UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended September 30, 2008.
or
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o
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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F
or the transition period from to .
Commission File Number: 001-33281
Union Street Acquisition Corp.
(Exact name of Registrant as specified in its charter)
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Delaware
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20-5221262
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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102 South Union Street, Alexandria, VA 22314
(Address of Principal Executive Offices including Zip Code)
(703) 682-0730
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the 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, 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. (Check one):
Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
þ
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
þ
No
o
There were 15,625,000 shares of the Registrants common stock issued and outstanding as of November
12, 2008.
Union Street Acquisition Corp. Form 10-Q
Table of Contents
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
UNION STREET ACQUISITION CORP.
(A Development Stage Company)
Balance Sheet
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September 30, 2008
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December 31, 2007
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(Unaudited)
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Assets
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Current assets:
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Cash and cash equivalents
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$
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204,074
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$
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1,324,566
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Trust Account
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101,037,827
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100,205,298
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Income tax receivable
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258,252
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Prepaid expenses
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104,420
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81,561
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Total current assets
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$
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101,604,573
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$
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101,611,425
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Deferred tax asset
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298,120
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260,884
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Deferred transaction costs
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100,000
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Total assets
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$
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101,902,693
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$
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101,972,309
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Liablilities and stockholders equity
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Current liabilities:
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Accounts payable and accrued expenses
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$
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151,918
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$
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160,000
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Deferred interest
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325,558
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Taxes payable
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33,732
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Accrued transaction costs
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150,000
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100,000
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Deferred underwriting fee
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3,700,000
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Total current liabilities
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301,918
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4,319,290
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Common Stock, subject to possible conversion, 2,499,999 shares at conversion value
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18,959,992
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Commitments
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Stockholders equity
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Preferred Stock, $0.0001 par value: 1,000,000 share authorized; no shares issued
and outstanding
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Common Stock, $0.0001 par value; 100,000,000 shares authorized; 15,625,000 issued and
outstanding (including 2,499,999 shares subject to possible conversion at December 31, 2007)
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1,563
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1,563
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Additional paid-in capital
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99,085,951
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76,425,959
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Earnings accumulated during the development stage
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2,513,261
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2,265,505
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Total stockholders equity
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101,600,775
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78,693,027
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Total liabilities and stockholders equity
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$
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101,902,693
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$
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101,972,309
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED STATEMENTS.
3
UNION STREET ACQUISITION CORP
(A Development Stage Company)
Statement of Operations
(Unaudited)
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July 18, 2006
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Three Months Ended
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Nine Months Ended
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(Date of Inception)
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September 30,
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September 30,
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Through
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2008
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2007
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2008
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2007
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September 30, 2008
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Formation and operating costs
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$
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1,098,953
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$
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136,813
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$
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1,494,069
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$
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468,502
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$
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2,118,820
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Net loss from operations
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(1,098,953
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(136,813
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(1,494,069
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(468,502
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(2,118,820
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Other income Interest
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802,243
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1,097,396
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1,869,457
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3,057,413
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5,937,561
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Income/(loss) before provision for taxes
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(296,710
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)
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960,583
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375,388
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2,588,911
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3,818,741
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(Provision)/benefit for income taxes
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100,881
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(326,598
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(127,632
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(880,230
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)
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(1,305,480
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Net income/(loss)
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(195,829
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)
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633,985
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247,756
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1,708,681
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2,513,261
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Basic and diluted net earnings/(loss) per share
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$
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(0.01
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$
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0.04
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$
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0.02
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$
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0.13
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$
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0.20
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Weighted average shares outstanding
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15,625,000
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15,625,000
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15,625,000
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13,839,286
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12,430,211
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED STATEMENTS.
4
UNION STREET ACQUISITION CORP.
(A Development Stage Company)
Statement of Stockholders Equity
Cumulative Amounts from Inception (July 18, 2006) to September 30, 2008
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Earnings
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Accumulated
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Additional
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During the
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Common Stock
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Paid-In
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Development
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Shares
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Amount
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Capital
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Stage
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Total
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Initial capitalization from founding stockholder and directors
on July 24, 2006 at $.008 per share
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3,125,000
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$
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313
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$
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24,687
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$
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$
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25,000
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Net loss (July 18 - December 31, 2006)
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$
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(20,906
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)
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$
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(20,906
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Balance December 31, 2006
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3,125,000
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$
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313
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$
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24,687
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$
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(20,906
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)
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$
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4,094
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Proceeds from issuance of warrants
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$
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3,000,000
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$
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3,000,000
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Sale of 12,500,000 units through public offering net of
underwriters discount and offering expenses, including
2,499,999 shares subject to possible conversion)
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12,500,000
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$
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1,250
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$
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92,361,264
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$
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92,362,514
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Proceeds subject to possible conversion
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$
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(18,959,992
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)
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$
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(18,959,992
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)
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Net income (January 1, 2007 - December 31, 2007)
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$
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2,286,411
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$
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2,286,411
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Balance December 31, 2007
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15,625,000
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$
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1,563
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$
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76,425,959
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$
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2,265,505
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$
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78,693,027
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Unaudited:
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Reclassification of proceeds subject to possible conversion
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$
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18,959,992
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$
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18,959,992
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Reclassification of deferred underwriting fee
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$
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3,700,000
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$
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3,700,000
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Net income (January 1, 2008 - September 30, 2008)
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247,756
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247,756
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Balance September 30, 2008
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15,625,000
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1,563
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$
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99,085,951
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$
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2,513,261
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$
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101,600,775
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED STATEMENTS.
.
5
UNION STREET ACQUISITION CORP.
(A Development Stage Company)
Statement of Cash Flows
(Unaudited)
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July 18, 2006
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Nine Months
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Nine Months
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(Date of Inception)
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Ended
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Ended
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Through
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September 30, 2008
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September 30, 2007
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September 30 2008
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Cash flows from operating activities:
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Net income
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$
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247,756
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$
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1,708,681
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$
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2,513,261
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Adjustments to reconcile net income to net cash provided by
operating activities:
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Write off of transaction costs
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934,218
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934,218
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Interest earned on trust
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(1,532,529
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)
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(3,211,345
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)
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(5,892,827
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)
|
Deferred tax asset
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(37,236
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)
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(176,903
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)
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(298,120
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)
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Changes in:
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Accounts payable and accrued expenses
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(8,082
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)
|
|
|
132,045
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|
|
|
151,918
|
|
Prepaid expenses
|
|
|
(22,859
|
)
|
|
|
(116,111
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)
|
|
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(104,420
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)
|
Income tax receivable
|
|
|
(258,252
|
)
|
|
|
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|
|
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(258,252
|
)
|
Deferred interest
|
|
|
(325,558
|
)
|
|
|
173,897
|
|
|
|
|
|
Income taxes payable
|
|
|
(33,732
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)
|
|
|
1,057,132
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|
|
|
|
|
|
|
|
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|
|
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Net cash used by operating activities
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(1,036,274
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)
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|
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(432,604
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)
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(2,954,222
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)
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash flows from investing activities:
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|
|
|
|
|
|
|
|
|
|
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Cash placed in trust
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|
|
|
|
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(98,500,000
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)
|
|
|
(98,500,000
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)
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Disbursements from trust
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|
700,000
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|
|
|
1,250,000
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|
|
|
3,355,000
|
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Payment of transaction costs
|
|
|
(784,218
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)
|
|
|
|
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|
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(784,218
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)
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|
|
|
|
|
|
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Net cash (used by)/provided by investing activities
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|
|
(84,218
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)
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|
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(97,250,000
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)
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|
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(95,929,218
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)
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|
|
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|
|
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|
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|
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Cash flows from financing activities:
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|
|
|
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Proceeds from note payable to a related party
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|
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200,000
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Payment of note payable to a related party
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(200,000
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)
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|
|
(200,000
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)
|
Proceeds from issuance of common stock to founding stockholders
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|
|
|
|
|
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25,000
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|
Proceeds from sale of Units to public
|
|
|
|
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|
100,000,000
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|
|
100,000,000
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|
Proceeds from Private Placement warrants
|
|
|
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
Payment of offering costs
|
|
|
|
|
|
|
(3,780,599
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)
|
|
|
(3,937,486
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
99,019,401
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|
|
|
99,087,514
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in cash
|
|
|
(1,120,492
|
)
|
|
|
1,336,797
|
|
|
|
204,074
|
|
Cash, beginning of period
|
|
|
1,324,566
|
|
|
|
42,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
204,074
|
|
|
$
|
1,379,004
|
|
|
$
|
204,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
456,852
|
|
|
$
|
955,000
|
|
|
$
|
1,861,852
|
|
|
|
|
|
|
|
|
|
|
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED STATEMENTS.
6
UNION STREET ACQUISITION CORP.
(A Development Stage Company)
Notes to Financial Statements
September 30, 2008
Note ABasis of Presentation
The financial statements of Union Street Acquisition Corp. (the Company) at September 30,
2008, for the three and nine months ended September 30, 2008, for the three and nine months ended
September 30, 2007 and for the period from July 18, 2006 (inception) to September 30, 2008
(cumulative) are unaudited. In the opinion of management, all adjustments (consisting of normal
accruals) have been made that are necessary to present fairly the financial position of the Company
as of September 30, 2008 and the results of its operations and its cash flows for the three and
nine months ended September 30, 2008 and September 30, 2007 and for the period from July 18, 2006
(inception) to September 30, 2008 (cumulative). The results for the period ended September 30, 2008
include adjustments related to the vote on the Companys proposed acquisitions held on September
22, 2008 where such acquisitions were not approved. See Note G for further disclosure. Operating
results for the interim periods are not necessarily indicative of the results to be expected for a
full fiscal year. The December 31, 2007 balance sheet has been derived from audited financial
statements.
The statements and related notes have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance with generally
accepted accounting principles may be omitted pursuant to such rules and regulations. See the
Companys Annual Report on Form 10-K for the year ended December 31, 2007 for additional
disclosures relating to the Companys financial statements and accounting principles.
Note BOrganization and Business Operations
Union Street Acquisition Corp. was incorporated in Delaware on July 18, 2006. The Company was
formed to serve as a vehicle for the acquisition of an operating business through a merger, capital
stock exchange, stock purchase, asset acquisition, or other similar business combination (the
Business Combination). The Company has neither engaged in any operations nor generated any
revenue to date. The Company is considered to be in the development stage and is subject to the
risks associated with activities of development stage companies.
The registration statement for the Companys initial public offering (the Offering) was
declared effective February 1, 2007. The Company consummated the Offering on February 9, 2007 and
received net proceeds of approximately $92.4 million. The Companys executive officers and
directors had broad discretion with respect to the specific application of the net proceeds of the
offering of Units (as defined in Note C below) and the private placement of 3,000,000 warrants that
occurred immediately prior to the Offering (the Private Placement), although substantially all of
the net proceeds of the Offering and Private Placement were intended to be generally applied toward
consummating an initial Business Combination with (or acquisition of) one or more operating
businesses in the business services industry. As described in Note G, the Company will not be able
to consummate a Business Combination. An amount of $98,500,000, which includes $3,000,000 relating
to the sale of warrants in the Private Placement and $3,700,000 deferred payment to the
underwriters in the Offering, of the net proceeds was placed in a trust account (the Trust
Account), and invested in money market funds meeting conditions of the Investment Company Act of
1940 or securities principally issued or guaranteed by the U.S. government until the earlier of (i)
the consummation of its initial Business Combination or (ii) the distribution of the Trust Account
as described below. As of September 30, 2008, 100% of the funds in the Trust Account were invested
in the Treasury Trust Fund of BlackRock, Inc. The placing of funds in the Trust Account may not
protect those funds from third party claims against the Company. Although the Company will seek to
have vendors, prospective target businesses or other entities it engages, execute agreements with
the Company waiving any right, title, interest or claim of any kind in or to any monies held in the
Trust Account, there is no guarantee that they will execute such agreements. Certain of the
Companys executive officers have agreed that they will be personally liable under certain
circumstances to ensure that the proceeds in the Trust Account are not reduced by the claims of
target businesses or vendors or other entities that are owed money by the Company for services
rendered, contracted for or products sold to the Company. However, there can be no assurance that
the executive officers will be able to satisfy those obligations. Interest income earned on the
funds in the Trust Account was permitted to be distributed to pay income taxes related to the
taxable income of the Trust Account and up to $1,500,000, after tax,
was permitted to be released to us upon
demand, as follows: (x) an aggregate amount of up to $1,250,000, within 12 months after the
Offering, and (y) an aggregate amount of up to $250,000 plus any remaining portion of the
$1,250,000 not previously released to us during the initial 12-month period, during the period that
is between 12 months and 24 months after the Offering. Under the terms of the Investment Management
Trust Agreement the first release of funds from the Trust Account to the Company included income
through the first full calendar quarter following the effective date of the IPO, which for the
Company was the quarter ended June 30, 2007. As of
7
September 30, 2008, there had been $1,500,000 released to the Company from the Trust Account
for working capital purposes and $1,855,000 for income taxes.
If an initial Business Combination was approved and consummated, any Public Stockholder who
voted against the initial Business Combination could have demanded that the Company convert his or
her shares. The per share conversion price would have been equal to the amount in the Trust
Account, including all accrued interest income (net of taxes payable on such interest income and
after release of up to $1,500,000 of interest income, after tax, to fund working capital
requirements), calculated as of two business days prior to the consummation of the proposed initial
Business Combination, divided by the number of shares of common stock held by Public Stockholders
at the date of the Offering without regard to the shares held by Initial Stockholders. Accordingly,
Public Stockholders holding less than 20% of the aggregate number of shares owned by all Public
Stockholders could have sought conversion of their shares in the event of such a Business
Combination. Accordingly, a portion of the net proceeds from the offering (19.9999% of the amount
placed in the Trust Account) had been classified as common stock subject to possible conversion and
a portion of the interest earned on the Trust Account (19.9999% of the interest earned on the Trust
Account net of related taxes payable and net of the amounts released for working capital) had been
classified as deferred interest. Since the acquisitions were not approved by the stockholders, as
described in Note G, the common stock subject to possible conversion was reclassified to paid-in
capital and the deferred interest was recorded as interest income during the period ended September
30, 2008.
Management does not believe that any recently issued, but not yet effective, accounting
standards if currently adopted would have a material effect on the accompanying financial
statements.
Note CInitial Public Offering
On February 9, 2007, the Company sold 12,500,000 units (Units) at an offering price of $8.00 per
Unit. Each Unit consists of one share of the Companys common stock, $0.0001 par value, and one
redeemable common stock purchase warrant (each, a Warrant). Each Warrant entitled the holder to
purchase from the Company one share of common stock at an exercise price of $6.00 commencing on the
later of (a) February 5, 2008 or (b) the consummation of an initial Business Combination with a
target business, and expiring January 30, 2011. After the Warrants become exercisable, the Warrants
would be redeemable at a price of $0.01 per Warrant upon 30 days notice and only in the event that
the last sale price of the common stock is at least $11.50 per share for any 20 trading days within
a 30 trading day period ending on the third day prior to the date on which notice of redemption is
given. Holders of the Warrants would not be entitled to net cash settlement and the Warrants may
only be settled by delivery of shares of our common stock and not cash. No Warrant would be
exercisable unless at the time of exercise a registration statement relating to shares of common
stock issuable upon exercise of the Warrants is effective and a prospectus relating to the shares
of common stock issuable upon exercise of the warrants is available for use and the common stock
has been registered or qualified or deemed to be exempt under the securities laws of the state of
residence of the holder of the Warrants. Consequently, the Warrants will likely expire unexercised
and unredeemed.
The Company agreed to pay the underwriters an underwriting discount of 7% of the gross proceeds of
the Offering. However, the underwriters agreed that 3.7% of the underwriting discount would not be
payable unless and until the Company completes a Business Combination and has waived it rights to
receive such payment upon the Companys liquidation if the Company is unable to complete a Business
Combination. The deferred portion of the underwriters discount has been reclassified to
stockholders equity based on the stockholders vote described in Note G.
Note DRelated Party Transaction
The Company presently occupies office space provided by Union Street Capital Management, LLC, the
affiliate described below. Such affiliate has agreed that it will make such office space, as well
as certain office and secretarial services, available to the Company, as may be required by the
Company from time to time. The Company has agreed to pay such affiliate $7,500 per month for such
services commencing on the effective date of the Offering and continuing until the earlier of the
consummation of an initial Business Combination by the Company or the Companys liquidation. The
statement of operations for the three and nine months ended September 30, 2008 includes $22,500 and
$67,500 and for the three and nine months ended September 30, 2007 includes $22,500 and $60,000 of
expense relating to this agreement, respectively.
Note EFounding Stockholders
Union Street Capital Management, LLC, a related party to the Company, purchased an aggregate of
3,000,000 warrants from the Company at a price of $1.00 per warrant, for an aggregate purchase
price of $3,000,000. The purchase price of the warrants was in
8
excess of their fair value. All of the proceeds from these purchases were placed in the Trust
Account. These warrants were purchased in a private placement that occurred immediately prior to
the completion of the Offering.
Note FCommon Stock
At September 30, 2008, 15,500,000 shares were reserved for issuance upon the exercise of the
Warrants and the Private Placement Warrants.
Note G Status of Proposed Acquisitions
On February 26, 2008 the Company entered into definitive agreements to acquire (i) all of the
issued and outstanding shares of capital stock of Archway Marketing Services, Inc. pursuant to a
Stock Purchase Agreement, dated as of February 26, 2008, by and among Union Street Acquisition
Corp., Argenbright, Inc. and Archway Marketing Services, Inc. and (ii) 100% of the membership
interests of Razor Business Strategy Consultants, LLC pursuant to a Membership Interest Purchase
Agreement, dated as of February 26, 2008, by and among Union Street Acquisition Corp., Razor
Business Strategy Consultants, LLC and the sellers of Razor Business Strategy Consultants, LLC (the
Acquisitions).
On June 23, 2008, Union Street entered into an agreement (the Argenbright Agreement) with
Archway and Argenbright, whereby Union Street agreed to waive Argenbrights compliance with the
non-solicitation provisions of the Archway Purchase Agreement and release all claims that Union
Street may have against Argenbright in connection with the presentation of an alternative
transaction by certain principals of Union Street to Argenbright, provided that the pursuit of such
an alternative transaction does not hinder or delay the consummation of the Acquisitions by Union
Street. In consideration for such waiver, Argenbright agreed to waive its right to receive a
termination fee as set forth in the Archway Purchase Agreement, subject to the consummation of an
alternative transaction on or before the earlier of twenty (20) days after termination of the
Archway Purchase Agreement, or October 31, 2008. For a more complete discussion of the Argenbright
Agreement see our Current Report on Form 8-K filed on June 24, 2008.
On September 14, 2008, the company entered into a letter agreement with Archway Marketing
Holdings, Inc., a newly formed corporation (HoldCo), held by a limited liability company
controlled by Tailwind Capital Partners (Tailwind Capital) whereby HoldCo agreed that if the
Acquisitions are not approved by the stockholders the company and the HoldCo Acquisition, as
defined below, is consummated, HoldCo will pay $750,000 to USQ in consideration for USQ providing
HoldCo with, among other things, access to the legal and financial due diligence that USQ performed
on Archway.
On September 15, 2008, HoldCo into an Agreement and Plan of Merger (the Merger Agreement)
whereby HoldCo agreed to acquire 100% of the issued and outstanding shares of capital stock of
Archway Marketing Services, Inc. (Archway) from Argenbright, Inc. (Argenbright) at the same
price and on substantially the same terms as are contained in the Archway Purchase Agreement, (the
HoldCo Acquisition). Pursuant to the Merger Agreement, the HoldCo Acquisition would only be
consummated if the Archway Purchase Agreement was terminated.
On
September 22, 2008, the Company held its special meeting of stockholders to vote on the
proposed Acquisitions. At the special meeting of stockholders the proposed Acquisitions were not
approved by the Companys stockholders. Pursuant to its charter and terms of its initial public
offering, the Company is not permitted to pursue any other transactions. The Company has begun the
process of liquidating and dissolving itself in accordance with its charter and applicable law
pending stockholder approval of its plan of liquidation and dissolution. As a result, the Company
expects that the amounts held in its Trust Account, together with interest (net of applicable
taxes), will be returned to the Companys public stockholders. No payments will be made with
respect to the Companys outstanding warrants or to any of its initial stockholders with respect to
the shares owned by them prior to the initial public offering. On
October 21, 2008, the Company
mailed to its stockholders a proxy statement seeking approval to effect the liquidation and
dissolution at a special meeting of stockholders scheduled for November 19, 2008. For a more
complete discussion see our Definitive Proxy Statement on Schedule 14A filed with the SEC on
October 21, 2008.
On October 31, 2008, the Company entered into a letter agreement (the Amended Letter
Agreement) with HoldCo which amended that certain letter agreement between the Company and HoldCo,
dated as of September 14, 2008, pursuant to which HoldCo
agreed to pay to the Company a fee of $750,000 (the Fee) upon the closing of the transactions
contemplated by the Agreement and Plan of Merger, dated as of September 14, 2008, by and among
Archway Marketing Holdings, Inc., Archway Marketing Acquisition, Inc., Argenbright, Inc. and
Archway Marketing Services, Inc., as amended (the Merger
9
Agreement). Pursuant to the Amended Letter Agreement, the Company and HoldCo agreed that in
consideration of their additional efforts and risks related to the transactions arising from the
significant changes in the financing and economic environment in recent weeks and the attendant
difficulties, expenses and terms of obtaining reasonable financing for the transactions, the Fee
was reduced from $750,000 to $250,000.
On November 3, 2008, the Holdco Acquisition was consummated and the Company received the Fee.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended (the Exchange Act). We have based these forward-looking statements on our
current expectations and projections about future events. These forward-looking statements are
subject to known and unknown risks, uncertainties and assumptions about us that may cause our
actual results, levels of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking statements by
terminology such as may, should, could, would, expect, plan, anticipate, believe,
estimate, continue, or the negative of such terms or other similar expressions. Factors that
might cause or contribute to such a discrepancy include, but are not limited to, those described in
our other SEC filings.
The following discussion should be read in conjunction with our unaudited Financial Statements and
related Notes thereto included elsewhere in this report.
Critical Accounting Policies
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.
Management does not believe that any recently issued, but not yet effective, accounting
standards if currently adopted would have a material effect on the accompanying financial
statements.
Overview
We were formed on July 18, 2006 as a blank check company for the purpose of acquiring, through
a merger, stock exchange, asset acquisition, reorganization or similar business combination, one or
more operating businesses. We intended to use cash derived from the net proceeds of our initial
public offering to effect a business combination.
On February 9, 2007, the Company sold 12,500,000 units (Units) at an offering price of $8.00
per Unit. Each Unit consists of one share of the Companys common stock, $0.0001 par value, and one
redeemable common stock purchase warrant (each, a Warrant). Each Warrant entitled the holder to
purchase from the Company one share of common stock at an exercise price of $6.00 commencing on the
later of (a) February 5, 2008 or (b) the consummation of an initial Business Combination with a
target business and expiring January 30, 2011.
Recent Developments
On September 14, 2008, the company entered into a letter agreement with Archway Marketing
Holdings, Inc., a newly formed corporation (HoldCo), held by a limited liability company
controlled by Tailwind Capital Partners (Tailwind Capital) whereby HoldCo agreed that if the
Acquisitions were not approved by the stockholders the company and the HoldCo Acquisition, as
defined below, is consummated, HoldCo would pay $750,000 to USQ in consideration for USQ providing
HoldCo with, among other things, access to the legal and financial due diligence that USQ performed
on Archway.
10
On September 15, 2008, HoldCo, entered into an Agreement and Plan of Merger (the Merger
Agreement) whereby HoldCo agreed to acquire 100% of the issued and outstanding shares of capital
stock of Archway Marketing Services, Inc. (Archway) from Argenbright, Inc. (Argenbright) at the
same price and on substantially the same terms as are contained in the Archway Purchase Agreement,
(the HoldCo Acquisition). Pursuant to the Merger Agreement, the HoldCo Acquisition would only be
consummated if the Archway Purchase Agreement was terminated.
On
September 22, 2008, the Company held its special meeting of stockholders to vote on the
proposed Acquisitions. At the special meeting of stockholders the proposed Acquisitions were not
approved by the Companys stockholders. Pursuant to its charter and terms of its initial public
offering, the Company is not permitted to pursue any other transactions. The Company will begin the
process of liquidating and dissolving itself in accordance with its charter and applicable law
pending stockholder approval of its plan of liquidation and dissolution. As a result, the Company
expects that the amounts held in its Trust Account, together with interest (net of applicable
taxes), will be returned to the Companys public stockholders. No payments will be made with
respect to the Companys outstanding warrants or to any of its initial stockholders with respect to
the shares owned by them prior to the initial public offering. On
October 21, 2008, the Company
mailed to its stockholders a proxy statement seeking approval to effect the liquidation and
dissolution at a special meeting of stockholders scheduled for November 19, 2008. For a more
complete discussion see our Definitive Proxy Statement on Schedule 14A filed with the SEC on
October 21, 2008.
On October 31, 2008, the Company entered into a letter agreement (the Amended Letter
Agreement) with HoldCo which amended that certain letter agreement between the Company and HoldCo,
dated as of September 14, 2008, pursuant to which HoldCo
agreed to pay to the Company a fee of $750,000 (the Fee) upon the closing of the transactions
contemplated by the Agreement and Plan of Merger, dated as of September 14, 2008, by and among
Archway Marketing Holdings, Inc., Archway Marketing Acquisition, Inc., Argenbright, Inc. and
Archway Marketing Services, Inc., as amended (the Merger Agreement). Pursuant to the Amended
Letter Agreement, the Company and HoldCo agreed that in consideration of their additional efforts
and risks related to the transactions arising from the significant changes in the financing and
economic environment in recent weeks and the attendant difficulties, expenses and terms of
obtaining reasonable financing for the transactions, the Fee was reduced from $750,000 to $250,000.
On November 3, 2008, the HoldCo Acquisition was consummated and the Company received the Fee.
As of September 30, 2008, $101,037,827 was held in trust and we had $204,074 of cash available
to us for our activities in connection with identifying and conducting due diligence of a suitable
business combination, and for general corporate matters.
Through September 30, 2008, our efforts have been limited to organizational activities,
activities relating to our initial public offering, activities relating to identifying and
evaluating prospective acquisition candidates, entering into the agreements described above 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 and nine months ended September 30, 2008, we earned
$372,288 and $1,532,529, respectively, in interest income on the trust account.
On February 19, 2008 and July 17, 2007, the Company had released to it $250,000 and
$1,250,000, respectively, of investment income earned on the trust account for working capital
purposes in accordance with the Investment Management Trust Agreement.
The following table shows the total funds held in the trust account as of September 30, 2008:
|
|
|
|
|
Net proceeds from our initial public offering and private
placement of warrants to Union Street Capital Management,
LLC placed in trust
|
|
$
|
94,800,000
|
|
Deferred underwriters discounts and commissions
|
|
|
3,700,000
|
|
Total
interest received through September 30, 2008
|
|
|
5,892,827
|
|
Working capital disbursements through September 30, 2008
|
|
|
(1,500,000
|
)
|
Less total disbursed for taxes through September 30, 2008
|
|
|
(1,855,000
|
)
|
|
|
|
|
Total funds held in trust account as of September 30, 2008
|
|
$
|
101,037,827
|
|
11
Results of Operations for the three and nine month period ended September 30, 2008
Net loss of $195,829 reported for the three month period ended September 30, 2008 consisted
primarily of investment income on the trust account of $372,288, the reversal of deferred interest
income of $428,709, other interest income of $1,246 and an income tax benefit of $100,881 offset by
the write-off of $934,218 of transaction related expenses, $17,250 expense for professional fees,
$30,846 expense for director and officer liability insurance, $22,500 expense for a monthly
administrative services agreement, $42,348 expense for travel and entertainment, $6,875 for AMEX
listing fees, $40,000 for franchise tax, and $4,916 for other expenses. At September 30, 2008, we
had cash outside of the trust fund of $204,074, prepaid expenses of $104,420 and accounts payable
and accrued expenses of $151,918.
Net income of $247,756 reported for the nine month period ended September 30, 2008 consisted
primarily of investment income on the trust account of $1,429,378, the reversal of deferred
interest income of $428,709, and other interest income of $11,370 offset by the write-off of
$934,218 of transaction related expenses, $102,797 expense for professional fees, $99,017 expense
for director and officer liability insurance, $67,500 expense for a monthly administrative services
agreement, $127,784 expense for travel and entertainment, $20,625 for AMEX listing fees, $124,775
for franchise tax, $17,352 for other expenses and 127,632 of income tax expense. At September 30,
2008, we had cash outside of the trust fund of $204,074, prepaid expenses of $104,420 and accounts
payable and accrued expenses of $151,918.
We presently occupy office space provided by Union Street Capital Management LLC, an affiliate
of our initial stockholders. Union Street Capital Management LLC has agreed that, until we
consummate the acquisition of a target business, it will make such office space, as well as certain
office and secretarial services, available to us, as we may require from time to time. We have
agreed to pay Union Street Capital Management LLC $7,500 per month for such services commencing on
February 1, 2007. The statement of operations for the three and nine months ended September 30,
2008 includes $22,500 and $67,500, respectively, related to this agreement.
Liquidity and Capital Resources
We believe we will have sufficient available funds outside of the trust account to operate
through February 7, 2009, or until our dissolution and liquidation.
Off-Balance Sheet Arrangements
Warrants issued in conjunction with our initial public offering are equity linked derivatives
and accordingly represent off-balance sheet arrangements. The warrants meet the scope exception in
paragraph 11(a) of Financial Accounting Standards (FAS) 133 and are accordingly not accounted for
as derivatives for purposes of FAS 133, but instead are accounted for as equity. See Note C to the
financial statements for more information.
Recent Accounting Pronouncements
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (SFAS No.
157). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. This
statement clarifies the principle that fair value should be based on the assumptions that market
participants would use when pricing the asset or liability. SFAS No. 157 establishes a fair value
hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority
to unobservable data. SFAS No. 157 applies whenever other standards require assets or liabilities
to be measured at fair value. Effective January 1, 2008, the Company implemented SFAS No. 157,
which did not have an impact on Companys financial results. In accordance with the provisions of
FSP No. FAS 157-2,
Effective Date of FASB Statement No. 157,
the Company has elected to defer
implementation of SFAS 157 as it relates to its non-financial assets and non-financial liabilities
until January 1, 2009.
We adopted SFAS No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities
including an Amendment of FASB Statement No. 115
(SFAS 159) on January 1, 2008. SFAS 159 permits
entities to choose to measure many financial instruments and certain other items at fair value. We
have not made any fair value elections as permitted under the provisions of SFAS 159; therefore,
the adoption of this standard did not have an impact on our consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
12
Market risk is the sensitivity of income to changes in interest rates, foreign exchanges,
commodity prices, equity prices, and other market-driven rates or prices. We are not presently
engaged in and, if a suitable business target is not identified by us prior to the prescribed
liquidation date of the trust fund, we may not engage in, any substantive commercial business.
Accordingly, we are not and, until such time as we consummate a business combination, we will not
be, exposed to risks associated with foreign exchange rates, commodity prices, equity prices or
other market-driven rates or prices. The net proceeds of our initial public offering held in the
trust account are to be invested only in money market funds meeting certain conditions under Rule
2a-7 promulgated under the Investment Company Act of 1940 or United States treasury bills. Given
our limited risk in our exposure to money market funds and treasury bills, we do not view the
interest rate risk to be significant.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation of the effectiveness of our disclosure controls and procedures as of September
30, 2008 was made under the supervision and with the participation of our management. Based on that
evaluation, our management concluded that our disclosure controls and procedures are 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 Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange Commission rules and
forms. During the most recently completed fiscal quarter, there has not been any change in our
internal control over financial reporting in connection with the evaluation required by Rule
13a-15(d) under the Exchange Act that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider
the factors discussed in the section titled Risk Factors in our Annual Report on Form 10-K for
our fiscal year ended December 31, 2007 as filed with the SEC on March 17, 2008, which could
materially affect our business, financial condition or future results. There have been no material
updates or changes to such Risk Factors that are required to be disclosed in this Item 1A.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 22, 2008, the Company held a special meeting of stockholders at 10:00 a.m.,
Eastern Standard Time, at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., 666
Third Avenue, New York, New York, 10017. At the special meeting, the stockholders voted upon but
did not approve any of the proposals set forth below. As such, the Company plans to dissolve and
liquidate as described in Part I, Item 2 of this Quarterly Report on Form 10-Q. A total of
15,625,000 shares issued in the Companys initial public offering were eligible to vote at the
meeting.
13
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Votes Against or
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Proposal
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Votes For
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Withheld
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Abstentions
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Number 1
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Proposal to approve
both of (i) the
Stock Purchase
Agreement, dated as
of February 26,
2008, by and among
Union Street
Acquisition Corp.
(Union Street),
Argenbright, Inc., a
Georgia corporation
(Argenbright)
and Archway
Marketing Services,
Inc., a Delaware
corporation
(Archway)
pursuant to which
Union Street will
purchase from
Argenbright all of
the issued and
outstanding shares
of capital stock of
Archway (the
Archway
Acquisition) and
(ii) the Membership
Interest Purchase
Agreement, dated as
of February 26,
2008, by and among
Union Street, Razor
Business Strategy
Consultants LLC, a
Texas limited
liability company
(Razor) and the
members of Razor
(the Sellers)
pursuant to which
Union Street will
purchase from the
Sellers 100% of the
membership interests
in Razor (the
Razor
Acquisition) (the
Archway Acquisition
and the Razor
Acquisition are
collectively
referred to as the
Acquisitions).
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34,708
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11,552,103
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0
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Number 2
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Proposal to approve
the adoption of the
Union Street 2008
Employee, Director
and Consultant Stock
Plan (the Plan),
pursuant to which
Union Street will
reserve up to
1,500,000 shares of
common stock for
issuance pursuant to
the Plan. This
Proposal is
conditioned upon the
approval of Proposal
Number 1.
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1,845,906
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8,539,672
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1,201,233
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Number 3
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Proposal to approve
an amendment to
Union Streets
amended and restated
certificate of
incorporation to
remove Article Five
entirely from Union
Streets certificate
of incorporation.
This Proposal is
conditioned upon the
approval of Proposal
Number 1.
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1,173,246
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9,270,270
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1,143,493
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14
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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Exhibit No.
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Description
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31.1
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Section 302 Certification of Chief Executive Officer
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31.2
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Section 302 Certification of Chief Financial Officer
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32.1
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Section 906 Certification of Chief Executive Officer and Chief Financial Officer
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15
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
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UNION STREET ACQUISITION CORP.
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November 14, 2008
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By:
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/s/ A. Clayton Perfall
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A. Clayton Perfall
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Chief Executive Officer
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November 14, 2008
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By:
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/s/ Brian H. Burke
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Brian H. Burke
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Chief Financial Officer
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16
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