JKA JK Acquisition Corp

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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 September 30, 2007

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-32574

JK ACQUISITION CORP.
Table of Contents

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements			1
Balance Sheets (Unaudited)			1
Statements of Operations (Unaudited)			2
Statements of Cash Flows (Unaudited)			3
Notes to Unaudited Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			6
Item 3. Quantitative and Qualitative Disclosures about Market Risk			11
Item 4. Controls and Procedures			11
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			12
Item 6. Exhibits			12
SIGNATURES			13
INDEX TO EXHIBITS			14
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO and CFO Pursuant to Section 906

PART I — FINANCIAL INFORMATION

See notes to financial statements.

See notes to financial statements.

JK ACQUISITION CORP.
(A Development Stage Company)

a warrant because a registration statement under the Securities Act of 1933, as amended, with respect to the common stock is not effective, then in no event would JK Acquisition be obligated to pay cash or other consideration to the holders of warrants or otherwise ‘‘net-cash settle’’ any warrant exercise. As of January 10, 2007, JK Acquisition determined that net cash settlement of the warrants could no longer be required; therefore, the warrants should not be treated as derivative liabilities. The fair value of these warrants was marked to market on January 10, 2007 and derivative gain was recorded. The balance of the derivative liability was then recorded as a contribution to paid-in capital on that date. The fair value of the warrants as of January 10, 2007 was determined by the trading value of the securities on that date.

          Gain on derivative liability reported in the accompanying statement of operations through January 10, 2007 resulting from the change in valuation of the derivative liability related to these warrants was $1,468,600 for the nine months ended September 30, 2007.

NOTE 6 — STOCK OPTION

          JK Acquisition sold to Ferris Baker, Watts, Inc. for $100, an option to purchase up to a total of 700,000 units. This option was issued upon closing of the initial public offering. The units that would be issued upon exercise of this option are identical to those sold in the initial public offering, except that each of the warrants underlying this option entitles the holder to purchase one share of our common stock at a price of $6.25. This Underwriter’s Purchase Option (“UPO”) is exercisable at $7.50 per unit at the latter of one year from the effective date, or the consummation of a business combination and may be exercised on a cashless basis. The UPO will have a life of four years from the effective date.

NOTE 7 — RELATED PARTY TRANSACTION

          JK Acquisition has agreed to pay 4350 Management, LLC, a related party and privately-held company owned by JK Acquisition’s chief executive officer, an administrative fee of $7,500 per month for office space and administrative, technology and secretarial services from the effective date of the initial public offering through the acquisition date of a target business. For the nine months ended September 30, 2007, $67,500 has been expensed for the administrative fee.

NOTE 8— DEFERRED ACQUISITION COSTS

          Deferred acquisition costs consist primarily of accounting fees, legal fees, due diligence fees and other fees incurred through the balance sheet date that are related to the proposed merger discussed in Note 9. Due to the uncertainty of the proposed merger, as further described in Note 11, the deferred acquisition costs were written off to impairment expense during the quarter ended June 30, 2007, and deferred acquisition costs incurred during the quarter ended September 30, 2007 were expensed as impaired costs.

NOTE 9— PROPOSED MERGER

          On August 27, 2007, JK Acquisition and Multi-Shot, Inc., a Delaware corporation and wholly-owned subsidiary of JK Acquisition (“MSI”), entered into the Second Amended and Restated Agreement and Plan of Merger (the “Amended Merger Agreement”) with Multi-Shot, LLC, a Texas limited liability company (“Multi-Shot”), Catalyst/Hall Growth Capital Management Co., LLC, as Members’ Representative (“Members’ Representative”), and the members of Multi-Shot (the “Members”), pursuant to which Multi-Shot will merge with and into MSI (the “Merger”). The Amended Merger Agreement fully amends and restates the First Amended and Restated Agreement and Plan of Merger, dated February 14, 2007, by and among JK Acquisition, MSI, Multi-Shot, Members’ Representative and the Members. Following completion of the Merger, it is anticipated that JK Acquisition will change its name to MS Energy Services, Inc. Based in Conroe, Texas, Multi-Shot provides directional drilling services with an established presence in most major onshore producing basins in the U.S. Since its inception in 1980, Multi-Shot has developed into a leading independent service provider that employs a highly skilled and experienced labor force. Multi-Shot owns and operates equipment of the highest standards and maintains a diversified customer base that includes large, U.S. independent exploration and production companies.

          The Merger is expected to be consummated by January 31, 2008, after the required approval by JK Acquisition’s stockholders and the fulfillment of certain other conditions, as discussed in greater detail herein and in the Amended Merger Agreement.

          The Amended Merger Agreement will terminate automatically if either (1) JK Acquisition fails to file its definitive proxy materials with the SEC and mail such materials to its stockholders prior to December 31, 2007, or (2) the merger is not completed on or before January 31, 2008

          At closing, the initial Merger consideration for all the issued and outstanding membership interests of Multi-Shot is expected to be approximately $197,500,000 (assuming the Third-Party Indebtedness, as such term is defined in the Merger Agreement, of Multi-Shot does not exceed $60,00,000 on the closing date), consisting of the following:

	•		$20,000,000 cash
	•		21,759,259 shares of JK Acquisition common stock;
	•		28,516,668 contingent warrants (each contingent warrant may be exchanged for one share of JK Acquisition common stock solely pursuant to the grant of an Contingent Award (as defined in the Merger Agreement) pursuant to the Merger Agreement); and
	•		the assumption of third-party indebtedness, which is expected to be approximately $60,000,000.
	•		the cancellation of 2,458,334 shares of JK Acquisition common stock owned by the current officers and directors of JK Acquisition.

NOTE 10—LIQUIDITY

          JK Acquisition’s cash position as of September 30, 2007 is approximately $90,492. JK Acquisition has outstanding payables of approximately $584,090 as of September 30, 2007. As of September 30, 2007, advances from shareholders was $500,000. As described in Note 4, such shareholders have waived any recourse against JK Acquisition’s trust account with respect to the advances in the event that a business combination is not consummated by JK Acquisition in a timely manner as described herein above. Approximately $363,000 of the outstanding payables represent legal expense incurred in conjunction with the proposed merger and will be due at the close of the proposed merger described in Note 9. If we liquidate before the completion of a business combination and distribute the proceeds of the trust to our public stockholders, Messrs. Wilson and Spickelmier have agreed to indemnify us against any claims by any vendor or other entities that are owed money by us for services rendered or products sold to us that would otherwise reduce the amounts of the funds in the trust. However, we cannot assure you that Messrs. Wilson and Spickelmier will be able to satisfy those obligations.

          In the event the proposed merger is not consummated within the agreed upon time period, JK Acquisition believes it will not have sufficient funds to operate through April 2008 unless we receive additional advances from Messrs. Wilson and Spickelmier, or other interested parties sufficient to continue operations.

NOTE 11 – OTHER CONTINGENCIES

          On July 16, 2007, JK Acquisition filed suit in the state district court of Harris County, Texas against Multi-Shot, LLC and twelve other named defendants. JK Acquisition was seeking injunctive relief and other damages related to various claims of breach of contract in connection with the First Amended and Restated Agreement and Plan of Merger previously entered into with Multi-Shot, LLC and other parties on February 14, 2007. Pursuant to a Settlement Agreement, JK Acquisition, Multi-Shot and the other parties thereto agreed to abate the current lawsuit among the parties pending in the 234 ^th Judicial District Court of Harris County, Texas (the “Court”) in exchange for, among other consideration, entering into the Amended Merger Agreement. The parties to the Settlement Agreement have also agreed to waive any prior claims the parties have, or may have had, on the date of the Settlement Agreement against any of the other parties to the Settlement Agreement. The parties to the Settlement Agreement have agreed that the Court will retain continuing jurisdiction over any dispute filed regarding the Settlement Agreement, and that any such dispute will be submitted to the Court for resolution. In addition, the parties have agreed that any dispute regarding the Amended Merger Agreement will be tried in the district courts in Harris County, Texas. None of the parties to the Settlement Agreement have admitted any liability or violation.

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

          This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events, and we assume no obligation to update any such forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results to be materially different from any future results expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause our future results to differ from those statements include, but are not limited to, those described in the section entitled “Risk Factors” of the prospectus filed with the Securities and Exchange Commission in connection with our initial public offering. The following discussion should be read in conjunction with our condensed financial statements and related notes thereto included elsewhere in this report and with the section entitled “Risk Factors” of the prospectus filed with the Securities and Exchange Commission in connection with our initial public offering.

          We were formed on May 11, 2005, for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition or other similar business combination, an operating business headquartered in North America, focusing in the manufacturing, distribution or service sectors. Our initial business combination must be with a target business whose fair market value is at least equal to 80% of our net assets

(excluding deferred compensation of the underwriters held in trust) at the time of such acquisition. We intend to use cash derived from the proceeds of our recently completed public offering and concurrent private placement, our capital stock, debt or a combination of cash, capital stock and debt, to effect such business combination.

          On April 17, 2006, we consummated our initial public offering of 13,225,000 units, including 1,725,000 units that were subject to the underwriters’ over-allotment option. Each unit consists of one share of common stock and two warrants. Each warrant entitles the holder to purchase from us one share of our common stock at an exercise price of $5.00. Our common stock and warrants started trading separately as of May 11, 2006.

          Our net proceeds from the sale of our units, including the exercise of the underwriters’ over-allotment option, after deducting certain offering expenses of approximately $750,100 and underwriting discounts of approximately $3,967,000, were approximately $76,632,404. Of this amount, $76,532,404 is being held in trust and the remaining $100,000 is not being held in trust. The remaining proceeds of $100,000 not held in trust (plus up to $900,000 of interest earned on the proceeds held in trust) are available to be used by us for working capital purposes to provide for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. We will use substantially all of the net proceeds of this offering to acquire a target business, including identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating the business combination. To the extent that our capital stock is used in whole or in part as consideration to effect a business combination, the proceeds held in the trust account as well as any other net proceeds not expended will be used to finance the operations of the target business. We believe that the funds available to us outside of the trust account will be sufficient to allow us to operate until the proposed merger with Multi-Shot is consummated within the agreed upon time period. In the event the proposed merger with Multi-Shot is not consummated within the agreed upon time period, we believe that we will not have sufficient funds to operate through October 2007, assuming a business combination is not consummated by that time, unless we receive advances from Messrs. Wilson and Spickelmier, or other interested parties sufficient to continue operations. Alternatively, we may need to raise additional funds to the extent such financing is required to consummate a business combination, in which case we may issue additional securities or incur debt in connection with such business combination. We expect that we would only consummate such a financing simultaneously with the consummation of a business combination.

          Commencing on April 10, 2006 and ending upon the acquisition of a target business, we began incurring a fee of $7,500 per month for office space and certain administrative, technology and secretarial services from 4350 Management, LLC, an affiliate of James P. Wilson, our chairman of the board and chief executive officer. In addition, on May 18, 2005 and December 20, 2005, Messrs. Wilson and Spickelmier advanced us an aggregate of $329,000 to us for payment of offering expenses on our behalf. These advances were repaid following our initial public offering from the proceeds of the offering.

Developments in Finding a Suitable Business Target

          On August 27, 2007, JK Acquisition settled its lawsuit against Multi-Shot, LLC, a Texas limited liability company (“Multi-Shot”), and Multi-Shot’s related parties and entered into a Settlement Agreement (the “Settlement Agreement”) and a Second Amended and Restated Agreement and Plan of Merger (the “Amended Merger Agreement”). The Amended Merger Agreement is among JK Acquisition, Multi-Shot, Inc., a Delaware corporation and wholly-owned subsidiary of JK Acquisition (“MSI”), Multi-Shot, and each of Catalyst/Hall Growth Capital Management Co., LLC (“Catalyst/Hall”), and SG-Directional, LLC (“SG-Directional”), as Members’ Representative (Catalyst/Hall and SG-Directional together as the “Members’ Representative”), and the members of Multi-Shot (the “Members”).

Settlement Agreement

          Pursuant to the Settlement Agreement, JK Acquisition, Multi-Shot and the other parties thereto have agreed to abate the current lawsuit among the parties pending in the 234th Judicial District Court of Harris County, Texas (the “Court”) in exchange for, among other consideration, entering into the Amended Merger Agreement. The parties to the Settlement Agreement have also agreed to waive any prior claims the parties have, or may have had, on the date of the Settlement Agreement against any of the other parties to the Settlement Agreement.

          The parties to the Settlement Agreement have agreed that the Court will retain continuing jurisdiction over any dispute filed regarding the Settlement Agreement, and that any such dispute will be submitted to the Court for resolution. In addition, the parties have agreed that any dispute regarding the Amended Merger Agreement will be tried in the district courts in Harris County, Texas. None of the parties to the Settlement Agreement have admitted any liability or violation.

Agreement and Plan of Merger

          The Amended Merger Agreement fully amends and restates the First Amended and Restated Agreement and Plan of Merger, dated February 14, 2007, by and among JK Acquisition, MSI, Multi-Shot, Catalyst/Hall and the Members. Pursuant to the Amended Merger Agreement, Multi-Shot will merge with and into MSI (the “Merger”). Following completion of the Merger, it is anticipated that JK Acquisition will change its name to MS Energy Services, Inc.

          The Merger is expected to be consummated by January 31, 2008, after the required approval by JK Acquisition’s stockholders and the fulfillment of certain other conditions, as discussed in greater detail herein and in the Amended Merger Agreement.

          The Amended Merger Agreement will terminate automatically if either (1) JK Acquisition fails to file its definitive proxy materials with the SEC and mail such materials to its stockholders prior to December 31, 2007, or (2) the merger is not completed on or before January 31, 2008.

          The following description summarizes the material provisions of the Amended Merger Agreement. Stockholders should read carefully the Amended Merger Agreement. The Amended Merger Agreement contains representations and warranties which JK Acquisition and MSI, on the one hand, and Multi-Shot and the Members, on the other hand, have made to one another and are for the benefit of such parties only, and may not be relied upon by any other person. The assertions embodied in the representations and warranties contained in the Amended Merger Agreement are qualified by information in disclosure schedules to the Amended Merger Agreement, which we consider nonpublic information. Although JK Acquisition does not believe the disclosure schedules contain information the securities laws require JK Acquisition to publicly disclose, the disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Amended Merger Agreement.

Merger Consideration

     At closing, the initial merger consideration for all the issued and outstanding membership interests of Multi-Shot is expected to be approximately $197,500,000, based upon the Gross Enterprise Value of Multi-Shot, as such term is defined in the Amended Merger Agreement. Assuming Third-Party Indebtedness of Multi-Shot, as such term is defined in the Amended Merger Agreement, of $60,000,000 on the closing date, the consideration for the Merger would consist of the following:

	•		$20,000,000 in cash;
	•		21,759,259 shares of JK Acquisition common stock (the “Parent Shares”);
	•		28,516,668 contingent warrants (each contingent warrant may be exchanged for one share of JK Acquisition common stock solely pursuant to the grant of an Contingent Award (as defined in the Merger Agreement) pursuant to the Merger Agreement); and
	•		the assumption of approximately $60,000,000 in Third-Party Indebtedness, $15,000,000 of which must be repaid at the closing of the Merger; and
	•		the cancellation of 2,458,334 shares of JK Acquisition common stock owned by the current officers and directors of JK Acquisition.

     Furthermore, the Members will also be eligible to receive Redemption Liability Shares (as defined in the Amended Merger Agreement) and Redemption Warrants (as defined in the Amended Merger Agreement) if the cash consideration paid by JK Acquisition to its stockholders with respect to such stockholders exercising their conversion rights exceeds $3,000,000.

     A portion of the cash currently being held in the trust fund established in connection with JK Acquisition’s initial public offering will be used to (1) pay the transaction related expenses of JK Acquisition, MSI, Multi-Shot and the Members, (2) pay the $20,000,000 cash portion of the purchase price, and (3) repay $15,000,000 of the Third-Party Indebtedness that, by its terms, is required to be repaid to SG-Directional (one of the Members of Multi-Shot) at the closing of the Merger. In addition, additional cash from the trust fund may be used to repay all, or a portion of the contemplated $45,000,000 of other assumed indebtedness.

     If the holders of any warrants to purchase JK Acquisition common stock other than Parent Warrants (“Index Warrants”) exercise Index Warrants during any of the periods ending on June 30, 2008, June 30, 2009 and April 30, 2010 (the “Determination Periods”), at the option of the holder of each Parent Warrant, each of the Parent Warrants may be exchanged for either their pro rata share of a Contingent Award or a Cash Exercise Warrant as such terms are defined in the Amended Merger Agreement. A Contingent Award is a number of shares of JK Acquisition common stock as calculated by a cashless exercise formula contained in Section 2.06(d) of the Amended Merger Agreement that are issued for no additional consideration upon the tender of a number of Parent Warrants equal to the aggregate amount of Index Warrants exercised during the applicable Determination Period. The cashless exercise formula considers the aggregate number of Index Warrants exercised during the Determination Period, the trading price of JK Acquisition common stock at the time of each exercise and the weighted average exercise price of the Index Warrants exercised. The formula is described in detail in Section 2.06(d) of the Amended Merger Agreement, and an example of the calculation is attached to the Amended Merger Agreement filed herewith as Schedule 2.06(d). For any holder of a Parent Warrant electing to receive a Cash Exercise Warrant, such warrant represents the right to purchase a number of shares of JK Acquisition common stock equal to the holder’s pro rata share of the aggregate number of Index Warrants exercised during the Determination Period. The exercise price for any Cash Exercise Warrant will be equal, on a warrant for warrant basis, to the exercise price of the Index Warrants exercised during such period, which range from $5.00 to $6.25 per share.

     The Cash Exercise Warrant will have substantially similar terms to the Parent Warrant, but will be exercisable at a set exercise price (or prices) as described above.

     All Parent Shares, Redemption Liability Shares and JK Acquisition common stock issued pursuant to the exercise of any Parent Warrant, Cash Exercise Warrant or Redemption Warrant will be subject to a registration rights agreement.

Termination

     The Amended Merger Agreement terminates automatically, without action by any party, if either (1) JK Acquisition fails to file its definitive proxy materials with the SEC and mail such materials to its stockholders prior to December 31, 2007, or (2) the merger is not completed by January 31, 2008. The Amended Merger Agreement may be terminated prior to the closing of the Merger upon certain events, including the following:

	•		at any time, by mutual written agreement as duly authorized by the Board of Directors of JK Acquisition and the Board of Managers of Multi-Shot;
	•		by JK Acquisition or Multi-Shot, upon the issuance of any order which is final and nonappealable that would prevent or prohibit the consummation of the Merger;
	•		by JK Acquisition, if there is a material breach of any representation, warranty or obligation by Multi-Shot under the Amended Merger Agreement that renders the satisfaction of any condition to JK Acquisition’s obligations impossible and such breach is not waived by JK Acquisition;
	•		by Multi-Shot, if there is a material breach by JK Acquisition of any representation, warranty or obligation under the Amended Merger Agreement, that renders the satisfaction of any condition to Multi-Shot’s obligations impossible and such breach is not waived by Multi-Shot;
	•		by Multi-Shot, if the aggregate liabilities and indebtedness of Parent and MSI exceed $4,202,500;
	•		by JK Acquisition, if Multi-Shot’s adjusted or updated 2007 Annualized Adjusted EBITDA (as defined in the Amended Merger Agreement) is less than $29,000,000; or

In some cases, in the event that JK Acquisition elects to terminate the Amended Merger Agreement, JK Acquisition will be liable for certain fees and expenses incurred by Multi-Shot and the Members during the Merger negotiations.

Effect of Termination

     Except as described above, in the event the Amended Merger Agreement is terminated, it shall become void, there shall be no liability under the agreement on the part of JK Acquisition, MSI or Multi-Shot or any of their respective officers, managers or directors, and all rights and obligations of each party hereto shall cease. Furthermore, if the Amended Merger Agreement is terminated:

	•		JK Acquisition and MSI are obligated to return all document and work papers obtained from Multi-Shot or the Members;
	•		all filings with any government agencies shall be withdrawn, to the extent practicable;
	•		certain confidentiality obligations will survive closings; and
	•		no party shall be relieved of any liability for willful breach of the Amended Merger Agreement.

RESULTS OF OPERATIONS

Comparison of Three Months Ended September 30, 2007 and 2006

     For the three months ended September 30, 2007, we had net income of $229,222, compared to net income of $57,168 for the three months ended September 30, 2006. For the three months ended September 30, 2007, we wrote off $381,286 of deferred transaction costs, due to the uncertainty of completing our proposed merger with Multi-Shot. In addition, we incurred $108,292 of general and administrative expenses, offset by interest income on the trust fund investments of $718,800 as compared to the three months ended September 30, 2006,

when we incurred $85,268 of general and administrative expenses, offset by loss on derivative liabilities of $548,690 and interest income on the trust fund investments of $725,534.

Comparison of Nine Months Ended September 30, 2007 with nine months ended September 30, 2006

     For the nine months ended September 30, 2007 we had net income of $1,867,591, compared to $3146,511 for the nine months ended September 30, 2006. For the nine months ended September 30, 2007, we incurred $345,286 of general and administrative expenses and the impairment of deferred transaction costs of $1,356,704, offset by gain on derivative liabilities of $1,468,600 and interest income on the trust fund investments of $2,101,058, compared to the nine months ended September 30, 2006 when we incurred $152,933 of general and administrative expenses, offset by gain on derivative liabilities of $2,046,025 and interest income on the trust fund investments of $1,317,103.

CHANGES IN FINANCIAL CONDITION

Liquidity and Capital Resources

     On April 10, 2006, we entered into an agreement with certain of our directors for the sale of 333,334 units in a private placement. Each unit consists of one share of common stock and two warrants. Each warrant entitles the holder to purchase from us one share of our common stock at an exercise price of $5.00.

     On April 17, 2006, we consummated our initial public offering of 13,225,000 units, including 1,725,000 units that were attributable to the full exercise of the underwriters’ over-allotment option. Each unit consists of one share of common stock and two warrants. Each warrant entitles the holder to purchase from us one share of our common stock at an exercise price of $5.00. Our common stock and warrants started trading separately as of May 11, 2006.

     Our net proceeds from the sale of our units, including the exercise of the underwriters’ over-allotment option, after deducting certain offering expenses of approximately $750,100 and underwriting discounts of approximately $3,967,000, were approximately $76,632,404. Of this amount, $76,532,404 is being held in a trust account at J.P. Morgan Chase Bank maintained by Continental Stock Transfer & Trust Company, New York, New York, as trustee and the remaining $100,000 is not being held in trust. The remaining proceeds of $100,000 not held in trust (plus up to $900,000 of interest earned on the proceeds held in trust) are available to be used by us for working capital purposes to provide for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. We will use substantially all of the net proceeds of this offering to acquire a target business, including identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating the business combination.

     The proceeds held in the trust account may be used as consideration to pay the sellers of a target business with which we complete a business combination. The underwriters have agreed to defer approximately $1,552,500 of the proceeds attributable to their non-accountable expense allowance until the consummation of a business combination. Upon the consummation of a business combination, we will pay such deferred non-accountable expense allowance to the underwriters out of the proceeds of this offering held in trust. Any amounts not paid as consideration to the sellers of the target business or to the underwriters for deferred underwriting fees and expenses may be used to finance operations of the target business. We expect that the operating expenses of a target business may include some or all of the following: capital expenditures, expenditures for future projects, general ongoing expenses including supplies and payroll, expanding markets and strategic acquisitions or alliances. To the extent that our capital stock is used in whole or in part as consideration to effect a business combination, the proceeds held in the trust account as well as any other net proceeds not expended will be used to finance the operations of the target business. We believe that the funds available to us outside of the trust account will be sufficient to allow us to operate until the proposed merger with Multi-Shot is consummated within the agreed upon time period. In the event the proposed merger with Multi-Shot is not consummated within the agreed upon time period, we believe that we will not have sufficient funds to operate through October 2007, assuming a business combination is not consummated by that time, unless we receive advances from Messrs. Wilson and Spickelmier, or other interested parties sufficient to continue operations. Alternatively, we may need to raise additional funds to the extent such financing is required to consummate a business combination, in which case we may issue additional securities or incur debt in connection with such business combination. We expect that we would only consummate such a financing simultaneously with the consummation of a business combination.

     Commencing on April 10, 2006 and ending upon the acquisition of a target business, we began incurring a fee of $7,500 per month for office space and certain administrative, technology and secretarial services from 4350 Management, LLC, an affiliate of James P. Wilson, our chairman of the board and chief executive officer. In addition, on May 18, 2005 and December 20, 2005, Messrs. Wilson and Spickelmier advanced us an aggregate of $329,000 to us for payment of offering expenses on our behalf. These advances were repaid following our initial public offering from the proceeds of the offering.

     On May 23, 2007, June 14, 2007, July 19, 2007, and September 6, 2007 we received an aggregate of $500,000 in advances for expenses from two shareholders, Messrs. Wilson and Spickelmier. On October 9, 2007 we received and additional aggregate of $200,000 in advances for expenses from two shareholders, Messrs. Wilson and Spickelmier. Proceeds from each of the advances will fund the Company’s ongoing continuing operating expenses. Under the terms of the advances, the Company will: (i) pay no interest on such advances and (ii) the amounts of the advances are due to be reimbursed upon the consummation of a business combination. In the event the Company fails to complete a business combination with any entity (I) by October 10, 2007 or, (II) if a letter of intent, agreement in principle or definitive agreement is executed, but not consummated, by October 10, 2007, then by April 10, 2008, then the Company shall not be required to repay the advances. The two shareholders who advanced such funds, Messrs. Wilson and Spickelmier, have waived any recourse against the Company’s trust

account with respect to the advances in the event that a business combination is not consummated by the Company in a timely manner as described herein above.

     We currently have no operating business. If we are unable to find and close a suitable target business by October 10, 2007 (or April 10, 2008 if a letter of intent, agreement in principle or a definitive agreement has been executed by October 10, 2007), we will be forced to liquidate. If we are forced to liquidate, the per-share liquidation may be less than the price at which public stockholders purchased their shares because of the expenses related to our initial public offering, our general and administrative expenses and the anticipated costs of seeking a business combination. Additionally, if third parties make claims against us, the offering proceeds held in the trust account could be subject to those claims, resulting in a further reduction to the per-share liquidation price. Under Delaware law, our stockholders who have received distributions from us may be held liable for claims by third parties to the extent such claims are not been paid by us. Furthermore, our warrants will expire worthless if we liquidate before the completion of a business combination.

Off-Balance Sheet Arrangements

     Other than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity. We do not have any majority-owned subsidiaries.

Contractual Obligations

     In connection with our initial public offering, we agreed to pay the underwriters a deferred non-accountable expense allowance of $1,552,500 upon the consummation of our initial business combination. We expect that such allowance will be paid out of the proceeds in the trust account. Other than contractual obligations incurred in the ordinary course of business, we do not have any other long-term contractual obligations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices and/or equity prices. Our exposure to market risk is limited to interest income sensitivity with respect to the funds placed in the trust account. However, the funds held in our trust account have been invested only in U.S. “government securities,” defined as any Treasury Bill issued by the United States having a maturity of one hundred and eighty days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940, so we are not deemed to be an investment company under the Investment Company Act. Thus, we are subject to market risk primarily through the effect of changes in interest rates on government securities. The effect of other changes, such as foreign exchange rates, commodity prices and/or equity prices, does not pose significant market risk to us.

Item 4. Controls and Procedures.

     Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of the end of the period covered by this report.

     There were no changes in our internal controls over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

     We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and our principal executive officer and our principal financial officer have concluded that these controls and procedures are effective at the “reasonable assurance” level.

PART II – OTHER INFORMATION

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

INDEX TO EXHIBITS

JK Acquisition Corp (AMEX:JKA)
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