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| HIA > SEC Filings for HIA > Form 10-K on 12-Mar-2009 | All Recent SEC Filings |
12-Mar-2009
Annual Report
The following discussion should be read in conjunction with our financial statements and the notes thereto contained in this report.
Forward-Looking Statements
This report contains certain forward-looking statements, including information about or related to our future results, certain projections and business trends. Assumptions relating to forward-looking statements involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. When used in this report, the words "estimate," "project," "intend," "believe," "expect" and similar expressions are intended to identify forward-looking statements. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any or all of the assumptions could prove inaccurate, and we may not realize the results contemplated by the forward-looking statements. Management decisions are subjective in many respects and susceptible to interpretations and periodic revisions based upon actual experience and business developments. In light of the significant uncertainties inherent in the forward-looking information included in this report, you should not regard the inclusion of such information as our representation that we will achieve any strategy, objectives or other plans. The forward-looking statements contained in this report speak only as of the date of this report, and we have no obligation to update publicly or revise any of these forward-looking statements.
These forward-looking and other statements, which are not historical facts, are based largely upon our current expectations and assumptions and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by such forward-looking statements. These risks and uncertainties include, among others, our ability to effect a merger, capital stock exchange, asset acquisition or other similar business combination with one or more operating businesses (a "Business Combination") and the risks and uncertainties set forth in the section headed "Risk Factors" of Part I, Item 1A of this report and described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" of Part II of this report. We cannot assure you that we will be successful in our efforts to consummate a Business Combination or that any such Business Combination will result in our future profitability.
Overview
We were formed on April 26, 2007 to serve as a vehicle to effect a Business Combination. Our efforts in identifying a prospective target business are not limited to a particular industry. Although we initially focused our search for target businesses in the healthcare industry, we have expanded our focus to include other industries as well, in addition to the healthcare industry. The healthcare industry encompasses all healthcare service companies, including, among others, managed care companies, hospitals, healthcare system companies, physician groups, diagnostic service companies, medical device companies and other healthcare-related entities. 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.
Critical Accounting Policies and Use of Estimates
Deferred Income Taxes - Deferred income taxes are provided for the differences between bases of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
Fair Value of Financial Instruments - The fair values of our company's assets and liabilities that qualify as financial instruments under SFAS No. 107 "Disclosures about Fair Value of Financial Instrument", approximate their carrying amounts presented in the balance sheet at December 31, 2008.
Our company accounts for derivative instruments, if any, in accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" as amended ("SFAS 133"), which establishes accounting and reporting standards for derivative instruments. We do not currently have any derivative instruments.
Results of Operations - Twelve Month period ended December 31, 2008
Interest Income
For the twelve months ended December 31, 2008, we had gross interest income of $3,192,928 comprised of $3,192,846 from our trust account and $82 from our operating account. The average yield during this period was 2.33%. Due to the recent decline in interest rates, we expect our 2009 interest average yield to decline. On March 3, 2009, our yield on investments was 0.26%.
Deferred Trust Interest
For the twelve months ended December 31, 2008, we had deferred trust interest of $170,117 representing the amount that would be paid out to those dissenting shareholders, who have elected to convert their shares (as described in Part II, Item8, Note 1), in the event of a Business Combination (as described more fully in Part II, Item 8 Note 1). The deferred trust interest is calculated as follows:
Deferred Trust Interest as of December 31, 2008
Total interest income earned since inception $ 4,611,191
Total taxes paid since inception $ (1,853,795 )
Prepaid income taxes $ --
Accrued income/franchise taxes $ (90,336 )
Working capital allowance $ (2,100,000 )
Total base for deferral $ 567,060
Conversion % 29.9999 %
Deferred trust interest $ 170,117
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General and Administrative Expenses
For the twelve months ended December 31, 2008, we had general and administrative expenses of $744,284, primarily consisting of legal expenses, administrative services fee, Delaware franchise taxes, accounting fees, directors and officer's liability insurance, travel expenses, listing and custody expenses.
Income Before Provision for Income Taxes
For the twelve months ended December 31, 2008, income before provision for income taxes was $2,278,527 (42.04% effective rate) from interest income and general and administrative expenses discussed above.
Income Taxes
For the twelve months ended December 31, 2008, income tax expense was approximately $959,000 (42.07% effective rate), consisting of $707,000 in federal taxes and $252,000, in state income taxes. The trustee of our trust account will distribute funds to us, from the funds held in our trust account, to pay any taxes resulting from interest accrued on the funds held in our trust account.
Net Income
For the twelve months ended December 31, 2008, net income was $1,319,955, due to the factors discussed above.
Results of Operations - April 26, 2007 (inception) to December 31, 2007
Interest Income
For the period from April 26, 2007 (inception) to December 31, 2007, we had interest income of $1,418,345 all from our trust account. The average yield during this period was 4.65%.
General and Administrative Expenses
For the period from April 26, 2007 (inception) to December 31, 2007, we had general and administrative expenses and formation expenses of $218,424 and $1,000, respectively, primarily consisting of Delaware franchise taxes, legal expenses, administrative services fee, directors and officer's liability insurance and formation costs.
Income Before Provision for Income Taxes
For the period from April 26, 2007 (inception) to December 31, 2007, income before provision for income taxes was $1,198,921 from interest income and general and administrative expenses discussed above.
Income Taxes
For the period from April 26, 2007 (inception) to December 31, 2007, income tax expense was approximately $479,000 (39.95% effective rate), consisting of $371,000 in federal taxes and $108,000, in state income taxes. The trustee of our trust account distributed funds to us, from the funds held in our trust account, to pay the taxes resulting from interest accrued on the funds held in our trust account.
Net Income
For the period from April 26, 2007 (inception) to December 31, 2007, net income was $720,072, due to the factors discussed above.
Results of Operations - April 26, 2007 (inception) to December 31, 2008
Interest Income
For the period from April 26, 2007 (inception) to December 31, 2008, we had gross interest income of $4,611,273 consisting of $4,611,191 from our trust account and $82 from our operating accounts. The average yield during this period was 2.74%.
Deferred Trust Interest
For the period from April 26, 2007 (inception) to December 31, 2008, we had deferred trust interest of $170,117 representing the amount that would be paid out to those dissenting shareholders, who have elected to convert their shares (as described in Part II, Item 8, Note 1), in the event of a Business Combination (as described more fully in Part II, Item 8, Note 1). The deferred trust interest is calculated as follows:
Deferred Trust Interest as of December 31, 2008
Total interest income earned since inception $ 4,611,191
Total taxes paid since inception $ (1,853,795 )
Prepaid income taxes $ --
Accrued income/franchise taxes $ (90,336 )
Working capital allowance $ (2,100,000 )
Total base for deferral $ 567,060
Conversion % 29.9999 %
Deferred trust interest $ 170,117
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General and Administrative Expenses
For the period from April 26, 2007 (inception) to December 31, 2008, we had general and administrative expenses and formation expenses of $962,708 and $1,000, respectively, primarily consisting of legal expenses, Delaware franchise taxes, administrative services fee, accounting fees, directors and officer's liability insurance, travel expenses, listing and custody expenses.
Income Before Provision for Income Taxes
For the period from April 26, 2007 (inception) to December 31, 2008, income before provision for income taxes was $3,477,448 from interest income and general and administrative expenses discussed above.
Income Taxes
For the period from April 26, 2007 (inception) to December 31, 2008, income tax expense was approximately $1,438,000 (41.32% effective rate), consisting of $1,078,000 in federal taxes and $360,000, in state income taxes. The trustee of our trust account has distributed, and will distribute, funds to us, from the funds held in our trust account, to pay any taxes resulting from interest accrued on the funds held in our trust account.
Net Income
For the period from April 26, 2007 (inception) to December 31, 2008, net income was $2,040,027, due to the factors discussed above.
Financial Condition, Liquidity and Capital Resources
On October 9, 2007 we consummated our initial public offering of 12,000,000 units and the private placement of 3,250,000 warrants (the "Sponsors' Warrants") to our founders and affiliates of our founders and on October 15, 2007 we closed on the exercise of the underwriters' over-allotment option for an additional 1,800,000 units, resulting in aggregate gross proceeds from our initial public offering (including the over-allotment option) and the private placement of the Sponsors' Warrants of $141,250,000. We paid or incurred a total of $5,320,000 in underwriting discounts and commissions (not including $3,990,000 which was deferred by the underwriters until completion of a Business Combination) and approximately $667,000 for other costs and expenses related to our initial public offering. After deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds, including $3,250,000 from the sale of the Sponsor' Warrants to us, from the offering were approximately $135,263,000 (including $3.99 million in deferred underwriters commission), and an amount of $134,830,000 was deposited into our trust account at Morgan Stanley with Continental Stock Transfer & Trust as trustee. We intend to use substantially all of the net proceeds of our initial public offering and the private placement of the Sponsors' Warrants to seek to effect a Business Combination, 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 our trust account, as well as any other net proceeds not expended, will be used to finance the operations of the target business. We believe we will have sufficient available funds outside of our trust account to operate through October 3, 2009, assuming that a Business Combination is not consummated during that time.
We expect our primary liquidity requirements, other than payment of income taxes for interest income earned on our trust account, during this period to include:
• $950,000 of expenses for the search for target businesses and for the legal, accounting and other third-party expenses attendant to the due diligence investigations, structuring and negotiating of a business combination;
• $330,000 of expenses for the due diligence and investigation of a target business by our officers, directors and existing stockholders;
• $195,000 of expenses in legal and accounting fees relating to our Security and Exchange Commission reporting obligations;
• $240,000 for the administrative fee payable to Kanders & Company and Ivy Capital Partners, each an affiliate of certain of our officers and directors, ($10,000 per month for twenty four months); and
• $885,000 for general working capital that will be used for miscellaneous expenses and reserves, including approximately $150,000 for director and officer liability insurance premiums.
We do not believe we will need to raise additional funds following our initial public offering in order to meet the expenditures required for operating our business. However, we may need to raise additional funds through a private offering of debt or equity securities if 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.
Commencing on October 3, 2007 and ending upon the consummation of a Business Combination or our liquidation, we began incurring a fee from Kanders & Company and Ivy Capital Partners, of $10,000 per month for office space, administrative and support services. In addition, in April 2007, Kanders & Company, Inc. and Ivy Capital Partners advanced an aggregate of $100,000 to us for payment on our behalf of offering expenses. These loans were repaid following our initial public offering from the proceeds of the offering.
See below for amounts transferred at our instruction from our trustee to pay for certain tax and working capital payments.
Taxes Working Capital Total
January 25, 2008 $ 611,203 $ - $ 611,203
April 9, 2008 130,000 130,000
June 11, 2008 829,671 829,671
June 25, 2008 150,000 150,000
September 5, 2008 240,000 240,000
September 8, 2008 300,000 300,000
November 12, 2008 29,086 29,086
Total $ 1,839,960 $ 450,000 $ 2,289,960
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Off-Balance Sheet Arrangements
Warrants issued in conjunction with our initial public offering are equity linked derivatives and accordingly represent off-balance sheet arrangements. The warrants meet the scope exception paragraph 11(a) of Financial Accounting Standards (FAS) 133 and are accordingly not accounted for as derivatives for purposes of FAS 133, but instead are accounted for as equity. See Note 1 to the financial statements contained elsewhere in this report for more information.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations, purchase obligations or other long-term liabilities.
New Accounting Pronouncements
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles ("SFAS 162"). This standard identifies sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. generally accepted accounting principles. The Company does not believe SFAS 162 will change its current practices and thereby believes it will not impact preparation of the financial statements.
In December 2007, the FASB released SFAS No. 141(R), Business Combinations (revised 2007) ("SFAS 141(R)"), which changes many well-established business combination accounting practices and significantly affects how acquisition transactions are reflected in the financial statements. Additionally, SFAS 141(R) will affect how companies negotiate and structure transactions, model financial projections of acquisitions and communicate to stakeholders. SFAS 141(R) must be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of this pronouncement has had no impact on the Company's financial statements, but will affect the Company once an acquisition is completed.
In December 2007, the FASB released SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51 ("SFAS 160"), which establishes accounting and reporting standards for the noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interests and requires disclosure, on the face of the consolidated statement of income, of the amounts of net income attributable to the parent and to the noncontrolling interest. Previously, net income attributable to the noncontrolling interest was reported as an expense or other deduction in arriving at net income. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008. The adoption of this pronouncement has had no impact on the Company's financial statements but may affect the Company once an acquisition is completed.
In September 2006, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements", which establishes a framework for reporting fair value and expands disclosures about fair value measurements. SFAS No. 157 was effective for the Company on January 1, 2008, with the exception that the applicability of SFAS No. 157's fair value measurement requirements to nonfinancial assets and liabilities that are not required or permitted to be recognized or disclosed at fair value on a recurring basis has been delayed by the FASB for one year. The partial adoption of this pronouncement had no impact on the Company's financial statements. Adopting the remainder of the provision is not expected to have an impact on the Company's financial statements as all our marketable securities are determined by an observable market value. See Note 1 to the financial statements contained elsewhere in this report for more information.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB No. 115," ("SFAS 159"). SFAS 159 allows a company to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities on a contract-by-contract basis, with changes in fair value recognized in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 and will be applied prospectively. The adoption of this pronouncement has had no impact on the Company's financial statements.
The Company does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
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