Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period
ended September 30, 2008
or
o
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from to
Commission File
Number: 001-33824
Prospect Acquisition Corp.
(Exact name of
registrant as specified in its charter)
Delaware
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26-0508760
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(State
or Other Jurisdiction of
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(I.R.S.
Employer
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Incorporation
or Organization)
|
|
Identification
No.)
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|
|
|
695 East Main Street
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|
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Stamford, CT
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06901
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrants
telephone number, including area code:
(203) 363-0885
Indicate by check mark whether
the registrant: (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
x
No
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 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
|
Accelerated filer
o
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Non-accelerated filer
x
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Smaller reporting company
o
|
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
x
No
o
The number of shares of common
stock, par value $0.0001 per share, outstanding as of October 23, 2008 was
31,250,000.
Table of Contents
PART I:
FINANCIAL INFORMATION
ITEM 1 FINANCIAL
STATEMENTS
Prospect
Acquisition Corp.
(a development stage
company)
Condensed
Balance Sheets
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|
September
30, 2008
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|
December
31, 2007
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|
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(Unaudited)
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(Audited)
|
|
Assets
|
|
|
|
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Current assets:
|
|
|
|
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|
Cash
|
|
$
|
4,884
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|
$
|
58,075
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|
Cash held in Trust Account
|
|
248,721,832
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|
247,340,887
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|
Accrued interest income on Trust Account
|
|
282,853
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|
739,654
|
|
Prepaid expenses
|
|
84,122
|
|
22,605
|
|
Prepaid taxes
|
|
82,579
|
|
|
|
Total current assets
|
|
249,176,270
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|
248,161,221
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|
Deferred tax asset
|
|
130,946
|
|
|
|
Total assets
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|
$
|
249,307,216
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|
$
|
248,161,221
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|
Liabilities and Stockholders Equity
|
|
|
|
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|
Current liabilities:
|
|
|
|
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Accrued expenses
|
|
$
|
75,720
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|
$
|
45,407
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|
Accrued offering costs
|
|
|
|
38,216
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|
Income taxes payable
|
|
|
|
392,498
|
|
Deferred underwriting commission
|
|
10,000,000
|
|
10,000,000
|
|
Total liabilities
|
|
10,075,720
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|
10,476,121
|
|
Common stock, subject to possible
conversion, 7,499,999 shares at conversion value
|
|
74,099,990
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|
74,099,990
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|
Commitments and contingencies
|
|
|
|
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Stockholders equity
|
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|
|
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|
Preferred stock, $0.0001 par value;
1,000,000 shares authorized; none issued and outstanding
|
|
|
|
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Common stock, $0.0001 par value; 72,000,000
shares authorized; 31,250,000 shares (including 7,499,999 subject to possible
conversion) issued and outstanding
|
|
3,125
|
|
3,125
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|
Additional paid-in capital
|
|
162,966,787
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|
162,966,787
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|
Retained earnings accumulated during the
development stage
|
|
2,161,594
|
|
615,198
|
|
Total stockholders equity
|
|
165,131,506
|
|
163,585,110
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|
Total liabilities and stockholders equity
|
|
$
|
249,307,216
|
|
$
|
248,161,221
|
|
See notes to unaudited
condensed financial statements.
1
Table of Contents
Prospect Acquisition Corp.
(a development stage
company)
Condensed
Statements of Operations
(Unaudited)
|
|
For the three
months ended
September 30,
2008
|
|
For the nine
months ended
September 30,
2008
|
|
For the period
from July 9,
2007 (date of
inception)
through
September 30,
2007
|
|
For the period
from July 9,
2007 (date of
inception)
through
September 30,
2008
|
|
Interest income
|
|
$
|
951,016
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|
$
|
3,479,602
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|
$
|
|
|
$
|
4,560,143
|
|
|
|
|
|
|
|
|
|
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|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Capital & franchise taxes
|
|
339,080
|
|
412,253
|
|
467
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|
431,438
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|
Formation and operating costs
|
|
44,708
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|
148,631
|
|
746
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|
165,545
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|
Professional fees
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|
31,090
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|
192,129
|
|
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217,125
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|
Rent and office expenses
|
|
22,500
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67,500
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79,250
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|
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437,378
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|
820,513
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|
1,213
|
|
893,358
|
|
Net income (loss) before provision for
income taxes
|
|
513,638
|
|
2,659,089
|
|
(1,213
|
)
|
3,666,785
|
|
Provision for income taxes
|
|
235,427
|
|
1,112,693
|
|
|
|
1,505,191
|
|
Net income (loss)
|
|
$
|
278,211
|
|
$
|
1,546,396
|
|
$
|
(1,213
|
)
|
$
|
2,161,594
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
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|
31,250,000
|
|
31,250,000
|
|
7,187,500
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24,197,522
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|
Net income per share:
|
|
|
|
|
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|
|
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Basic and diluted
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$
|
0.01
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|
$
|
0.05
|
|
$
|
(0.00
|
)
|
$
|
0.09
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|
See notes to unaudited
condensed financial statements.
2
Table of Contents
Prospect Acquisition Corp.
(a development stage
company)
Condensed
Statements of Stockholders Equity
|
|
|
|
|
|
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|
Retained
|
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|
|
|
|
|
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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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Total
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Common Stock
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Paid-in
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Development
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Stockholders
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|
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Shares
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Amount
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|
Capital
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Stage
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|
Equity
|
|
Common shares issued to initial stockholders on July 18, 2007
at approximately $.003 per share
|
|
7,187,500
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|
$
|
719
|
|
$
|
24,281
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|
$
|
|
|
$
|
25,000
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|
Sale of 25,000,000 units, net of underwriters discount and offering
expenses of $18,205,004 (includes
7,499,999 shares subject to possible conversion)
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|
25,000,000
|
|
2,500
|
|
231,792,496
|
|
|
|
231,794,996
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|
Proceeds subject to possible conversion of 7,499,999 shares
|
|
|
|
|
|
(74,099,990
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)
|
|
|
(74,099,990
|
)
|
Proceeds from issuance of Sponsors Warrants
|
|
|
|
|
|
5,250,000
|
|
|
|
5,250,000
|
|
Repurchase of 937,500 common shares issued
to initial stockholders
|
|
(937,500
|
)
|
(94
|
)
|
|
|
|
|
(94
|
)
|
Net income
|
|
|
|
|
|
|
|
615,198
|
|
615,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
31,250,000
|
|
3,125
|
|
162,966,787
|
|
615,198
|
|
163,585,110
|
|
|
|
|
|
|
|
|
|
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Unaudited:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
Net income
|
|
|
|
|
|
|
|
1,546,396
|
|
1,546,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
31,250,000
|
|
$
|
3,125
|
|
$
|
162,966,787
|
|
$
|
2,161,594
|
|
$
|
165,131,506
|
|
See notes to unaudited
condensed financial statements.
3
Table of Contents
Prospect Acquisition Corp.
(a development stage
company)
Condensed
Statements of Cash Flows
(Unaudited)
|
|
For the nine
months ended
September 30,
2008
|
|
For the period
from July 9,
2007 (date of
inception)
through
September 30,
2007
|
|
For the period
from July 9,
2007 (date of
inception)
through
September 30,
2008
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,546,396
|
|
$
|
(1,213
|
)
|
$
|
2,161,594
|
|
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
|
|
|
|
|
|
|
|
Interest income earned on Trust Account
|
|
(3,479,602
|
)
|
|
|
(4,560,143
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
Increase in prepaid expenses
|
|
(144,096
|
)
|
|
|
(166,701
|
)
|
Increase in deferred tax asset
|
|
(130,946
|
)
|
|
|
(130,946
|
)
|
Increase in accrued expenses
|
|
30,313
|
|
1,123
|
|
75,720
|
|
Decrease in income taxes payable
|
|
(392,498
|
)
|
|
|
|
|
Net cash used in operating activities
|
|
(2,570,433
|
)
|
(90
|
)
|
(2,620,476
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
Cash placed in Trust Account
|
|
|
|
|
|
(247,000,000
|
)
|
Cash withdrawn from Trust Account
|
|
2,555,458
|
|
|
|
2,555,458
|
|
Net cash provided by (used in) investing
activities
|
|
2,555,458
|
|
|
|
(244,444,542
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
Gross proceeds from initial public offering
|
|
|
|
|
|
250,000,000
|
|
Proceeds from issuance of Sponsors
Warrants
|
|
|
|
|
|
5,250,000
|
|
Proceeds from sale of shares of common
stock to initial stockholders
|
|
|
|
25,000
|
|
25,000
|
|
Proceeds from notes payable to stockholders
|
|
|
|
200,000
|
|
200,000
|
|
Repayment of notes payable to stockholders
|
|
|
|
|
|
(200,000
|
)
|
Repurchase of common shares from initial
stockholders
|
|
|
|
|
|
(94
|
)
|
Payment of deferred offering costs
|
|
|
|
(82,683
|
)
|
|
|
Payment of offering costs
|
|
(38,216
|
)
|
|
|
(8,205,004
|
)
|
Net cash (used in) provided by financing
activities
|
|
(38,216
|
)
|
142,317
|
|
247,069,902
|
|
Net (decrease) increase in cash
|
|
(53,191
|
)
|
142,227
|
|
4,884
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
58,075
|
|
|
|
|
|
Cash at end of period
|
|
$
|
4,884
|
|
$
|
142,227
|
|
$
|
4,884
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash
financing activities
|
|
|
|
|
|
|
|
Accrual of deferred offering costs
|
|
|
|
$
|
185,520
|
|
|
|
Deferred underwriting commission
|
|
|
|
|
|
$
|
10,000,000
|
|
Supplemental disclosure of cash flow
information
|
|
|
|
|
|
|
|
Cash paid during the period for income
taxes
|
|
$
|
1,718,715
|
|
$
|
|
|
$
|
1,718,715
|
|
See notes to unaudited
condensed financial statements.
4
Table of Contents
Prospect Acquisition Corp.
(a development stage
company)
Notes
to Unaudited Condensed Financial Statements
1.
Interim Financial Information
Prospect
Acquisition Corp.s (the Company) unaudited condensed interim financial
statements as of September 30, 2008, for the three and nine month periods
ended September 30, 2008, for the period from July 9, 2007 (date of
inception) through September 30, 2007, and for the period from July 9,
2007 (date of inception) through September 30, 2008, have been prepared by
the Company in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the
interim period presented are not necessarily indicative of the results to be
expected for any other interim period or for the full year.
These
unaudited condensed interim financial statements should be read in conjunction
with the audited financial statements and notes thereto for the period ended December 31,
2007 included in the Companys Annual Report on Form 10-K filed with the
U.S. Securities and Exchange Commission on March 31, 2008. The December 31, 2007 balance sheet and
the changes in stockholders equity through December 31, 2007 have been
derived from those audited financial statements. The accounting policies used in preparing
these unaudited financial statements are consistent with those described in the
December 31, 2007 audited financial statements.
2.
Organization, Business Operations and Significant Accounting
Policies
The
Company was incorporated in Delaware on July 9, 2007, and is a blank check
company formed for the purpose of acquiring control of, through a merger,
capital stock exchange, asset acquisition, stock purchase, reorganization or
other similar business combination, one or more operating businesses or assets
in the financial services industry (a Business Combination). At September 30, 2008, the Companys
operations related to the Companys formation and the initial public offering
described below.
The
registration statement for the Companys initial public offering (the Offering)
was declared effective November 14, 2007.
The Company consummated the Offering on November 20, 2007 and
received gross proceeds of $250,000,000 and $5,250,000 from the sale of
Sponsors Warrants on a private placement basis (see Note 3). The Companys management has broad discretion
with respect to the specific application of the net proceeds of the Offering,
although substantially all of the net proceeds of the Offering are intended to
be generally applied toward consummating a Business Combination. Furthermore, there is no assurance that the
Company will be able to successfully effect a Business Combination. An amount of $247,000,000 (or approximately $9.88 per unit) of the net
proceeds of the Offering and the sale of the Sponsors Warrants (see Note 3)
was deposited in a trust account (the Trust Account) and invested in United
States government securities within the meaning of Section 2(a)(16) of
the Investment Company Act of 1940 having a maturity of 180 days or less, or in
money market funds meeting certain conditions under Rule 2a-7 promulgated
under the Investment Company Act of 1940 until the earlier of (i) the
consummation of its initial Business Combination or (ii) liquidation of
the Company. At September 30, 2008,
the Trust Account was invested in United States government securities and has
been accounted for as a trading security. The placing of funds in the Trust
Account may not protect those funds from third party claims against the
Company. Although the Company has sought
and will seek to have all 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. A Company officer
and two initial stockholders 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, subject to limited exceptions. However, there can be no assurance that they
will be able to satisfy those obligations.
The remaining net proceeds (not held in the Trust Account) are being
used to pay for business, legal and accounting due diligence on prospective
acquisitions and continuing general and administrative expenses. Until the consummation of the initial
Business Combination or the liquidation of the Company, proceeds held in the
Trust Account will not be available for the Companys use for any purpose,
except there can be released to the Company from the Trust Account (i) interest
5
Table
of Contents
Prospect Acquisition Corp.
(a development stage
company)
Notes to
Unaudited Condensed Financial Statements
income
earned on the Trust Account balance to pay any income taxes on such interest
and (ii) interest income earned of up to $2.75 million on the Trust
Account balance to fund the Companys working capital requirements, provided
that after such release there remains in the Trust Account a sufficient amount
of interest income previously earned on the Trust Account balance to pay any
due and unpaid income taxes on such $2.75 million of interest income.
Amounts placed in Trust
|
|
$
|
247,000,000
|
|
Interest income received
|
|
4,277,290
|
|
Amounts withdrawn for payment of
federal & state taxes
|
|
(2,021,420
|
)
|
Amounts withdrawn for working capital
|
|
(534,038
|
)
|
Total
|
|
$
|
248,721,832
|
|
The Company, after signing a definitive agreement for a Business
Combination with a target business or businesses, is required to submit such
transaction for stockholder approval. In
the event that those persons that purchase securities in the Offering or
thereafter (Public Stockholders) owning 30% or more of the shares sold in the
Offering vote against the Business Combination and exercise their conversion
rights described below, the Business Combination will not be consummated. All of the Companys stockholders prior to
the Offering, including all of the directors of the Company (the Initial
Stockholders), have agreed to vote all of their founding shares of common
stock in accordance with the majority of the shares of common stock voted by
the Public Stockholders with respect to any Business Combination.
After consummation of a Business Combination, these voting safeguards
will no longer apply.
With
respect to a Business Combination which is approved and consummated, any Public
Stockholder who voted against the Business Combination may demand that the
Company convert his or her shares into cash from the Trust Account. The per share conversion price will equal the
aggregate amount then on deposit in the Trust Account, before payment of
deferred underwriting discounts and commissions and including accrued interest,
net of income taxes on such interest and net of interest income on the Trust
Account balance released to the Company as described above, calculated as of
two business days prior to the proposed consummation of the initial Business
Combination, divided by the number of shares of common stock sold in the
Offering. Accordingly, Public
Stockholders holding not more than 30% of the shares (minus one share) sold in
the Offering may seek conversion of their shares in the event of a Business
Combination. Such Public Stockholders are entitled to receive their per share
interest in the Trust Account (net of the tax and working capital items
described above) computed without regard to the shares held by Initial
Stockholders.
Accordingly,
a portion of the net proceeds from the Offering (29.99% of the amount placed in
the Trust Account) has been classified as common stock subject to possible
conversion in the accompanying financial statements.
The
Companys Certificate of Incorporation was amended on November 14, 2007 to
provide that the Company will continue in existence only until 24 months from
the effective date of the registration statement relating to the Offering (the Effective
Date), or November 14, 2009. If
the Company has not completed a Business Combination by such date, its
corporate existence will cease except for the purposes of liquidating and
winding up its affairs. In the event of
liquidation, it is possible that the per share value of the residual assets
remaining available for distribution (including assets in the Trust Account)
will be less than the initial public offering price per Unit in the Offering
(assuming no value is attributed to the Warrants contained in the Units offered
in the Offering discussed in Note 3) because of the expenses of the Offering, the
Companys general and administrative expenses and the anticipated costs of
seeking an initial Business Combination.
New Accounting Pronouncements:
In December 2007,
the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 141(R)
, Business
Combinations
(SFAS 141R) which establishes principles and
requirements for how the acquirer of a business recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any non-controlling interest in the acquiree. SFAS 141R also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. SFAS 141R will have an
impact to the Company for any acquisitions on or after
January 1, 2009.
6
Table of Contents
Prospect
Acquisition Corp.
(a development stage
company)
Notes to
Unaudited Condensed Financial Statements
In
December 2007, the FASB released SFAS No. 160,
Noncontrolling
Interests in Consolidated Financial Statements an amendment of ARB No. 51
(SFAS 160), which establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent and
for the deconsolidation of a subsidiary.
SFAS 160 also establishes disclosure requirements that clearly identify
and distinguish between the interest of the parent and the interests of the
non-controlling owners. SFAS 160 is effective for financial statements issued
for fiscal years beginning after December 15, 2008. SFAS 160 may have a material impact to the
Company with respect to any acquisitions on or after January 1, 2009.
Management
does not believe that any other recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on the
accompanying financial statements.
3.
Initial
Public Offering
On
November 20, 2007, the Company sold 25,000,000 units (the Units) at an
offering price of $10.00 per Unit. The
Company granted the underwriters an option to purchase up to an additional
3,750,000 Units solely to cover over-allotments. Said option could have been exercised in
whole or in part at any time before the 30
th
day after the Effective
Date, and has expired without having been exercised by the underwriters.
Each
Unit consists of one share of the Companys common stock and one warrant
exercisable for one share of common stock at an exercise price of $7.50 per
share (a Warrant). Each Warrant will
be exercisable on the later of the completion of the initial Business
Combination and fifteen months from the Effective Date, provided in each case
that the Company has an effective registration statement covering the shares of
common stock issuable upon exercise of the warrants and a current prospectus relating
to them is available. The Warrants will
expire five years from the Effective Date, unless earlier redeemed. The Company may call the Warrants for
redemption, in whole and not in part, at any time after the Warrants become
exercisable and there is an effective registration statement covering the
shares of common stock issuable upon exercise of the warrants available and
current throughout the 30-day Redemption Period defined hereafter, upon a
minimum of 30 days prior written notice of redemption (the 30-day Redemption
Period) at a price of $0.01 per Warrant, only in the event that the last sale
price of the common stock equals or exceeds $14.50 per share for any 20 trading
days within a 30-trading day period ending on the third business day prior to
the date on which the notice of redemption is sent to the Warrant holder. In accordance with the warrant agreement
relating to the Warrants sold and issued in the Offering, the Company is only
required to use its best efforts to maintain the effectiveness of the
registration statement covering the Warrants from the date the warrants become
exercisable until the warrants expire or are redeemed. The Company will not be obligated to deliver
securities, and there are no contractual penalties for failure to deliver
securities, if a registration statement is not effective at the time of
exercise. Additionally, in the event
that a registration statement is not effective at the time of exercise, the
holder of such Warrant shall not be entitled to exercise such Warrant and in no
event (whether in the case of a registration statement not being effective or
otherwise) will the Company be required to settle the warrant exercise, whether
by net cash settlement or otherwise. Consequently,
the Warrants may expire unexercised and unredeemed (and therefore worthless),
and, as a result, an investor in the Offering may effectively pay the full Unit
price solely for the shares of common stock included in the Units.
The
Company entered into an agreement with the underwriters of the Offering (the Underwriting
Agreement). The Underwriting Agreement
requires the Company to pay 3% of the gross proceeds of the Offering as an
underwriting discount plus an additional 4% of the gross proceeds of the
Offering only upon consummation of a Business Combination. The Company paid an underwriting discount of
3% of the gross proceeds of the Offering ($7.5 million) in connection with the
consummation of the Offering and has placed 4% of the gross proceeds of the
Offering ($10 million) in the Trust Account.
The $10 million amount due to the underwriters has been classified as
deferred underwriting commission on the accompanying balance sheets. The Company did not have to pay any discount
related to the Sponsors Warrants sold on a private placement basis. The underwriters have waived their right to
receive payment of the 4% of the gross proceeds of the Offering upon the
Companys liquidation if the Company is unable to complete a Business
Combination.
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Table of Contents
Prospect Acquisition Corp.
(a development stage
company)
Notes to
Unaudited Condensed Financial Statements
Pursuant
to purchase agreements dated November 14, 2007, certain of the Initial
Stockholders have purchased from the Company, in the aggregate, 5,250,000
warrants for $5,250,000 (the Sponsors Warrants). The purchase and issuance of the Sponsors
Warrants occurred simultaneously with the consummation of the Offering on a
private placement basis. All of the
proceeds the Company received from these purchases were placed in the Trust
Account. The Sponsors Warrants are
identical to the Warrants included in the Units offered in the Offering except
that the Sponsors Warrants (i) are non-redeemable so long as they are
held by the original purchasers or their permitted transferees, (ii) are
subject to certain transfer restrictions and will not be exercisable while they
are subject to these transfer restrictions and (iii) may be exercised for
cash or on a cashless basis. The
purchase price of the Sponsors Warrants has been determined to be the fair
value of such warrants as of the purchase date.
The Initial Stockholders have waived their right to receive a
liquidation distribution with respect to their founding shares upon the Companys
liquidation if it is unable to complete a Business Combination.
4.
Related
Party Transactions
The
Company presently occupies office space provided by affiliates of certain of
the Companys officers and directors.
Such affiliates have agreed that until the Company consummates a
Business Combination, they will make such office space, as well as certain
general and administrative services including utilities and administrative
support, available to the Company, as may be required by the Company from time
to time. The Company has agreed to pay
such affiliates a total of $7,500 per month for 24 months for such services
commencing on the Effective Date.
5.
Commitments
The
Initial Stockholders and holders of the Sponsors Warrants (or underlying
securities) will be entitled to registration rights with respect to their
founding shares or Sponsors Warrants (or underlying securities), as the case
may be, pursuant to an agreement dated November 14, 2007. In addition, the Initial Stockholders have
certain piggy-back registration rights with respect to registration
statements filed by the Company generally commencing nine months after the
consummation of the Companys initial Business Combination, and the holders of
the Sponsors Warrants (or underlying securities) have certain piggy-back
registration rights on registration statements filed after the Companys
consummation of a Business Combination.
6.
Capital
Stock
The
Companys original Certificate of Incorporation authorized the Company to issue
6,000,000 shares of common stock with a par value of $0.0001 per share. In October, 2007, the Companys certificate
of incorporation was amended to increase the authorized shares of common stock
from 6,000,000 shares to 8,000,000 shares. The Companys Certificate of
Incorporation was amended on November 14, 2007 to increase the number of
authorized shares of common stock to 72,000,000. In addition, the Company is authorized to
issue 1,000,000 shares of preferred stock.
On
July 18, 2007, the Company issued 4,312,500 shares of common stock to the
founders for an aggregate of $25,000 in cash, at a purchase price of
approximately $0.006 per share. In
October, 2007, the aggregate outstanding 4,312,500 shares of common stock were
increased to 7,187,500 shares of common stock as a result of a 5-for-3 stock
split declared by our board of directors.
All references in the accompanying financial statements to the number of
shares of stock have been retroactively restated to reflect these transactions.
In
accordance with the terms of the Offering, with the expiration of the
underwriters option to purchase up to an additional 3,750,000 Units solely to
cover over-allotments, in December 2007, the Company repurchased 937,500
shares of common stock from the Initial Stockholders at a price of $0.0001 per
share.
7.
Legal
There
is no material litigation currently pending against the Company or any member
of its management team in their capacity as such.
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ITEM 2
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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The following discussion should
be read in conjunction with our Condensed Financial Statements and notes
thereto contained in this report.
Forward-Looking
Statements
All statements other than
statements of historical fact included in this Form 10-Q including,
without limitation, statements under Managements Discussion and Analysis of
Financial Condition and Results of Operations regarding our financial
position, business strategy and the plans and objectives of management for
future operations, are forward looking statements. When used in this Form 10-Q,
words such as anticipate, believe, estimate, expect, intend and
similar expressions, as they relate to us or our management, identify forward
looking statements. Such forward looking statements are based on the beliefs of
management, as well as assumptions made by, and information currently available
to, our management. Actual results could differ materially from those
contemplated by the forward looking statements as a result of certain factors detailed
in the Form 10-Q and our other filings with the Securities and Exchange
Commission. All subsequent written or oral forward looking statements
attributable to us or persons acting on our behalf are qualified in their
entirety by this paragraph.
Overview
We were formed on July 9,
2007, to serve as a vehicle to effect a merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or other similar business
combination with one or more operating business in the financial services industry.
Our initial business combination must be with a business or businesses whose
collective fair market value is in excess of 80% of the balance in the trust
account (excluding the amount held in the trust account representing a portion
of the underwriters discount) at the time of the initial business combination.
We intend to utilize cash derived from the proceeds of our recently completed
public offering, our capital stock, debt or a combination of cash, capital
stock and debt, in effecting a business combination.
Results
of Operations
For the three months ended September 30,
2008, we had a net income of $278,211, consisting of interest income of
$951,016 less costs attributable to organization, formation and general and
administrative expenses of $437,378 and net of a provision for income taxes of
$235,427. For the nine months ended September 30, 2008, we had a net
income of $1,546,396, consisting of interest income of $3,479,602 less costs
attributable to organization, formation and general and administrative expenses
of $820,513 and net of a provision for income taxes of $1,112,693. For the
period from July 9, 2007 (date of inception) through September 30,
2007 we had a net loss of $1,213 consisting of formation and operation
costs. For the period from July 9,
2007 (date of inception) through September 30, 2008, we had a net income
of $2,161,594, consisting of interest income of $4,560,143 less costs
attributable to organization, formation and general and administrative expenses
of $893,358 and net of a provision for income taxes of $1,505,191. Through September 30,
2008 we did not engage in any significant operations. Our activities from
inception through September 30, 2008 were to prepare for our initial
public offering and begin the identification of a suitable business combination
candidate.
Financial
Condition and Liquidity
We consummated our initial
public offering of 25,000,000 units on November 20, 2007. Gross proceeds
from our initial public offering were $250,000,000. We paid a total of $7,500,000
in underwriting discounts and commissions and $705,004 for other costs and
expenses related to the offering. After
deducting the underwriting discounts and commissions and the offering expenses,
the total net proceeds including $5,250,000 from the sale of the sponsor
warrants to us from the offering were $247,044,996, and an amount of
$247,000,000, including $10,000,000 of deferred underwriting commissions, was
deposited into a trust account at JP Morgan Chase Bank, NA, maintained by
Continental Stock Transfer & Trust Company, as trustee. We intend to
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 fund as well as any other net proceeds not expended
will be used to finance the operations of the target business. We believe we
will have sufficient available funds outside of the trust fund to operate
through November 14, 2009, assuming that a business combination is not
consummated during that time.
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Table of Contents
We intend to use substantially
all of the funds held in the trust account, less the payment due the underwriter
for the deferred underwriting discount, to acquire a target business. However,
as long as we consummate our initial business combination with one or more
target businesses with a fair market value in excess of 80% of the balance in
the trust account (excluding the amount held in the trust account representing
the underwriters deferred discount), we may use the assets in the trust
account for any purpose we may choose. To the extent that our capital stock or
debt is used in whole or in part as consideration to consummate our initial
business combination, the remaining proceeds held in the trust account will be
used as working capital, including director and officer compensation,
change-in-control payments or payments to affiliates, or to finance the operations
of the target business, make other acquisitions and pursue our growth
strategies.
We believe that the funds
available that were to us outside of the trust account of $50,000 and up to
$2,750,000 of the interest earned on the trust account will be sufficient to
allow us to operate through at least November 14, 2009, assuming that our
initial business combination is not consummated during that time. During this
period, although we are not required to, we intend to use these funds to
identify and evaluate prospective acquisition candidates, to perform business
due diligence on prospective target businesses, to travel to and from offices
or similar locations of prospective target businesses, to select the target
business to acquire and to structure, negotiate, and consummate our initial
business combination.
We anticipate that we will
incur approximately $1,300,000 of expenses for legal, accounting and other
expenses attendant to the due diligence investigation, structuring and
negotiating of our initial business combination, $180,000 in the aggregate for
the administrative fee payable to Teleos Management, L.L.C. and LLM Capital
Partners LLC ($4,500 and $3,000, respectively, per month for 24 months),
$100,000 of expenses in legal and accounting fees relating to our SEC reporting
obligations, and $1,220,000 for general working capital that can be used in
connection with our acquisition plans. We do not believe that we will need to
raise additional funds in order to meet the expenditures required for operating
our business. However, we may need to raise additional funds through an
offering of debt or equity securities if funds are required to consummate a
business combination that is presented to us, although we have not entered into
any such arrangements and have no current intention of doing so.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
To date, our efforts have been
limited to organizational activities, activities relating to our initial public
offering and the identification of a target business. We have neither engaged
in any operations nor generated any revenues. As the proceeds from our initial
public offering held in the trust account have been invested in short term
investments, our only market risk exposure relates to fluctuations in interest.
As of September 30, 2008,
$248,721,832 of the net proceeds of our initial public offering (excluding
$282,853 of accrued interest) was held in the trust account for the purposes of
consummating our initial business combination. Continental Stock Transfer &
Trust Company, the trustee, has invested the money held in the trust account at
JPMorgan Chase Bank, NA.
We have not engaged in any
hedging activities since our inception on July 9, 2007. We do not expect
to engage in any hedging activities with respect to the market risk to which we
are exposed.
ITEM 4
CONTROLS AND PROCEDURES
The Company maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our reports filed pursuant to the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the SECs rules, regulations and
related forms, and that such information is accumulated and communicated to our
management on a timely basis to allow decisions regarding required disclosure.
Management, including our chief
executive officer and chief financial officer, has evaluated the effectiveness
of the design and operation of our disclosure controls and procedures (as
defined under Rules 13a-15(e) and 15(d)-15(e) of the Exchange
Act) as of September 30, 2008. Based upon that evaluation, management has
concluded that our disclosure controls and procedures were effective as of the
end of the period covered by this quarterly report.
During the most recently
completed fiscal quarter, there has been no 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.
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Table of Contents
PART II: OTHER INFORMATION
None.
There have
been no material changes in our risk factors disclosed in our Annual Report on Form 10-K
for the period ended December 31, 2007.
ITEM 2
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UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS
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On November 20, 2007, we
closed our initial public offering of 25,000,000 units, with each unit
consisting of one share of our common stock and one warrant, each to purchase
one share of our common stock at an exercise price of $7.50 per share. The
units from the initial public offering were sold at an offering price of $10.00
per unit, generating total gross proceeds of $250,000,000. Citigroup Global
Markets Inc. acted as the sole bookrunning manager and Ladenburg Thalmann &
Co. Inc. and I-Bankers Securities, Inc. acted as co-managers of the
initial public offering. The securities sold in the offering were registered
under the Securities Act of 1933 on a registration statement on Form S-1 (No. 333-
145110). The Securities and Exchange Commission declared the registration
statement effective on November 14, 2007.
We paid a total of $7,500,000
in underwriting discounts and commissions and $705,004 for other costs and
expenses related to the offering.
We also consummated the
simultaneous private sale of 5,250,000 warrants at a price of $1.00 per
warrant, generating total proceeds of approximately $5,250,000. The warrants
were purchased by Flat Ridge Investments LLC, LLM Structured Equity Fund L.P.,
LLM Investors L.P. and Capital Management Systems, Inc. The warrants are identical to the Warrants
included in the Units sold in the IPO except that the warrants are exercisable
on a cashless basis and, if we call the warrants for redemption, the warrants
will not be redeemable by us so long as they are held by these purchasers or
their permitted transferees. The purchasers of the warrants have agreed that
the warrants will not be sold or transferred by them until 30 days after we
have completed a business combination.
After deducting the underwriting discounts and commissions and the
offering expenses, the total net proceeds to us from the offering were
$247,044,996, and an amount of $247,000,000, including $10,000,000 of deferred
underwriting commissions, was deposited into the trust account.
As of September 30,
2008, we have paid an aggregate of $2,620,476 in expenditures, which have
been paid out of the proceeds of our initial public offering not held in trust,
the sale of shares of common stock to the initial stockholders and our
withdrawal of $2,555,458 of interest earned on the funds held in trust, for the
following purposes:
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payment
of taxes;
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·
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payment
of premiums associated with our directors and officers liability insurance;
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·
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expenses
for due diligence and investigation of prospective target businesses;
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Legal
and accounting fees relating to our SEC reporting obligations and general
corporate matters; and
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·
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miscellaneous
expenses.
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As
of September 30, 2008, after giving effect to our initial public offering
and our operations subsequent thereto,
$248,721,832 (excluding $282,853
of accrued interest)
was held in the trust account
and we had $4,884 of unrestricted 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.
11
The following
exhibits are filed as part of this Quarterly Report on Form 10-Q:
31.1
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Certification
Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 of the
Principal Executive Officer
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31.2
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Certification
Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 of the
Principal Financial Officer
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32.1
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Certification
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Executive
Officer
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32.2
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Certification
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Financial
Officer
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Table of Contents
SIGNATURES
In accordance with the
requirements of the Exchange Act, the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
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PROSPECT
ACQUISITION CORP.
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Dated: November 14, 2008
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/s/ David A. Minella
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David A. Minella
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Chief Executive Officer and Chairman of the
Board
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(Principal Executive Officer)
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/s/ James J. Cahill
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James J. Cahill
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Chief Financial Officer and Secretary
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(Principal Financial and Accounting
Officer)
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