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| HMR > SEC Filings for HMR > Form 10-K on 27-Mar-2009 | All Recent SEC Filings |
27-Mar-2009
Annual Report
Overview
We are a blank check company organized under the laws of the State of Delaware on July 3, 2007. We were formed to acquire, through a merger, capital stock exchange, asset or stock acquisition, exchangeable share transaction or other similar business combination, one or more businesses in the sports, leisure or entertainment 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. The issuance of additional shares of our capital stock:
• may significantly reduce the equity interest of our stockholders;
• will likely cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and most likely will also result in the resignation or removal of our present officers and directors; and
• may adversely affect prevailing market prices for our common stock.
Similarly, if we incur substantial debt, it could result in:
• default and foreclosure on our assets if our operating cash flow after a business combination is 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 contains covenants that require the maintenance of certain financial ratios or reserves and any such covenant is breached without a waiver or renegotiation of that covenant;
• our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand;
• covenants that limit our ability to acquire capital assets or make additional acquisitions;
• our inability to obtain additional financing, if necessary, if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding;
• our inability to pay dividends on our common stock;
• using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock, working capital, capital expenditures, acquisitions and other general corporate purposes;
• limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
• our stockholders receiving less than $10.00 per share from the trust account upon liquidation if such debt is incurred prior to consummation of a business combination and the trust account is subsequently liquidated;
• increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and
• limitations on our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes; and other disadvantages compared to our competitors who have less debt.
Results of Operations and Liquidity
The following discussion should be read in conjunction with our financial statements and the notes to those statements and other financial information appearing elsewhere in this report.
Our entire activity since inception has been limited to organizational activities, activities relating to our initial public offering and, since our initial public offering, activities relating to identifying and evaluating prospective acquisition targets. We have neither engaged in any operations nor generated any revenues to date, other than interest income earned on the proceeds of our initial public offering.
For the year ended December 31, 2008, interest income on the trust account amounted to $3,665,545. Our operating expenses during 2008 were $1,558,532, consisting of professional fees of $872,620 for costs primarily associated with identifying and negotiating with potential acquisition targets, legal expenses paid to a related party of $72,206 for costs
primarily associated with identifying and negotiating with potential acquisition targets, franchise tax expense of $158,509, insurance expense of $104,927, administrative fees paid to Medallion of $86,250, and other organizational costs and operating expenses of $264,020, primarily relating to travel-related costs associated with due diligence activities and personnel-related costs. We provided income taxes of $945,686 for 2008, resulting in net income of $1,161,327 or $0.05 per share for the year ended December 31, 2008.
On January 24, 2008, we consummated our initial public offering of 20,000,000 units. Each unit issued in our initial public offering consists of one share of common stock, $.001 par value per share, and one warrant to purchase one share of common stock at $7.00 per share. The units were sold at an offering price of $10.00 per unit, generating aggregate gross proceeds of $200,000,000. Of the $200,000,000 gross proceeds, $194,000,000, including deferred underwriters' discounts and commissions of $8,625,000, was deposited into a trust account. Prior to the initial public offering, we issued 6,000,000 warrants at a purchase price of $1.00 per warrant to certain of our founding stockholders in a private placement for aggregate proceeds of $6,000,000, which were also placed into the trust account. On February 1, 2008 we sold an additional 1,556,300 units which were subject to the overallotment option of the underwriters in our initial public offering. The sale of these units resulted in total proceeds of approximately $15,144,744, net of the underwriters' discounts and commissions, but including deferred underwriters' discounts and commissions of approximately $671,154. This amount was also deposited into the trust account, resulting in a total amount held in trust of approximately $215,144,744, exclusive of any interest earned by such trust account.
The funds held in the Trust Account are currently invested in money market funds meeting the criteria under Rule 2a-7 under the 1940 Act. We also have the option to invest the funds in Treasury Bills issued by the United States government having a maturity of 180 days or less. Interest earned will be applied in the following order of priority:
• payment of taxes on Trust Account interest;
• our working capital requirements before we complete a business combination, to a maximum of $2,250,000, and, if necessary, funding up to $50,000 of the costs of our potential dissolution and liquidation; 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 earned on Trust Account funds in the period before we effect a business combination will be sufficient to fund our operations and costs relating to the acquisition of a target business or to fund the costs and expenses relating to our liquidation and dissolution if we do not consummate a business combination.
We expect to use substantially all of the net proceeds of our initial public offering and the private placement to acquire a target business, including payment of expenses we incur in identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating the business combination. To the extent that we use debt or equity securities as consideration in a business combination and do not use all of the funds in the trust account, we will use the remaining trust account funds to finance the operations of the target business. We believe that the $2,250,000 that we drew from interest earned on the trust account will be sufficient to allow us to operate until at least January 17, 2010, even if we do not complete a business combination during that time.
The credit markets are undergoing a crisis which has disrupted a wide range of traditional financing sources. The crisis has made it increasingly difficult and significantly more expensive through higher credit spreads for companies to obtain and renew financing. Continued turmoil in the credit markets could limit our access to funds and could have a negative impact on our ability to complete a business combination.
Critical Accounting Policies
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Contractual Obligations
We did not have any long term debt, capital lease obligations, operating lease obligations, purchase obligations or other long term liabilities. Following the end of our fiscal year, on January 17, 2008, we entered into a services agreement with
Medallion Financial Corp. requiring us to pay $7,500 per month. The agreement terminates on the earlier of the completion of a business combination or upon our dissolution. In June 2008 we entered into a consulting agreement with Game Plan LLC whereby Game Plan LLC has agreed to provide consulting services to us in connection with identifying a target business in the sports, entertainment and leisure industries and consummating a business combination with such a target business. The agreement continues on a month to month basis until terminated under the terms of the agreement. In June 2008 we also entered into a consulting agreement with Graidan Ventures LLC whereby Graidan Ventures LLC has agreed to help us identify a target business in the sports, entertainment and leisure. The agreement has an initial term of eight months with additional successive terms of three months until terminated under the terms of the agreement.
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