UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
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For the quarterly period ended June 30, 2006 |
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or |
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o |
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
Commission file number: 001-32688
HARBOR ACQUISITION CORPORATION
(Exact name of registrant as specified in its charter)
Delaware |
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56-2518836 |
(State or other jurisdiction of |
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(I.R.S. Employer Identification No.) |
incorporation or organization) |
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One Boston Place, Suite 3630 |
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Boston, Massachusetts |
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02108 |
(Address of principal executive offices) |
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(Zip Code) |
(617) 624-8409
Registrants telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 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):
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer x |
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
As of August 10, 2006, 16,800,000 shares of the registrants common stock, par value $0.001 per share, were outstanding.
HARBOR ACQUISITION CORP.
Table of Contents
2
PART I FINANCIAL INFORMATION
Harbor Acquisition Corporation and Subsidiary
(A Development Stage Company)
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June 30, 2006 |
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December 31, 2005 |
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(unaudited) |
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Assets |
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Current: |
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Cash |
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$ |
557,658 |
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$ |
6,654 |
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Investments held in trust |
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77,840,000 |
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Investments held in trust from Underwriter |
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1,620,000 |
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Investment income not subject to trust |
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58,835 |
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Prepaid Expense |
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16,600 |
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Total current assets |
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80,093,093 |
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6,654 |
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Deferred offering costs |
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303,509 |
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Total Assets |
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$ |
80,093,093 |
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$ |
310,163 |
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Liabilities And Stockholders Equity |
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Current Liabilities |
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Accrued Offering Expenses |
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$ |
124,825 |
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$ |
210,000 |
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Accrued Expenses |
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77,536 |
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5,000 |
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Notes Payable, Stockholders |
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150,000 |
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75,000 |
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Advance due to stockholder |
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5,000 |
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Due to Underwriter |
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1,620,000 |
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Income Taxes Payable |
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200,000 |
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Total Liabilites |
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2,177,361 |
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290,000 |
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Common stock subject to possible conversion, 2,758,620 shares at conversion value |
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15,560,216 |
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Commitments |
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Stockholders Equity |
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Preferred Stock, $.0001 par value, 1,000,000 shares authorized; |
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none issued or outstanding |
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Common Stock, $.0001 par value, 70,000,000 shares authorized; 16,800,000 shares (which includes 2,758,620 subject to possible conversion) and 3,000,000 shares issued and outstanding at June 30, 2006 and December 31, 2005 respectively |
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1,680 |
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300 |
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Additional Paid in Capital |
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62,020,071 |
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24,700 |
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Earnings (Deficit) Accumulated during the development stage |
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333,765 |
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(4,837 |
) |
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Total Stockholders Equity |
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62,355,516 |
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20,163 |
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Total Liabilities and Stockholders Equity |
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$ |
80,093,093 |
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$ |
310,163 |
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See notes to condensed financial statements
3
Harbor Acquisition Corporation and Subsidiary
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
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For the period from |
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June 20, 2005 (inception) |
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For the three months |
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For the six months |
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For the period from |
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to June 30, 2006 |
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ended June 30, 2006 |
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ended June 30, 2006 |
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June 20, 2005 to June 30, 2005 |
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(cumulative) |
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Interest income |
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$ |
638,959 |
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$ |
638,984 |
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$ |
27 |
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$ |
639,147 |
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Operating Expenses |
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General & Administrative |
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98,866 |
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100,382 |
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5,000 |
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105,382 |
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Net Income (Loss) before income taxes |
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540,093 |
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538,602 |
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(4,973 |
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533,765 |
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Income tax expense |
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200,000 |
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200,000 |
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200,000 |
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Net Income (Loss) |
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$ |
340,093 |
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$ |
338,602 |
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$ |
(4,973 |
) |
$ |
333,765 |
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Weighted Average number of common shares |
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outstanding - basic and diluted |
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13,008,791 |
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8,032,044 |
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3,000,000 |
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5,422,340 |
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Income (Loss) per Share - basic and diluted |
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$ |
0.03 |
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$ |
0.04 |
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$ |
(0.00 |
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$ |
0.06 |
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See notes to condensed financial statements
4
Harbor Acquisition Corporation and Subsidiary
(A Development Stage Company)
Condensed Statements of Stockholders Equity
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Earnings (Deficit) |
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Common Stock |
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Additional |
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Accumulated During the |
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Shares |
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Amount |
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Paid-in-Capital |
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Development Stage |
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Total |
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Stock issued June 22, 2005 at $ 008 per share |
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3,000,000 |
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$ |
300 |
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$ |
24,700 |
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$ |
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$ |
25,000 |
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Net Loss |
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(4,837 |
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(4,837 |
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Balance at December 31, 2005 |
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3,000,000 |
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$ |
300 |
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$ |
24,700 |
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$ |
(4,837 |
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$ |
20,163 |
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Unaudited: |
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Sale of Private Placement Warrants |
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1,300,000 |
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1,300,000 |
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Sale of 13,800,000 Units net of underwriters discount and offering expenses (includes 2,758,620 shares subject to possible conversion) |
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13,800,000 |
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1,380 |
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76,255,487 |
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76,256,867 |
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Proceeds subject to possible conversion of 2,758,620 shares |
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(15,560,216 |
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(15,560,216 |
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Sale of underwriter option |
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100 |
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100 |
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Net Income |
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338,602 |
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338,602 |
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Balance at June 30, 2006 |
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16,800,000 |
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$ |
1,680 |
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$ |
62,020,071 |
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$ |
333,765 |
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$ |
62,355,516 |
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See notes to condensed financial statements
5
Harbor Acquisition Corporation and Subsidiary
(A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
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For the period from |
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For the period from |
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June 22, 2005 (inception) |
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For the six months |
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June 22, 2005 (inception) |
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to June 30, 2006 |
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ended June 30, 2006 |
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to June 30, 2005 |
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(cumulative) |
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Cash Flows From Operating Activities |
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Net Income (Loss) |
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$ |
338,602 |
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$ |
(4,973 |
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$ |
333,765 |
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Adjustment to reconcile net income to net cash provided by operating activities: |
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Income taxes payable |
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200,000 |
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200,000 |
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Changes in operating assets and liabilities: |
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Prepaid expenses |
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(3,000 |
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(3,000 |
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Investment income not subject to trust |
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(58,835 |
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(58,835 |
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Accrued expenses |
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58,936 |
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5,000 |
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63,936 |
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Net Cash provided by Operating Activities |
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535,703 |
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27 |
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535,866 |
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Cash Flows From Investing Activites |
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Cash held in Trust Account |
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(79,460,000 |
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(79,460,000 |
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Net Cash used in Investing Activities |
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(79,460,000 |
) |
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(79,460,000 |
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Cash Flows From Financing Activities |
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Proceeds from public offering |
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82,800,000 |
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82,800,000 |
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Proceeds from private placement of warrants |
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1,300,000 |
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1,300,000 |
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Proceeds from issuance of underwriting option |
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100 |
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100 |
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Proceeds from sale of stock |
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25,000 |
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25,000 |
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Proceeds from notes payable, Stockholders |
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150,000 |
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75,000 |
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225,000 |
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Payments of notes payable, Stockholders |
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(75,000 |
) |
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(75,000 |
) |
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Payment of offering costs |
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(4,699,799 |
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(22,834 |
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(4,793,308 |
) |
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Net Cash provided by Financing Activities |
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79,475,301 |
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77,166 |
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79,481,792 |
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Net increase in Cash |
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551,004 |
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77,193 |
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557,658 |
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Cash at beginning of period |
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6,654 |
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Cash at end of period |
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$ |
557,658 |
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$ |
77,193 |
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$ |
557,658 |
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Supplemental schedule of non-cash financing activities: |
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Accrual of Public Offering costs |
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$ |
124,825 |
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$ |
124,825 |
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Advance due to Stockholder for Public Offering costs |
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$ |
5,000 |
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$ |
5,000 |
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Accrual of deferred underwriting fees |
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$ |
1,620,000 |
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$ |
1,620,000 |
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See notes to condensed financial statements
6
Harbor Acquisition Corporation and Subsidiary
(A Development Stage Company)
Notes to Condensed Financial Statements
1. Basis of Presentation
The financial statements at June 30, 2006 and for the periods ended June 30, 2006 are unaudited. The condensed financial statements include the accounts of Harbor Acquisition Corporation and its wholly owned subsidiary Harbor Acquisition Security Corporation (collectively referred to as the Company). All significant intercompany transactions and balances have been eliminated. In the opinion of management, all adjustments (consisting of normal accruals) have been made that are necessary to present fairly the financial position of the Company as of June 30, 2006 and the results of its operations and its cash flows for the three months and six months then ended, and for the period from June 20, 2005 (inception) through June 30, 2006. Operating results for the interim period presented are not necessarily indicative of the results to be expected for a full year. The December 31, 2005 balance sheet has been derived from the audited financial statements included in the Companys Registration Statement on Form S-1.
The statements and related notes have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations.
2. Organization and Business Operations
The Company was incorporated in Delaware on June 20, 2005 as a blank check company whose objective is to acquire an operating business. At June 30, 2006 the Company had neither engaged in any operations nor generated significant revenue to date. The Company is considered to be in the development stage and is subject to the risks associated with activities of development stage companies.
All activity through June 30, 2006 relates to the Companys formation and initial public offering described below. The Company has selected December 31 as its fiscal year-end.
The registration statement for the Companys initial public offering (the Public Offering) (as described in Note 3) was declared effective April 25, 2006. The Company consummated the Public Offering on May 1, 2006, and preceding the consummation of the Public Offering on May 1, 2006 certain officers, directors, and initial shareholders of the Company purchased an aggregate of 2,000,000 warrants at $.65 per warrant from the Company in a private placement (the Private Placement). The warrants sold in the Private Placement were identical to the warrants sold in the offering, but the purchasers in the Private Placement have waived their rights to receive any distribution on liquidation in the event the Company does not complete a business combination (as described below). The Company received net proceeds from the Private Placement and the Offering of approximately $77,500,000 (Note 3).
The Companys management has broad discretion with respect to the specific application of the net proceeds of this Public Offering, although substantially all of the net proceeds of this Public Offering are intended to be generally applied toward consummating a business combination with an operating business (Business Combination), which may not constitute a business combination for accounting purposes.
Furthermore, there is no assurance that the Company will be able to successfully effect a Business Combination. Upon the closing of the Offering, $79,460,000 is being held in a trust account (Trust Fund) and, commencing
7
May 2, 2006, is invested in government securities until the earlier of (i) the consummation of its first Business Combination and (ii) the distribution of the Trust Fund as described below. The placing of funds in the Trust Fund may not protect those funds from third party claims against the Company. Although the Company will seek to have all vendors, prospective target businesses or other persons it engages, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Fund, there is no guarantee that they will execute such agreements. Certain of the Companys directors have severally agreed that they will be personally liable under certain circumstances to ensure that the proceeds in the Trust Fund are not reduced by the claims of target businesses or vendors or other persons that are owed money by the Company for services rendered, contracted for or products sold to the Company. However, there can be no assurance that the directors will be able to satisfy those obligations. The remaining proceeds (not held in the Trust Fund), along with interest earned on the Trust Fund, may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. The Company, after signing a definitive agreement for the acquisition of a target business, will submit such transaction for stockholder approval. In the event that stockholders owning 20% or more of the shares issued in the Offering vote against the Business Combination and exercise their conversion rights described below, the Business Combination will not be consummated. All of the Companys stockholders prior to the Offering, including all of the officers and directors of the Company (Initial Stockholders), have agreed to vote their 3,000,000 founding shares of common stock, as well as any shares of common stock acquired in connection with or following the Offering, in accordance with the vote of the majority in interest of all other stockholders of the Company (Public Stockholders) with respect to any Business Combination. After consummation of a Business Combination, these voting safeguards will no longer be applicable.
With respect to a Business Combination which is approved and consummated, any Public Stockholder who voted against the Business Combination may demand that the Company convert his or her shares. The per share conversion price will equal the amount in the Trust Account, calculated as of two business days prior to the consummation of the proposed Business Combination, divided by the number of shares of common stock sold in the Offering. Accordingly, Public Stockholders holding 19.99% of the aggregate number of shares owned by all Public Stockholders may seek conversion of their shares in the event of a Business Combination. Such Public Stockholders are entitled to receive their per share interest in the Trust Fund computed without regard to the shares held by Initial Stockholders. Accordingly, a portion of the net proceeds from the Public Offering (19.99% of the amount held in the Trust Fund, excluding the deferred portion of the underwriters non-accountable expense allowance) has been classified as common stock subject to possible conversion on the accompanying June 30, 2006 balance sheet. In addition, such stockholders would also be entitled to a portion of the deferred portion of the underwriters non-accountable expense allowance held in trust (see Note 3).
The Companys Certificate of Incorporation provides for mandatory liquidation of the Company in the event that the Company does not consummate a Business Combination within 18 months from the date of the consummation of the Offering, or 24 months from the consummation of the Offering if certain extension criteria have been satisfied. In the event of liquidation, it is likely that the per share value of the residual assets remaining available for distribution (including Trust Fund assets) will be less than the initial public offering price per share in the Offering (assuming no value is attributed to the Warrants contained in the Units sold in the Offering discussed in Note 3).
On May 1, 2006, the Company formed a wholly owned subsidiary, Harbor Acquisition Security Corporation, for tax planning purposes. The Company assigned the rights to the investments in the Trust Fund to this subsidiary.
3. Initial Public Offering
On May 1, 2006, the Company sold 13,800,000 units (Units) in the Public Offering at a price of $6.00 per Unit. Each Unit consists of one share of the Companys common stock, $.0001 par value, and two Redeemable Common Stock Purchase Warrants (Warrants). Each Warrant entitles the holder to purchase from the Company one share of common stock at an exercise price of $5.00 commencing the later of the completion of a Business Combination or one year from the effective date of the Public Offering and expiring five years from the effective date of the Public Offering. The Company may redeem the Warrants at a price of $.01 per Warrant upon 30 days notice after the Warrants become exercisable, only in the event that the last sale price of the common stock is at least $8.50 per share for any 20 trading days within a 30 trading day period ending on the third day prior to the date on which notice of redemption is given. If the Company calls the Warrants, the holder will either have to redeem the Warrants by
8
purchasing the common stock from the Company for $5.00 per share or allow the Company to redeem the Warrants at a price of $.01 per warrant.
In connection with the Offering, the Company paid the underwriters of the Public Offering (collectively, the Underwriter) an underwriting discount of 5.0% of the gross proceeds of the Public Offering ($4,140,000). In addition, a non-accountable expense allowance of 2.25% of the gross proceeds of the Public Offering, excluding the over-allotment option, is due to the Underwriter, who has agreed to deposit the non-accountable expense allowance ($1,620,000) into the Trust Fund until the earlier of the completion of a business combination or the liquidation of the Trust Fund. The Underwriter has further agreed to forfeit any rights to or claims against such proceeds unless the Company successfully completes a business combination. If a business combination is approved and completed, public stockholders who voted against the combination and have exercised their conversion rights will be entitled to their pro rata share of the deferred non-accountable expense allowance.
On May 30, 2006, the warrants separated from the Units and began to trade.
The Underwriters over-allotment of 1,800,000 Units was exercised and the 13,800,000 units sold at the closing of the Public Offering include the over-allotment.
Preceding the consummation of the Public Offering on May 1, 2006, certain of the initial stockholders purchased 2,000,000 warrants at a purchase price of $.65 per warrant in a private placement. The proceeds of $1,300,000 were deposited into the Trust Fund, and the initial stockholders will not have any claim on this amount if the Trust Fund is liquidated.
The Initial Stockholders are entitled to registration rights with respect to their founding shares pursuant to an agreement signed on May 1, 2006. The holders of the majority of these shares are entitled to make up to two demands that the Company register these shares at any time commencing three months prior to the third anniversary of the effective date of the Proposed Offering. In addition, the Initial Stockholders have certain piggy-back registration rights on registration statements filed subsequent to the third anniversary of the effective date of the Public Offering.
In connection with this Offering, the Company issued an option, for $100, to the Underwriter to purchase 600,000 Units at an exercise price of $7.50 per Unit, exercisable on the later of April 25, 2007 or the consummation of a Business Combination. The option has a life of five years from the effective date. The Units that would be issued upon exercise of this option are identical to those offered in the Public Offering, except that each of the warrants underlying the option entitles the holder to purchase one share of the Companys common stock at a price of $6.25 and will have a cashless exercise provision. The Company has accounted for the fair value of the option, inclusive of the receipt of the $100 cash payment, as an expense of the Public Offering resulting in a charge directly to stockholders equity. The Company estimated, using the Black-Scholes method, the fair value of the option granted to the underwriter as of the date of grant was approximately $1,516,000 using the following assumptions: (1) expected volatility of 49.3%, (2) risk-free interest rate of 4.635% and (3) expected life of five years. In order to estimate the volatility, the Company considered the historic volatilities of 22 publicly traded companies that operate within the consumer and industrial products sectors.
4. Deferred Offering Costs
Deferred offering costs consisted principally of legal, accounting, and printing fees incurred prior to the Offering which were directly related the Offering. These costs were charged to Stockholders equity upon completion of the Offering.
5. Note Payable, Stockholders
The Company issued an aggregate of $75,000 unsecured promissory notes to two of its Initial Stockholders on June 22, 2005. The notes were non-interest bearing and were payable on the earlier of June 15, 2006 or the consummation of the Public Offering. Accordingly, the Company paid off the notes on May 1, 2006. Separately, upon the consummation of the Offering, a shareholder loaned the Company $150,000. The loan will bear interest at
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4% per annum and will be paid from the interest earned on the amounts in the Trust Fund. Due to the short term nature of the notes, the fair value of the notes approximates its carrying amount. Subsequent to June 30, 2006, the loan with related interest was paid.
6. Commitments and Related Party Transactions
The Company presently occupies office space provided by an affiliate of several of the Initial Stockholders. Such affiliate has agreed that, until the Company consummates a Business Combination, it will make such office space, as well as certain office and secretarial services, available to the Company, as may be required by the Company from time to time. The Company has agreed to pay such affiliate $7,500 per month for such services commencing on the effective date of the Public Offering. The statement of operations includes $16,700 for the three months ended June 30, 2006.
Pursuant to letter agreements dated June 22, 2005 with the Company and the Representative, the Initial Stockholders have waived their right to receive distributions with respect to their founding shares upon the Companys liquidation.
The initial stockholders will be entitled to registration rights with respect to their 3,000,000 shares of common stock pursuant to an agreement signed in connection with the Offering. The holders of the majority of these shares are entitled to make up to two demands that the Company register these shares at any time after the date on which these shares of common stock are released from escrow. In addition, the founding stockholders have certain piggy-back registration rights on registration statements filed subsequent to the date on which these shares of common stock are released from escrow.
7. Common Stock
On April 14, 2006, the Companys majority stockholders approved an amendment to the Companys Certificate of Incorporation to increase the number of authorized shares of common stock to 70,000,000. All references in the accompanying financial statements to the number of shares of stock have been retroactively restated to reflect this transaction.
On April 20, 2006, the Board of Directors approved a stock split to be effected as a stock dividend immediately prior to the closing of the Public Offering. The stock split was executed, and a stock dividend of one share for every 5 shares was issued to the initial stockholders.
8. Preferred Stock
The Company is authorized to issue 1,000,000 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.
9. Reserved Common Stock
At June 30, 2006, 30,200,000 shares of common stock were reserved for issuance upon exercise of redeemable warrants and the underwriters purchase option.
10. Trust Fund
For tax planning purposes, the Company assigned its rights to the cash in the Trust Fund to Harbor Acquisition Security Corporation, a wholly-owned Massachusetts subsidiary qualifying as a security corporation entitled to a reduced state corporate tax rate.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the related notes and schedules thereto.
We were formed on June 20, 2005, for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition or other similar business combination, an operating business in the consumer or industrial products sectors. Our initial business combination must be with a target business whose fair market value is at least equal to 80% of our net assets (excluding the deferred non-accountable expense allowance of the underwriters held in trust) at the time of such acquisition. We intend to use cash derived from the proceeds of our recently completed public offering and concurrent private placement, our capital stock, debt or a combination of cash, capital stock and debt, to effect such business combination.
On May 1, 2006, we consummated our initial public offering of 13,800,000 units, including 1,800,000 units attributable to the full exercise of the underwriters over-allotment option (see Liquidity and Capital Resources below).
Since our initial public offering, we have been actively searching for a suitable business combination candidate. We have met with target companies, service professionals and other intermediaries to discuss our company, the background of our management and our combination preferences. In the course of these discussions, we have also spent time explaining the capital structure of the initial public offering, the combination approval process and the timeline within which we must either enter into a letter of intent or definitive agreement for a business combination, or return the proceeds of the offering held in trust to investors. Consistent with the disclosures in our prospectus, we have focused our search on companies in the consumer and industrial products sectors, which include companies engaged in the manufacture, distribution or sale of products or the provision of services for personal, family, household or business use. We cannot assure investors that we will find a suitable business combination in the allotted time.
RESULTS OF OPERATIONS
Net Income and Loss
We have neither engaged in any operations nor generated any revenues to date. Our only activities since inception have been organizational activities and those necessary to prepare for our Offering, and thereafter, certain expenses related to pursuing acquisitions of target businesses. We will not generate any operating revenues until after completion of a Business Combination. We have generated non-operating income in the form of interest income on the cash and cash equivalents and short term investments.
Net income of $340,093 for the three months ended June 30, 2006 consists of interest income primarily on the trust fund investment of $638,335 along with $624 of other interest income reduced by $98,866 of general and administrative expenses and an income tax expense of $200,000. This compares to a net loss of $4,973 for the stub period from June 20, 2005 (inception) to June 30, 2005.
Net income of $338,602 for the six months ended June 30, 2006 consists of interest income primarily on the trust fund investment of $638,335 along with $649 of other interest income reduced by $100,382 of general and administrative expenses and an income tax expense of $200,000.
Net income of $333,765 for the period from June 20, 2005 (inception) to June 30, 2006 (cumulative) consists of interest income primarily on the trust fund investment of $638,335 along with $812 of other interest income reduced by $105,382 of general and administrative expenses and an income tax expense of $200,000.
CHANGES IN FINANCIAL CONDITION
Liquidity and Capital Resources
On April 25, 2006 we entered into an agreement with certain of our initial stockholders for the sale of 2,000,000 warrants in a private placement. Each warrant entitles the holder to purchase from us one share of our common stock at an exercise price of $5.00. The warrants were sold at a price of $0.65 per warrant, generating net proceeds of $1,300,000.
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On May 1, 2006 we consummated our initial public offering of 13,800,000 units, including 1,800,000 units attributable to the full exercise of the underwriters over-allotment option. Each unit consists of one share of common stock and two warrants. Each warrant entitles the holder to purchase from us one share of our common stock at an exercise price of $5.00. Our common stock and warrants started trading separately on May 30, 2006.
The net proceeds from the private placement and the sale of our units, including the exercise of the underwriters over-allotment option, after deducting certain offering expenses of approximately $650,000 and underwriting discounts of $4,140,000 and an underwriters non-accountable expense allowance of $1,620,000, were approximately $76,390,000, which is being held in a trust account at JPMorgan Chase Bank, N.A. maintained by Continental Stock Transfer & Trust Company, as trustee. In addition, the trust includes the proceeds from the private placement, described above, a $150,000 loan from one of our initial stockholders that will be repaid from interest earned on the trust, and the underwriters non-accountable expense allowance of $1,620,000, which they have agreed to defer until the consummation of a business combination and to forfeit if we do not consummate a business combination. Upon the consummation of a business combination, we will pay the deferred non-accountable expense allowance to the underwriters, provided that to the extent fewer that 20% of our public stockholders elect to convert their shares to cash upon a consummation of a business combination, a pro rata portion of the deferred non-accountable expense allowance will be paid to such stockholders. We will have no right to the deferred non-accountable expense allowance. In total, we deposited $79,460,000 into the trust account.
We will receive up to $1,850,000 from interest earned on the trust account to finance our operations prior to consummating a business combination. We do not believe we will need to raise additional funds in order to meet the expenditures required to consummate a business combination before April 30, 2008. However, we cannot assure you that this will be the case. Over this time period, we currently anticipate incurring expenses for the following purposes:
costs incurred to identify one or more potential target businesses;
due diligence and investigation of prospective target businesses;
legal and accounting fees relating to our SEC reporting obligations and general corporate matters;
structuring and negotiating a business combination, including the making of a down payment or the payment of exclusivity or similar fees and expenses.
payment of $180,000 in administrative fees due to an affiliate of two of our directors;
repayment of the $150,000 loan from an affiliate of two of our directors;
miscellaneous expenses.
Beginning on May 1, 2006 and ending upon the acquisition of a target business, we began incurring a fee of $7,500 per month for office space and certain administrative, technology and secretarial services from Grand Cru Management, LLC, an affiliate of Robert J. Hanks, our Chief Executive Officer and Treasurer, and David Dullum, our President and Secretary. In addition, in 2005, Messrs. Hanks and Dullum advanced us an aggregate of $75.000 to us for payment of offering expenses on our behalf. These advances were repaid from the proceeds of the initial public offering that were allocated to pay offering expenses.
We may use all or substantially all of the proceeds held in trust other than the deferred portion of the underwriters non-accountable expense allowance and amounts used for working capital and for taxes 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 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 the
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balance in the trust account (excluding deferred underwriters non-accountable expense allowance of $1,620,000) 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.
We may issue additional capital stock or debt securities to finance a business combination. The issuance of additional capital stock, including upon conversion of any convertible debt securities we may issue, or the incurrence of debt, could have material consequences on our business and financial condition. We anticipate that we would only consummate such a financing simultaneously with the consummation of a business combination.
If we are unable to find a suitable target business by October 31, 2007 (or April 30, 2008 if a letter of intent, agreement in principle or a definitive agreement has been executed by October 31, 2007), 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 public offering price because of the underwriting commissions and expenses related to our initial public offering and because of the value of the warrants in the per unit offering price. Additionally, if third parties make claims against us, the 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 are not been paid by us. Furthermore, our warrants will expire worthless if we liquidate before the completion of a business combination.
It is possible that we could use a portion of the funds not in the trust account to make a deposit, down payment or fund a no-shop provision with respect to a particular proposed Business Combination. In the event we were ultimately required to forfeit such funds (whether as a result of our breach of agreement relating to such payment or otherwise), we may not have a sufficient amount of working capital available outside of the trust account to pay expenses related to finding suitable Business Combination without securing additional financing. If we were unable to secure additional financing, we would most likely fail to consummate a Business Combination in the allotted time and would be forced to liquidate.
Off-Balance Sheet Arrangements
Other than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity. The securities held in the trust account are in the name of our wholly owned subsidiary, Harbor Acquisition Security Corporation, which was formed on May 1, 2006 specifically for such purpose.
Contractual Obligations
In connection with our initial public offering, we agreed to pay the underwriters a deferred non-accountable expense allowance of $1,620,000 upon the consummation of our initial business combination. We expect that such allowance will be paid out of the proceeds in the trust account. Other than contractual obligations incurred in the ordinary course of business, we do not have any other long-term contractual obligations.
Forward Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). We have based these forward-looking statements on our current expectations and projections about future events, and we assume no obligation to update any such forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results to be materially different from any future results 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 our future results to differ from those statements include, but are not limited to, those described in the section entitled Risk Factors of
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the prospectus filed with the Securities and Exchange Commission (the SEC) in connection with our initial public offering. The following discussion should be read in conjunction with our condensed financial statements and related notes thereto included elsewhere in this report and with the section entitled Risk Factors of the prospectus filed with the SEC in connection with our initial public offering.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices and/or equity prices. Our exposure to market risk is limited to interest income sensitivity with respect to the funds placed in the trust account. However, the funds held in our trust account have been invested only in U.S. government securities, defined as any Treasury Bill issued by the United States having a maturity of one hundred and eighty days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, so we are not deemed to be an investment company under the Investment Company Act. Thus, we are subject to market risk primarily through the effect of changes in interest rates on government securities. The effect of other changes, such as foreign exchange rates, commodity prices and/or equity prices, does not pose significant market risk to us.
Item 4. Controls and Procedures.
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial and accounting officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of the end of the period covered by this report.
There were no changes in our internal controls over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and our principal executive officer and our principal financial officer have concluded that these controls and procedures are effective at the reasonable assurance level.
We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings incidental to the normal course of our business. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.
An investment in our securities involves a high degree of risk. There have been no material changes to the risk factors previously disclosed in the registration statements on Form S-1 (File Nos. 333-126300 and 333-133589) filed in connection with our initial public offering. You should consider carefully all of the material risks described in such registration statements, before making a decision to invest in our securities. If any of the events described therein occur, our business, financial conditions and results of operations may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On April 25, 2006, we entered into a warrant placement agreement with certain of our initial stockholders for the sale of 2,000,000 warrants at a price of $0.65 per warrant, generating total gross proceeds of $1,300,000.
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Each warrant entitles the holder to purchase from us one share of our common stock at an exercise price of $5.00. The warrants sold were exempt from registration under regulations promulgated by the SEC under Section 4(2) of the Securities Act. The exemption was available on the basis that there was no general solicitation in connection with the placement and sales were only made to accredited investors.
On May 1, 2006, we consummated our initial public offering of 13,800,000 units, including 1,800,000 units that were attributable to the full exercise of the underwriters over-allotment option. Each unit consists of one share of common stock and two warrants. Each warrant entitles the holder to purchase from us one share of our common stock at an exercise price of $5.00 (or, with respect to the warrants held by the underwriters, $6.25). Our common stock and warrants started trading separately on May 30, 2006. The securities sold in the offering were registered under the Securities Act on registration statements on Form S-1 (File No. 333-126300 and File No. 333-133589).
We paid a total of $4,140,000 in underwriting discounts and approximately $650,000 for costs and expenses related to the offering. The underwriters agreed to defer their non-accountable expense allowance of $1,620,000 until we complete a business combination. After deducting the underwriting discounts and the offering expenses, the total net proceeds to us from the offering were approximately $76,390,000, which was deposited into a trust fund. In addition, the trust fund includes the deferred non-accountable expense allowance, the proceeds from the private placement of $1,300,000 and a loan from an initial stockholder of $150,000. We have also agreed to pay the underwriters the deferred non-accountable expense allowance upon the consummation of our initial business combination, less any portion payable to stockholders who convert their shares to cash.
On May 1, 2006, we consummated the sale to Ferris, Baker Watts, Incorporated, for $100, of an option to purchase up to a total of 600,000 units. The units issuable upon exercise of this option are identical to those sold in our initial public offering except that the warrants included in the units have an exercise price of $6.25 (125% of the exercise price of the warrants included in the units sold in the offering and have a cashless exercise provision). This option is exercisable at $7.50 per unit commencing on the later of the consummation of a business combination and April 25, 2007, and expiring on April 25, 2011. The purchase option is exercisable on a cashless basis. The purchase option, as well as the units issuable upon exercise of the purchase option, the shares of common stock and warrants underlying the units, and the shares of common stock issuable upon exercise of the warrants included in the units were registered under the Securities Act on the same registration statement on Form S-1 (File No. 333-126300).
For a more detailed description of the use of proceeds from our initial public offering and private placement, see Part I, Item 2 of this Quarterly Report on Form 10-Q.
Item 3 Defaults upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of the Security Holders
Not applicable.
On May 30, 2006, Ferris, Baker Watts, Incorporated, the lead underwriter in our initial public offering, allowed holders of the Companys units to separately trade the common stock and warrants included in such units as of such date. The common stock, units and warrants are quoted on the American Stock Exchange under the symbols HAC, HAC.U and HAC.WS, respectively.
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31.1 |
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Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 |
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Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1 |
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Certification by Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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.
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HARBOR ACQUISITION CORPORATION |
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Date: August 14, 2006 |
By: |
/s/ Robert J. Hanks |
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Chief Executive Officer and Treasurer |
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(Principal Executive Officer) |
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By: |
/s/ Todd A. Fitzpatrick |
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Vice President |
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(Principal Financial and Accounting Officer) |
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