UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended June 30, 2009
OR
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
001-33914
(Commission File Number)
SAPPHIRE INDUSTRIALS CORP.
(Exact name of Registrant as specified in its charter)
|
|
|
Delaware
|
|
26-1159283
|
(State or Other Jurisdiction of Incorporation
|
|
(I.R.S. Employer Identification No.)
|
or Organization)
|
|
|
30 Rockefeller Plaza
62
nd
Floor
New York, NY 10020
(Address of principal executive offices)
Registrants telephone number: (212) 632-6000
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
¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post
such files). Yes
¨
No
¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated
filer
¨
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
x
No
¨
The number of outstanding
shares of the Registrants common stock as of July 30, 2009 was 100,000,000.
SAPPHIRE INDUSTRIALS CORP.
TABLE OF CONTENTS
The terms we, us, our or the Company refer to Sapphire Industrials Corp., a Delaware
corporation. References to Lazard refer to Lazard Ltd, a company incorporated under the laws of Bermuda, and its subsidiaries, including Lazard Funding Limited LLC, our founding stockholder (Lazard Funding), and Lazard Group
LLC, a Delaware limited liability company (Lazard Group) that is the current holding company for Lazard Ltds businesses.
i
PART I. FINANCIAL INFORMATION
Item 1.
|
Condensed Financial Statements (Unaudited)
|
|
|
|
|
|
Page
|
Condensed Balance Sheets as of June 30, 2009 and December 31, 2008
|
|
2
|
Condensed Statements of Income for the three month and six month periods ended June 30, 2009 and 2008 and the period September 27,
2007 (date of inception) to June 30, 2009
|
|
3
|
Condensed Statements of Cash Flows for the six month periods ended June 30, 2009 and 2008 and the period September
27, 2007 (date of inception) to June 30, 2009
|
|
4
|
Condensed Statement of Changes in Stockholders Equity for the period September
27, 2007 (date of inception) to June 30, 2009
|
|
5
|
Notes to Condensed Financial Statements
|
|
6
|
1
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED BALANCE SHEETS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
June 30,
2009
|
|
December 31,
2008
|
ASSETS
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
874,767
|
|
$
|
1,639,835
|
Cash and cash equivalents held in trust
|
|
|
799,057,209
|
|
|
798,551,640
|
U.S. Treasury securities held in trust
|
|
|
9,153,544
|
|
|
9,415,541
|
Interest receivable
|
|
|
183
|
|
|
2,497
|
Prepaid expenses and income taxes
|
|
|
678,683
|
|
|
462,393
|
|
|
|
|
|
|
|
Total current assets
|
|
|
809,764,386
|
|
|
810,071,906
|
Other Assets
|
|
|
|
|
|
8,333
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
809,764,386
|
|
$
|
810,080,239
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
Deferred underwriting fee
|
|
$
|
31,800,000
|
|
$
|
31,800,000
|
Accrued expenses
|
|
|
547,050
|
|
|
470,308
|
Deferred taxes payable
|
|
|
3,262
|
|
|
36,600
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
32,350,312
|
|
|
32,306,908
|
|
|
|
|
|
|
|
Trust Assets Attributable To Common Stock Subject To Possible Conversion (26,663,999 shares)
|
|
|
266,523,335
|
|
|
266,523,335
|
Accumulated Deferred Trust Income Attributable To Common Stock Subject To Possible Conversion
|
|
|
2,853,299
|
|
|
2,772,116
|
|
|
|
|
|
|
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Commitment
|
|
|
|
|
|
|
|
|
|
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|
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|
Stockholders Equity:
|
|
|
|
|
|
|
Preferred stock, $0.001 par value per share (1,000,000 shares authorized; none issued or outstanding)
|
|
|
|
|
|
|
Common stock, $0.001 par value per share (600,000,000 shares authorized, and 100,000,000 shares issued and outstanding (includes 26,663,999
common shares subject to possible conversion)
|
|
|
100,000
|
|
|
100,000
|
Additional paid-in capital
|
|
|
500,982,777
|
|
|
500,982,777
|
Earnings accumulated during the development stage
|
|
|
6,948,604
|
|
|
7,327,133
|
Accumulated other comprehensive income, net of tax of $3,262 and $36,600 at June 30, 2009 and December 31, 2008, respectively
|
|
|
6,059
|
|
|
67,970
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
508,037,440
|
|
|
508,477,880
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
809,764,386
|
|
$
|
810,080,239
|
|
|
|
|
|
|
|
See Notes to
Condensed Financial Statements.
2
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
|
|
Six Months
Ended June 30,
|
|
|
September 27, 2007
(Date of Inception)
to
June 30, 2009
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
$ 116,324
|
|
|
$
|
5,610,726
|
|
|
$
|
342,660
|
|
|
$
|
11,000,787
|
|
|
$
|
17,508,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees
|
|
459,877
|
|
|
|
123,000
|
|
|
|
594,889
|
|
|
|
148,000
|
|
|
|
1,507,693
|
|
|
|
|
|
|
|
General and administrative
|
|
174,956
|
|
|
|
182,298
|
|
|
|
332,913
|
|
|
|
277,750
|
|
|
|
1,047,673
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230
|
|
|
|
1,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
634,833
|
|
|
|
305,298
|
|
|
|
927,802
|
|
|
|
425,980
|
|
|
|
2,556,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
(518,509
|
)
|
|
|
5,305,428
|
|
|
|
(585,142
|
)
|
|
|
10,574,807
|
|
|
|
14,952,365
|
|
|
|
|
|
|
|
Income Taxes
(Benefit)
|
|
(181,478
|
)
|
|
|
1,856,901
|
|
|
|
(287,796
|
)
|
|
|
3,701,183
|
|
|
|
5,150,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
(337,031
|
)
|
|
|
3,448,527
|
|
|
|
(297,346
|
)
|
|
|
6,873,624
|
|
|
|
9,801,903
|
|
|
|
|
|
|
|
LessDeferred Trust Income Attributable To Common
Stock Subject To Possible
Conversion
|
|
(42,572
|
)
|
|
|
(104,268
|
)
|
|
|
(81,183
|
)
|
|
|
(1,264,875
|
)
|
|
|
(2,853,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable To Common Stock
|
|
$(379,603
|
)
|
|
$
|
3,344,259
|
|
|
$
|
(378,529
|
)
|
|
$
|
5,608,749
|
|
|
$
|
6,948,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
73,336,001
|
|
|
|
73,336,001
|
|
|
|
73,336,001
|
|
|
|
67,667,166
|
|
|
|
64,216,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Common Share*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$(0.01
|
)
|
|
|
$0.05
|
|
|
|
$(0.01
|
)
|
|
|
$0.08
|
|
|
|
$0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*)
|
Weighted average number of common shares and net income per share amounts for the six months ended June 30, 2008 and for the period September 27, 2007 (date of inception) to June
30, 2009 are retroactively adjusted to reflect the impact of a 1.6 to 1 split of Founder Units on January 17, 2008.
|
See Notes to Condensed Financial Statements.
3
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
September 27, 2007
(Date of Inception)
to
June 30, 2009
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stock
|
|
$
|
(378,529
|
)
|
|
$
|
5,608,749
|
|
|
$
|
6,948,604
|
|
Adjustments to reconcile net income (loss) attributable to common stock to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income earned on assets held in trust account
|
|
|
(338,821
|
)
|
|
|
(10,980,534
|
)
|
|
|
(17,458,242
|
)
|
Withdrawal of investment income earned on assets held in trust account
|
|
|
|
|
|
|
7,006,810
|
|
|
|
8,906,810
|
|
Deferred trust income attributable to common stock subject to possible conversion
|
|
|
81,183
|
|
|
|
1,264,875
|
|
|
|
2,853,299
|
|
(Increase) decrease in operating assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest receivable
|
|
|
2,314
|
|
|
|
(4,372
|
)
|
|
|
(183
|
)
|
Prepaid expenses and income taxes and other assets
|
|
|
(207,957
|
)
|
|
|
(550,366
|
)
|
|
|
(678,683
|
)
|
Increase (decrease) in operating liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses (exclusive of accrued costs related to financing activities)
|
|
|
76,742
|
|
|
|
286,897
|
|
|
|
547,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used In) Operating Activities
|
|
|
(765,068
|
)
|
|
|
2,632,059
|
|
|
|
1,118,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of cash and cash equivalents held in trust
|
|
|
(193,544
|
)
|
|
|
(790,198,716
|
)
|
|
|
(790,299,949
|
)
|
Purchases of U.S. Treasury securities held in trust
|
|
|
(9,215,552
|
)
|
|
|
(9,451,284
|
)
|
|
|
(28,105,084
|
)
|
Proceeds from sale of U.S. Treasury securities held in trust
|
|
|
9,409,096
|
|
|
|
|
|
|
|
18,755,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used In Investing Activities
|
|
|
|
|
|
|
(799,650,000
|
)
|
|
|
(799,650,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of Founder Units
|
|
|
|
|
|
|
|
|
|
|
143,750
|
|
Payments for partial redemption of Founder Units
|
|
|
|
|
|
|
(18,750
|
)
|
|
|
(18,750
|
)
|
Proceeds from note payable
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
Repayment of note payable
|
|
|
|
|
|
|
(100,000
|
)
|
|
|
(100,000
|
)
|
Payments for offering costs
|
|
|
|
|
|
|
(1,670,034
|
)
|
|
|
(1,893,888
|
)
|
Proceeds from Public Offering, net of $11,325,000 of underwriting fees
|
|
|
|
|
|
|
788,675,000
|
|
|
|
788,675,000
|
|
Proceeds from issuance of Insider Warrants
|
|
|
|
|
|
|
12,500,000
|
|
|
|
12,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Financing Activities
|
|
|
|
|
|
|
799,386,216
|
|
|
|
799,406,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) In Cash and Cash Equivalents
|
|
|
(765,068
|
)
|
|
|
2,368,275
|
|
|
|
874,767
|
|
Cash And Cash Equivalents, Beginning of Period
|
|
|
1,639,835
|
|
|
|
71,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash And Cash Equivalents, End of Period
|
|
$
|
874,767
|
|
|
$
|
2,439,328
|
|
|
$
|
874,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure Of Non-Cash Investing And Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income earned on assets held in trust, net of withdrawals
|
|
$
|
338,821
|
|
|
$
|
3,973,724
|
|
|
$
|
8,551,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred underwriting fee included in additional paid-in capital
|
|
$
|
|
|
|
$
|
31,800,000
|
|
|
$
|
31,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to
Condensed Financial Statements.
4
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
(*)
|
|
|
Additional
Paid-in
Capital
(*)
|
|
|
Earnings/
(Deficit)
Accumulated
During the
Development
Stage
|
|
|
Accumulated
Other
Comprehensive
Income, Net
of Tax
|
|
|
Stockholders
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
Balance at September 27, 2007 (date of inception)
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Proceeds from issuance of Founder Units to Initial Stockholders
|
|
23,000,000
|
|
|
|
23,000
|
|
|
|
120,750
|
|
|
|
|
|
|
|
|
|
|
|
143,750
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(374
|
)
|
|
|
|
|
|
|
(374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
23,000,000
|
|
|
|
23,000
|
|
|
|
120,750
|
|
|
|
(374
|
)
|
|
|
|
|
|
|
143,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of Units in Public Offering (includes 26,663,999 shares of Common Stock subject to possible
conversion)
|
|
80,000,000
|
|
|
|
80,000
|
|
|
|
754,901,112
|
|
|
|
|
|
|
|
|
|
|
|
754,981,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less 26,663,999 shares of Common Stock subject to possible conversion
|
|
|
|
|
|
|
|
|
|
(266,523,335
|
)
|
|
|
|
|
|
|
|
|
|
|
(266,523,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Insider Warrants
|
|
|
|
|
|
|
|
|
|
12,500,000
|
|
|
|
|
|
|
|
|
|
|
|
12,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,327,507
|
|
|
|
|
|
|
|
7,327,507
|
|
Other comprehensive income, net of taxes of $36,600:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,035
|
|
|
|
77,035
|
|
Adjustment for realized gains reclassified to earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,065
|
)
|
|
|
(9,065
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,395,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of Founder Units
|
|
(3,000,000
|
)
|
|
|
(3,000
|
)
|
|
|
(15,750
|
)
|
|
|
|
|
|
|
|
|
|
|
(18,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
100,000,000
|
|
|
|
100,000
|
|
|
|
500,982,777
|
|
|
|
7,327,133
|
|
|
|
67,970
|
|
|
|
508,477,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(378,529
|
)
|
|
|
|
|
|
|
(378,529
|
)
|
Other comprehensive income (loss), net of tax benefit of $33,338:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,170
|
)
|
|
|
(14,170
|
)
|
Adjustment for realized gains reclassified to earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,741
|
)
|
|
|
(47,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(440,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009
|
|
100,000,000
|
|
|
|
$100,000
|
|
|
|
$500,982,777
|
|
|
|
6,948,604
|
|
|
$
|
6,059
|
|
|
$
|
508,037,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
*
)
|
Common stock and additional paid-in capital as of December 31, 2007 are retroactively adjusted to reflect the impact of a 1.6 for 1 split of Founder Units on
January 17, 2008.
|
See Notes to Condensed Financial Statements.
5
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BUSINESS OPERATIONS AND BASIS OF PRESENTATION
Organization and Business Operations
Sapphire Industrials Corp. (the Company) was incorporated in Delaware on September 27, 2007 for the purpose of effecting a merger,
capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more operating businesses. The Company is considered to be in the development stage as defined by Statement of Financial Accounting
Standards (SFAS) No. 7,
Accounting and Reporting By Development Stage Enterprises
and is subject to the risks associated with development stage companies.
At June 30, 2009, the Company had not yet commenced any business operations other than pursuing prospective acquisition
candidates, and through that date our efforts have been limited to organizational activities; activities relating to our initial public offering (the Public Offering) and financing transaction (the Financing Transaction)
described in Note 3; activities relating to identifying and evaluating prospective acquisition candidates; and activities relating to general corporate matters. We have not generated any revenues other than investment income earned on the
proceeds of our Public Offering and Financing Transaction. The Company has selected December 31 as its fiscal year-end.
The Companys management has broad discretion with respect to the specific application of the net proceeds of the Public Offering and the Financing
Transaction, although substantially all of the net proceeds of the Public Offering and the Financing Transaction are intended to be applied toward consummating a business combination with an operating business or businesses (the Business
Combination). There is no assurance that the Company will be able to successfully effect a Business Combination. Upon the closing of the Public Offering and the Financing Transaction, management placed substantially all of the net proceeds in
a trust account (the Trust Account) that is required to be invested in money market funds that invest principally in either (i) short-term securities issued or guaranteed by the United States having a rating in the highest
investment category granted by a recognized credit rating agency at the time of acquisition or (ii) tax exempt municipal bonds issued by governmental entities located within the United States. In addition, the Company is permitted to invest up
to $10,000,000 in U.S. Treasury securities.
At June 30,
2009 and December 31, 2008, the Trust Account assets were invested in money market funds and in U.S. Treasury securities and are reflected as Cash and Cash Equivalents Held In Trust and U.S. Treasury Securities Held In Trust
in the accompanying Condensed Balance Sheets see Note 4. Until the earlier of (i) the consummation of the Business Combination or (ii) liquidation of the Company, the remaining net proceeds (not held in the Trust Account) may be
used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. Additionally, up to an aggregate of $6,000,000 of investment income earned on the Trust Account balance may
be released to the Company to fund its expenses and other working capital requirements and additional amounts may be released from investment income to the Company as necessary to satisfy tax obligations.
The Company, after signing a definitive agreement for the acquisition of a
target business or businesses, will be required to submit such transaction for stockholder approval. In the event that less than a majority of the public stockholders voting at a meeting called for stockholders approval of the Business
Combination vote in favor of the Business Combination or stockholders owning 33.33% or more of the shares sold in the Public Offering vote against the Business Combination and exercise their conversion rights (calculated on a cumulative basis with
stockholders who exercise their conversion rights with respect to their shares in connection with any extension of the Companys corporate existence to up to 36 months) as described below, the Business Combination will not be
6
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
consummated. In connection with a vote on a Business Combination, a majority of the Companys outstanding shares of common stock (Common
Stock) must also be voted in favor of an amendment to the Companys amended and restated certificate of incorporation approving its perpetual existence.
All of the Companys stockholders prior to the Public Offering, which include all of the officers and directors of the
Company and Lazard Funding Limited LLC (Lazard Funding) (collectively, the Initial Stockholders), purchased founder units (the Founder Units), which each consist of one share of the Companys Common Stock and
one common stock purchase warrant (Founder Warrants). Lazard Funding is a wholly-owned subsidiary of Lazard Group LLC (Lazard Group). Lazard Group is an indirect subsidiary of Lazard Ltd (together with Lazard Funding and
Lazard Group, referred to as Lazard). Lazard Ltd is an international financial advisory and asset management firm, and its shares of Class A common stock are traded on the New York Stock Exchange.
The Founder Warrants each entitle the holder to purchase from the Company one
share of Common Stock at an exercise price of $7.50 per share and become exercisable after the consummation of a Business Combination if and when the sales price of the Common Stock exceeds a specified price level. The Founder Warrants, which expire
on January 17, 2013, are subject to certain transfer restrictions, cannot be redeemed by the Company while they are owned by the Initial Stockholders or their permitted transferees and, in the event of a liquidation as described below, the Founder
Warrants will not participate in any distributions from the Trust Account and will expire worthless. The Initial Stockholders have agreed to vote the shares of Common Stock included in their Founder Units (Founder Shares) in accordance
with the majority of the shares of Common Stock voted by the public stockholders with respect to any Business Combination. On all other matters, other than an extension of the Companys existence and in any case after consummation of a Business
Combination, this voting safeguard will not be applicable and the Initial Stockholders will be able to vote their Founder Shares independently of the public stockholders. See Note 7 below for additional information regarding Founder Units.
Any public stockholder who votes against a Business
Combination or an extension of the Companys existence that is approved and consummated may demand at the time of such vote that the Company convert his or her shares into a pro rata share of the Trust Account. Accordingly, public stockholders
holding up to 33.33% less one share of the aggregate number of shares owned by all public stockholders, cumulative with holders exercising conversion rights with respect to an extension of the Companys existence to up to 36 months, may seek
conversion of their shares in the event of a Business Combination. If such a Business Combination or extension of the Companys existence occurs, such public stockholders are entitled to receive their per-share interest in the Trust Account
computed without regard to the Founder Shares held by Initial Stockholders. In this respect, an aggregate of $269,376,634 and $269,295,451 has been classified as Trust Assets Attributable To Common Stock Subject To Possible Conversion
and Accumulated Deferred Trust Income Attributable To Common Stock Subject To Possible Conversion in the accompanying Condensed Balance Sheets at June 30, 2009 and December 31, 2008, respectively.
The Companys amended and restated certificate of incorporation provides
that the Company will continue in existence until January 17, 2010, the second anniversary of the effective date of the registration statement governing the Public Offering and, unless the Company has consummated a Business Combination by such date,
its corporate existence will cease and it will dissolve and liquidate for the purpose of winding up its affairs. However, if the Company has entered into a definitive agreement relating to a Business Combination within such period, and if the
Company anticipates that it may not be able to consummate a Business Combination within such period, the Company may seek up to a 12-month extension to consummate the Business Combination by calling a special (or annual) meeting of its stockholders
for the purpose of soliciting their approval for such extension. In connection with the vote required for any such extension, the Initial Stockholders have agreed to vote their Founder Shares in accordance with the majority of the shares of Common
Stock voted by the public stockholders. This voting
7
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
arrangement does not apply to shares included in units purchased by Lazard and any other Initial Stockholder in the Public Offering or in the open market
subsequent to the Public Offering (see Note 3 below), with respect to which Lazard and the other Initial Stockholders have agreed to vote all such shares in favor of both a Business Combination and an extension of the Companys corporate
existence to up to 36 months. Any public stockholders voting against the proposed extension will be eligible at the time of such vote to elect to convert their shares into a pro rata share of the Trust Account if the Company effects the extension.
However, the Company will not effect the extension if a majority of the outstanding shares of Common Stock are not voted in favor of the extension or if 33.33% or more of the shares sold in the Public Offering vote against the proposed extension and
elect to convert their shares into their pro rata share of the Trust Account.
Upon dissolution, the Company will distribute to all of the public stockholders (including the Initial Stockholders to the extent they purchased shares in the Public Offering or in the open market), in proportion to
their respective equity interests, an aggregate sum equal to the amount in the Trust Account, inclusive of any interest, plus any remaining net assets. Pursuant to letter agreements the Initial Stockholders have entered into with the Company and the
underwriter, the Initial Stockholders have waived their right to receive distributions with respect to their Founder Units upon the Companys liquidation.
Basis of Presentation
The accompanying condensed financial statements of the Company have been prepared pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission (the SEC) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (U.S.
GAAP) for complete financial statements and should be read in conjunction with the audited financial statements and notes thereto included in the Companys annual report on Form 10-K for the year ended December 31, 2008. The accompanying
December 31, 2008 unaudited balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP for annual financial statement purposes. The accompanying condensed financial statements reflect
all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. These adjustments are of a normal recurring nature.
Preparing financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and the accompanying disclosures. Although these estimates are based on managements
knowledge of current events and actions that the Company may undertake in the future, actual results may differ materially from these estimates. The results of operations for the three month and six month periods ended June 30, 2009 are not
necessarily indicative of the results to be expected for any future period or the full fiscal year. Any material events or transactions that occurred subsequent to June 30, 2009 through the date of filing of this Quarterly Report on Form 10-Q
were reviewed for purposes of determining whether any adjustments were required to be made to the accompanying condensed financial statements and for disclosure purposes.
2. RECENT ACCOUNTING DEVELOPMENTS
As described above, the net proceeds from the Public Offering and Financing Transaction are intended to be applied towards the consummation
of a Business Combination. On January 1, 2009, the Company adopted SFAS No. 141 (revised 2007),
Business Combinations
(SFAS No. 141(R)), the provisions of which are applicable on a prospective basis. SFAS No. 141(R)
replaced SFAS No. 141,
Business Combinations
(SFAS No. 141), and supersedes or amends other related authoritative literature although it retains the fundamental requirements in SFAS No. 141 that the acquisition method
of accounting (which SFAS No. 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141(R) also established principles and requirements for how
the acquirer: (a) recognizes and measures in its
8
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree; (b) recognizes and measures
the goodwill acquired in a business combination or a gain from a bargain purchase; and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of a business combination.
SFAS No. 141(R) also requires the acquirer to expense, as incurred, costs relating to any acquisitions. The adoption of SFAS No. 141(R) on January 1, 2009 did not have any impact on the Companys financial statements but may have a material
impact in the future, in the event the Company enters into a business combination.
On January 1, 2008, the Company adopted, on a prospective basis, the required provisions of SFAS No. 157,
Fair Value Measurement
s (SFAS No. 157), which, among other things, defined fair
value, established a framework for measuring fair value and enhanced disclosure requirements about fair value measurements with respect to its financial assets and financial liabilities. On January 1, 2009, the Company adopted the remaining
provisions of SFAS No. 157, as permitted by the Financial Accounting Standards Board (the FASB) Staff Position (FSP) Financial Accounting Standard (FAS) 157-2,
Effective Date of FASB Statement No.
157
(FSP 157-2), which delayed 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 (at least annually). These nonfinancial items include, for example, reporting units required to be measured at fair value for annual goodwill impairment testing purposes and nonfinancial assets acquired and liabilities assumed in a business
combination. Neither the adoption of the required provisions of SFAS No. 157 on January 1, 2008, nor the adoption of the remaining provisions of SFAS No. 157 on January 1, 2009, as permitted by FSP 157-2, had a material impact on
the Companys financial statements.
On January 1, 2009,
the Company adopted SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160 amends Accounting Research Bulletin No. 51,
Consolidated Financial Statements
to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. In addition, SFAS No. 160 also changes the way the consolidated income
statement is presented by requiring consolidated net income to include amounts attributable to both the parent and the noncontrolling interests with separate disclosure of each component on the face of the consolidated income statement. SFAS
No. 160 does not, however, impact the calculation of net income per share as such calculation will continue to be based on amounts attributable to the parent. The adoption of SFAS No. 160 did not have any impact on the Companys financial
statements but may have an impact in the future, in the event the Company enters into a business combination for less than a 100% interest in the acquired company.
On April 1, 2009, the Company adopted FSP FAS 141(R)-1,
Accounting for Assets Acquired and Liabilities Assumed in a
Business Combination That Arise from Contingencies
(FSP 141(R)-1). FSP 141(R)-1 amends and clarifies SFAS No. 141(R) with respect to the initial recognition and measurement, subsequent measurement and accounting and disclosure
of assets and liabilities arising from contingencies in a business combination. The adoption of FSP 141(R)-1 did not impact the Companys financial statements but may have an impact in the future, in the event the Company enters into a business
combination.
On April 1, 2009, the Company adopted FSP FAS
157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly
(FSP 157-4) on a prospective basis. FSP
157-4 provides additional guidance on determining fair value for securities or other financial assets when the volume and level of activity for such items have
9
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
significantly decreased compared with normal market activity and when there is no longer sufficient frequency or volume to provide pricing information on an
ongoing basis. FSP 157-4 also provides additional guidance in determining whether or not a transaction is orderly and whether or not the transaction or quoted price can be considered. Accordingly, FSP 157-4 does not apply to quoted prices for
identical assets or liabilities in active markets categorized as Level 1. FSP 157-4 also requires additional fair value disclosures on an interim basis. The adoption of additional guidance provided by FSP 157-4 did not have any impact the
Companys financial statements.
On April 1, 2009, the
Company adopted FSP FAS 107-1 and FSP APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments
(FSP 107-1 and FSP APB 28-1, respectively) on a prospective basis. FSP 107-1 and
FSP APB 28-1 increase the frequency of qualitative and quantitative information about fair value estimates for all financial instruments whether or not recognized on the balance sheet at fair value by requiring this information on an interim basis.
The adoption of FSP 107-1 and FSP APB 28-1 did not have a material impact on the Companys financial statements. See Note 4 of Notes to Condensed Financial Statements.
On April 1, 2009, the Company adopted FSP FAS 115-2 and FSP FAS 124-2,
Recognition and Presentation of
Other-Than-Temporary Impairments
(FSP 115-2 and FSP 124-2, respectively) on a prospective basis. FSP 115-2 and FSP 124-2 impact the recognition and presentation of other-than-temporary impairments pertaining
to debt securities accounted for as available-for-sale securities and provide greater clarity about the credit and non-credit components of debt securities whose fair value is below amortized cost that are not expected to be sold, and
also require increased disclosures regarding expected cash flows, credit losses and an aging of securities with unrealized losses. The adoption of FSP 115-2 and FSP 124-2 did not have a material impact on the Companys financial statements.
3. PUBLIC OFFERING AND FINANCING TRANSACTION
Pursuant to a Registration Statement on Form S-1 declared effective by the
SEC on January 17, 2008 (the Registration Statement), the Company sold in its Public Offering 80,000,000 units (Offering Units), with each Offering Unit comprised of one share of Common Stock and one Redeemable Common Stock
Purchase Warrant (Offering Warrant), at a price of $10.00 per Offering Unit. The Public Offering was consummated on January 24, 2008. Gross proceeds from the Public Offering of $800,000,000 less underwriting fees of $11,325,000 resulted
in $788,675,000 in net proceeds to the Company, prior to offering expenses and deferred underwriting fees. Total underwriting fees for the Public Offering were an aggregate of $43,125,000, with $11,325,000 payable at closing of the Public Offering
and $31,800,000 only payable upon the consummation of a Business Combination. If a Business Combination is not consummated, the deferred underwriting fee will not be paid to the underwriter.
Lazard purchased 5,000,000 of the 80,000,000 Offering Units sold in the
Public Offering at a price equal to the Public Offering price of $10.00 per Offering Unit and, subject to certain exceptions, has agreed that it will not sell or transfer such Offering Units until 180 days after the closing of a Business
Combination.
Each Offering Warrant entitles the holder to
purchase from the Company one share of Common Stock at an exercise price of $7.00 commencing on the consummation of a Business Combination. There will be no distribution from the Trust Account with respect to the Offering Warrants in the event of a
liquidation as described in Note 1 above. Offering Warrants not exercised prior to liquidation or January 17, 2012, the date of expiration, will expire worthless. The Company may call the Offering Warrants for redemption under certain circumstances,
which include during periods when the sales price of the Common Stock exceeds specified price
10
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
levels. In that event, holders of the Offering Warrants may elect to exercise their Offering Warrants prior to the scheduled redemption date; however, the
Company has the option to require all holders who elect to exercise their Offering Warrants do so on a cashless basis.
Additionally, the Company completed the Financing Transaction whereby it sold a total of 12,500,000 warrants (Insider Warrants), at $1.00 per
Insider Warrant, in a private placement transaction that took place simultaneously with the consummation of the Public Offering. All of the Insider Warrants, as well as a majority of the Founder Units, were purchased by Lazard.
The Insider Warrants are identical to the Offering Warrants described above,
except that the Insider Warrants have an exercise price of $7.50 per share, cannot be redeemed by the Company while they are owned by Lazard or its permitted transferees and may be exercised even if a registration statement registering the
underlying Common Stock is not effective. Both the Offering Warrants and the Insider Warrants are recorded in Additional Paid-In-Capital because in no event will the exercise of a warrant result in the holder of a warrant being entitled
to receive a net cash settlement or other consideration in lieu of physical settlement in shares of Common Stock. Lazard has agreed that, subject to certain exceptions, it will not sell or transfer the Insider Warrants until 90 days after
consummation of a Business Combination.
As described in Note 1
above, all of the proceeds from the sale of the Insider Warrants have been placed in the Trust Account, along with substantially all of the proceeds from the Public Offering, and will be held there until the consummation of a Business Combination or
liquidation of the Company. If the Company does not consummate a Business Combination and is forced to liquidate, the $12,500,000 of proceeds from the sale of the Insider Warrants will become part of the distribution to the Companys public
stockholders and the Insider Warrants will expire worthless.
Pursuant to agreements signed on January 17, 2008, the Initial Stockholders and the holder of the Insider Warrants are entitled to registration rights with respect to their Founder Units and Insider Warrants (or the underlying securities)
as well as certain other securities owned or acquired by the Initial Stockholders. In addition, the Initial Stockholders and the holder of the Insider Warrants (or the underlying securities) have certain piggy-back registration rights on
registration statements filed after the Companys consummation of a Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
In addition, Lazard entered into an agreement with the underwriter of the
Public Offering pursuant to which it will place limit orders for up to $37,500,000 of the Companys Common Stock commencing two business days after the Company files a proxy statement relating to the Business Combination and ending on the
business day immediately preceding the record date for the meeting of stockholders at which such Business Combination is to be approved, or earlier in certain circumstances. The limit orders require Lazard to purchase any of the Companys
shares of Common Stock offered for sale at or below a price equal to the per share value of the Trust Account as of the date of the Companys most recent Annual Report on Form 10-K or quarterly report on Form 10-Q, as applicable, filed prior to
such purchase. Lazard will not be permitted to exercise conversion rights with respect to these shares but it will participate in any liquidation distribution with respect to any shares of Common Stock purchased pursuant to such limit orders. Lazard
has agreed to vote all shares of Common Stock purchased pursuant to such limit orders in favor of a Business Combination and in favor of an extension of the Companys corporate existence.
11
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
4. ASSETS HELD IN TRUST
A total of $799,650,000 of the net proceeds from the Public Offering, including $12,500,000 from the Financing Transaction
and $31,800,000 of deferred underwriting commissions, has been placed in the Trust Account, with Mellon Bank, N.A. serving as account agent. The Trust Account is invested in money market funds and U.S. Treasury Notes.
The money market
funds are considered cash equivalents. U.S. Treasury Securities Held In Trust are considered available-for-sale investments under SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities
and
are recorded at their fair value, with any increase or decrease in fair value reported in Accumulated Other Comprehensive Income, Net of Tax until such time as they are realized and reclassified to earnings using the specific
identification method. Any available-for-sale securities with declines in fair value below amortized cost are assessed for other-than-temporary impairment for each reporting period.
The activity in the Trust Account, by major security type and class of
security, for the six month periods ended June 30, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Month Period Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Money
Market
Funds
|
|
|
U.S.
Treasury
Notes
|
|
|
Total
|
|
|
Money
Market
Funds
|
|
|
U.S.
Treasury
Notes
|
|
|
Total
|
|
Fair value, beginning of period
|
|
$798,551,640
|
|
|
$9,415,541
|
|
|
$807,967,181
|
|
|
|
|
|
|
|
|
|
|
Initial investment (including accrued interest) (January 24, 2008)
|
|
|
|
|
|
|
|
|
|
|
$790,198,716
|
|
|
$9,451,284
|
|
|
$799,650,000
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividends
|
|
222,025
|
|
|
43,349
|
|
|
265,374
|
|
|
10,890,981
|
|
|
89,553
|
|
|
10,980,534
|
|
Realized gain
|
|
|
|
|
73,447
|
|
|
73,447
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses recognized in other comprehensive income
|
|
|
|
|
(21,802
|
)
|
|
(21,802
|
)
|
|
|
|
|
(178,721
|
)
|
|
(178,721
|
)
|
Realized gain reclassified to investment income
|
|
|
|
|
(73,447
|
)
|
|
(73,447
|
)
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of U.S. Treasury Notes (including accrued interest) used to purchase money market funds
|
|
9,409,096
|
|
|
(9,409,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds used to purchase of U.S. Treasury Notes (including accrued interest)
|
|
(9,215,552
|
)
|
|
9,215,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest received on U.S. Treasury Notes
|
|
90,000
|
|
|
(90,000
|
)
|
|
|
|
|
219,375
|
|
|
(219,375
|
)
|
|
|
|
Withdrawals
|
|
|
|
|
|
|
|
|
|
|
(7,006,810
|
)
|
|
|
|
|
(7,006,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, end of period
|
|
$799,057,209
|
|
|
$9,153,544
|
|
|
$808,210,753
|
|
|
$794,302,262
|
|
|
$9,142,741
|
|
|
$803,445,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period fair value per share, before consideration of applicable income taxes (excluding 20,000,000 Founder Shares, which do
not have liquidation rights)
|
|
|
$10.10
|
|
|
|
|
|
|
|
|
$10.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Withdrawals of
investment income are used for general and administrative expenses, professional fees, payment of accrued expenses, payment of a portion of the offering costs and for working capital purposes.
The Company considers these investments Level 1 in the fair value
hierarchy pursuant to SFAS No. 157
. Fair values for the Companys Level 1 investments are based on quoted market prices.
At June 30, 2009 and December 31, 2008, the money market funds were invested in the Dreyfus Treasury Prime Cash Management Fund (a money market
mutual fund structured within the confines of Rule 2a-7 under the Investment Company Act of 1940, as amended), which invests solely in U.S. Treasury Bills and U.S. Treasury Notes. The Bank of New York Mellon, the custodian bank for these funds, is
responsible for the safekeeping of securities on behalf of the funds. Since the securities are registered in the name of each fund, they are not assets or liabilities of the custodian bank.
12
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
On February 6, 2009, the Company sold its then $9,000,000 principal investment in U.S. Treasury
Notes, with a carrying value of $9,123,428 and interest rates of 4.875% that were scheduled to mature on August 15, 2009, and purchased $9,000,000 principal amount of new U.S. Treasury Notes, with interest rates of 2.000% that mature on
February 28, 2010. The sale resulted in proceeds of $9,409,096, which includes $212,221 of accrued interest, and realized a gross gain of $73,447, which was reclassified out of Accumulated Other Comprehensive Income and is included in
Investment Income on the Condensed Statements of Income for the six month period ended June 30, 2009 and the period September 27, 2007 (date of inception) to June 30, 2009.
The fair value of the U.S. Treasury Notes of $9,153,544 and $9,415,541 (which
includes accrued interest of $59,674 and $164,531) at June 30, 2009 and December 31, 2008, respectively, had an amortized cost of $9,084,549 and $9,146,440 at June 30, 2009 and December 31, 2008, respectively.
5. INCOME TAXES
Income tax expense (benefit) for the three month and six month periods ended June 30, 2009 and 2008 and for the period
September 27, 2007 (date of inception) to June 30, 2009 is calculated at an effective tax rate of 35%. In addition, the six month period ended June 30, 2009 includes an adjustment of $82,996 to true-up the Companys prior year
Federal income tax provision to the income tax return, which resulted in a computed effective tax rate for the six month period ended June 30, 2009 of 49%. The Company has no unrecognized tax benefits at June 30, 2009 and December 31,
2008. The Companys accounting policy provides that interest and penalties related to income taxes, if any, are to be included in income tax expense.
At June 30, 2009 and December 31, 2008, the Company recorded prepaid income taxes of $345,389 and $262,393, respectively, which represents the amount
of estimated tax payments in excess of the income tax provision. Additionally, at June 30, 2009, the Company recorded a prepaid tax asset of $204,800 in connection with the carryover of the loss incurred during the six month period ended
June 30, 2009. These amounts are included in Prepaid Expenses and Income Taxes on the accompanying Condensed Balance Sheets.
Further, as of June 30, 2009 and December 31, 2008, the Company recorded deferred tax liabilities of $3,262 and $36,600, respectively, related
to unrealized gains on available-for-sale securities, which were recorded in Accumulated Other Comprehensive Income.
6. COMMITMENT
The Company presently occupies certain office space provided by Lazard. Lazard has agreed to make such office space, including conference rooms in New
York City, and administrative services available to the Company until a Business Combination is consummated or the Company liquidates. The Company has agreed to pay Lazard $15,000 per month for such services commencing January 17, 2008. The
Company has incurred fees of $45,000 for each of the three month periods ended June 30, 2009 and 2008; $90,000 and $82,258 for the six month periods ended June 30, 2009 and 2008, respectively; and $262,258 for the period from September 27, 2007
(date of inception) to June 30, 2009, with respect to this commitment, with such amounts included within General and Administrative expense on the accompanying Condensed Statements of Income.
7. EQUITY SECURITIES
Founder Units
As of June 30, 2009 and December 31, 2008, the Company had 20,000,000 Founder Units issued
and outstanding. Founder Units comprise 20% of the aggregate outstanding Founder Units and Offering Units (collectively, the Units) (without taking into account any separate trading of Common Stock and warrants issued as part of the
Offering Units in the Public Offering).
13
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
The Founder Warrants are recorded within Additional Paid-In Capital because in no event
will the registered holder of a warrant be entitled to receive a net-cash settlement or other consideration in lieu of physical settlement in shares of Common Stock, even if the Common Stock underlying the Founder Warrants is not covered by an
effective registration statement.
8. RELATED PARTY
Management of the Company are also employees of Lazard, and accordingly have
responsibilities at Lazard. They receive their compensation from Lazard.
On January 17, 2008, the Company entered into an administrative services agreement with Lazard, which is discussed in Note 6 above.
The Company also maintains its non-trust cash and cash equivalent investment in an uninsured brokerage account with a
Lazard-affiliated entity. The Company has not experienced any losses in this account.
9. NET INCOME (LOSS) PER SHARE OF COMMON STOCK
Net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the applicable periods. The weighted average number of
shares of common stock issued and outstanding used for the computation of basic and diluted net income (loss) per common share takes into account the number of Founders Shares outstanding for the respective periods and the shares of common stock
(but not the 26,663,999 shares of common stock subject to possible conversion) sold in the Public Offering and outstanding since January 24, 2008. The exclusion of common stock subject to possible conversion gives effect to the fact that, upon the
exercise of stockholder conversion rights, the Company may be required to redeem those shares for their pro rata portion of the Trust Account. As a result, the terms of the common stock subject to possible conversion are considered to be
substantially different than those of the common stock. Increases in the conversion value of the common stock subject to possible conversion reduce the net income attributable to common stock.
The weighted average number of shares of common stock issued and outstanding
used for the computation of basic and diluted net income (loss) per common share for the six month period ended June 30, 2008 and for the period September 27, 2007 (date of inception) to June 30, 2009 takes into account the number of
Founders Shares outstanding for the periods and is retroactively adjusted to reflect the impact of the 1.6 to 1 split of Founders Units on January 17, 2008.
An aggregate of 112,500,000 warrants, consisting of the Founder Warrants, Offering Warrants and the Insider Warrants represent contingently issuable
shares and are excluded from the calculation of diluted net income (loss) per share.
14
SAPPHIRE INDUSTRIALS CORP.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED FINANCIAL
STATEMENTS(Continued)
(UNAUDITED)
The calculations of the Companys basic and diluted net income (loss) per share and weighted
average shares outstanding for the three month and six month periods ended June 30, 2009 and 2008 and the period September 27, 2007 (date of inception) to June 30, 2009 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Month Period Ended
June 30,
|
|
|
Six Month Period Ended
June 30,
|
|
|
September 27, 2007
(Date of Inception)
to
June 30, 2009
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net income (loss)
|
|
$(337,031)
|
|
|
$3,448,527
|
|
|
$(297,346)
|
|
|
$6,873,624
|
|
|
$9,801,903
|
|
Less Deferred trust income attributable to common stock subject to possible conversion
|
|
(42,572)
|
|
|
(104,268
|
)
|
|
(81,183)
|
|
|
(1,264,875
|
)
|
|
(2,853,299)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stock basic and diluted
|
|
$(379,603)
|
|
|
$3,344,259
|
|
|
$(378,529)
|
|
|
$5,608,749
|
|
|
$6,948,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock outstanding
|
|
100,000,000
|
|
|
100,000,000
|
|
|
100,000,000
|
|
|
90,961,539
|
|
|
85,945,568
|
|
Less adjustment for shares of common stock subject to possible conversion
|
|
(26,663,999
|
)
|
|
(26,663,999
|
)
|
|
(26,663,999
|
)
|
|
(23,294,373
|
)
|
|
(21,729,293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock outstanding Basic and Diluted
|
|
73,336,001
|
|
|
73,336,001
|
|
|
73,336,001
|
|
|
67,667,166
|
|
|
64,216,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share of common stock Basic and Diluted
|
|
$(0.01)
|
|
|
$0.05
|
|
|
$(0.01
|
)
|
|
$0.08
|
|
|
$0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion should be read in conjunction with the condensed financial statements and related notes included
elsewhere in this Quarterly Report on Form 10-Q (the Form 10-Q). This discussion covers the period before and after our initial public offering. In addition, this discussion contains forward-looking statements that must be understood in
the context of numerous risks and uncertainties, including, but not limited to, those described under Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2008 (the Form 10-K).
Forward-Looking Statements
Management has included in Parts I and II of this Form 10-Q, including in
its Managements Discussion and Analysis of Financial Condition and Results of Operations and in other sections of this Form 10-Q, statements that are forward-looking statements. Our forward-looking statements include, but are not
limited to, statements regarding our or our managements expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events
or circumstances, including any underlying assumptions, are forward-looking statements. The words anticipates, believe, continue, could, estimate, expect, intends,
may, might, plan, possible, potential, predicts, project, should, would and similar expressions may identify forward-looking statements, but
the absence of these words does not mean that a statement is not forward-looking. Factors that might cause or contribute to a discrepancy from such forward looking statements include, but are not limited to, those described in our other filings with
the Securities and Exchange Commission (the SEC), including our Form 10-K.
Overview
We were formed on September 27,
2007 to serve as a vehicle to effect a merger, capital stock exchange, asset acquisition or other similar business combination with one or more operating businesses. We intend to utilize cash derived from the proceeds of our initial public offering,
private placement of warrants, our capital stock, debt or a combination of cash, capital stock and debt, to effect one or more business combinations. On January 24, 2008 we consummated our initial public offering wherein we sold 80,000,000
units, with each unit comprised of one share of common stock and one warrant, at a price of $10.00 per unit. Additionally, we sold 12,500,000 insider warrants, with an exercise price of $7.50 per share, at a price of $1.00 per insider warrant in a
private placement transaction (the Financing Transaction) that took place simultaneously with the consummation of the initial public offering.
Results of Operations and Known Trends or Future Events
We have neither engaged in any operations nor generated any operating revenues to date. Through June 30, 2009, our efforts have been limited to
organizational activities; activities relating to our initial public offering and financing transaction; activities relating to identifying and evaluating prospective acquisition candidates; and activities relating to general corporate matters. We
have not generated any revenues, other than investment income earned on the proceeds of our initial public offering and Financing Transaction. We will not generate any operating revenues until after consummation of a business combination. Until we
consummate a business combination (or until we dissolve and liquidate) we will generate non-operating income in the form of investment income on our cash equivalents and short-term investments which are held in the trust account we established upon
completion of our initial public offering.
We have incurred costs and expenses that include professional fees, insurance, offering costs, fees under the administrative services agreement, regulatory fees, travel and other miscellaneous
expenses. The current economic environment has made it difficult to obtain financing for business combinations by blank check companies such as ours and companies seeking to complete equity transactions generally. Financing, if available, may not be
on terms acceptable to our stockholders, and it may be more difficult to obtain stockholder approval for a business combination if current conditions persist.
The issuance of additional units, warrants or shares of our capital stock in order to consummate a business combination:
|
|
|
may significantly reduce the equity interest of our stockholders;
|
16
|
|
|
may subordinate the rights of holders of common stock if we issue preferred stock with rights senior to those afforded to our common stock;
|
|
|
|
could cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net
operating loss carryover, if any, and could also result in the resignation or removal of our present officers and directors; and
|
|
|
|
may adversely affect prevailing market prices for our common stock.
|
Similarly, if we issue debt securities as part of a business combination, it could result in:
|
|
|
default and foreclosure on our assets if our operating revenues after a business combination are insufficient to pay our debt obligations;
|
|
|
|
acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt contains covenants that
require the maintenance of certain financial ratios or reserves and we breach any such covenant without a waiver or renegotiation of the covenant;
|
|
|
|
our immediate payment of all principal and accrued interest, if any, if the debt is payable on demand; and
|
|
|
|
our inability to obtain additional financing, if necessary, if the debt contains covenants restricting our ability to obtain additional financing while such debt is
outstanding.
|
Results of Operations:
Three Months Ended June 30, 2009 versus June 30, 2008
Net income attributable to common stock for the three month period ended
June 30, 2009 decreased $3.7 million, or 111%, compared to the corresponding period in 2008. Basic and diluted net income per common share in the 2009 period was $(0.01), as compared to $0.05 in the corresponding period in 2008. These declines are
attributable to the following:
Investment income for the three
month period ended June 30, 2009 decreased $5.5 million, or 98%, compared to the corresponding period in 2008. The decline was attributable to broad-based illiquidity in the credit markets which triggered a precipitous decline in interest rates on
money market funds invested in securities issued or guaranteed by the United States.
Professional fees for the three month period ended June 30, 2009 increased $0.3 million, or 274%, compared to the corresponding period in 2008, which primarily resulted from fees incurred in connection with the
identification and evaluation of prospective acquisition candidates.
General and administrative expenses for the three month period ended June 30, 2009 were substantially unchanged when compared to the corresponding period in 2008.
Income before income taxes for the three month period ended June 30, 2009 decreased $5.8 million, or 110%, compared to the corresponding
period in 2008, with such decrease primarily attributable to the decline in investment income described above.
Income tax expense (benefit) for the three month periods ended June 30, 2009 and 2008 represents Federal income taxes (benefits) calculated at an
effective rate of 35%.
Deferred trust income attributable to
common stock subject to possible conversion for the three month period ended June 30, 2009 decreased approximately $0.1 million, or 59%, compared to the corresponding period in 2008. The decline was due to a $2.4 million decrease in investment
income attributable to the stock subject to possible conversion, which was offset by a $2.3 million reduction in withdrawals of trust income attributable to stock subject to possible conversion from the trust account.
17
Six Months Ended June 30, 2009 versus June 30, 2008
Net income attributable to common stock for the six month period ended June 30, 2009 decreased $6.0 million, or 107%,
compared to the corresponding period in 2008. Basic and diluted net income per common share in the 2009 period was $(0.01), as compared to $0.08 in the corresponding period in 2008. These declines are attributable to the following:
Investment income for the six month period ended June 30, 2009 decreased
$10.7 million, or 97%, compared to the corresponding period in 2008. The decline was attributable to broad-based illiquidity in the credit markets which triggered a precipitous decline in interest rates on money market funds invested in securities
issued or guaranteed by the United States.
Professional fees
for the six month period ended June 30, 2009 increased $0.4 million, or 302%, compared to the corresponding period in 2008, which primarily resulted from fees incurred in connection with the identification and evaluation of prospective acquisition
candidates.
General and administrative expenses for the six
month period ended June 30, 2009 increased $0.1 million, or 20%, compared to the corresponding period in 2008. The increase was partially attributable to increases in regulatory fees and various costs that covered a full six month period in 2009,
such as insurance and administrative services. During 2008, these costs commenced on or shortly after the closing of our initial public offering and represent less than a full six months of costs. These increases were partially offset by higher
external printing and website set-up costs in the six month period ended June 30, 2008.
Income before income taxes for the six month period ended June 30, 2009 decreased $11.2 million, or 106%, compared to the corresponding period in 2008, with such decrease primarily attributable to the decline in
investment income described above.
Income tax expense
(benefit) for the six month periods ended June 30, 2009 and 2008 represents Federal income taxes calculated at an effective rate of 35%. In addition, the six month period ended June 30, 2009 includes an adjustment of approximately $0.1 million
reducing our prior year Federal income tax expense.
Deferred
trust income attributable to common stock subject to possible conversion for the six month period ended June 30, 2009 decreased $1.2 million, or 94%, compared to the corresponding period in 2008. The decline was due to a $3.5 million decrease in
investment income attributable to common stock subject to possible conversion, which was offset by a $2.3 million reduction in withdrawals of trust income attributable to common stock subject to possible conversion from the trust account.
The Period September 27, 2007 (date of inception) to June 30, 2009
Net income attributable to common stock of $6.9 million for
the period from September 27, 2007 (date of inception) to June 30, 2009 consisted of investment income earned primarily on the assets held in the trust account of $17.5 million, reduced by $1.5 million of professional fees, $1.0 million of
general and administrative expenses, $5.2 million of income tax expense and $2.9 million of deferred trust income attributable to common stock subject to possible conversion.
Deferred trust income attributable to common stock subject to possible conversion for the period September 27, 2007
(date of inception) to June 30, 2009 was $2.9 million, which is attributable to $5.8 million of investment income attributable to common stock subject to possible conversion, reduced by $2.9 million of withdrawals of investment income attributable
to common stock subject to possible conversion from the trust account.
18
Assets Held in Trust Account
The following table shows the total assets held in the trust account through June 30, 2009:
|
|
|
|
Gross proceeds from our initial public offering of common stock and Financing Transaction
|
|
$812,500,000
|
|
Underwriters fee paid at closing of initial public offering
|
|
(11,325,000
|
)
|
Estimated offering costs as of January 24, 2008
|
|
(1,400,000
|
)
|
Funds not placed in trust account
|
|
(125,000
|
)
|
|
|
|
|
Cash placed in trust account on January 24, 2008
|
|
799,650,000
|
|
Total investment income earned on assets held in trust account, January 24, 2008 through June 30, 2009
|
|
17,458,242
|
|
Unrealized in gain on treasury note included in accumulated other comprehensive income
|
|
9,321
|
|
|
|
|
|
Subtotal
|
|
817,117,563
|
|
|
|
Withdrawals from the trust account during the period January 24, 2008 through June 30, 2009:
|
|
|
|
Payments for estimated income and other taxes
|
|
(5,931,676)
|
|
Transfers to our operating account for payment of additional offering costs, general and administrative expenses and for working capital
purposes (limited to a maximum of $6,000,000).
|
|
(2,975,134)
|
|
|
|
|
|
Total assets held in trust account as of June 30, 2009
|
|
$808,210,753
|
|
|
|
|
|
Total trust account assets attributable to Common Stock subject to possible conversion as of June 30, 2009
|
|
$269,376,634
|
|
|
|
|
|
Liquidity and Capital Resources
Our liquidity needs were satisfied on January 24,
2008 through receipt of $799,775,000 of net proceeds from the initial public offering and Financing Transaction, of which $799,650,000 was placed in a trust account and is more fully described below.
The net proceeds from the initial public offering and Financing Transaction,
after deducting estimated offering expenses of $1,400,000 and underwriting discounts and commissions of $11,325,000 (which excludes $31,800,000 of the deferred underwriters fee held in the trust account and payable upon the consummation of a
business combination), were $799,775,000. The underwriter in our initial public offering agreed that $31,800,000 of the underwriting discounts and commissions will be deferred and will not be payable unless and until we consummate a business
combination and, accordingly, such amount is held in the trust account.
We intend to use substantially all of the net proceeds of the initial public offering and Financing Transaction, including the assets held in the trust account (exclusive of deferred underwriting discounts and commissions of $31,800,000),
to acquire a target business or businesses and to pay our expenses relating thereto. To the extent that our capital stock or other funds are used in whole or in part as consideration to effect a business combination, the remaining proceeds held in
the trust account, as well as any other net proceeds not expended, will be used as working capital to finance the operations of the target business. Such working capital funds could be used in a variety of ways including continuing or expanding the
target business operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also be used to repay any operating expenses or finders fees which we had incurred prior to
the consummation of our business combination if the funds available to us outside of the trust account were insufficient to cover such expenses.
We believe that the $125,000 of net proceeds of our initial public offering not held in the trust account, plus up to $6,000,000 of investment income
earned on the trust account balance that may be released to us as well as amounts necessary for our tax obligations, will be sufficient to allow us to operate until at least January 17, 2010 (or until up to January 17, 2011 if extended pursuant to a
stockholder vote), assuming that a business
19
combination is not consummated during that time. Over this time period, we will use these funds to identify and evaluate prospective acquisition candidates,
perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of
prospective target businesses, select the target business to acquire, structure, negotiate and consummate the business combination and meet our obligations as a public company. We anticipate that we will incur, in the aggregate, approximately:
|
|
|
$4,000,000 of expenses for the search for target businesses and for the legal, accounting and other third party expenses attendant to the due diligence
investigations by our officers and directors or others, and for structuring and negotiating of a business combination;
|
|
|
|
$600,000 of expenses in legal and accounting fees relating to our SEC reporting obligations;
|
|
|
|
up to $360,000 for the administrative fee payable to Lazard ($15,000 per month for up to 24 months) (or if the time period within which we may consummate our
initial business combination is extended to 36 months, $540,000); and
|
|
|
|
$1,165,000 for general working capital that will be used for miscellaneous expenses and reserves, including approximately $400,000 for director and officer
liability insurance premiums.
|
These amounts
are estimates and may differ materially from our actual expenses.
As of June 30, 2009, we had $874,767 of unrestricted cash and cash equivalents held outside the trust account available to us for our activities in connection with identifying and conducting due diligence of a suitable business
combination and for general corporate matters. In addition, we are able to draw up to an additional $3,024,866 from the trust account for this purpose prior to a business combination.
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our
business. However, we may need to raise additional funds through an offering of debt or equity securities or borrowings under a credit facility if such funds are required to consummate a business combination that is presented to us, although we have
not entered into any such arrangement and have no current intention of doing so. We can give no assurance that we will be able to obtain any such financing on favorable terms, if at all.
Related Party Transactions
Commencing January 17, 2008, we are obligated, through the earlier of the date of the initial business combination or our liquidation, to pay to Lazard a
monthly fee of $15,000 for general and administrative services. We incurred fees of $90,000 and $82,258 during the six month periods ended June 30, 2009 and 2008, respectively, and $262,258 for the period September 27, 2007 (date of
inception) to June 30, 2009 for services provided under this agreement.
On October 1, 2007, Lazard Funding loaned us, in the form of a note, $100,000 for payment of offering expenses on our behalf. The note bore interest at a rate of 3.60% per year and was payable on the earlier of
April 1, 2008 or seven days following the closing of the initial public offering. The note was prepaid on January 24, 2008 out of the proceeds of the initial public offering and Financing Transaction that were not placed in the trust.
On October 2, 2007, Lazard Funding and our directors
purchased, in a private placement, an aggregate of 23,000,000 founder units for an aggregate purchase price of $143,750, with such number of units giving effect to the split of the units that occurred on January 17, 2008 to ensure that the founder
units comprise 20% of the outstanding units after our initial public offering (assuming that the underwriter would exercise its over-allotment option in full), and with each founder unit consisting of one share of common stock and one warrant with
an initial exercise price of $7.50 per share. On March 5, 2008, we redeemed an aggregate of 3,000,000 founder units, on a post-split basis, at a redemption price of $0.00625 per unit as a result of the expiration of the
20
underwriters over-allotment option with no exercise thereof so that founder units, in the aggregate, comprise 20% of our issued and outstanding units
(without taking into account any separate trading of common stock and warrants issued as part of the units in our initial public offering).
On January 24, 2008, Lazard Funding purchased from us, on a private placement basis simultaneously with the closing of the initial public offering, an
aggregate of 12,500,000 warrants with an exercise price of $7.50 per share at a price of $1.00 per warrant (for a total purchase price of $12,500,000).
Lazard purchased 5,000,000 units in the initial public offering at a price equal to the public offering price of $10.00 per unit (for an aggregate
purchase price of $50,000,000). Subject to certain exceptions, Lazard has agreed that any such units purchased in the initial public offering will not be sold or transferred by it until 180 days after the consummation of our business combination,
unless a liquidation occurs. Lazard has agreed to vote all of the shares of common stock included in such units in favor of the initial business combination and in favor of an extension of our corporate existence until up to January 17, 2011 in the
event we have entered into a definitive agreement for, but have not yet consummated, our initial business combination. The underwriter in our initial public offering did not receive any underwriting discounts or commissions with respect to these
units.
In addition, on January 11, 2008 Lazard entered into an
agreement with Citigroup Global Markets Inc. in accordance with Rule 10b5-1 under the Exchange Act pursuant to which it will place limit orders for up to $37,500,000 of our common stock commencing two business days after we file a preliminary proxy
statement relating to our initial business combination and ending on the business day immediately preceding the record date for the meeting of stockholders at which such initial business combination is to be approved, or earlier in certain
circumstances. The limit orders will require Lazard to purchase any of our shares of common stock offered for sale at or below a price equal to the per-share value of the trust account as of the date of our most recent Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, as applicable, filed prior to such purchase. The purchase of such shares will be made by Citigroup Global Markets Inc. or another broker dealer mutually agreed upon by Citigroup Global Markets Inc. and Lazard. It is
intended that purchases pursuant to the limit orders will satisfy the conditions of Rule 10b-18(b) under the Exchange Act and the brokers purchase obligation will otherwise be subject to applicable law, including Regulation M which may
prohibit purchases under certain circumstances. Lazard has agreed to vote all shares of common stock purchased pursuant to such limit orders in favor of the initial business combination and in favor of an extension of our corporate existence until
up to January 17, 2011 in the event we have entered into a definitive agreement for, but have not yet consummated, our initial business combination. As a result, Lazard may be able to influence the outcome of our initial business combination. Lazard
will not be permitted to exercise conversion rights with respect to these shares but it will participate in any liquidation distribution with respect to any shares of common stock purchased pursuant to such limit orders. Lazard has agreed that it
will not sell or transfer any shares of common stock purchased by it pursuant to such agreement until 180 days after we have consummated an initial business combination.
Off-Balance Sheet Arrangements
We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed
any debt or commitments of other entities or entered into any options on non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations, purchase obligations or other long-term liabilities other than the general and administrative services agreement with Lazard, of which we are
obligated, through the earlier of the date of the initial business combination or our liquidation, to pay a monthly fee of $15,000.
21
Critical Accounting Policies and Estimates
Managements discussion and analysis of our balance sheet and results of operations are based upon our condensed
financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) pursuant to the rules and regulations of the SEC regarding interim financial reporting
as discussed in Note 1 of the Notes to Condensed Financial Statements. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and
related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to income taxes and investing activities. Management bases these estimates on historical experience and various other
assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates.
We believe that the critical
accounting policies set forth below comprise the most significant estimates and judgments used in the preparation of its financial statements.
Cash Equivalents and Concentration of Credit Risk
We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. We maintain our cash
equivalents held in trust with Mellon Bank, N.A., a financial institution with high credit ratings. In addition, we maintain our non-trust cash and cash equivalents in an uninsured brokerage account with a Lazard-affiliated entity.
U.S. Treasury Securities Held In Trust
We consider our investment in U.S. Treasury securities
available-for-sale investments under Statement of Financial Accounting Standards (SFAS) No. 115 (SFAS No. 115) and record these investments at their fair value, with any increase or decrease in fair value
reported in accumulated other comprehensive income, net of tax, until such time they are realized and reclassified to earnings using the specific identification method. Any available-for-sale securities with declines in fair
value below amortized cost are assessed for other-than-temporary impairment for each reporting period. The U.S. Treasury securities held in trust at June 30, 2009 have a maturity date of February 28, 2010.
Income Taxes
As part of the process of preparing our financial statements, we are required to estimate our income taxes in each of the
jurisdictions in which we operate. This process requires us to estimate our actual current tax liability and to assess temporary differences resulting from differing book versus tax treatment of items, such as unrealized gains on investments. These
temporary differences result in deferred tax assets and liabilities, which are included in our statements of financial condition. In addition, Financial Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for
Uncertainty
in Income Taxes
(FIN No. 48), requires that a tax position be recognized in the financial statements only when it is more likely than not that the position will be sustained upon examination by the
relevant taxing authority based on the technical merits of the position. Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net
deferred tax assets. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized and, when necessary, valuation allowances should
be established. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the level of historical taxable
income, scheduled reversals of deferred taxes and future taxable income in making this assessment. If actual results differ from these estimates or we adjust these estimates in future periods, we may need to adjust our valuation allowance, which
could materially impact our financial position and results of operations.
22
FIN No. 48 clarifies the more likely than not criteria included in FASB Statement No. 109,
Accounting for Income Taxes,
(SFAS No. 109) that must be met prior to recognition of the financial statement benefit of a tax position taken or expected to be taken in a tax return. FIN No. 48 also requires the
recognition of a liability for differences between tax positions taken in a tax return and amounts recognized in the financial statements. Management applies the more likely than not criteria included in FIN No. 48 when estimating its
income taxes in each of the jurisdictions in which it operates. See Note 5 of Notes to Condensed Financial Statements for additional information regarding income taxes.
Tax contingencies can involve complex issues and may require an extended period of time to resolve. Significant management
judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. Furthermore, our interpretation of complex tax laws may impact our
recognition and measurement of current and deferred income taxes.
Use of
Estimates
The preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.
Actual results could materially differ from those estimates.
Recent
Accounting Developments
For a
discussion of recently issued accounting pronouncements and their impact or potential impact on our financial statements, see Note 2 of Notes to Condensed Financial Statements.
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
We were incorporated in Delaware on September 27, 2007 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock
purchase, reorganization or similar business combination with one or more operating businesses. We are considered in the development stage at June 30, 2009, and remain in the development stage as we have not yet commenced any operations.
Through June 30, 2009, our efforts have been limited to organizational activities; activities relating to our initial public offering and Financing Transaction; activities relating to identifying and evaluating prospective acquisition
candidates; and activities relating to general corporate matters. We did not have any financial instruments that were exposed to market risks at June 30, 2009 other than approximately $9.0 million principal amount of U.S. Treasury Notes,
which mature on February 28, 2010, and are held in the trust account.
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 of the trust account we may not engage in, any substantive commercial business. Accordingly, the risks associated with foreign exchange rates, commodity prices, and equity prices are not
significant. The net proceeds of our initial public offering held in the trust account have been invested only in (a) a Mellon Bank, N.A. money market deposit account or (b) one or more money market funds we select for which The Dreyfus
Corporation, an affiliate of the account agent, or any subsidiary or affiliate thereof serves as investment advisor, administrator, shareholder servicing agent, custodian or subcustodian and (c) upon our written request, the account agent shall
be required to (x) invest such requested amount directly in United States treasury bonds, bills or notes identified by us and (y) sell, transfer or otherwise dispose of treasuries identified by us, provided, that the amount of treasuries
held at any time may not exceed
23
$10 million. Such money market funds must invest principally either in short-term securities issued or guaranteed by the United States having a rating in the
highest investment category granted thereby by a recognized credit rating agency at the time of acquisition or in tax exempt municipal bonds issued by governmental entities located within the United States. At June 30, 2009, the money market
funds were invested in the Dreyfus Treasury Prime Cash Management Fund (a money market mutual fund structured within the confines of Rule 2a-7 under the Investment Company Act of 1940, as amended), which invests solely in U.S. Treasury Bills and
U.S. Treasury Notes. The Bank of New York Mellon, the custodian bank for these funds, is responsible for the safekeeping of securities on behalf of the funds. Since the securities are registered in the name of each fund, they are not assets or
liabilities of the custodian bank. Given our limited risk in our exposure to U.S. Treasury Notes, we do not view the interest rate risk to be significant. We do not enter into derivatives or other financial instruments for trading or speculative
purposes.
Item 4.
|
Controls and Procedures
|
a. Disclosure Controls and Procedures
Our management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d(e) under the Exchange Act) as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Exchange Act. Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis,
the information relating to us that we are required to disclose in the reports that we file or submit under the Exchange Act and are effective in ensuring that information that we are required to disclose in the reports that we file or submit under
the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
b. Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial
reporting (as defined in Rule 13(a)-15(f) under the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
24
PART II. OTHER INFORMATION
Item 1.
|
Legal Proceedings
|
There is no litigation currently pending or, to the knowledge of management, contemplated against us or any of our officers or directors in their capacity
as such.
There have been no material changes to the risk factors previously disclosed in the Registrants Annual Report on Form 10-K for the year ended
December 31, 2008.
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Not applicable.
Item 3.
|
Defaults Upon Senior Securities
|
None.
Item 4.
|
Submission of Matters to a Vote of Security Holders
|
None.
Item 5.
|
Other Information
|
None.
25
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to the Registrants Annual Report on Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
3.2
|
|
Amended and Restated By-laws (Incorporated by reference to Exhibit 3.2 to the Registrants Annual Report on Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
4.1
|
|
Specimen Unit Certificate (Incorporated by reference to the corresponding exhibit to the Registrants Registration Statement on Form S-1 (File
No. 333-146620).
|
|
|
4.2
|
|
Specimen Common Stock Certificate (Incorporated by reference to the corresponding exhibit to the Registrants Registration Statement on Form S-1
(File No. 333-146620).
|
|
|
4.3
|
|
Specimen Warrant Certificate (Incorporated by reference to the corresponding exhibit to the Registrants Registration Statement on Form S-1 (File No. 333-146620).
|
|
|
4.4
|
|
Warrant Agreement between the Registrant and Mellon Investor Services LLC dated January 17, 2008 (Incorporated by reference to Exhibit 4.4 to the Registrants Annual Report on Form
10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
10.1
|
|
Letter Agreement among the Registrant, Citigroup Global Markets Inc. and Lazard dated January 24, 2008 (Incorporated by reference to Exhibit 10.1 to the Registrants Annual Report on
Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
10.2
|
|
Letter Agreement among the Registrant, Citigroup Global Markets Inc. and Donald G. Drapkin dated January 24, 2008 (Incorporated by reference to Exhibit 10.2 to the Registrants Annual
Report on Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
10.3
|
|
Letter Agreement among the Registrant, Citigroup Global Markets Inc. and Douglas C. Taylor dated January 24, 2008 (Incorporated by reference to Exhibit 10.3 to the Registrants Annual
Report on Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
10.4
|
|
Letter Agreement among the Registrant, Citigroup Global Markets Inc. and Charles G. Ward dated January 24, 2008 (Incorporated by reference to Exhibit 10.4 to the Registrants Annual Report
on Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
10.5
|
|
Letter Agreement among the Registrant, Citigroup Global Markets Inc. and Thomas Dooley dated January 24, 2008 (Incorporated by reference to Exhibit 10.5 to the Registrants Annual Report on
Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
10.6
|
|
Letter Agreement among the Registrant, Citigroup Global Markets Inc. and R. Ian Molson dated January 24, 2008 (Incorporated by reference to Exhibit 10.6 to the Registrants Annual
Report on Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
10.7
|
|
Letter Agreement among the Registrant, Citigroup Global Markets Inc. and David M. Schizer dated January 24, 2008 (Incorporated by reference to Exhibit 10.7 to the Registrants Annual Report
on Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
10.8
|
|
Letter Agreement among the Registrant, Citigroup Global Markets Inc. and Ronald J. Kramer dated January 24, 2008 (Incorporated by reference to Exhibit 10.8 to the Registrants Annual Report
on Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
10.9
|
|
Trust Account Agreement between Mellon Bank, N.A. and the Registrant dated January 17, 2008 (Incorporated by reference to Exhibit 10.9 to the Registrants Annual Report on Form 10-K (File
No. 001-33914) filed on March 24, 2008).
|
|
|
10.10
|
|
Securities Escrow Agreement between the Registrant, Mellon Investor Services LLC and the securityholders named therein dated January 17, 2008 (Incorporated by reference to Exhibit 10.10 to the
Registrants Annual Report on Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
26
|
|
|
10.11
|
|
Letter Agreement between Lazard and Registrant regarding administrative support dated January 17, 2008 (Incorporated by reference to Exhibit 10.11 to the Registrants Annual Report on
Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
10.12
|
|
Registration Rights Agreement among the Registrant and Lazard Funding Limited LLC dated January 17, 2008 (Incorporated by reference to Exhibit 10.13 to the Registrants Annual Report
on Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
10.13
|
|
Amended and Restated Warrant Subscription Agreement between the Registrant and Lazard Funding Limited LLC dated January 14, 2008 (Incorporated by reference to Exhibit 10.14 to the
Registrants Annual Report on Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
10.14
|
|
Initial Unit Subscription Agreement between the Registrant and Lazard Funding Limited LLC (Incorporated by reference to Exhibit 10.15 to the Registrants Registration Statement on Form S-1
(File No. 333-146620)).
|
|
|
10.15
|
|
Initial Unit Subscription Agreement between the Registrant and Donald G. Drapkin (Incorporated by reference to Exhibit 10.16 to the Registrants Registration Statement on Form S-1 (File No.
333-146620)).
|
|
|
10.16
|
|
Initial Unit Subscription Agreement between the Registrant and Douglas C. Taylor (Incorporated by reference to Exhibit 10.17 to the Registrants Registration Statement on Form S-1 (File No.
333-146620)).
|
|
|
10.17
|
|
Initial Unit Subscription Agreement between Registrant and Charles G. Ward (Incorporated by reference to Exhibit 10.18 to the Registrants Registration Statement on Form S-1 (File No.
333-146620)).
|
|
|
10.18
|
|
Initial Unit Subscription Agreement between the Registrant and Thomas Dooley (Incorporated by reference to Exhibit 10.19 to the Registrants Registration Statement on Form S-1 (File No.
333-146620)).
|
|
|
10.19
|
|
Initial Unit Subscription Agreement between the Registrant and R. Ian Molson (Incorporated by reference to Exhibit 10.20 to the Registrants Registration Statement on Form S-1 (File No.
333-146620)).
|
|
|
10.20
|
|
Initial Unit Subscription Agreement between the Registrant and David M. Schizer (Incorporated by reference to Exhibit 10.21 to the Registrants Registration Statement on Form S-1 (File No.
333-146620)).
|
|
|
10.21
|
|
Initial Unit Subscription Agreement between the Registrant and Ronald J. Kramer (Incorporated by reference to Exhibit 10.22 to the Registrants Registration Statement on Form S-1 (File No.
333-146620)).
|
|
|
10.22
|
|
Letter Agreement between Lazard Funding Limited LLC and Citigroup Global Markets Inc. regarding open market share purchases dated January 9, 2008 (Incorporated by reference to Exhibit 10.23 to
the Registrants Annual Report on Form 10-K (File No. 001-33914) filed on March 24, 2008).
|
|
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14(a)/15d-14(a)
|
|
|
31.2
|
|
Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14(a)/15d-14(a)
|
|
|
32.1
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350
|
|
|
32.2
|
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350
|
|
|
99.1
|
|
Audit Committee Charter (Incorporated by reference to Exhibit 99.1 to the Registrants Annual Report on Form 10-K (File 001-33914) filed on February 13,
2009).
|
|
|
99.2
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|
Nominating and Corporate Governance Committee Charter (Incorporated by reference to Exhibit 99.2 to the Registrants Annual Report on Form 10-K (File 001-33914) filed on
February 13, 2009).
|
|
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99.3
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Compensation Committee Charter (Incorporated by reference to Exhibit 99.3 to the Registrants Annual Report on Form 10-K (File 001-33914) filed on February 13,
2009).
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27
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.
Date:
July 30, 2009
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SAPPHIRE INDUSTRIALS CORP.
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|
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By:
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/
S
/ D
ONALD
G.
D
RAPKIN
|
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Name:
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Donald G. Drapkin
|
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Title:
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|
Chairman, Chief Executive Officer and President
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|
By:
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|
/
S
/ D
OUGLAS
C.
T
AYLOR
|
|
|
Name:
|
|
Douglas C. Taylor
|
|
|
Title:
|
|
Chief Financial Officer, Secretary and Director
|
28
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