UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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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, 2007
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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For the transition period from to .
Commission file number: 001-33210
TRANSFORMA ACQUISITION GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
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20-5389307
(I.R.S. Employer Identification No.)
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350 Park Avenue, 10th Floor
New York, NY
(Address of Principal Executive Offices)
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10022
(Zip Code)
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(646) 521-7805
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the 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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
þ
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
As of September 30, 2007, 15,624,997 shares of the registrant’s common stock, par value
$0.0001 per share, were issued and outstanding.
TRANSFORMA ACQUISITION GROUP INC.
Table of Contents
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Page
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1
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As of September 30, 2007 (unaudited)
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As of December 31, 2006
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2
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For the three months ended September 30, 2007 (unaudited)
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For the three months ended September 30, 2006 (unaudited)
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For the nine months ended September 30, 2007 (unaudited)
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From inception (July 19, 2006) to September 30, 2006(unaudited)
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From inception (July 19, 2006) to September 30, 2007(unaudited)
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3
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From inception (July 19, 2006) to September 30, 2007
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4
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For the nine months ended September 30, 2007 (unaudited)
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From inception (July 19, 2006) to September 30, 2006(unaudited)
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From inception (July 19, 2006) to September 30, 2007(unaudited)
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5
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12
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13
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13
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14
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14
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14
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14
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14
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14
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14
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EXHIBIT 3.1
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EXHIBIT 31.1
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EXHIBIT 31.2
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EXHIBIT 32.1
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EXHIBIT 32.2
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(i)
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements.
TRANSFORMA ACQUISITION GROUP INC.
(a corporation in the development stage)
BALANCE SHEETS
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September 30, 2007
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December 31, 2006
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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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745,823
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$
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665,016
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Cash and cash equivalents held in Trust Account (Note 1)
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100,822,419
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98,610,424
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Prepaid expenses
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109,936
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5,240
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Total current assets
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101,678,178
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99,280,680
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DEFERRED ACQUISITION COSTS
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221,665
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—
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TOTAL ASSETS
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$
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101,899,843
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$
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99,280,680
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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CURRENT LIABILITIES:
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Deferred underwriting fee (Note 5)
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$
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3,720,000
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$
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3,720,000
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Accrued registration costs
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50,000
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157,771
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Accrued expenses
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313,246
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56,991
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Accrued acquisition costs
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121,665
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—
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Income taxes payable
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353,274
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5,055
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Total current liabilities
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4,558,185
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3,939,817
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COMMON STOCK SUBJECT TO POSSIBLE CONVERSION
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(4,999,999 shares at conversion value) (Note 1)
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39,920,571
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39,418,759
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COMMITMENTS
(Note 5)
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STOCKHOLDERS’ EQUITY
(Notes 2, 6 and 7):
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Preferred stock, par value $.0001 per share, 5,000
shares authorized, 0 shares issued
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—
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—
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Common stock, par value $.0001 per share, 32,500,000
shares authorized, 10,624,998 shares issued and
outstanding (excluding 4,999,999 shares subject to
possible conversion)
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1,062
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1,109
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Additional paid-in capital
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55,340,585
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55,892,350
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Earnings accumulated in the development stage
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2,079,440
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28,645
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TOTAL STOCKHOLDERS’ EQUITY
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57,421,087
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55,922,104
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
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$
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101,899,843
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$
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99,280,680
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See Notes to Financial Statements
1
TRANSFORMA ACQUISITION GROUP INC.
(a corporation in the development stage)
STATEMENTS OF OPERATIONS
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From inception
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From inception
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For the three
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For the three
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For the nine months
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(July 19, 2006)
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(July 19, 2006)
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months ended
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months ended
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ended September 30,
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to
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to
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September 30, 2007
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September 30, 2006
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2007
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September 30, 2006
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September 30, 2007
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(unaudited)
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(unaudited)
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(unaudited)
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(unaudited)
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(unaudited)
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Interest income
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$
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1,293,457
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$
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—
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$
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3,818,302
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$
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—
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$
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3,928,727
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General and administrative expenses
(Notes 4 and 5)
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206,249
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6,000
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711,038
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6,000
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787,763
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Income before provision for income
taxes
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1,087,208
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(6,000
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3,107,264
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(6,000
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3,140,964
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Provision for income taxes (Note 4)
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369,650
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—
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1,056,469
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—
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1,061,524
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Net income for the period
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$
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717,558
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$
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(6,000
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$
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2,050,795
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$
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(6,000
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$
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2,079,440
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Accretion of Trust Account relating to
common stock subject to possible
conversion
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(169,640
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—
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(501,812
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—
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(520,579
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Net income attributable to common
stockholders
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$
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547,918
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$
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(6,000
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$
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1,548,983
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$
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(6,000
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$
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1,558,861
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Number of shares outstanding subject
to possible conversion
, basic and
diluted
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4,999,999
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—
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4,999,999
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—
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Net income per share subject to
possible conversion
, basic and diluted
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$
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0.03
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—
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$
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0.10
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—
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Weighted average number of shares
outstanding
, basic and diluted
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10,624,998
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2,008,024
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10,624,998
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2,008,024
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Net income per share
, basic and diluted
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$
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0.05
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$
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(0.00
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$
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0.15
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$
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(0.00
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See Notes to Financial Statements
2
TRANSFORMA ACQUISITION GROUP INC.
(a corporation in the development stage)
STATEMENTS OF STOCKHOLDERS’ EQUITY
FROM INCEPTION (JULY 19, 2006) TO SEPTEMBER 30, 2007
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Common stock
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Additional
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Earnings
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paid-in
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accumulated in the
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Shares
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Amount
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capital
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Treasury stock
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development stage
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Total
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Balance, July 19, 2006 (inception)
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—
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$
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—
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$
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—
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—
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$
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—
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$
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—
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Issuance of common stock to
initial stockholders
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3,593,747
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359
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24,641
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—
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—
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25,000
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Proceeds from sale of
underwriter’s unit purchase
option
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—
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—
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100
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—
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—
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100
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Proceeds from issuance of Warrants
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—
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—
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3,000,000
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—
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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
underwriter’s discount and public
offering expenses and net of
$39,399,992 of proceeds from
stockholders allocable to
4,999,999 shares of common stock
subject to possible conversion
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7,500,001
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750
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52,886,376
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—
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—
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52,887,126
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Net income for the period
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—
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—
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—
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—
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28,645
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28,645
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Accretion of Trust Account relating to common stock subject
to possible conversion
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—
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—
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(18,767
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—
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—
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(18,767
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Balance, December 31, 2006
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11,093,748
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$
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1,109
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$
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55,892,350
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—
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$
|
28,645
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$
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55,922,104
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Forfeiture of common stock issued
to initial stockholders
(unaudited)
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—
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—
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3,501,562
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(3,501,562
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—
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—
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Cancellation of common stock
received from initial
stockholders (unaudited)
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(468,750
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)
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(47
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(3,501,515
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3,501,562
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—
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—
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Public offering expenses accrued
related to the sale of 12,500,000
units through public offering
(unaudited)
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—
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—
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(50,000
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)
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—
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—
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(50,000
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)
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Net income for the period
(unaudited)
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—
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—
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—
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—
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|
2,050,795
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2,050,795
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Accretion of Trust Account
relating to common stock subject
to possible conversion
(unaudited)
|
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—
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|
|
—
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(501,812
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)
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—
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—
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(501,812
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)
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Balance, September 30, 2007
(unaudited)
|
|
|
10,624,998
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$
|
1,062
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$
|
55,340,585
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|
|
|
—
|
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|
$
|
2,079,440
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|
|
$
|
57,421,087
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See Notes to Financial Statements
3
TRANSFORMA ACQUISITION GROUP INC.
(a corporation in the development stage)
STATEMENTS OF CASH FLOWS
|
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For the nine
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From inception
|
|
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From inception
|
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|
|
|
months
|
|
|
(July 19, 2006)
|
|
|
(July 19, 2006)
|
|
|
|
|
ended
|
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to
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to
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|
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|
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September
|
|
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September 30,
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September 30,
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|
|
30, 2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the period
|
|
$
|
2,050,795
|
|
|
$
|
(6,000
|
)
|
|
$
|
2,079,440
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(104,696
|
)
|
|
|
—
|
|
|
|
(109,936
|
)
|
|
Accrued expenses
|
|
|
256,255
|
|
|
|
6,000
|
|
|
|
313,246
|
|
|
Income taxes payable
|
|
|
348,219
|
|
|
|
—
|
|
|
|
353,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
2,550,573
|
|
|
|
—
|
|
|
|
2,636,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of cash and cash equivalents held in Trust
Account
|
|
|
(2,211,995
|
)
|
|
|
—
|
|
|
|
(100,822,419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(2,211,995
|
)
|
|
|
—
|
|
|
|
(100,822,419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances of common stock to initial
stockholders
|
|
|
—
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
Proceeds from notes payable to initial stockholders
|
|
|
—
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
Payments of notes payable to initial stockholders
|
|
|
—
|
|
|
|
—
|
|
|
|
(200,000
|
)
|
|
Proceeds from issuance of warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
3,000,000
|
|
|
Proceeds from sale of underwriter’s unit purchase option
|
|
|
—
|
|
|
|
—
|
|
|
|
100
|
|
|
Portion of net proceeds from sale of units through
public offering allocable to shares of common stock
subject to possible conversion
|
|
|
—
|
|
|
|
—
|
|
|
|
39,399,992
|
|
|
Net proceeds from sale of units through public offering
allocable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
—
|
|
|
|
—
|
|
|
|
53,044,897
|
|
|
Deferred underwriting fees
|
|
|
—
|
|
|
|
—
|
|
|
|
3,720,000
|
|
|
Deferred acquisition costs paid
|
|
|
(100,000
|
)
|
|
|
—
|
|
|
|
(100,000
|
)
|
|
Registration costs paid
|
|
|
(157,771
|
)
|
|
|
(64,852
|
)
|
|
|
(157,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
|
|
|
(257,771
|
)
|
|
|
160,148
|
|
|
|
98,932,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
80,807
|
|
|
|
160,148
|
|
|
|
745,823
|
|
|
CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
665,016
|
|
|
|
—
|
|
|
|
—
|
|
|
End of period
|
|
$
|
745,823
|
|
|
$
|
160,148
|
|
|
$
|
745,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
708,250
|
|
|
$
|
—
|
|
|
$
|
708,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued registration costs
|
|
$
|
50,000
|
|
|
$
|
169,615
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued acquisition costs
|
|
$
|
121,665
|
|
|
$
|
—
|
|
|
$
|
121,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Trust Account relating to common stock
subject to possible conversion
|
|
$
|
501,812
|
|
|
$
|
—
|
|
|
$
|
520,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of underwriter’s unit purchase option
included in public offering costs
|
|
$
|
1,218,750
|
|
|
$
|
—
|
|
|
$
|
1,218,750
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
4
TRANSFORMA ACQUISITION GROUP INC.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1 — DISCUSSION OF THE COMPANY’S ACTIVITIES
Organization and activities
- Transforma Acquisition Group Inc. (“Company”) was incorporated
in Delaware on July 19, 2006 for the purpose of acquiring one or more assets or control of one or
more operating businesses in the technology, media or telecommunications industries (“Target
Business”) through a merger, capital stock exchange, stock purchase, asset acquisition or other
similar business combination (“Business Combination”). The Company has selected December 31 as its
fiscal year end.
The Company is considered to be a development stage company and as such the financial
statements presented herein are presented in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 7.
The registration statement for the Company’s initial public offering (“Offering”) was declared
effective on December 19, 2006. The Company consummated the Offering on December 26, 2006 for net
proceeds of approximately $96 million (including approximately $3.7 million payable to the
Company’s underwriters upon the successful closing of a Business Combination). The Company’s
management intends to apply substantially all of the net proceeds of the Offering toward
consummating a Business Combination. The initial Target Business must have a fair market value
equal to at least 80% of our net assets (excluding the amount held in the trust account
representing a portion of the underwriters’ deferred discount) (Note 5) at the time of such
acquisition. However, there is no assurance that the Company will be able to successfully effect a
Business Combination.
Management has agreed that $98.5 million or $7.88 per Unit sold in the Offering will be held
in a trust account (“Trust Account”) and invested in permitted United States government securities,
of which $0.2976 per Unit will be paid to the underwriter upon the consummation of a Business
Combination. 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 all vendors, prospective
acquisition targets 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. Fifty percent of after tax interest up to an
aggregate amount of $2,000,000 in interest earned on the monies held in the Trust Account may be
used to pay for due diligence of prospective Target Businesses, legal and accounting fees relating
to Securities and Exchange Commission (“SEC”) reporting obligations and working capital to cover
miscellaneous expenses, director and officer insurance and reserves (Note 5).
The Company, after signing a definitive agreement for a Business Combination, is obliged to
submit such transaction for approval by a majority (more than 50%) of the public stockholders of
the Company. Stockholders that vote against such proposed Business Combination and exercise their
conversion rights are, under certain conditions described below, entitled to convert their shares
into a pro-rata distribution from the Trust Account (the “Conversion Right”). The actual per-share
conversion price will be equal to the amount in the Trust Account (inclusive of any interest
thereon) as of two business days prior to the proposed Business Combination, divided by the number
of shares sold in the Offering, or approximately $7.98 per share based on the value of the Trust
Account as of September 30, 2007. As a result of the Conversion Right, $39,399,992 (plus accretion
of $520,579) has been classified in common stock, subject to possible conversion on the
accompanying balance sheet as of September 30, 2007. The Company’s stockholders prior to the
Offering (“Initial Stockholders”), have agreed to vote their 3,124,997 founding shares of common
stock in accordance with the manner in which the majority of the shares of common stock offered in
the Offering are voted by the Company’s public stockholders (“Public Stockholders”) with
respect to a Business Combination. In the event that a majority of the outstanding shares of
common stock voted by the Company’s Public Stockholders vote for the approval of the Business
Combination and holders owning 40% or more of the outstanding common stock do not vote against the
Business Combination and do not exercise their Conversion Rights, the Business Combination may then
be consummated.
If the Company does not execute a letter of intent, agreement in principle or definitive agreement
for a Business Combination prior to 18 months from the date of the Offering (June 26, 2008), the
Company’s board will convene, adopt and recommend to their stockholders a plan of dissolution and
distribution and file a proxy statement with the SEC seeking stockholder approval for such plan.
If, however, a letter of intent, agreement in principle or definitive agreement for a Business
Combination has been executed prior to 18 months from the date of the Offering, the
5
TRANSFORMA ACQUISITION GROUP INC.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Company will abandon their plan of dissolution and distribution and seek the consummation of that
Business Combination. If a proxy statement seeking the approval of the Company’s stockholders for
that Business Combination has not been filed prior to 24 months from the date of the Offering
(December 26, 2008), the Company’s board will convene, adopt and recommend to their stockholders a
plan of dissolution and distribution and file a proxy statement with the SEC seeking stockholder
approval for such plan. In the event there is no Business Combination within the 18 and 24-month
deadlines (“Target Business Combination Period”), the Company will dissolve and distribute to its
Public Stockholders, in proportion to their respective equity interests, the amount held in the
Trust Account, and any remaining net assets, after the distribution of the Trust Account. In the
event of liquidation, it is possible that the per share value of the residual assets remaining
available for distribution (including Trust Account assets) will be less than the initial public
offering price per share in the Offering.
With respect to a Business Combination which is approved and consummated, any Public
Stockholder who voted against the Business Combination may contemporaneously with or prior to such
vote exercise their Conversion Right and their common shares would be cancelled and returned to the
status of authorized but unissued shares. The per share conversion price will equal the amount in
the Trust Account, calculated as of two business days prior to the consummation of the proposed
Business Combination, divided by the number of shares of common stock held by Public Stockholders
at the consummation of the Offering. Accordingly, Public Stockholders holding less than 40% of the
aggregate number of shares owned by all Public Stockholders 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 computed without regard to the founding shares (but not shares
acquired in the Offering or in the secondary market) held by Initial Stockholders.
NOTE 2 — OFFERING
In the Offering, the Company sold to the public 12,500,000 Units (collectively the “Units” and
each a “Unit”) at a price of $8.00 per Unit. Proceeds from the Offering totaled approximately $96
million, which was net of approximately $3.9 million in underwriting fees and other expenses paid
at closing. Each Unit consists of one share of the Company’s common stock and one warrant to
purchase a share of the Company’s common stock for $5.50 per share.
The Company also sold to one of the underwriters, CRT Capital Group LLC, a Unit Purchase
Option (“UPO”) to purchase up to a total of 375,000 additional Units (Note 7).
The Company had granted to the underwriters a 45-day option to purchase up to 1,875,000 Units
solely to cover over-allotments, if any. As discussed in Note 6, the 45-day option expired in
January 2007, and the option was never exercised.
NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
- The accompanying unaudited financial statements have been
prepared pursuant to the rules and regulations of the SEC and should be read in conjunction with
the Company’s audited financial statements and footnotes thereto for the period from inception
(July 19, 2006) to December 31, 2006 included in the Company’s Annual Report on Form 10-K, (File
No. 001-33210). Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted in the United
States of America have been omitted pursuant to such rules and regulations. However, the Company
believes that the disclosures are adequate to make the information presented not misleading. The
financial statements reflect all adjustments (consisting only of normal recurring adjustments) that
are, in the opinion of management necessary for a fair presentation of the Company’s financial
position, results of operations and cash flows. The operating results for the period ended
September 30, 2007 are not necessarily indicative of the results to be expected for any other
interim period of any future year.
CASH AND CASH EQUIVALENTS
- Cash and cash equivalents are deposits with financial institutions
as well as short-term money market instruments with maturities of three months or less when
purchased.
6
TRANSFORMA ACQUISITION GROUP INC.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
DEFERRED ACQUISITION COSTS
- Costs related to proposed acquisitions are capitalized and in the
event the acquisition does not occur, the costs are expensed.
TRUST ACCOUNT
- The Company’s restricted cash and cash equivalents held in the Trust Account
at September 30, 2007 is invested in a money market fund. The Company recognized interest income of
$3,912,978 from inception (July 19, 2006) to September 30, 2007 on such money market fund in
addition to $15,749 recognized for the same period on its cash and cash equivalents, aggregating
$3,928,727, which is included in interest income on the accompanying statements of operations.
CONCENTRATION OF CREDIT RISK
- Financial instruments that potentially subject the Company to a
significant concentration of credit risk consist primarily of cash and cash equivalents. The
Company may maintain deposits in federally insured financial institutions in excess of federally
insured limits. However, management believes the Company is not exposed to significant credit risk
due to the financial position of the depository institutions in which those deposits are held.
NET INCOME PER SHARE
- Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average common shares outstanding for the period. Calculation
of the weighted average common shares outstanding during the period is based on 3,124,997 initial
shares outstanding throughout the period from July 19, 2006 (inception) to September 30, 2007,
468,750 initial shares cancelled by the Company on January 25, 2007 (retroactively restated to
August 2006) and 7,500,001 common shares outstanding after the completion of the Offering on
December 26, 2006. Basic net income per share subject to possible conversion is calculated by
dividing accretion of Trust Account relating to common stock subject to possible conversion by
4,999,999 common shares subject to possible conversion. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common stock that then
shared in the earnings of the entity. Since the effect of outstanding warrants to purchase common
stock and outstanding Unit Purchase Option are antidilutive, they have been excluded from the
Company’s computation of net income per share.
USE OF ESTIMATES
- The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect certain reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ from those
estimates.
INCOME TAXES
- Deferred income tax assets and liabilities are computed for differences between
the financial statement and tax basis of assets and liabilities that will result in future taxable
or deductible amounts and are based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred income tax assets to the amount expected to be realized.
NEW ACCOUNTING PRONOUNCEMENTS
- In July 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”).
FIN 48 establishes new evaluation and measurement processes for all income tax positions taken. FIN
48 also requires expanded disclosures of income tax matters. Management does not believe the
adoption of this standard for the year ending December 31, 2007, will have a material effect on the
Company’s financial statements.
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. This statement is effective in fiscal years beginning after November
15, 2007. The Company believes that the adoption of SFAS No. 157 will not have a significant effect
on the Company’s financial statements.
7
TRANSFORMA ACQUISITION GROUP INC.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 4 — INCOME TAXES
Provision for income taxes consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From inception
|
|
From inception
|
|
|
|
For the three
|
|
For the three
|
|
For the nine
|
|
(July 19, 2007)
|
|
(July 19, 2006)
|
|
|
|
months ended
|
|
months ended
|
|
months ended
|
|
to
|
|
to
|
|
|
|
September 30, 2007
|
|
September 30, 2006
|
|
September 30, 2006
|
|
September 30, 2007
|
|
September 30, 2006
|
|
Current-Federal
|
|
$
|
369,650
|
|
|
$
|
—
|
|
|
$
|
1,056,469
|
|
|
$
|
—
|
|
|
$
|
1,061,524
|
|
The Company’s effective tax rate approximates the federal statutory rate. No provision for
state and local income taxes has been made since the Company was formed as a vehicle to effect a
Business Combination and, as a result does not conduct operations and is not engaged in a trade or
business in any state. The Company is incorporated in Delaware and accordingly is subject to
franchise taxes. Delaware franchise tax expense of $575, $30,927 and $79,653 for the three months
ended September 30, 2007, nine months ended September 30, 2007 and for the period from inception
(July 19, 2006) to September 30, 2007, respectively, are included as part of general and
administrative expenses in the accompanying statements of operations.
NOTE 5 — COMMITMENTS
Administrative Fees
The Company is permitted to utilize fifty percent of after tax interest up to an aggregate
amount of $2,000,000 of the interest earned upon monies in the Trust Account (of which (i) an
aggregate amount of up to $1,250,000 may be released to the Company upon its demand within 12
months after the completion of the Offering, and (ii) an aggregate amount of up to $750,000 plus
any remaining portion of the $1,250,000 not previously released to the Company during the initial
12-month period may be released to the Company upon its demand during the period that is between 12
months and 24 months after the completion of the Offering) in addition to approximately $627,000
which was transferred to the Company upon consummation of the Offering for working capital
purposes. The working capital will be used to pay for director and officer liability insurance
premiums and general and administrative services, including office space, utilities and secretarial
support, with the balance being held in reserve for other expenses, such as due diligence, legal,
accounting, and other fees and expenses for structuring and negotiating business combinations, and
deposits, down payments and/or funding of “no shop” provisions in connection with business
combinations as well as for reimbursement of any out-of-pocket expenses incurred by the Initial
Stockholders in connection with activities undertaken on the Company’s behalf.
The Company has agreed to pay an affiliate of two directors $7,500 per month commencing on
effectiveness of the Offering for office, secretarial and administrative services. Secretarial and
administrative service of $22,500, $67,500 and $70,645 for the three months ended September 30,
2007, nine months ended September 30, 2007 and for the period from inception (July 19, 2006) to
September 30, 2007, respectively, are included as part of general and administrative expenses in
the accompanying statements of operations.
Underwriting Agreement
In connection with the Offering, the Company entered into an underwriting agreement (the
“Underwriting Agreement”) with the underwriters in the Offering.
Pursuant to the Underwriting Agreement, the Company was obligated to the underwriters for
certain fees and expenses related to the Offering, including underwriting discounts of $7,000,000.
The Company paid $3,280,000 of the underwriting discount upon closing of the Offering. The Company
and the underwriters have agreed that payment of the balance of the underwriting discount of
$3,720,000 will be deferred until consummation of the
8
TRANSFORMA ACQUISITION GROUP INC.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Business Combination. Accordingly, a deferred underwriting fee comprised of the deferred portion of
the underwriting discount is included on the accompanying balance sheets.
NOTE 6 — CAPITAL STOCK
During September 2006, the Company amended and restated its Certificate of Incorporation to
authorize the issuance of an additional 90,000,000 shares of common stock for an aggregate
authorization of 100,000,000 shares of common stock.
On December 14, 2006, the Company effected a 2 for 3 reverse stock split of its outstanding
shares of common stock. All of the references in the accompanying financial statements to the
number of shares have been retroactively restated to reflect the reverse stock split.
During May 2007, the Company amended and restated its Certificate of Incorporation to
authorize the reduction of 67,500,000 shares of common stock for an aggregate remaining
authorization of 32,500,000 shares of common stock.
Preferred Stock
The Company is authorized to issue 5,000 shares of preferred stock with such designations,
voting and other rights and preferences as may be determined from time to time by the Board of
Directors.
Common Stock
In August 2006, the Company’s Initial Stockholders purchased 3,593,747 post reverse stock
split shares of the Company’s common stock for an aggregate $25,000.
On January 25, 2007, the Initial Stockholders returned an aggregate of 468,750 shares of the
Company’s common stock to the Company for cancellation. At the date of return and cancellation,
management determined the fair value to be $7.47 per share based on the common stock closing price
on January 25, 2007. Accordingly, on January 25, 2007, the Company recorded the $3,501,562 value of
the shares contributed to treasury stock and a $3,501,562 corresponding credit to additional
paid-in capital. Upon receipt, such shares were then immediately cancelled by the Company, which
resulted in the retirement of the treasury stock and a corresponding charge to additional paid-in
capital and common stock.
Pursuant to letter agreements with the Company and the underwriters in the Offering and the
private placement offering, the Initial Stockholders have waived their right to receive
distributions with respect to their founding shares (but not shares purchased in the Offering or in
the secondary market) in the event of the Company’s liquidation.
NOTE 7 — WARRANTS AND OPTIONS TO PURCHASE COMMON STOCK
Public Warrants
Each warrant sold in the Offering (a “Public Warrant”) is exercisable for one share of common
stock. Except as set forth below, the Public Warrants entitle the holder to purchase shares at
$5.50 per share, subject to adjustment in the event of stock dividends and splits,
reclassifications, combinations and similar events for a period commencing on the later of: (a)
completion of the Business Combination and (b) December 19, 2007, and ending on December 19, 2010.
The Company has the ability to redeem the Public Warrants, in whole or in part, at a price of $.01
per Public Warrant, at any time after the Public Warrants become exercisable, upon a minimum of 30
days’ prior written notice of redemption, if, and only if, the last sale price of the Company’s
common stock equals or exceeds $11.50 per share for any 20 trading days within a 30 trading day
period ending three business days before the Company sent the notice of redemption.
9
TRANSFORMA ACQUISITION GROUP INC.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Private Warrants
On December 26, 2006, in conjunction with the Offering the Company sold to certain of the
Initial Stockholders 3,000,000 warrants (“Private Warrants”), for an aggregate purchase price of
$3,000,000. All of the proceeds received from these purchases were placed in the Trust Account. The
Private Warrants are identical to the Public Warrants, including entitling the holder to purchase
shares at $5.50 per share, except that they may be exercised on a cashless basis so long as they
are held by the original purchasers, members of their immediate families or their controlled
entities, and may not be sold or transferred, except in limited circumstances, until after the
consummation of a Business Combination. If the Company dissolves before the consummation of a
Business Combination, there will be no distribution from the Trust Account with respect to such
Private Warrants, which will expire worthless.
As the proceeds from the exercise of the Public Warrants and Private Warrants will not be
received until after the completion of a Business Combination, the expected proceeds from exercise
will not have any effect on the Company’s financial condition or results of operations prior to a
Business Combination.
Purchase Option
Upon closing of the Offering, the Company sold and issued to CRT Capital Group LLC an option
to purchase up to 375,000 Units at an exercise price of $10.00 per Unit (“Unit Purchase Option” or
“UPO”). The Units underlying the UPO will be exercisable in whole or in part, solely at CRT Capital
Group LLC’s discretion, commencing on the consummation of a Business Combination and expiring on
the four-year anniversary of the Offering. The Company accounted for the fair value of the UPO, as
an expense of the public offering resulting in a charge directly to stockholders’ equity with an
equivalent increase in additional paid-in capital.
The fair value of the 375,000 Units underlying the UPO was approximately $1.2 million ($3.25
per Unit) at the date of sale and issuance, which was determined using a Black-Scholes
option-pricing model. The fair value of the UPO has been calculated using the following
assumptions: (1) expected volatility of 55.172%, (2) risk-free interest rate of 4.77% and (3)
contractual life of 4 years. The expected volatility of approximately 55% was estimated by
management based on an evaluation of the historical daily volatilities of similar public entities
which had completed a transaction with an operating company. The UPO may only be exercised for
cash. Each of the Units included in the UPO are identical to the Units to be sold in the Offering,
except that (i) the exercise price of the Units will be $10.00 per Unit, (ii) CRT Capital Group LLC
will be entitled to receive certain “piggy-back” registration rights with respect to the Units
issuable upon exercise of the UPO, and (iii) the exercise price of the warrants issued in respect
of the Units issuable upon exercise of the UPO will not be subject to reduction in the event that
we determine to reduce the exercise price of our other Warrants.
Registration Rights — Warrants and UPO
In accordance with the Warrant Agreement related to the Public Warrants and the Registration
Rights Agreement associated with the Private Warrants, the Public Warrants and Private Warrants are
collectively referred to as the “Warrants.” The Company will only be required to use its best
efforts to register the Warrants and the shares of common stock issuable upon exercise of the
Warrants and, once the registration statement is effective, to use its best efforts to maintain the
effectiveness of such registration statement. 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 Warrants shall
not be entitled to exercise. In no event (whether in the case of a registration statement not being
effective or otherwise) will the Company be required to net cash settle a Public Warrant exercise.
Consequently, the Warrants may expire unexercised and unredeemed. The holders of Warrants do not
have the rights or privileges of holders of the Company’s common stock or any voting rights until
such holders exercise their respective Warrants and receive shares of the Company’s common stock.
The Company is not required to register the Units underlying the UPO; however if the Company
does file certain kinds of registration statements at any time during the seven year period
following December 19, 2006 the
10
holders of securities underlying the UPO shall have the right to
join in such registration statement, subject to certain limitations. The Company has no obligation
to net cash settle the exercise of the UPO or the Units underlying the UPO. The holder of the UPO
is not entitled to exercise the UPO or the Units underlying the UPO unless a registration statement
covering the securities underlying the UPO is effective or an exemption from registration is
available. If the holder is unable to exercise the UPO or underlying Units, the UPO or underlying
units, as applicable, will expire worthless.
11
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. 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 Securities and Exchange
Commission filings.
We were formed on July 19, 2006 for the purpose of acquiring one or more assets or control of
one or more operating businesses in the technology, media or telecommunications industries through
a merger, capital stock exchange, asset acquisition, stock purchase or other similar business
combination. Our initial business combination must be with an acquisition target or targets whose
collective fair market value is at least equal to 80% of our net assets (excluding the amount held
in the trust account representing a portion of the underwriters’ discount) at the time of the
acquisition.
On December 26, 2006, we consummated our initial public offering (“Offering”) of 12,500,000
Units. Each Unit consists of one share of our common stock, par value $0.0001 per share, and one
warrant entitling the holder to purchase one share of common stock at a price of $5.50. The public
offering price of each Unit was $8.00, and we generated gross proceeds of $100,000,000 in the
Offering. Of the gross proceeds: (i) we deposited $98,500,000 into a trust account at Smith Barney,
a division of Citigroup Global Markets Inc., maintained by Continental Stock Transfer & Trust
Company, as trustee, which amount included $3,720,000 of contingent underwriting discount and
$3,000,000 that we received from the sale of warrants to our founders in a private placement on
December 26, 2006; (ii) the underwriters received $3,280,000 as underwriting discount (excluding
the contingent underwriting discount); (iii) we retained $640,000 that will not be held in the
trust account; and (iv) we used $580,000 for offering expenses.
On December 26, 2006, we consummated the sale to CRT Capital Group LLC, one of our
underwriters, for $100, of an option to purchase up to a total of 375,000 Units at a price equal to
$10.00 per unit (i.e., 125% of the price of the units sold in our initial public offering). The
Units issuable upon exercise of this option are otherwise identical to those sold in the Offering
except that (i) CRT Capital Group LLC is entitled to certain “piggy-back” registration rights with
respect to the Units issuable upon exercise of its purchase option, and (ii) the exercise price of
the warrants issued in respect of the Units issuable upon exercise of the purchase option will not
be subject to reduction in the event that we determine to reduce the exercise price of our other
warrants. This option is exercisable commencing on the later of the consummation of a business
combination and December 19, 2007, and expiring on December 19, 2010. The purchase option was
registered under the Securities Act on a registration statement on Form S-1 (File No. 333-137263)
that was declared effective on December 19, 2006.
The proceeds deposited in the trust account will not be released from the trust account until
the earlier of the consummation of a business combination or the expiration of the time period
during which we may consummate a business combination. The proceeds held in the trust account
(other than the contingent underwriting discount) may be used as consideration to pay the sellers
of an acquisition target with which we complete a 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 (other than the contingent underwriting discount) will be used
to finance the operations of the acquisition target. We may also use the proceeds held in the trust
account (other than the contingent underwriting discount) to pay a finder’s fee to any unaffiliated
party that provides information regarding prospective targets to us.
We believe that the working capital available to us, in addition to the funds available to us
outside of the trust account, will be sufficient to allow us to operate for 24 months from the date
of our initial public offering in December 2006, assuming that a business combination is not
consummated during that time. Over this time, we have estimated that up to $2,640,000 of working
capital and reserves will be allocated as follows: $1,500,000 of expenses for legal, accounting and
other expenses attendant to the due diligence investigations, structuring and negotiating of a
business combination; up to $180,000 for the administrative fee payable to S&B Investment
Management Group, LLC ($7,500 per month for 24 months), an affiliated third party; $100,000 of
expenses in legal and accounting fees relating to our SEC reporting obligations; and $860,000 for
general working capital that can be
12
used for fairness opinions in connection with our acquisition
plans, director and officer liability insurance premiums, and other miscellaneous expenses and
reserves. As of September 30, 2007 we have used $565,742 for such working capital expenditures.
As of September 30, 2007 we have capitalized $221,665 of legal and consulting costs related to
proposed acquisitions.
Results of Operations
For the three months ended September 30, 2007, we had net income of $717,558 which consisted
of interest income on the trust account investment of $1,285,470 and interest on cash of $7,987,
offset by general and administrative expenses of $206,249, which includes professional fees of
$88,336, Delaware franchise tax of $575, insurance expense of $35,772, travel and entertainment
expenses of $36,582, administrative fees of $22,500 and other operating expenses of $22,484. The
Company has a provision for Federal income taxes of $369,650.
For the nine months ended September 30, 2007, we had net income of $2,050,795 which consisted
of interest income on the trust account investment of $3,802,553 and interest on cash of $15,749,
offset by general and administrative expenses of $711,038, which includes professional fees of
$338,452, Delaware franchise tax of $30,927, insurance expense of $107,314, travel and
entertainment expenses of $106,836, administrative fees of $67,500, filing fees of $24,671, and
other operating expenses of $35,338. The Company has a provision for Federal income taxes of
$1,056,469.
From inception (July 19, 2006) to September 30, 2007, we had net income of $2,079,440 which
consisted of interest income on the trust account investment of $3,912,978 and interest on cash of
$15,749, offset by general and administrative expenses of $787,763, which includes professional
fees of $353,826, Delaware franchise tax of $79,653, insurance expense of $112,434, travel and
entertainment expenses of $106,836, filing fees of $24,671, administrative fees of $70,646 and
other operating expenses of $39,697. The Company has a provision for Federal income taxes of
$1,061,524.
For the three months ended September 30, 2006 and from inception (July 19, 2006) to September
30, 2006 we had a net loss of $6,000, respectively. We incurred professional fee expense of $6,000
related to our formation.
Our financial statements as of and for the period ending December 31, 2006 were audited, and
we filed these audited financial statements in our 2006 Annual Report on Form 10-K dated March 23,
2007.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There has been no material change in our exposure to market risk from that discussed in our
2006 Annual Report on Form 10-K.
Item 4. Controls and Procedures.
Our management carried out an evaluation, with the participation of our principal executive
officer and principal financial officer, of the effectiveness of our disclosure controls and
procedures as of September 30, 2007, the end of the fiscal quarter covered in this report. Based
upon that evaluation, our principal executive officer and principal financial officer 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 (“Exchange Act”)) were effective 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 and is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
As of September 30, 2007 there has been no change in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most
recent fiscal quarter that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
13
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
There have been no material changes from the risk factors disclosed in Part 1, Item 1A, of our
2006 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) None.
(b) None.
(c) None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4.
Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
As reported on a Form 8-K, on September 24, 2007 our Board of Directors adopted amendments to
Article VII, Sections 7.1, 7.3 and 7.4 of our Second Amended and Restated Bylaws. The amendments
place Transforma in compliance with a new AMEX listing standard, approved by the Securities and
Exchange Commission on August 8, 2006, which requires listed companies to become Direct
Registration System (“DRS”) eligible by January 1, 2008. Participation in the DRS will enable our
stockholders to establish, either through our transfer agent or a broker dealer, a book entry
position on our stock record books and permit them to transfer shares electronically without the
delivery of physical certificates. Our Second Amended and Restated Bylaws, as amended, are filed
as exhibit 3.1 to this Quarterly Report on Form 10-Q.
Item 6. Exhibits.
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Exhibit
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Exhibit
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Number
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Description
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3.1
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Second Amended and Restated By-laws of Transforma Acquisition Group Inc., as amended
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31.1
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Certificate Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
of the Principal Executive Officer
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31.2
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Certificate Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
of the Principal Financial Officer
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32.1
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Certification by Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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32.2
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Certification by Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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14
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.
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TRANSFORMA ACQUISITION GROUP INC.
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Date: November 12, 2007
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By:
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/s/ Larry J. Lenhart
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Name:
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Larry J. Lenhart
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Title:
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President and Chief Executive Officer
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Exhibit Index.
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Exhibit
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Exhibit
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Number
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Description
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3.1
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Second Amended and Restated By-laws of Transforma Acquisition Group Inc., as amended
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31.1
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Certificate Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
of the Principal Executive Officer
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31.2
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Certificate Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
of the Principal Financial Officer
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32.1
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Certification by Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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32.2
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Certification by Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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