned to
them.
We will use substantially all of the net proceeds of our initial public
offering to acquire a target business, including identifying and evaluating
prospective acquisition candidates, selecting the target business, and
structuring, negotiating and consummating the business combination. 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 fund as well as
any other net proceeds not expended will be used to finance expenses associated
with the acquisition or the operations of the target business. We may need to
raise additional funds through a private or public offering of debt or equity
securities if such funds are required to consummate a business combination that
is presented to us. We would only consummate such a financing simultaneously
with the consummation of a business combination. At June 30, 2008, we had cash
outside of the trust fund of $65,272 and unrestricted cash of $98,357 in the
trust fund and other current assets of $163,549 and total liabilities of
$3,957,098 (including $3,281,600 of deferred underwriting fees). Future interest
generated by the trust of $375,395 will be available to the Company.
As of June 30, 2008 the Company earned $1,124,605 of interest from the trust
for operating expenses (excluding $166,751 of interest earned and used to pay
taxes). The remaining trust interest available for operating expenses will be
$375,395. Pursuant to the Investment Management Trust Agreement between the
Company and the Trustee, the Company is permitted to spend up to $1.5 million of
interest from the trust for operating expenses. Since inception to June 30, 2008
the Company has incurred $1,619,543 of operating expenses (excluding taxes) of
which $675,498 was payable as of June 30, 2008. The Company had cash available
at June 30, 2008 of $163,629 and,
together with interest of $375,395 expected to be earned from the trust, will
have a total of $539,024 available for operating expenses. Therefore, at
June 30, 2008, the Company has incurred liabilities which exceed cash available
and interest to be earned. The Company is seeking to obtain deferrals of
payables from its vendors, including its professional advisors. In the event the
Company is unsuccessful in obtaining these deferrals, it may seek additional
financing, including loans from its Initial Stockholders.
The $3,281,600 of the funds attributable to the deferred underwriting
discount and commissions in connection with the offering and private placement
will be released to the underwriters upon completion of a business combination.
Commencing on October 17, 2007 we began incurring a fee of $6,400 per month
for certain administrative services. In addition, in 2007, one of our Initial
Stockholders loaned to us an aggregate of $100,000 for payment of offering
expenses on our behalf. This loan plus interest was repaid on December 12, 2007
from the proceeds of the initial public offering that were allocated to pay
offering expenses.
As of June 30, 2008, we had total unrestricted cash of $163,629. Until the
initial public offering, our only source of liquidity was a loan made by a
member of management. This loan plus interest was repaid on December 12, 2007
from the proceeds of the initial public offering that were allocated to pay
offering expenses. Our other liabilities are all related to costs associated
with our initial public offering and other administrative items.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet financing arrangements and
have not established any special purpose entities. We have not guaranteed any
debt or commitments of other entities or entered into any options on
non-financial assets.
Impact of Recently Issued Accounting Standards
Fair Value Measurements-In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurement ("SFAS 157"). SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. SFAS 157 applies under other accounting pronouncements that
require or permit fair value measurements and is effective for fiscal years
beginning November 15, 2007. The Company's adoption of SFAS 157 did not have a
material impact on the Company's financial statements.
In February 2008, the FASB issued Staff Position No. FAS 157-1 ("FSP FAS
157-1"), Application of FASB Statement No. 157 to FASB Statement No. 13 and
Other Accounting Pronouncements That Address Fair Value Measurements for
Purposes of Lease Classification or Measurement Under Statement 13 and Staff
Position No. FAS 157-2 ("FSP FAS 157-2"), Effective Date of FASB Statement
No. 157. FSP FAS 157-1 excludes Statement of Financial Accounting Standards
No. 13 ("SFAS 13"), Accounting for Leases, as well as other accounting
pronouncements that address fair value measurements on lease classification or
measurement under SFAS 13 from the scope of SFAS 157. FSP FAS 157-2 delays the
effective date of SFAS 157 for all nonrecurring fair value measurements of
nonfinancial assets and nonfinancial liabilities until fiscal years beginning
after November 15, 2008. Both FSP FAS 157-1 and FSP FAS 157-2 are effective upon
an entity's initial adoption of SFAS 157, which is the Company's first quarter
of fiscal year 2008. The Company does not expect the adoption of FSP SFAS 157-1
to have a material impact to its consolidated results of operations and
financial position.
The Fair Value Option for Financial Assets and Financial Liabilities-In
February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities ("SFAS 159"), which permits entities to choose
to measure many financial instruments and certain other items at fair value.
SFAS 159 is effective for the first quarter of 2008. The Company elected not to
measure certain financial instruments at fair value; therefore, the adoption of
SFAS 159 did not have an impact on the Company's financial statements.
Business Combinations-In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations ("SFAS 141(R)"). SFAS 141(R) expands the definition of
transactions and events that qualify as business combinations; requires that the
acquired assets and liabilities, including contingencies, be recorded at the
fair value determined on the acquisition date and changes thereafter reflected
in revenue, not goodwill; changes the recognition timing for restructuring
costs; and requires acquisition costs to be expensed as incurred. Adoption of
SFAS 141(R) is required for combinations after December 15, 2008. Early adoption
and retroactive application of SFAS 141(R) to
fiscal years preceding the effective date are not permitted. We are currently
evaluating the impact of SFAS 141(R) on the financial statements.
Noncontrolling Interest in Consolidated Financial Statements-In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements ("SFAS 160"). SFAS 160 re-characterizes
minority interests in consolidated subsidiaries as non-controlling interests and
requires the classification of minority interests as a component of equity.
Under SFAS 160, a change in control will be measured at fair value, with any
gain or loss recognized in earnings. The effective date for SFAS 160 is for
annual periods beginning on or after December 15, 2008. Early adoption and
retroactive application of SFAS 160 to fiscal years preceding the effective date
are not permitted. We are currently evaluating the impact of SFAS 160 on the
financial statements.
In March 2008, FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities ("FAS 161"). FAS 161 requires enhanced
disclosures about an entity's derivative and hedging activities and thereby
improves the transparency of financial reporting. Entities are required to
provide enhanced disclosures about; (1) how and why an entity uses derivative
instruments, (2) how derivative instruments and related hedged items are
accounted for under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, and its related interpretations, and (3) how derivative
instruments and related hedged items affect an entity's financial position,
financial performance and cash flows. This statement is effective for financial
statement issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. Comparative disclosures
for earlier periods at initial adoption is encouraged but not required. We have
not yet determined the impact that this requirement may have on our condensed
consolidated financial position, results of operations, cash flows or financial
statement disclosures.
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