UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
|
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
For
the quarterly period ended March 31,
2009
|
OR
|
|
|
|
£
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
For
the transition period
from_________to_________
|
Commission
file number 001-33370
SANTA
MONICA MEDIA CORPORATION
(Exact
name of Registrant as specified in its charter)
|
Delaware
|
59-3810312
|
|
(State
or other jurisdiction
|
(I.R.S.
Employer Identification No.)
|
|
of
incorporation or organization)
|
|
|
|
|
|
11845
West Olympic Boulevard, Suite 1125W
|
|
|
Los
Angeles, CA
|
90064
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(310)
515-3222
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the 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
þ
No
o
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
Large
accelerated filer
o
Accelerated filer
þ
Non-accelerated
filer
o
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12(b)-2 of the Exchange Act).
Yes
þ
No
o
Number of
shares of Santa Monica Media Common Stock, $.001 par value, issued and
outstanding as of August 15, 2009: 16,038,125.
SANTA
MONICA MEDIA CORPORATION
Form
10-Q
Table of
Contents
|
|
|
Page
|
|
|
|
|
|
|
|
|
PART
I. FINANCIAL INFORMATION
|
|
|
|
|
|
Item
1 Financial Statements:
|
|
|
3
|
|
|
Item
2 Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
|
|
15
|
|
|
Item
3 Quantitative and Qualitative Disclosures About Market
Risk
|
|
|
17
|
|
|
Item
4 Controls and Procedures
|
|
|
17
|
|
|
|
|
|
|
|
|
PART
II. - OTHER INFORMATION
|
|
|
|
|
|
Item
1. Legal Proceedings
|
|
|
17
|
|
|
Item
1A Risk Factors
|
|
|
18
|
|
|
Item
2 Unregistered Sales of Equity Securities and Use of
Proceeds
|
|
|
18
|
|
|
Item
3. Defaults upon Senior Securities
|
|
|
18
|
|
|
Item
4 Submission of Matters to a Vote of Security Holders
|
|
|
19
|
|
|
Item
5. Other Information
|
|
|
19
|
|
|
Item
6 Exhibits
|
|
|
19
|
|
|
SIGNATURES
|
|
|
19
|
|
|
INDEX
TO EXHIBITS
|
|
|
|
|
Item
1. Financial Statements
|
SANTA
MONICA MEDIA CORPORATION
|
|
(a
corporation in the development stage)
|
|
CONDENSED
BALANCE SHEETS
|
|
March
31, 2009 and December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
March
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
|
|
$
|
—
|
|
|
$
|
15,236
|
|
|
Cash
and cash equivalents held in trust
|
|
|
100,699,285
|
|
|
|
100,698,690
|
|
|
Refundable
income taxes
|
|
|
155,569
|
|
|
|
180,000
|
|
|
Prepaids
and other current assets
|
|
|
36,525
|
|
|
|
87,770
|
|
|
Total
current assets
|
|
|
100,891,379
|
|
|
|
100,981,696
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
100,891,379
|
|
|
$
|
100,981,696
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Note
payable-related party
|
|
$
|
310,000
|
|
|
$
|
—
|
|
|
Accounts
payable and accrued expenses
|
|
|
465,073
|
|
|
|
302,399
|
|
|
Reserve
for state franchise tax and interest
|
|
|
409,174
|
|
|
|
390,844
|
|
|
Deferred
interest on funds held in trust
|
|
|
—
|
|
|
|
462,000
|
|
|
Deferred
underwriting liability
|
|
|
—
|
|
|
|
4,000,000
|
|
|
Total
current liabilities
|
|
|
1,184,247
|
|
|
|
5,155,243
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Common
stock subject to conversion, 2,499,999 shares at conversion
value
|
|
|
—
|
|
|
|
19,720,992
|
|
|
TOTAL
LIABILITIES
|
|
|
1,184,247
|
|
|
|
24,876,235
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY:
|
|
|
|
|
|
|
|
|
|
Preferred
Stock, $.001 par value, 25,000,000 shares authorized; none issued or
outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Common
stock, $.001 par value, 200,000,000 shares authorized; 16,038,125 issued
and outstanding (including 2,499,999 subject to conversion) at March 31,
2009 and December 31, 2008
|
|
|
16,038
|
|
|
|
16,038
|
|
|
Additional
paid-in capital
|
|
|
98,490,936
|
|
|
|
74,769,944
|
|
|
Retained
earnings
|
|
|
1,200,158
|
|
|
|
1,319,479
|
|
|
Total
stockholders’ equity
|
|
|
99,707,132
|
|
|
|
76,105,461
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
100,891,379
|
|
|
$
|
100,981,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed financial statements.
|
SANTA
MONICA MEDIA CORPORATION
|
|
(a
corporation in the development stage)
|
|
CONDENSED
STATEMENTS OF INCOME (Unaudited)
|
|
For
the three months ended March 31, 2009 and 2008 and for the period from
June 24, 2005 (inception) through March 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
|
Three
months ended
|
|
|
For
the period from
June
24, 2005
(inception)
through
|
|
|
|
|
March
31, 2009
|
|
|
March
31, 2008
|
|
|
March
31, 2009
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
Professional
fees
|
|
$
|
335,237
|
|
|
$
|
40,439
|
|
|
$
|
886,656
|
|
|
Rent
and facilities
|
|
|
22,500
|
|
|
|
22,500
|
|
|
|
180,000
|
|
|
Formation
and operating costs
|
|
|
168,940
|
|
|
|
328,500
|
|
|
|
1,552,873
|
|
|
Total
operating expenses
|
|
|
526,677
|
|
|
|
391,439
|
|
|
|
2,619,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
595
|
|
|
|
798,030
|
|
|
|
5,101,926
|
|
|
Interest
expense
|
|
|
(4,275
|
)
|
|
|
(736
|
)
|
|
|
(37,375
|
)
|
|
Total
other income (expense)
|
|
|
(3,680
|
)
|
|
|
797,294
|
|
|
|
5,064,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before provision for income taxes
|
|
|
(530,357
|
)
|
|
|
405,855
|
|
|
|
2,445,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
14,964
|
|
|
|
196,000
|
|
|
|
1,244,864
|
|
|
Deferred
|
|
|
36,000
|
|
|
|
(33,000
|
)
|
|
|
—
|
|
|
|
|
|
50,964
|
|
|
|
163,000
|
|
|
|
1,244,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before allocation of trust fund interest
|
|
|
(581,321
|
)
|
|
|
242,855
|
|
|
|
1,200,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation
of trust fund interest relating to common stock subject to possible
conversion
|
|
|
—
|
|
|
|
174,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal
of allocation of trust fund interest relating to common stock subject to
possible conversion
|
|
|
(462,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Net
income (loss)
|
|
$
|
(119,321
|
)
|
|
$
|
68,855
|
|
|
$
|
1,200,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic
|
|
|
16,038,125
|
|
|
|
16,038,125
|
|
|
|
10,479,090
|
|
|
Weighted
average shares outstanding - fully diluted
|
|
|
16,038,125
|
|
|
|
18,770,074
|
|
|
|
13,658,703
|
|
|
Net
income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
$
|
0.11
|
|
|
Fully
diluted
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed financial statements.
|
SANTA
MONICA MEDIA CORPORATION
|
|
(a
corporation in the development stage)
|
|
STATEMENT
OF STOCKHOLDERS' EQUITY
|
|
For
the period from June 24, 2005 (inception) through March 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
|
Amount
|
|
|
Additional
Paid
in Capital
|
|
|
Retained
Earnings
(Accumulated
Deficit)
|
|
|
Total
|
|
|
Common
shares issued June 24, 2005
at
$.0128 per share
|
|
|
4,687,500
|
|
|
$
|
4,688
|
|
|
$
|
55,312
|
|
|
$
|
—
|
|
|
$
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,504
|
)
|
|
|
(60,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
4,687,500
|
|
|
|
4,688
|
|
|
|
55,312
|
|
|
|
(60,504
|
)
|
|
|
(504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
reacquired
|
|
|
(1,562,500
|
)
|
|
|
(1,563
|
)
|
|
|
1,563
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,150
|
)
|
|
|
(50,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
3,125,000
|
|
|
|
3,125
|
|
|
|
56,875
|
|
|
|
(110,654
|
)
|
|
|
(50,654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of units in private placement, including conversion of notes
payable
|
|
|
413,125
|
|
|
|
413
|
|
|
|
3,304,587
|
|
|
|
|
|
|
|
3,305,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of units, net of underwriters' discount and offering costs
|
|
|
12,500,000
|
|
|
|
12,500
|
|
|
|
91,107,482
|
|
|
|
|
|
|
|
91,119,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forgiveness
of interest by a related party
|
|
|
|
|
|
|
|
|
|
|
21,992
|
|
|
|
|
|
|
|
21,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
subject to possible conversion of 2,499,999 shares
|
|
|
|
|
|
|
|
|
|
|
(19,720,992
|
)
|
|
|
|
|
|
|
(19,720,992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,787,701
|
|
|
|
1,787,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
16,038,125
|
|
|
|
16,038
|
|
|
|
74,769,944
|
|
|
|
1,677,047
|
|
|
|
76,463,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(357,568
|
)
|
|
|
(357,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
16,038,125
|
|
|
$
|
16,038
|
|
|
$
|
74,769,944
|
|
|
$
|
1,319,479
|
|
|
$
|
76,105,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal
of proceeds subject to possible conversion of 2,499,999 shares
(unaudited)
|
|
|
|
|
|
|
|
19,720,992
|
|
|
|
|
|
|
|
19,720,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal
of liability for deferred underwriting fees (unaudited)
|
|
|
|
|
|
|
|
|
|
|
4,000,000
|
|
|
|
|
|
|
|
4,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(119,321
|
)
|
|
|
(119,321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2009 (unaudited)
|
|
|
16,038,125
|
|
|
$
|
16,038
|
|
|
$
|
98,490,936
|
|
|
$
|
1,200,158
|
|
|
$
|
99,707,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed financial statements.
|
SANTA
MONICA MEDIA CORPORATION
|
|
(a
corporation in the development stage)
|
|
STATEMENTS
OF CASH FLOWS (Unaudited)
|
|
|
|
Three
months ended
|
|
|
Three
months ended
|
|
|
For
the period from
June
24, 2005
(inception)
through
|
|
|
|
|
March
31, 2009
|
|
|
March
31, 2008
|
|
|
March
31, 2009
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(119,321
|
)
|
|
$
|
68,855
|
|
|
$
|
1,200,158
|
|
|
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities
|
|
|
|
|
|
|
|
|
|
|
Decrease
in accretion in fair market value of Treasury Bills held in trust
account
|
|
|
9,835
|
|
|
|
177,923
|
|
|
|
7,668
|
|
|
Amortization
expense
|
|
|
18,665
|
|
|
|
18,750
|
|
|
|
152,927
|
|
|
Deferred
income tax
|
|
|
36,000
|
|
|
|
(33,000
|
)
|
|
|
—
|
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in other current assets
|
|
|
(3,420
|
)
|
|
|
(2,506
|
)
|
|
|
(30,367
|
)
|
|
Decrease
(increase) in refundable income taxes
|
|
|
24,431
|
|
|
|
—
|
|
|
|
(155,569
|
)
|
|
Increase
(decrease) in deferred interest on funds held in trust
|
|
|
(462,000
|
)
|
|
|
174,000
|
|
|
|
—
|
|
|
Decrease
in income taxes payable
|
|
|
—
|
|
|
|
(504,000
|
)
|
|
|
—
|
|
|
Increase
in reserve for state franchise tax and interest
|
|
|
18,330
|
|
|
|
177,750
|
|
|
|
409,174
|
|
|
Increase
(decrease) in accounts payable and accrued expenses
|
|
|
162,674
|
|
|
|
(21,533
|
)
|
|
|
327,980
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
(314,806
|
)
|
|
|
56,239
|
|
|
|
1,911,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
to trust account
|
|
|
—
|
|
|
|
—
|
|
|
|
(98,605,000
|
)
|
|
Withdrawals
from trust account
|
|
|
—
|
|
|
|
1,100,000
|
|
|
|
3,007,642
|
|
|
Proceeds
into trust account
|
|
|
(10,430
|
)
|
|
|
(975,931
|
)
|
|
|
(5,109,595
|
)
|
|
Net
cash provided by (used in) investing activities:
|
|
|
(10,430
|
)
|
|
|
124,069
|
|
|
|
(100,706,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from notes payable, related party
|
|
|
310,000
|
|
|
|
—
|
|
|
|
645,000
|
|
|
Payment
on notes payable, related party
|
|
|
—
|
|
|
|
—
|
|
|
|
(30,000
|
)
|
|
Proceeds
from sale of shares of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
60,000
|
|
|
Proceeds
from private placement
|
|
|
—
|
|
|
|
—
|
|
|
|
3,000,000
|
|
|
Proceeds
from sale of units, net of offering costs
|
|
|
—
|
|
|
|
—
|
|
|
|
95,119,982
|
|
|
Net
cash provided by financing activities
|
|
|
310,000
|
|
|
|
—
|
|
|
|
98,794,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents at end of
period
|
|
|
(15,236
|
)
|
|
|
180,308
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
15,236
|
|
|
|
41,589
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
—
|
|
|
$
|
221,897
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
—
|
|
|
$
|
700,000
|
|
|
$
|
1,409,100
|
|
|
Interest
|
|
$
|
780
|
|
|
$
|
736
|
|
|
$
|
15,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash financing activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors'
and officers' liability insurance financed
|
|
$
|
—
|
|
|
$
|
95,625
|
|
|
$
|
159,085
|
|
|
For
the period from inception (June 24, 2005) through March 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
connection with the public offering, $305,000 of related party debt was
converted to units and interest in the amount of $21,992 was
forgiven.
|
|
|
|
|
|
|
|
|
|
|
|
Shares
subject to conversion in the amount of $19,720,992 were recorded as a
liability and reduced the additional paid in capital associated with the
public offering. This liability was reversed during the three
months ended March 31, 2009 as no business combination will be
completed.
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
deferred underwriting fees in the amount of $4,000,000 were recorded as a
liability and reduced the additional paid in capital associated with the
public offering. This liability was reversed during the three months ended
March 31, 2009 as no business combination will be
completed.
|
|
|
|
|
|
|
|
|
|
|
|
There
was a reduction of the accrual for offering costs in the amount of
$150,635.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
offering costs in the amount of $1,380,018 were charged against additional
paid in capital at the time of the
offering.
|
See
accompanying notes to condensed financial statements.
SANTA
MONICA MEDIA CORPORATION
(a
corporation in its development stage)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
March
31, 2009
|
1.
|
Organization,
Business Operations and Significant Accounting
Policies
|
Organization
and Business Operations
Santa
Monica Media Corporation (the “Company”) was incorporated in Delaware on June
24, 2005. The Company is a blank check company formed for the purpose of
effecting a merger, capital stock exchange, asset acquisition or other similar
business combination with an unidentified operating business.
As of
March 31, 2009, the Company had not commenced any business operations. All
activity through April 2, 2007 relates to the Company’s formation and a public
offering (“Public Offering”) described below and in Note 3. Subsequent to that
date, the Company commenced its research and investigation of suitable business
combination opportunities. The Company is considered to be in its development
stage and is subject to the risks associated with development stage
companies.
On April
2, 2007, the Company completed: (i) a private placement of 413,125 units at
$8.00 per unit (the “Private Placement”) for $3,000,000 cash and cancellation of
a $305,000 loan made to the Company by Santa Monica Capital Partners, LLC, and
(ii) the Public Offering of 12,500,000 units for net proceeds of $95,119,982
pursuant to a registration statement declared effective by the Securities and
Exchange Commission on March 27, 2007. The proceeds of the Private Placement and
a portion of the proceeds of the Public Offering, together totaling $98,605,000,
were placed in a trust account (the “Trust Account”). The amount in the Trust
Account includes a $4,000,000 contingent underwriting compensation payable to
the underwriter if a Business Combination is consummated. The Underwriting
Agreement calls for the proceeds to be held in the Trust Account until the
earlier of (i) the consummation of a Business Combination or (ii) liquidation of
the Company. The remaining net proceeds (not held in the Trust Account) of
$100,000 and up to $1,600,000 of interest earned on the Trust Account (net of
taxes payable) may be used to pay for business, legal and accounting due
diligence on prospective acquisitions and continuing general and administrative
expenses. As of March 31, 2009, these amounts have been expended. The
Company had one stockholder as of July 31, 2005, Santa Monica Capital Partners
LLC (“Initial Stockholder”). During August 2005 and April 2006, Santa Monica
Capital Partners, LLC transferred an aggregate of 458,232 units to various
parties including the outside directors and advisory board members (“Transferee
Stockholders”). (See Note 7.)
The
Company’s Certificate of Incorporation, as amended, provides for mandatory
liquidation of the Company if the Company does not consummate a Business
Combination within 18 months from the date of the consummation of the Public
Offering, or 24 months from the consummation of the Public Offering if certain
extension criteria have been satisfied. In the event of liquidation, it is
possible that the per share value of the residual assets remaining available for
distribution (including Trust Account assets) will be less than the initial
public offering price per share in the Public Offering (assuming no value is
attributed to the Warrants contained in the Units offered in the Public Offering
discussed in Note 3). As of October 2, 2008, the Company had
satisfied the conditions for extension of time to complete the Business
Combination to 24 months (April 2, 2009).
The
Company’s management has broad discretion with respect to the specific
application of the net proceeds of the Public Offering, although substantially
all of the net proceeds of the Public Offering are intended to be generally
applied toward consummating a business combination with an operating business
(“Business Combination”). As of April 2, 2009, the Company had not
successfully completed a Business Combination and on July 30, 2009 filed a
Definitive Proxy with the Securities and Exchange Commission with respect to the
holding of a special meeting of stockholders on August 27, 2009 for stockholders
of record on August 5, 2009 mainly seeking approval (a) for a plan of
liquidation to distribute the amount in the Company’s trust account to the
holders of shares of its common stock acquired in its initial public offering
and (b) to amend and restate its Certificate of Incorporation to permit the
Company to continue as a corporation currently specified in its certificate
without the limitations relating to its initial public offering. At
that meeting, the stockholders affirmatively voted in favor of these
proposals.
Cash
Equivalents and Concentrations
The
Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents. Such cash and cash
equivalents, at times, may exceed federally insured limits. The Company
maintains its accounts with financial institutions with high credit
ratings. Trust assets are invested principally in U.S. Treasury
Bills.
Income
Taxes
The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, or SFAS No. 109 “Accounting for Income Taxes.” As
such, deferred income taxes are recognized for the tax consequences in future
years of differences between the tax basis of assets and liabilities and their
financial report amounts at each period end, based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
The provision for income taxes represents the tax payable for the period, if
any, and the change during the period in deferred tax assets and
liabilities.
Earnings
(loss) per Share
The
Company utilizes SFAS No. 128, “Earnings per Share.” Basic earnings per share
are computed by dividing earnings available to common stockholders by the
weighted-average number of common shares outstanding. Diluted earnings per share
is computed similarly to basic earnings per share except that the denominator is
increased to include additional common shares available upon exercise of stock
options and warrants using the treasury stock method, except for periods of
operating loss for which no common share equivalents are included because their
effect would be anti-dilutive. For the three months ended March
31, 2008 and for the period from June 24, 2005 (inception) through March 31,
2009, there were no securities excluded from the computation because they were
anti-dilutive. For the three months ended March 31, 2009, there were
12,913,125 securities excluded from the computation because they were
anti-dilutive.
|
|
|
|
|
|
|
|
|
For the
period from
June 24,
2005
(inception)
through
|
|
|
|
|
March
31, 2009
|
|
|
March
31, 2008
|
|
|
March
31, 2009
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(119,321)
|
|
|
$
|
68,855
|
|
|
$
|
1,200,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic net income per share—weighted average shares
|
|
|
16,038,125
|
|
|
|
16,038,125
|
|
|
|
10,479,090
|
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
—
|
|
|
|
2,731,949
|
|
|
|
3,179,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted income per share—adjusted weighted average
shares
|
|
|
16,038,125
|
|
|
|
18,770,074
|
|
|
|
13,658,703
|
|
|
Basic
earnings per share
|
|
$
|
(0.01)
|
|
|
$
|
0.00
|
|
|
$
|
0.11
|
|
|
Diluted
earnings per share
|
|
$
|
(0.01)
|
|
|
$
|
0.00
|
|
|
$
|
0.09
|
|
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from those
estimates.
Fair
Value of Financial Instruments
The
carrying amounts of cash equivalents, money market funds held in trust, prepaid
expenses, accounts payable and accrued expenses, deferred underwriting fees
payable, and income taxes payable approximate their respective fair values, due
to the short-term nature of these items.
Interest
on Funds Held In Trust Subject to Common Stock Conversion
Deferred
interest on funds held in trust consists of the 20% less one share portion of
the interest earned on the funds held in trust, which is the maximum amount, net
of permitted withdrawals by the Company and related income taxes, that the
Company would be obligated to pay to stockholders who elect to have their stock
redeemed by the Company without resulting in a rejection of a business
combination. The balance of $462,000 in deferred interest on funds
held in trust at December 31, 2008 has been reversed into income during the
three months ended March 31, 2009, as stockholders have voted affirmatively to
liquidate the trust and distribute the trust assets to holders of its common
shares acquired in its public offering.
Common
Stock Subject to Conversion/Deferred Underwriting Fees
As a
result of the inability to complete a Business Combination transaction by April
2, 2009 and the subsequent vote of the stockholders to liquidate the trust and
distribute the trust assets to the IPO shareholders, the liability for 2,499,999
shares of common stock subject to conversion in the amount of $19,720,992 and
deferred underwriting fees of $4,000,000 at December 31, 2008 have been reversed
into additional paid in capital as of March 31, 2009.
Recent
Accounting Pronouncements
Management
does not believe that any recently issued, but not yet effective, accounting
standards, if currently adopted, would have a material effect on the Company’s
financial statements.
The
Company does not have sufficient funds to allow it to operate through the date
of liquidation and distribution of the trust assets. As a result, the
Company entered into an unsecured loan facility with Santa Monica Capital
Partners II, LLC, an affiliate (“SMCPII”) to provide up to $500,000 in advances
at the sole discretion of SMCPII. (See Note 4). If additional funds
are required above this amount, or if SMCPII does not make the discretionary
advances contemplated under the promissory note, the Company will need to obtain
additional funds from its stockholders or another source. None of the Company’s
officers, directors or stockholders are required to provide any financing to the
Company. In the event the assets held outside the trust account are insufficient
to pay the costs associated with dissolution and liquidation of the Company, its
three principal executive officers are obligated to provide additional funds
required to pay the costs associated with the dissolution and
liquidation.
As of the
date of this report, the stockholders of the Company have voted affirmatively to
liquidate and distribute the amount in the Company’s trust account to the
holders of shares of its common stock acquired in its initial public offering
and (b) to amend and restate its certificate of incorporation to permit the
Company to continue as a corporation currently specified in its certificate
without the limitations relating to its initial public offering.
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. As a result of the
foregoing, the Company’s independent registered public accounting firm, in its
report on the Company’s December 31, 2008 financial statements, expressed
substantial doubt about the Company’s ability to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that could result from the outcome of this
uncertainty.
In the
Public Offering, the Company issued and sold 12,500,000 units (“Units”) at $8.00
per Unit. The underwriters were paid fees equal to 3.5% of the gross proceeds of
the Public Offering, or $3,500,000, at the closing of the Public Offering and
agreed to defer an additional $4,000,000 of their underwriting fees until the
consummation of a Business Combination. Upon the consummation of a Business
Combination, the Company was required to pay such fees out of the proceeds of
the Public Offering held in the Trust Account.
Each Unit
consists of one share of the Company’s common stock, and one Redeemable Common
Stock Purchase Warrant (“Warrant”). Each Warrant will entitle the holder to
purchase from the Company one share of common stock at an exercise price of
$6.00 upon the completion of a business combination with a target business, and
will expire four years from the effective date of the Public Offering. The
Warrants will be redeemable at a price of $.01 per Warrant upon 30 days’ notice
after the Warrants become exercisable, only in the event that the last sale
price of the common stock is at least $11.50 per share (subject to proportionate
adjustment of the warrant price pursuant to the warrant agreement) for any 20
trading days within a 30 trading day period ending on the third day prior to the
date on which notice of redemption is given.
In
addition, the Company granted the underwriters an option to purchase up to an
additional 1,875,000 Units at the public offering price less the underwriters’
discount and commission to cover any over-allotments for public sale. The
underwriters did not exercise any portion of this option.
4.
Notes Payable -
Related Party
The
Company issued an amended and restated $305,000 unsecured promissory note to its
Initial Stockholder on February 1, 2007. This note was cancelled and converted
into units on April 2, 2007 in connection with the Public Offering. The note was
originally issued on June 24, 2005 for the amount of $240,000, and in December
2006, the Initial Stockholder loaned an additional $65,000 to the Company. The
note (as amended) bore interest at 5%. In connection with the Public Offering on
April 2, 2007, accrued interest in the amount of $21,992 was forgiven and shown
as an increase to additional paid-in capital.
On
January 15, 2009, the Company entered into an unsecured loan facility with Santa
Monica Capital Partners II, LLC, an affiliate (“Lender”), to provide up to
$500,000 in funds at the discretion of the Lender. The promissory
note provides for interest at the rate of 10% per annum, and that the principal
along with all accrued and unpaid interest is due on the earlier of (i) the
closing of a business combination, as such term is defined in the Company’s
prospectus dated March 27, 2007 as filed with the Securities and Exchange
Commission on March 28, 2007, or (ii) the date that the Company
liquidates its assets. In the event that the Company is required to
and does dissolve and liquidate pursuant to its Certificate of Incorporation,
the Lender’s sole recourse shall be against the assets of the Company not held
in the trust account, unless the Company’s counsel delivers an opinion that the
amounts due under the note may be paid from the trust account. As of
March 31, 2009 $310,000 had been advanced to the Company pursuant to this
promissory note.
5.
Commitments - Related
Party
The
Company utilizes certain administrative, technology and secretarial services, as
well as certain limited office space provided by Santa Monica Capital Corp, and
subsequently, Santa Monica Capital Partners II, LLC, an affiliate of Santa
Monica Capital Corp. Such affiliate has agreed that it will make such services
available to the Company, as may be required by the Company from time to time.
The Company agreed to pay such affiliate $7,500 per month for such services
commencing as of July 1, 2005 through January 5, 2006. Under the agreement as
amended,
the Company did not pay or accrue additional fees until October 2, 2007, six
months after consummation of the Public Offering of the Company’s securities,
upon which the Company began to pay $7,500 per month. The Company will continue
to pay such fees until the Company has paid aggregate fees of $180,000, or, if
earlier, upon the completion of a Business Combination. As of March 31, 2009 and
2008, the Company had incurred an aggregate of $180,000 and $90,000
respectively, for such services. As of March 31, 2009, $30,000 was
unpaid and included in accrued expenses.
6.
Preferred Stock
The
Company is authorized to issue 25,000,000 shares of preferred stock with such
designations, voting and other rights and preferences as may be determined from
time to time by the Board of Directors.
7.
Common Stock and Warrants
In July
2005, the Company issued 4,687,500 Units to Santa Monica Capital Partners, LLC
for $60,000 in cash, at a purchase price of approximately $0.01 per unit. Mr.
Marshall, the Company’s Chairman of the Board and Chief Executive Officer, Mr.
Brendlinger, the Company’s Chief Financial Officer and Director, Mr. Pulier, the
Company’s Secretary and Director, and Mr. Baradaran, the Company’s Director, are
the beneficial owners of Santa Monica Capital Partners, LLC. Each unit consisted
of one share of the Company’s common stock and one warrant to purchase one share
of the Company’s common stock at an exercise price of $6.00 per share,
exercisable upon the consummation of a Business Combination and expiring
four years from the consummation of the Public Offering.
During
August 2005 and April 2006, Santa Monica Capital Partners, LLC transferred an
aggregate of 458,232 units to the Transferee Stockholders, including 217,848
units to persons who are not directors or members of the Company’s advisory
board for an aggregate price of $6,625, or $0.03 per unit, and 240,384 units to
members of the Company’s board of directors and advisory board for an aggregate
price of $4,500, or $0.02 per unit.
These
units were not transferred to settle any obligations of the Company or in
exchange for services for the Company. Future services provided by any of the
transferees will be compensated pursuant to separate agreements.
All units
transferred by Santa Monica Capital Partners, LLC were paid for pursuant to the
delivery of promissory notes due November 2009 issued to Santa Monica Capital
Partners, LLC with interest of 8% per annum payable upon maturity
thereof.
In
September 2006, in conjunction with the Company’s public offering, the Company’s
Board of Directors authorized the Company to enter into an agreement with its
shareholders, other than Santa Monica Capital Partners, LLC, to exchange their
units for an equal number of shares of the Company’s common stock, and this
exchange subsequently was completed in September 2006. Additionally, Santa
Monica Capital Partners, LLC exchanged its 4,229,268 units for 2,666,768 shares
of the Company’s common stock. As a result, there are no outstanding warrants
relating to the originally issued shares. See Note 8.
In April
2006 and March 2007, the Company and Santa Monica Capital Partners, LLC agreed
to a private placement of units in connection with the Public Offering. In
connection with this agreement Santa Monica Capital Partners, LLC purchased
413,125 units at $8.00 per unit for $3,305,000, which included the cancellation
of the $305,000 loan made to the Company by Santa Monica Capital Partners, LLC,
prior to the Public Offering. The proceeds of this Private Placement are held in
the Trust Account established for the Public Offering (Note 1).
In
connection with the Public Offering described in Note 3 and the private
placement of Units described above, the Company issued warrants to purchase an
aggregate 12,913,125 shares of its common stock, all of which were outstanding
as of March 31, 2009. The warrants have a weighted average exercise price of
$6.00 per share, and a weighted average remaining term of 24
months.
8.
Registration Rights
The
holders of the Company’s 3,538,125 issued and outstanding shares immediately
prior to the completion of the offering, including the Initial Shareholder, are
entitled to registration rights covering the resale of their shares and the
resale of their warrants and shares acquired upon exercise of their warrants.
The holders of the majority of these shares are entitled to make up to two
demands that the Company register their shares, warrants and shares underlying
the warrants any time after the consummation of the initial business
combination, subject to transfer restrictions imposed by the lock up agreements.
In addition, these stockholders have certain “piggy-back” registration rights on
registration statements filed subsequent to the date on which these securities
are released from the restrictions imposed by the lock-up agreements. The
Company will bear the expenses incurred in connection with the filing of any
such registration statements. Pursuant to the registration rights agreement,
these stockholders waive any claims to monetary damages for any failure by the
Company to comply with the requirements of the registration rights agreement,
provided the Company has used its best efforts to do so.
In
accordance with the Warrant Agreement related to the warrants, the Company will
not be obligated to deliver securities, and there are no contractual penalties
for failure to deliver securities, if a registration statement is not effective
at the time of exercise. Additionally, in the event that a registration
statement is not effective at the time of exercise, the holder of such warrant
shall not be entitled to exercise such warrant and in no event will the Company
be required to net cash settle the warrant exercise. Consequently, the warrants
may expire unexercised.
9.
Income Taxes
The
following table presents the current and deferred income tax provision for
federal and state income taxes:
|
|
|
March
31, 2009
|
|
|
March
31, 2008
|
|
|
For the
period from
June 24, 2005
(inception)
through
March
31, 2009
|
|
|
Current
tax provision:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
144,000
|
|
|
$
|
962,500
|
|
|
State
|
|
|
15,000
|
|
|
|
52,000
|
|
|
|
282,400
|
|
|
|
|
$
|
15,000
|
|
|
$
|
196,000
|
|
|
$
|
1,244,900
|
|
|
Deferred
tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
36,000
|
|
|
|
(17,000
|
)
|
|
|
—
|
|
|
State
|
|
|
|
|
|
|
(16,000
|
)
|
|
|
|
|
|
|
|
|
36,000
|
|
|
|
(33,000
|
)
|
|
|
|
|
|
Total
provision for income tax
|
|
$
|
51,000
|
|
|
$
|
163,000
|
|
|
$
|
1,244,900
|
|
Current
income taxes are based upon the year’s income taxable for federal and state tax
reporting purposes. Deferred income taxes (benefits) are provided for certain
income and expenses, which are recognized in different periods for tax and
financial reporting purposes.
Deferred
tax assets and liabilities are computed for differences between the financial
statements and tax bases of assets and liabilities that will result in taxable
or deductible amounts in the future based on enacted tax laws and rates
applicable to the period in which the differences are expected to affect taxable
income.
Significant
components of the Company’s net deferred tax asset (liability) at March 31, 2009
and December 31, 2008 are as follows:
|
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
Expenses
deductible in future periods
|
|
$
|
(1,000)
|
|
|
$
|
37,000
|
|
|
Accretion
of interest on U.S. Treasury Bills
|
|
|
3,000
|
|
|
|
(1,000
|
)
|
|
Net
operating loss carry-back
|
|
|
255,000
|
|
|
|
—
|
|
|
Total
deferred tax assets
|
|
|
257,000
|
|
|
|
36,000
|
|
|
Valuation
allowance
|
|
|
(257,000)
|
|
|
|
—
|
|
|
Net
deferred tax asset
|
|
$
|
—
|
|
|
$
|
36,000
|
|
In
assessing the realizability of deferred tax assets of $257,000 and $36,000 at
March 31, 2009 and December 31 2008, respectively, management considered whether
it is more likely than not that some portion or all of the deferred tax assets
will be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which these
assets become deductible. Management considers the scheduled reversal of
deferred tax liabilities, the projected future taxable income and tax planning
strategies in making this assessment. Management's analysis of the deferred tax
asset at December 31, 2008 concluded that the asset can be utilized in future
periods against taxes previously paid. Therefore, there is no valuation
allowance against this asset as of December 31, 2008. Management’s
analysis of the deferred tax asset at March 31, 2009 resulted in a valuation
allowance of $257,000.
A
reconciliation of the expected tax computed at the U.S. statutory federal income
tax rate to the total benefit for income taxes for the three months ended March
31, 2009 and 2008, and the period from June 24, 2005 (inception) through March
31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
For the period
from June 24,
2005
(inception) through
|
|
|
|
|
March
31, 2009
|
|
|
March
31, 2008
|
|
|
March
31, 2009
|
|
|
Expected
tax at 34%
|
|
$
|
(180,000
|
)
|
|
$
|
138,000
|
|
|
$
|
831,000
|
|
|
Change
in valuation allowance
|
|
|
257,000
|
|
|
|
|
|
|
|
257,000
|
|
|
State
income tax, net of federal tax benefit
|
|
|
(33,000
|
)
|
|
|
24,000
|
|
|
|
157,000
|
|
|
Other
|
|
|
7,000
|
|
|
|
1,000
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$
|
51,000
|
|
|
$
|
163,000
|
|
|
$
|
1,245,000
|
|
On July
13, 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes - An Interpretation of FASB Statement No. 109 (“FIN 48”), which
clarifies the accounting for uncertainty in income taxes recognized in an
entity’s financial statements in accordance with SFAS No. 109, Accounting for
Income Taxes, and prescribes a recognition threshold and measurement attributes
for financial statement disclosure of tax positions taken or expected to be
taken on a tax return. Under FIN 48, the impact of an uncertain income tax
position on the income tax return must be recognized at the largest amount that
is more-likely-than-not to be sustained upon audit by the relevant taxing
authority. An uncertain income tax position will not be recognized if it has
less than a 50% likelihood of being sustained.
The
Company adopted FIN 48, Accounting for Uncertainty in Income Taxes on January 1,
2007. The Company recognized no cumulative effect adjustment as a result of
adopting FIN 48. At March 31, 2009 and December 31, 2008, the Company has no
unrecognized tax benefits.
The
Company’s continuing practice is to recognize interest and/or penalties related
to income tax matters in income tax expense. As of March 31, 2009 and December
31, 2008, the Company has no accrued interest and penalties related to uncertain
tax positions.
The
Company is subject to taxation in the U.S. and California. The tax years 2005 to
2008 remain open to examination by the major taxing jurisdictions to which the
Company is subject. The Company is currently under examination by the Internal
Revenue Service for its 2007 taxable year.
10.
Subsequent Events
Unsecured Third Party
Borrowing
On June
15, 2009, the Company borrowed $20,000 from an unrelated third party lender
pursuant to the terms of a ninety (90) day unsecured promissory note bearing
interest at 12 percent per annum with interest and an origination fee equal to
ten percent of the loan payable at maturity. On July 31, 2009, the
$20,000 note principal along with $302 in interest and the $2,000 origination
fee was repaid in full.
Notes Payable – Related
Party
As of
September 16, 2009 advances to the Company pursuant to the unsecured promissory
note with Santa Monica Capital Partners II, LLC described in Note 4 aggregated
$345,200.
Definitive Proxy and
Stockholder Vote
On July
30, 2009 the Company filed a Definitive Proxy with the Securities and Exchange
Commission with respect to the holding of a special meeting of stockholders on
August 27, 2009 for stockholders of record on August 5, 2009 mainly for seeking
approval (a) for a plan of liquidation to distribute the amount in
the Company’s trust account to the holders of shares of its common stock
acquired in its initial public offering and (b) to amend and restate its
certificate of incorporation to permit the Company to continue as a corporation
currently specified in its certificate without the limitations relating to its
initial public offering.
The
affirmative vote of the stockholders at that meeting approved all proposals
contained in the Definitive Proxy and the Trustee is currently in the process of
making the distribution of trust assets to shareholders.
The
Company will continue in existence without the special purpose acquisition
company limitations originally contained in its charter. The Company
intends to delist from NYSE:AMEX at the earliest practicable date.
Item
2. Management’s Discussion and Analysis of Financial Condition And Results of
Operations
Forward
Looking Statements
The
Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for
forward-looking statements so long as those statements are identified as
forward-looking and are accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those projected in such statements. All of the statements
contained in this Report that are not identified as historical should be
considered forward-looking. In connection with certain forward-looking
statements contained in this Report and those that may be made in the future by
or on behalf of the Company which are identified as forward-looking, the Company
notes that there are various factors that could cause actual results to differ
materially from those set forth in any such forward-looking statements.
Accordingly, there can be no assurance that the forward-looking statements
contained in this Report will be realized or that actual results will not be
significantly higher or lower. Statements regarding policies and procedures are
not intended, and should not be interpreted, to mean that such policies and
procedures will not be amended, modified or repealed at any time in the future.
The forward-looking statements have not been audited by, examined by or
subjected to agreed-upon procedures by independent accountants, and no third
party has independently verified or reviewed such statements. Readers of this
Report should consider these facts in evaluating the information contained
herein. The inclusion of the forward-looking statements contained in this Report
should not be regarded as a representation by the Company or any other person
that the forward-looking statements contained in this Report will be achieved.
In light of the foregoing, readers of this Report are cautioned not to place
undue reliance on the forward-looking statements contained herein.
Overview
We were
formed on June 24, 2005 for the purpose of effecting a merger, capital stock
exchange, asset acquisition or other similar business combination with one or
more operating businesses. Our efforts in identifying a prospective target
business have been focused on acquiring an operating business in the
communications, media, gaming and/or entertainment industry. Our initial
business combination were to be with a business or businesses whose
collective fair market value is at least equal to 80% of our net assets at the
time of the acquisition.
On April
2, 2007, we completed: (i) a private placement of 413,125 units at $8.00 per
unit for $3,000,000 cash and cancellation of the $305,000 loan made to the
Company by Santa Monica Capital Partners, LLC, and (ii) a public offering of
12,500,000 units for net proceeds of $95,119,982 pursuant to a registration
statement on Form S-1, which was declared effective by the Securities and
Exchange Commission on March 27, 2007. The proceeds of the private placement and
a portion of the proceeds of the public offering, together totaling $98,605,000,
were placed in a trust account, which are to be held until the earlier of (i)
the consummation of a business combination or (ii) liquidation of the company.
The amount in the trust account includes $4,000,000 of contingent underwriting
compensation that was required to be paid to the underwriter if a business
combination is consummated. The remaining net proceeds not held in the trust
account of $100,000, together with up to $1,600,000 of interest earned on the
trust account (net of taxes payable), were used to pay for business, legal and
accounting due diligence on prospective acquisitions and continuing general and
administrative expenses. Each unit consists of one share of the
Company’s common stock, and one warrant to purchase one share of common stock at
an exercise price of $6.00 commencing upon the completion of a business
combination with a target business and expiring four years from the effective
date of the public offering. In the event that the last sale price of the common
stock is at least $11.50 per share (subject to proportionate adjustment of the
warrant price pursuant to the warrant agreement) for any 20 trading days within
a 30 trading day period ending on the third day prior to the date on which
notice of redemption is given the warrants will be redeemable at a price of $.01
per warrant upon 30 days’ notice after the warrants become
exercisable. In addition, we granted the underwriters an option to
purchase up to an additional 1,875,000 units at the public offering price less
the underwriters’ discount and commission, within 30 days of the date of the
prospectus, to cover any over-allotments for public sale. The underwriters did
not exercise any portion of this option.
The
proceeds deposited in the trust account will not be released from the trust
account until the earlier of the completion of a business combination or the
expiration of the time period during which we may complete a business
combination. The proceeds held in the trust account (other than the contingent
underwriting discount) may be used as consideration to pay the sellers of a
target business with which we complete a business combination.
As of
April 2, 2009, the Company had not successfully completed a Business
Combination. On July 30, 2009 the Company filed a Definitive Proxy with the
Securities and Exchange Commission with respect to the holding of a special
meeting of stockholders on August 27, 2009 for stockholders of record on August
5, 2009. At the meeting stockholders voted in favor of three
proposals that allowed for the continuation of the existence of the corporation
as well as for the distribution of the trust proceeds to the stockholders
holding shares of its common stock issued in its initial public offering (“IPO
Shares”). There were 14,540,179 common shares present at the meeting represented
by proxy, which is 90.7% of the total outstanding shares. Proposal
Number One to permit the continuance of the Company as a corporation without the
restrictions relating to blank check companies, was approved by a vote of
13,096,144 for and 1,444,035 against the Proposal. Proposal Number
Two authorized the Company to enter into an agreement to amend the trust
agreement to permit the distribution of assets to holders of IPO
Shares. The Proposal was approved by a vote of 13,792,064 for
(including 10,599,491 IPO Shares) and 748,115 against. Proposal
Number Three, to permit the Company to distribute the assets of the trust
account to the holders of IPO Shares, was approved by a vote of 13,952,479 for
and 587,700 against. The liquidation value of the trust account is
$100,724,231, therefore the holders of record as of September 14, 2009 will
receive $8.057938494 per IPO Share held. The Company will be
filing a Notification of Removal from Listing on Form 25 with the Securities and
Exchange Commission for the purpose of deregistering and delisting its
securities under the Securities Exchange Act of 1934. Upon suspension of
trading, the Company will also commence voluntary delisting procedures to delist
the Company’s securities from NYSE Amex. The Company’s securities will no longer
trade on the NYSE Amex.
Results
of Operations
As of
March 31, 2009, approximately $100,699,000 (including approximately $7,700 in
accreted treasury bill interest) was held in trust and we had no unrestricted
cash. As of March 31, 2009, the Company has withdrawn $1,600,000 in interest
earned on the funds held in the trust account, the maximum permitted for our
activities in connection with identifying and conducting due diligence of a
suitable business combination, and for general corporate matters.
Through
March 31, 2009, our efforts have been limited to organizational activities,
activities relating to our initial public offering, activities relating to
identifying and evaluating prospective acquisition candidates, and activities
relating to general corporate matters; we have neither engaged in any operations
nor generated any revenues, other than interest income earned on the proceeds of
our private placement and initial public offering. For the three months ended
March 31, 2009, we earned $600 in interest income, offset by $4,300 in interest
expense. Consistent with the overall market for U.S. Treasury's, the Company has
received markedly lower yields on its Treasury Bill investment in the three
months ended March 31, 2009 compared to the three months ended March 31, 2008,
and is currently receiving historically low yields of near zero.
The
following table shows the total funds held in the trust account through March
31, 2009:
|
Net
proceeds from our initial public offering and private placement of units
placed in trust
|
|
$
|
94,605,000
|
|
|
Deferred
underwriters’ discounts and compensation
|
|
|
4,000,000
|
|
|
Total
interest received to date
|
|
|
5,109,595
|
|
|
Less
total interest disbursed to us for working capital
|
|
|
(1,600,000
|
)
|
|
Less
total taxes paid
|
|
|
(1,407,642
|
)
|
|
|
|
|
100,706,953
|
|
|
Treasury
Bill interest accreted
|
|
|
(7,668
|
)
|
|
Total
funds held in trust account through March 31, 2009
|
|
$
|
100,699,285
|
|
For the
three months ended March 31, 2009, we paid or incurred an aggregate of $526,677
in expenses for the following purposes:
|
|
s
|
Premiums
associated with our directors and officers liability
insurance;
|
|
|
s
|
expenses
for due diligence and investigation of prospective target
businesses;
|
|
|
s
|
legal
and accounting fees relating to potential acquisitions, SEC reporting
obligations and general corporate matters;
and
|
|
|
s
|
miscellaneous
operations related expenses including administrative fees and franchise
taxes.
|
For the
period following March 31, 2009 through the date of liquidation, if any, we
expect to incur expenses for the following purposes:
|
|
s
|
payment
of premiums associated with our directors’ and officers’
insurance;
|
|
|
s
|
payment
of estimated income taxes incurred as a result of interest income earned
on funds currently held in the trust
account;
|
|
|
s
|
legal
and accounting fees relating to our SEC reporting obligations and general
corporate matters;
|
|
|
s
|
costs
related the filing of a proxy statement and meeting relating to the
approval by our stockholders of our plan of
liquidation.
|
|
|
s
|
other
miscellaneous operations related expenses including administrative fees
and franchise taxes.
|
Lack
of Funds
We do not
have sufficient funds to allow us to operate through the date of liquidation. We
depleted all the funds available to us from the trust account. As a
result, on January 15, 2009, the Company entered into an unsecured loan facility
with Santa Monica Capital Partners II, LLC, an entity owned by Messrs. Marshall,
Brendlinger and Pulier (“SMCPII”) to provide up to $500,000 in funds at the
discretion of SMCPII. The promissory note provides for interest at
the rate of 10% per annum, and that the principal along with all accrued and
unpaid interest is due on the earlier of (i) the closing of a business
combination, or (ii) the date the Company liquidates its assets. In
the event the Company is required to and does liquidate pursuant to its Amended
and Restated Certificate of Incorporation, unless counsel to the Company
delivers an opinion that the amounts due under the note may be paid from the
trust account, no amounts may be paid from such account, it being understood
that upon liquidation, SMCPII’s sole recourse shall be against assets of the
Company not held in the trust account.
If
additional funds are required above this amount, or if SMCPII does not make the
discretionary advances contemplated under the promissory note, the Company will
need to obtain additional funds from its stockholders or another source. In the
event the assets held outside the trust account are insufficient to pay the
costs associated with liquidation of the Company, its three principal
executive officers David Marshall, Kurt Brendlinger and Eric Pulier are
obligated to provide additional funds required to pay the costs associated with
the liquidation.
As of
September 16, 2009, the Company has received $345,200 in loan advances under
this promissory note. The accompanying financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America, which contemplate continuation of the Company as a
going concern. As a result of the foregoing, the Company’s independent
registered public accounting firm, in its report on the Company’s December 31,
2008 financial statements, expressed substantial doubt about the Company’s
ability to continue as a going concern. The financial statements do not include
any adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that could result
from the outcome of this uncertainty.
Item
3. Quantitative and Qualitative Disclosures about Market Risk
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 any substantive commercial business. To
date, our efforts have been limited to organizational activities and activities
relating to our initial public offering and the identification of a target
business; we have neither engaged in any operations nor generated any revenues.
Accordingly, the risks associated with foreign exchange rates, commodity prices,
and equity prices are not significant. The net proceeds of our IPO held in the
trust fund have been invested only in United States "government securities,"
defined as any Treasury Bill issued by the United States having a maturity of
one hundred and eighty days or less, or in money market funds meeting certain
conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940.
Given our limited risk in our exposure to U.S. Treasury Bills and such money
market funds, we do not view the interest rate risk to be significant.
Consistent with the overall market for U.S. Treasury's, the Company is receiving
lower yields on its Treasury Bill investments. We do not enter into derivatives
or other financial instruments for trading or speculative purposes.
Item 4. Controls and
Procedures.
An
evaluation of the effectiveness of our disclosure controls and procedures
pursuant to Securities and Exchange Commission Rule 13a-15(b), as
of the end of the quarter covered by this report was made under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were not effective as of the end of the
period covered by this Report to ensure that information required to be
disclosed by us in reports that we file or submit under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and
forms.
There was
no change in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Rule 13a-15 or
15d-15 under the Securities Exchange Act of 1934 that occurred during our most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART
II— OTHER INFORMATION
Item
1.
Legal
Proceedings
We are
not currently subject to any material legal proceedings, nor, to our knowledge,
is any material legal proceeding threatened against us. From time to time, we
may be a party to certain legal proceedings incidental to the normal course of
our business. While the outcome of these legal proceedings cannot be predicted
with certainty, we do not expect that these proceedings will have a material
effect upon our financial condition or results of operations.
Item
1A. Risk Factors
We
did not effect a business combination by April 2, 2009. We will
terminate business operations, liquidate the trust account and
distribute the trust proceeds to our IPO shareholders, and will continue our
existence without the limitations in our corporate charter imposed by the
IPO.
As of
April 2, 2009, the Company had not successfully completed a Business
Combination. On July 30, 2009 the Company filed a Definitive Proxy with the
Securities and Exchange Commission with respect to the holding of a special
meeting of stockholders on August 27, 2009 for stockholders of record on August
5, 2009. At the meeting stockholders voted in favor of three
proposals that allowed for the continuation of the existence of the corporation
as well as for the distribution of the trust proceeds to the stockholders
holding shares of its common stock issued in its initial public offering (“IPO
Shares”). There were 14,540,179 common shares present at the meeting represented
by proxy, which is 90.7% of the total outstanding shares. Proposal
Number One to permit the continuance of the Company as a corporation without the
restrictions relating to blank check companies, was approved by a vote of
13,096,144 for and 1,444,035 against the Proposal. Proposal Number
Two authorized the Company to enter into an agreement to amend the trust
agreement to permit the distribution of assets to holders of IPO
Shares. The Proposal was approved by a vote of 13,792,064 for
(including 10,599,491 IPO Shares) and 748,115 against. Proposal
Number Three, to permit the Company to distribute the assets of the trust
account to the holders of IPO Shares, was approved by a vote of 13,952,479 for
and 587,700 against. The liquidation value of the trust account is
$100,724,231, therefore the holders of record as of September 14, 2009 will
receive $8.057938494 per IPO Share held. The Company will be
filing a Notification of Removal from Listing on Form 25 with the Securities and
Exchange Commission for the purpose of deregistering and delisting its
securities under the Securities Exchange Act of 1934. Upon suspension of
trading, the Company will also commence voluntary delisting procedures to delist
the Company’s securities from NYSE Amex. The Company’s securities will no longer
trade on the NYSE Amex.
Item
2.
Unregistered Sales
of Equity Securities and Use of Proceeds
As of
March 31, 2009, we paid offering expenses of approximately $1,380,018, which
have been charged to additional paid in capital.
As of
March 31, 2009, we have paid or incurred an aggregate of approximately
$3,901,768 in expenses, which have been or will be paid out of the proceeds of
our initial public offering held in trust and our withdrawal of interest earned
on the funds held in the trust account, for the following purposes:
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s
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payment
of estimated taxes incurred as a result of interest income earned on funds
currently held in the trust
account;
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s
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payment
of other state and local taxes and
fees;
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s
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expenses
for due diligence and investigation of prospective target
businesses;
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s
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legal
and accounting fees relating to our SEC reporting obligations and general
corporate matters;
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s
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Costs
related to the liquidation of the trust and distribution of trust assets
to the public shareholders; and
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s
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miscellaneous
expenses, including directors and officers liability
insurance.
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As of
March 31, 2009, after giving effect to our initial public offering and our
operations subsequent thereto, including our withdrawal of $1,600,000 of the
interest earned on the funds held in the trust account through March 31, 2009,
$100,699,285 was held in trust and we had no unrestricted cash available to
us for our activities in connection with liquidation of the trust and
distribution of the trust assets to public shareholders, and for general
corporate matters.
As of
June 30, 2009, approximately $100.7 million (approximately $8.06 per IPO
Share) was held in the Trust Account.
Item
3.
Defaults upon Senior
Securities.
Not
applicable.
Item
4. Submission of Matters to a Vote of Security Holders.
As of
April 2, 2009, the Company had not successfully completed a Business
Combination. On July 30, 2009 the Company filed a Definitive Proxy with the
Securities and Exchange Commission with respect to the holding of a special
meeting of stockholders on August 27, 2009 for stockholders of record on August
5, 2009. At the meeting stockholders voted in favor of three
proposals that allowed for the continuation of the existence of the corporation
as well as for the distribution of the trust proceeds to the stockholders
holding shares of its common stock issued in its initial public offering (“IPO
Shares”). There were 14,540,179 common shares present at the meeting represented
by proxy, which is 90.7% of the total outstanding shares. Proposal
Number One to permit the continuance of the Company as a corporation without the
restrictions relating to blank check companies, was approved by a vote of
13,096,144 for and 1,444,035 against the Proposal. Proposal Number
Two authorized the Company to enter into an agreement to amend the trust
agreement to permit the distribution of assets to holders of IPO
Shares. The Proposal was approved by a vote of 13,792,064 for
(including 10,599,491 IPO Shares) and 748,115 against. Proposal
Number Three, to permit the Company to distribute the assets of the trust
account to the holders of IPO Shares, was approved by a vote of 13,952,479 for
and 587,700 against. The liquidation value of the trust account is
$100,724,231, therefore the holders of record as of September 14, 2009 will
receive $8.057938494 per IPO Share held. The Company will be
filing a Notification of Removal from Listing on Form 25 with the Securities and
Exchange Commission for the purpose of deregistering and delisting its
securities under the Securities Exchange Act of 1934. Upon suspension of
trading, the Company will also commence voluntary delisting procedures to delist
the Company’s securities from NYSE Amex. The Company’s securities will no longer
trade on the NYSE Amex.
Item
5.
Other
Information.
Refer to Item 4
above.
Item 6.
Exhibits
The
exhibits listed in the accompanying Index to Exhibits are filed as part of this
Quarterly Report on Form 10-Q and incorporated herein by reference.
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.
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SANTA
MONICA MEDIA CORPORATION
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(Registrant)
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Date:
September 16, 2009
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By:
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/
s/ KURT BRENDLINGER
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Kurt
Brendlinger
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Chief
Financial Officer
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(Principal
Financial Officer)
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INDEX
TO EXHIBITS
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Exhibit
Number
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Description
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31.1
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Certification
of Chief Executive Officer Pursuant to 17 CFR
240.13a-14(a)
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31.2
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Certification
of Chief Financial Officer Pursuant to 17 CFR
240.13a-14(a)
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32.1
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Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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32.2
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Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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