CHV Churchill Ventures Ltd

 

 

For the quarterly period ended June 30, 2008

Or

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.         Yes  x           No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

        Yes  x            No o

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date: 16,597,400shares of common stock, par value $0.001 per share issued and outstanding as of August 14, 2008.

 

CHURCHILL VENTURES LTD.

INDEX TO FORM 10-Q

PART I. FINANCIAL INFORMATION

 

 

 

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

Churchill Ventures Ltd.

(a corporation in the development stage)

Condensed Balance Sheet

 

The accompanying notes are an integral part of these financial statements.

 

 

Churchill Ventures Ltd.

(a corporation in the development stage)

Condensed Statements of Operations

(unaudited)

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

 

Churchill Ventures Ltd.

(a corporation in the development stage)

Condensed Statements of Stockholders’ Equity

For the period from June 26, 2006 to June 30, 2008

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

Churchill Ventures Ltd.

(a corporation in the development stage)

Condensed Statements of Cash Flows

(unaudited)

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

Churchill Ventures Ltd.

(a corporation in the development stage)

Notes to Condensed Financial Statements

(unaudited)

Note 1 — Basis of Reporting

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the financial position of Churchill Ventures Ltd. and the results of its operations and cash flows for the periods presented. The results of its operations for the period ended June 30, 2008 is not necessarily indicative of the operating results for the full year. It is suggested that these financial statements be read in conjunction with the financial statements and related disclosures for the period ended December 31, 2007 included in the Annual report of Churchill Ventures Ltd. on Form 10-K, (File Number 001-33327), filed with the SEC on March 18, 2008. The Condensed Balance Sheet at December 31, 2007 is derived from the December 31, 2007 audited financial statements.

Note 2 — Organization and Nature of Business Operations

Churchill Ventures Ltd. (the “Company”) is a blank check company incorporated on June 26, 2006 for the purpose of effecting a merger, capital stock exchange, stock purchase, asset acquisition or other similar business combination with an operating business in the communications, media or technology industries.

At June 30, 2008, the Company had not commenced any operations. All activity from June 26, 2006 (inception) through June 30, 2008 relates to the Company’s formation and initial public offering (the “Offering”) described below, and activities relating to identifying and evaluating prospective acquisition candidates.

The registration statement for the Company’s initial public offering (which is further described in Note 4) (the “Public Offering”) was declared effective on March 1, 2007. On February 28, 2007, the Company completed a private placement for warrants (which are further described in Note 5) (the “Private Placement”) and received proceeds of $5,000,000. The Company consummated the Public Offering on March 6, 2007. In addition, on March 6, 2007 the underwriters for the Public Offering exercised the over-allotment option (the “Over-Allotment Option Exercise”), which closed on March 9, 2007. The combined Public Offering and Over-Allotment Option Exercise generated net proceeds of $103,344,838. The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Public Offering, although substantially all of the net proceeds of the Public Offering are intended to be applied toward effecting a merger, capital stock exchange, stock purchase, asset acquisition or other similar business combination with an operating business in the communications, media or technology industries. As used herein, a “Business Combination” shall mean the acquisition of one or more businesses that at the time of the Company’s initial business combination has a fair market value of at least 80.0% of the Company’s net assets (all of the Company’s assets, including the funds held in the trust account excluding deferred underwriting discount from the Public Offering and Over-Allotment Option Exercise of $3.77 million).

 

 

The Company intends to focus on identifying target businesses in the technology, media and telecom industries in the United States, Europe and Israel that may provide significant opportunities for growth.

Upon closing of the Public Offering, the Over-Allotment Option Exercise by the underwriters, and the private placement proceeds, $107,506,928 was placed in a trust account to be held until the earlier of (i) the consummation of the Company’s first Business Combination or (ii) the dissolution of the Company. The amount placed in the trust account consisted of certain Public Offerings proceeds as well as $3.77 million of deferred underwriting discounts and commissions that will be released to the underwriters on completion of a Business Combination. However, the underwriters have waived their rights to the deferred underwriting discount with respect to those units held by public stockholders who vote against an initial business combination and who exercise their conversion rights with respect to their shares. Interest (net of income taxes) earned on assets held in the trust account will remain in the trust. However, up to $1.35 million of the interest earned on the trust account (net of income taxes payable on such interest) may be released to the Company to cover a portion of the Company's operating expenses.

The Company will seek stockholder approval before it will effect any Business Combination. In connection with the stockholder vote required to approve any Business Combination, the Company’s existing stockholders including all of the Company’s officers, directors and advisors have agreed to vote the shares of common stock then-owned by them in accordance with the majority of the shares of common stock voted by the Public Stockholders, defined as the holders of common stock sold as part of the units in the Offering or in the aftermarket. The Company will proceed with a Business Combination only if a majority of the shares of common stock voted by the Public Stockholders are voted in favor of the Business Combination and Public Stockholders owning less than 20% of the shares sold in the Offering exercise their right to convert their shares into a pro rata share of the aggregate amount then on deposit in the trust account. If a majority of the shares of common stock voted by the Public Stockholders are not voted in favor of a proposed initial Business Combination but 18 months has not yet passed since closing of the Public Offering (or within 24 months from the consummation of the Public Offering if a letter of intent, agreement in principle or definitive agreement has been executed within 18 months after consummation of the Public Offering and the Business Combination has not yet been consummated within such 24 month period), the Company may combine with another target business meeting the fair market value criterion described above.

Public Stockholders voting against a Business Combination will be entitled to convert their stock into a pro rata share of the total amount on deposit in the trust account including the deferred underwriter’s discount, and including any interest earned on their portion of the trust account, excluding $1.35 million of the interest earned on the trust account which may be released to the Company to cover a portion of the Company’s operating expenses and net of income taxes payable on such interest. Public Stockholders who convert their stock into their share of the trust account will continue to have the right to exercise any warrants they may hold.

The Company will dissolve and promptly distribute only to its Public Stockholders the amount in the trust account, less any income taxes payable on interest income, plus any remaining net assets if the Company does not effect a Business Combination within 18 months after consummation of the Public Offering (or within 24 months from the consummation of the Public Offering if a letter of intent, agreement in principle or definitive agreement has been executed within 18 months after consummation of the Public Offering and the Business Combination has not yet been consummated within such 24 month period). In the event of dissolution, it is likely that the per share value of the residual assets remaining available for distribution (including trust account assets) will be less than the initial public offering price per share in the Public Offering (assuming no value is attributed to the warrants contained in the units offered in the Public Offering discussed in Note 4).

 

 

The Company has satisfied the conditions in its Certificate of Incorporation to extend the date by which it must effect a Business Combination until 24 months after the consummation of the Public Offering.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. There is no assurance that the Company’s plans to consummate a Business Combination will be successful or successful within the target business acquisition period. These factors, among others, raise substantial doubt about the Company’s ability to continue operations as a going concern. The accompanying financial statements do not include any adjustments that may result from the outcome of this uncertainty. The Company’s independent auditors have expressed uncertainty about the Company’s ability to continue as a going concern in their opinion on the Company’s fiscal 2007 financial statements.

Note 3 — Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents, when purchased.

Net Income per Common Share

Basic net income per share is computed by dividing the earnings applicable to common stockholders by the weighted average number of common shares outstanding for the period. Warrants issued by the Company in the Public Offering and private placement are contingently exercisable upon consummation of business combination. Hence these are presented in the pro forma diluted earnings per share. Pro forma diluted net income per share reflects the potential dilution assuming common shares were issued upon the exercise of outstanding in the money warrants and the proceeds thereof were used to purchase common shares at the average market price during the period.

The Company’s statement of operations includes a presentation of earnings per share subject to possible conversion in a manner similar to the two-class method of earnings per share. Basic and diluted net income per share amount for the maximum number of shares subject to possible conversion is calculated by dividing the net interest income attributable to common shares subject to conversion ($73,804 and $170,042 for the three and six months ended June 30, 2008, respectively) by the weighted average number of shares subject to possible conversion. Per share amounts for the shares outstanding not subject to possible conversion are calculated by dividing the net income exclusive of the net interest income attributable to common shares subject to conversion by the weighted average number of shares not subject to possible conversion.

At June 30, 2008, the Company had outstanding warrants to purchase 18,472,400 shares of common stock.

Use of 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 and disclosure of contingent 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.

 

 

Income Taxes

Deferred income taxes are provided for the differences between the bases of assets and liabilities for financial reporting and income tax purposes.

The Company recorded a deferred income tax asset for the tax effect of start-up and organization costs, aggregating approximately $617,694 as of June 30, 2008. The Company believes that it is not more likely than not it will be able to realize this deferred tax asset in the future and, therefore, it has provided a valuation allowance against this deferred tax asset. The valuation allowance increased $617,694 during the three and six months ended June 30, 2008, which includes establishing a valuation allowance against deferred tax assets of March 31, 2008 and December 31, 2007.

The effective tax rate differs from the statutory rate of 35% due to the provision for state taxes.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainties in income taxes recognized in a company’s financial statements in accordance with Statement 109 and prescribes a recognition threshold and measurement attributable for financial disclosure of tax positions taken or expected to be taken on a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted the provisions of FIN 48 as of January 1, 2007. The adoption of FIN 48 did not impact our financial position, results of operations or cash flows for the year ended December 31, 2007. Our accounting policy for recognition of interest and penalties related to income taxes is to include such items as a component of income tax expense. All tax years since our inception (June 26, 2006), as filed or yet to be filed, are open to examination by the appropriate tax authorities.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS No.157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an assets or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. On February 12, 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2, “Effective Date of FASB Statement No. 157”. The FSP amended FASB Statement No. 157 to delay the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually), to fiscal years beginning after November 15, 2008. The Company adopted SFAS No. 157 for financial assets and liabilities in the first quarter of 2008. The Statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. A brief description of those three levels is as follows:

 

 

 

The Company’s financial assets subject to fair value measurements are as follows:

 

As of June 30, 2008, the Company does not have any financial liabilities. No gains or losses resulting for the fair value measurement of financial assets were included in the Company’s earnings. The adoption of SFAS No. 157 has not impacted the Company’s results of operations and financial position.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “the Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that chose different measurement attributes for similar assets and liabilities. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has elected not to measure any eligible items at fair value. Accordingly, the adoption of SFAS No. 157 has not impacted the Company’s results of operations and financial position.

Note 4 — Public Offering

On March 6, 2007, the Company sold to the public 12,500,000 Units at a price of $8.00 per unit. Each Unit consists of one share of the Company’s common stock, $0.001 par value, and one warrant. Each warrant entitles the holder to purchase from the Company one share of common stock at an exercise price of $6.00, or at the holder’s option via “cashless” exercise, during the period commencing the later of the completion of a Business Combination with a Target Business or March 1, 2008 and expiring March 1, 2011, unless earlier redeemed. The warrants will be redeemable at the Company's option, at a price of $0.01 per warrant upon 30 days written notice after the warrants become exercisable, only in the event that the last sale price of the common stock is at least $11.50 per share for any 20 trading days within a 30 trading day period ending on the third business day prior to the date on which notice of redemption is given.

In accordance with the Warrant Agreement related to the warrants (the “Warrant Agreement”), the Company is only required to use its best efforts to effect the registration of the shares of common stock underlying the Warrants. The Company will not be obligated to deliver securities, and there are no contractual penalties for failure to deliver securities, if a registration statement is not effective at the time of exercise. Additionally, in the event that a registration statement is not effective at the time, the holder of such warrant shall not be entitled to exercise such warrant and in no event (whether in the case of a registration statement not being effective or otherwise) will the Company be required to net cash settle the warrant exercise. Consequently, the warrants may expire unexercised.

On March 9, 2007 the Company sold an additional 972,400 Units pursuant to the Over-Allotment Option Exercise.

 

 

Note 5 — Note Payable to Affiliate and Related Party Transactions

The Company issued on July 6, 2006 a $240,000 unsecured promissory note to Churchill Capital Partners LLC (“Churchill Capital”), an entity owned by our management. The note, which was non-interest bearing and payable on the consummation of the Public Offering, was fully repaid on March 6, 2007.

The Company has agreed to pay $7,500 a month in total for office space and general and administrative services to Churchill Capital, commencing on March 1, 2007 and terminating upon the earlier of (i) the completion of the Company’s Business Combination, or (ii) the Company’s dissolution. Such fees amounted $45,000, $30,000 and $120,000 during the six months ended June 30, 2008 and 2007 and the period June 26, 2006 (date of inception) to June 30, 2008, respectively.

On February 28, 2007, Churchill Capital purchased an aggregate of 5,000,000 warrants at a price of $1.00 per warrant from the Company. Churchill Capital has agreed that it will not sell or transfer these warrants until after the Company consummates a Business Combination. If the private placement was not conducted in compliance with applicable law, Churchill Capital may have the right to rescind its purchase of the sponsor warrants, which may require the Company to refund an aggregate $5,000,000 to Churchill Capital Partners LLC. Although Churchill Capital has waived its right, if any, to rescind the sponsor warrants purchase as a remedy to Company’s failure to register these securities, the waiver may not be enforceable in light of the public policy underlying Federal and state securities laws.

Note 6 — Units

On July 6, 2006, the Company issued 3,160,000 units to Churchill Capital for $15,800 in cash, an average purchase price of approximately $0.005 per unit. On September 4, 2006, the Company agreed with Churchill Capital to exchange the 3,160,000 units for 3,160,000 shares of common stock on September 5, 2006. The Company also retired 125,000 shares of the common stock issued to Churchill Capital and returned $625 to Churchill Capital to effect the reduction in the Company’s capital.

On July 6, 2006, the Company issued 30,000 units each to two of its directors and one advisor for $150 in cash, at an average purchase price of approximately $0.005 per unit. On September 4, 2006, the Company agreed with those unitholders to exchange the 30,000 units for 30,000 shares of common stock.

Note 7 — Common Stock

On February 29, 2008, a former director transferred 15,000 shares of common stock to new directors in connection with their appointment as directors. The Company has recorded a non-cash compensation charge and a related capital contribution of $114,450 during the period ended June 30, 2008 related to this transaction.

Note 8 — Preferred Stock

The Company is authorized to issue 25,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.

Note 9 — Commitments and Contingencies

The Company entered into an agreement with Banc of America Securities LLC, dated as of January 24, 2008, to serve as our financial advisor in connection with any proposed business

 

 

combination. That agreement includes a minimum fee payable to Banc of America of $4 million upon the consummation of any business combination, with further fees payable for transactions above $500 million in value.

Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following discussion and analysis should be read in conjunction with our financial statements and the related Notes to the financial 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 in our other Securities and Exchange Commission filings.

General

We were formed on June 26, 2006, to serve as a vehicle to effect a merger, capital stock exchange, stock purchase, asset acquisition or other similar business combination with an operating business in the communications, media or technology industries.

On March 6, 2007, we completed our initial public offering of 12,500,000 units. On March 9, 2007, we closed the underwriter’s over-allotment option exercise for 972,400 units. Each unit consists of one share of our common stock, $0.001 par value, and one warrant. Each warrant entitles the holder to purchase from us one share of common stock at an exercise price of $6.00, or at the holder’s option via “cashless” exercise, during the period commencing the later of the completion of a business combination with a target business or March 1, 2008 and expiring on March 1, 2011, unless earlier redeemed. Our initial public offering price of each unit was $8.00, and we generated gross proceeds of approximately $107.8 million in the offering, the over-allotment option exercise and the sale of 5,000,000 warrants to Churchill Capital for proceeds of $5.0 million (known as the sponsor warrants). Of the gross proceeds, we deposited approximately $107.5 million into a trust account maintained by JPMorgan Chase Bank, NA, as trustee, which includes approximately $3.8 million of the deferred underwriting discount and $5.0 million that we received from the issuance and sale of the sponsor warrants. The underwriter received approximately $3.8 million as its underwriting discount (excluding the deferred underwriting discount).

The proceeds deposited in the trust account will not be released from the trust account until the earlier of (i) the completion of a business combination or (ii) our dissolution and implementation of a plan for the distribution of our assets except that there may be released to us from the trust account interest income earned on the trust account balance to pay any income taxes on such interest and up to $1.35 million of the interest earned on the trust account, which has been released to us to cover a portion of our operating expenses. Except with respect to such interest, unless and until a business combination is consummated, the proceeds held in the trust account will not be available for our use for any purpose,

 

 

including expenses we may incur related to the investigation and selection of a target business and the negotiation of an agreement to acquire a target business. These expenses may be paid prior to a business combination only from the proceeds of the offering and over-allotment option exercise not held in the trust account (initially $950,000) and $1.35 million of interest earned on the trust account, net of income taxes, which has been released to the Company. If we have not consummated a business combination within 18 months after March 6, 2007, the date we consummated our initial public offering (or within 24 months after the consummation of our initial public offering if a letter of intent, agreement in principle, or definitive agreement has been executed within 18 months after consummation of our initial public offering and the business combination related thereto has not yet been consummated within such 24-month period), we will promptly have to adopt a plan of dissolution and liquidation and initiate procedures for our dissolution and liquidation. We have satisfied the conditions in our Certificate of Incorporation to extend the date by which we must effect a business combination until 24 months after the consummation of our initial public offering.

Through June 30, 2008, our efforts were limited to organizational activities, activities relating to our initial public offering, to identifying and evaluating prospective acquisition candidates, and to general corporate matters. We have neither engaged in any operation nor generated any revenues, other than interest income earned on the proceeds of our private placement and initial public offering. For the quarter and six months ended June 30, 2008 and the period from June 26, 2006 (inception) to June 30, 2008, we earned approximately $629,439, $1,454,930 and $5,902,461 in interest income of which approximately $434,172, $1,259,663 and $5,707,194 was received and $195,267 was accrued. On June 5, 2007, the Company withdrew $1,250,000 of interest earned on the funds held in the trust account, on September 13, 2007, the Company withdrew $1,021,723 of interest earned on the funds held in the trust account, on December 27, 2007 the company withdrew a further $586,350, and on June 16, 2008, the company withdrew an additional $1,021,909. The Company used $2,298,957 of those withdrawn funds to pay income taxes due on the interest earned on the trust funds, and released the remaining part of those withdrawn funds to the Company as the $1.35 million of interest earned on the trust account, which has been released to the Company to cover a portion of its operating expenses.

As of June 30, 2008, we had approximately $1,072,000 of unrestricted cash available to us for our activities in connection with identifying and conducting due diligence of a suitable business combination, and for general corporate matters including accounts payable and accrued expenses. The Company is presently accounting for its payments of Delaware franchise tax as charges to operations and is not withdrawing them from the corpus of the trust account. However, it is the Company's view that Delaware franchise tax may be a tax properly chargeable to the trust corpus. Should such a conclusion be reached by the Company, past and future payments of Delaware franchise tax may be charged against the trust corpus. From inception to date, the Company has paid $231,025 in Delaware franchise tax.

For the six months ended June 30, 2008 and the period from June 26, 2006 (inception) to June 30, 2008, we paid or incurred an aggregate of approximately $798,076 and $1,516,373, respectively, in expenses for the following purposes:

 

 

We believe that the funds available to us outside of the trust account and the balance of interest anticipated to be earned on the trust to be released to us will be sufficient to allow us to operate until March 2009, assuming that a business combination is not consummated during that time. Over this period, we anticipate incurring expenses for the following purposes:

Recent Accounting Pronouncements

In December of 2007, the FASB issued Statement of Financial Accounting Standards No. 141R, “Business Combinations” (“SFAS No. 141R”), which replaces FASB Statement No. 141. Under SFAS No. 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. This statement also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS No. 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. We have not yet determined the impact, if any, that the implementation of SFAS No. 141R will have on our results of operations or financial condition.

In December of 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment on the deconsolidation date. SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its non-controlling interest. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. We have not yet determined the impact, if any, that the implementation of SFAS No. 160 will have on our results of operations or financial condition.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and

 

 

liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following as our critical accounting policies:

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Earnings per common share

Basic net income per share is computed by dividing the earnings applicable to common stockholders by the weighted average number of common shares outstanding for the period. Warrants issued by the Company in the Public Offering and private placement are contingently exercisable upon consummation of business combination. Hence these are presented in the pro forma diluted earnings per share. Pro forma diluted net income per share reflects the potential dilution assuming common shares were issued upon the exercise of outstanding in the money warrants and the proceeds thereof were used to purchase common shares at the average market price during the period.

The Company’s statement of operations includes a presentation of earnings per share subject to possible conversion in a manner similar to the two-class method of earnings per share. Basic and diluted net income per share amount for the maximum number of shares subject to possible conversion is calculated by dividing the net interest income attributable to common shares subject to conversion ($73,804 and $170,042 for the three and six months ended June 30, 2008, respectively) by the weighted average number of shares subject to possible conversion. Per share amounts for the shares outstanding not subject to possible conversion are calculated by dividing the net income exclusive of the net interest income attributable to common shares subject to conversion by the weighted average number of shares not subject to possible conversion.

At June 30, 2008, the Company had outstanding warrants to purchase 18,472,400 shares of common stock.

Income taxes

Deferred income taxes are provided for the differences between the bases of assets and liabilities for financial reporting and income tax purposes.

Market risk is the sensitivity of income to changes in interest rates, foreign exchanges, commodity prices, equity prices, and other market-driven rates or prices. We are not presently engaged in and, if a suitable business target is not identified by us prior to the prescribed liquidation date of the trust fund, we may not engage in, any substantive commercial business. Accordingly, we are not and, until such time as we consummate a business combination, we will not be, exposed to risks associated with foreign exchange rates, commodity prices, equity prices or other market-driven rates or prices. The net proceeds of our initial public offering and private placement held in the trust fund may be invested by the trustee only in high credit quality investments having maturities of one hundred and eighty days or less.

 

 

 

Our management carried out an evaluation, with the participation of our Principal Executive and our Chief Financial Officers, of the effectiveness of our disclosure controls and procedures as of June 30, 2008. Based upon that evaluation, the officers concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission.

There has not been any change in our internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the period ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

PART II.

 

OTHER INFORMATION

 

On August 14, 2008, the Company announced that it had satisfied the conditions in its Certificate of Incorporation to extend the date by which it must effect a business combination until 24 months after the consummation of its initial public offering, which occurred on March 6, 2007.  The press release is included as Exhibit 99.1 hereto.

 

 

 

 

 

 

 

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.