UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 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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Commission file number: 001-32574
JK ACQUISITION CORP.
(Exact name of registrant as specified in its charter)
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Delaware
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87-0745202
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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4400 Post Oak Parkway, Suite 2530
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Houston, Texas
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77027
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(Address of principal executive
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(Zip Code)
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offices)
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(713) 978-7557
Registrants telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 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 November 14, 2007, 16,516,667 shares of the registrants common stock, par value $0.001 per
share, were outstanding.
JK ACQUISITION CORP.
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
JK ACQUISITION CORP.
(A Development Stage Company)
BALANCE SHEETS
As of September 30, 2007 and December 31, 2006
(Unaudited)
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September 30,
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December 31,
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2007
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2006
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ASSETS
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Current assets:
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Cash
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$
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90,491
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$
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220,104
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Deferred tax asset
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1,613
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1,613
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Total current assets
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92,104
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221,717
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Trust fund
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79,721,079
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77,627,249
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Deferred acquisition costs
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788,234
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Total Assets
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$
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79,813,183
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$
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78,637,200
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable and accrued expenses
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$
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584,090
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$
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299,870
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Federal income tax payable
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8,412
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15,640
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Advances from stockholders
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500,000
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Derivative liabilities
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15,636,834
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Total Liabilities
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1,092,502
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15,952,344
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Common stock subject to redemption, 2,710,311 shares
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15,936,244
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15,517,687
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Stockholders equity:
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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, $0.0001 par value, 50,000,000 shares authorized, 16,516,667 shares issued and
outstanding at September 30, 2007 and December 31, 2006 (including 2,710,311 shares
subject to redemption)
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1,652
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1,652
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Paid-in capital
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60,496,752
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46,747,075
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Earnings accumulated during the development stage
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2,286,033
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418,442
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Total Stockholders Equity
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62,784,437
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47,167,169
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Total Liabilities and Stockholders Equity
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$
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79,813,183
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$
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78,637,200
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See notes to financial statements.
1
JK ACQUISITION CORP.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Three Months ended September 30, 2007 and 2006,
Nine Months ended September 30, 2007 and 2006 and
Period from May 11, 2005 (Inception) to September 30, 2007
(Unaudited)
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Period from
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Inception to
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Three Months Ended September 30,
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Nine Months Ended September 30,
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September 30,
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2007
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2006
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2007
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2006
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2007
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Operating Expenses:
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General & administrative
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$
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108,292
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85,268
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345,286
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152,933
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642,738
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Impairment of deferred transaction costs
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381,286
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1,356,704
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1,356,704
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Operating Loss
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489,578
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85,268
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1,701,990
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152,933
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1,999,442
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Other income:
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Interest income
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718,800
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725,535
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2,101,058
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1,317,103
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4,095,903
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Gain (loss) on derivative liabilities
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(548,690
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)
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1,468,600
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2,046,025
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203,596
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Total other income
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718,800
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176,844
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3,569,658
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3,363,128
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4,299,499
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Net income before income tax expense
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229,222
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91,576
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1,867,668
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3,210,195
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2,300,057
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Income tax expense
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|
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34,408
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|
77
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63,684
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14,024
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Net income
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$
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229,222
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|
|
|
57,168
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|
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|
1,867,591
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3,146,511
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2,286,033
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Net income per share
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Basic
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$
|
0.01
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|
$
|
0.00
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$
|
0.11
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$
|
0.28
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|
|
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Diluted
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|
$
|
0.01
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|
|
$
|
0.00
|
|
|
$
|
0.09
|
|
|
$
|
0.25
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|
|
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|
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Weighted average number of common
shares outstanding:
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Basic
|
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|
16,516,667
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16,516,667
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16,516,667
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11,252,259
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|
|
|
|
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Diluted
|
|
|
20,165,053
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|
18,579,358
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|
|
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20,019,364
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12,515,352
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See notes to financial statements.
2
JK ACQUISITION CORP.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Nine Months ended September 30, 2007 and 2006 and
Period from May 11, 2005 (Inception) to September 30, 2007
(Unaudited)
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Period from
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Inception to
|
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Nine Months Ended September 30,
|
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|
September 30,
|
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|
|
2007
|
|
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2006
|
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|
2007
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
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Net income (loss)
|
|
$
|
1,867,591
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|
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|
(3,146,511
|
)
|
|
|
2,286,033
|
|
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
|
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|
|
|
|
|
|
|
|
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Investment income
|
|
|
(2,101,058
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)
|
|
|
(1,317,103
|
)
|
|
|
(4,095,903
|
)
|
Gain on derivative liabilities
|
|
|
(1,468,600
|
)
|
|
|
(2,046,025
|
)
|
|
|
(203,596
|
)
|
Impairment of deferred transaction costs
|
|
|
1,356,704
|
|
|
|
|
|
|
|
1,356,704
|
|
Change in:
|
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|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Asset
|
|
|
|
|
|
|
|
|
|
|
(1,613
|
)
|
Accrued liabilities and accounts payable
|
|
|
284,220
|
|
|
|
98,285
|
|
|
|
584,090
|
|
Federal income tax payable
|
|
|
(7,228
|
)
|
|
|
|
|
|
|
8,412
|
|
|
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|
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|
|
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|
|
|
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Net cash used in operating activities
|
|
|
(68,371
|
)
|
|
|
(118,332
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)
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|
(65,873
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)
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CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred transaction costs
|
|
|
(568,470
|
)
|
|
|
(220,755
|
)
|
|
|
(1,356,704
|
)
|
Payment to trust account
|
|
|
|
|
|
|
(76,532,404
|
)
|
|
|
(76,532,404
|
)
|
Disbursements from trust account
|
|
|
7,228
|
|
|
|
400,000
|
|
|
|
907,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(561,242
|
)
|
|
|
(76,353,159
|
|
|
|
(76,981,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross proceeds from public offering
|
|
|
|
|
|
|
79,350,000
|
|
|
|
79,350,000
|
|
Gross proceeds from private placement
|
|
|
|
|
|
|
2,000,004
|
|
|
|
2,000,004
|
|
Proceeds from sale of stock
|
|
|
|
|
|
|
|
|
|
|
31,250
|
|
Proceeds from sale of underwriter option
|
|
|
|
|
|
|
100
|
|
|
|
100
|
|
Proceeds from advances from stockholders
|
|
|
500,000
|
|
|
|
|
|
|
|
829,000
|
|
Payments on advances from stockholders
|
|
|
|
|
|
|
(329,000
|
)
|
|
|
(329,000
|
)
|
Cash paid for offering costs
|
|
|
|
|
|
|
(4,413,991
|
)
|
|
|
(4,743,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
500,000
|
|
|
|
76,607,113
|
|
|
|
77,138,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(129,613
|
)
|
|
|
135,622
|
|
|
|
90,491
|
|
Cash at beginning of period
|
|
|
220,104
|
|
|
|
26,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
90,491
|
|
|
|
165,759
|
|
|
|
90,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
|
7,228
|
|
|
|
|
|
|
|
7,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock subject to redemption
|
|
$
|
15,936,244
|
|
|
|
15,417,082
|
|
|
|
15,299,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in value of common stock subject to redemption
|
|
|
418,556
|
|
|
|
117,983
|
|
|
|
638,588
|
|
Inception of warrants accounted for as derivative liabilities
|
|
|
|
|
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12,325,805
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15,636,834
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Elimination of derivatives at fair value warrants
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14,168,233
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14,168,233
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See notes to financial statements.
3
JK ACQUISITION CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of JK Acquisition Corp. (also
hereinafter referred to as JK Acquisition or the Company) have been prepared in accordance with
accounting principles generally accepted in the United States of America and the rules of the
Securities and Exchange Commission (SEC), and should be read in conjunction with the audited
financial statements and notes thereto contained in the JK Acquisitions annual report filed with
the SEC on Form 10-K for the year ended December 31, 2006. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of
financial position and the results of operations for the interim periods presented have been
reflected herein. The results of operations for interim periods are not necessarily indicative of
the results to be expected for the full year. Notes to the financial statements which would
substantially duplicate the disclosures contained in the audited financial statements for the year
ended December 31, 2006 and the period from May 11, 2005 (inception) to December 31, 2005 as
reported in the Form 10-K have been omitted.
NOTE 2 INITIAL PUBLIC OFFERING
On April 17, 2006, JK Acquisition sold 13,225,000 units to the public at a price of $6.00 per
unit. Each unit consists of one share of common stock and two redeemable common stock purchase
warrants. JK Acquisition received proceeds of $74,606,890, net of offering costs of $4,743,110. On
May 11, 2006, the warrants and common stock were separated from the units and began to trade
separately.
Each warrant entitles the holder to purchase one share of common stock at an exercise price of
$5.00. The warrants have a life of four years after which they will expire. JK Acquisition has a
right to call the warrants, provided the common stock has traded at a closing price of at least
$8.50 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 notice of redemption is given. If JK Acquisition calls the warrants,
the holder will either have to redeem the warrants by purchasing the common stock from JK
Acquisition for $5.00 or the warrants will expire.
In connection with the initial public offering, JK Acquisition has committed to pay to the
underwriters a non-accountable expense allowance equal to 5% of the gross offering proceeds upon
the consummation of the initial public offering. The underwriters have agreed to defer
approximately $1,552,500 attributable to their non-accountable expense allowance (equal to 2.25% of
the gross proceeds of the offering) until the consummation of a business combination. Upon the
consummation of a business combination, JK Acquisition will pay such deferred non-accountable
expense allowance to the underwriters out of the proceeds of this offering held in trust.
NOTE 3 TRUST FUND
Investment securities in the trust fund are held in tax exempt municipal obligations and are
classified as trading securities. Such funds are carried at fair value, with gains or losses
resulting from changes in fair value recognized currently in earnings.
NOTE 4 ADVANCES FROM SHAREHOLDERS
On May 18, 2005 and December 20, 2005, JK Acquisition received an aggregate of $329,000 as
advances for expenses from two shareholders. These advances did not bear any interest and were
repaid from the proceeds of the Companys initial public offering.
On May 23, 2007, June 14, 2007, July 19, 2007 and September 6, 2007 JK Acquisition received an
aggregate of $500,000 in advances for expenses from two shareholders, Messrs. Wilson and
Spickelmier. On October 9, 2007, JK Acquisition received an additional $200,000 in advances from
the two shareholders. Proceeds from each of the advances will fund JK Acquisitions ongoing
continuing operating expenses. Under the terms of the advances, JK Acquisition will: (i) pay no
interest and (ii) the amounts of the advances are due to be reimbursed upon the consummation of a
business combination. In the event JK Acquisition fails to complete a business combination with any
entity (I) by October 10, 2007 or, (II) if a letter of intent, agreement in principle or definitive
agreement is executed, but not consummated, by October 10, 2007, then by April 10, 2008, then JK
Acquisition shall not be required to repay the advances. The two shareholders who advanced such
funds, Messrs. Wilson and Spickelmier have waived any recourse against JK Acquisitions trust
account with respect to the advances in the event that a business combination is not consummated by
JK Acquisition in a timely manner as described herein above.
NOTE 5 DERIVATIVE LIABILITY
On January 10, 2007, JK Acquisition entered into a Warrant Clarification Agreement to clarify
the terms of the Warrant Agreement, dated as of April 10, 2006 (the Warrant Agreement) by and
between JK Acquisition and Continental Stock Transfer & Trust Company, as Warrant Agent. The
Warrant Clarification Agreement clarified, consistent with the terms of the Warrant Agreement and
the disclosure contained in JK Acquisitions Prospectus, dated April 11, 2006, that if JK
Acquisition is unable to deliver securities pursuant to the exercise of
4
a warrant because a registration statement under the Securities Act of 1933, as amended, with
respect to the common stock is not effective, then in no event would JK Acquisition be obligated to
pay cash or other consideration to the holders of warrants or otherwise net-cash settle any
warrant exercise. As of January 10, 2007, JK Acquisition determined that net cash settlement of
the warrants could no longer be required; therefore, the warrants should not be treated as
derivative liabilities. The fair value of these warrants was marked to market on January 10, 2007
and derivative gain was recorded. The balance of the derivative liability was then recorded as a
contribution to paid-in capital on that date. The fair value of the warrants as of January 10, 2007
was determined by the trading value of the securities on that date.
Gain on derivative liability reported in the accompanying statement of operations through
January 10, 2007 resulting from the change in valuation of the derivative liability related to
these warrants was $1,468,600 for the nine months ended September 30, 2007.
NOTE 6 STOCK OPTION
JK Acquisition sold to Ferris Baker, Watts, Inc. for $100, an option to purchase up to a total
of 700,000 units. This option was issued upon closing of the initial public offering. The units
that would be issued upon exercise of this option are identical to those sold in the initial public
offering, except that each of the warrants underlying this option entitles the holder to purchase
one share of our common stock at a price of $6.25. This Underwriters Purchase Option (UPO) is
exercisable at $7.50 per unit at the latter of one year from the effective date, or the
consummation of a business combination and may be exercised on a cashless basis. The UPO will have
a life of four years from the effective date.
NOTE 7 RELATED PARTY TRANSACTION
JK Acquisition has agreed to pay 4350 Management, LLC, a related party and privately-held
company owned by JK Acquisitions chief executive officer, an administrative fee of $7,500 per
month for office space and administrative, technology and secretarial services from the effective
date of the initial public offering through the acquisition date of a target business. For the
nine months ended September 30, 2007, $67,500 has been expensed for the administrative fee.
NOTE 8 DEFERRED ACQUISITION COSTS
Deferred acquisition costs consist primarily of accounting fees, legal fees, due diligence
fees and other fees incurred through the balance sheet date that are related to the proposed merger
discussed in Note 9. Due to the uncertainty of the proposed merger, as further described in Note
11, the deferred acquisition costs were written off to impairment expense during the quarter ended
June 30, 2007, and deferred acquisition costs incurred during the quarter ended September 30, 2007
were expensed as impaired costs.
NOTE 9 PROPOSED MERGER
On August 27, 2007, JK Acquisition and Multi-Shot, Inc., a Delaware corporation and
wholly-owned subsidiary of JK Acquisition (MSI), entered into the Second Amended and Restated
Agreement and Plan of Merger (the Amended Merger Agreement) with Multi-Shot, LLC, a Texas limited
liability company (Multi-Shot), Catalyst/Hall Growth Capital Management Co., LLC, as Members
Representative (Members Representative), and the members of Multi-Shot (the Members), pursuant
to which Multi-Shot will merge with and into MSI (the Merger). The Amended Merger Agreement
fully amends and restates the First Amended and Restated Agreement and Plan of Merger, dated
February 14, 2007, by and among JK Acquisition, MSI, Multi-Shot, Members Representative and the
Members. Following completion of the Merger, it is anticipated that JK Acquisition will change its
name to MS Energy Services, Inc. Based in Conroe, Texas, Multi-Shot provides directional drilling
services with an established presence in most major onshore producing basins in the U.S. Since its
inception in 1980, Multi-Shot has developed into a leading independent service provider that
employs a highly skilled and experienced labor force. Multi-Shot owns and operates equipment of the
highest standards and maintains a diversified customer base that includes large, U.S. independent
exploration and production companies.
The Merger is expected to be consummated by January 31, 2008, after the required approval by
JK Acquisitions stockholders and the fulfillment of certain other conditions, as discussed in
greater detail herein and in the Amended Merger Agreement.
The
Amended Merger Agreement will terminate automatically if either
(1) JK Acquisition fails
to file its definitive proxy materials with the SEC and mail such materials to its stockholders
prior to December 31, 2007, or (2) the merger is not completed on or before January 31, 2008
5
At closing, the initial Merger consideration for all the issued and outstanding membership
interests of Multi-Shot is expected to be approximately $197,500,000 (assuming the Third-Party
Indebtedness, as such term is defined in the Merger Agreement, of Multi-Shot does not exceed
$60,00,000 on the closing date), consisting of the following:
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$20,000,000 cash
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21,759,259 shares of JK Acquisition common stock;
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28,516,668 contingent warrants (each contingent warrant may be exchanged for one share of JK
Acquisition common stock solely pursuant to the grant of an Contingent Award (as defined in
the Merger Agreement) pursuant to the Merger Agreement); and
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the assumption of third-party indebtedness, which is expected to be approximately $60,000,000.
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the cancellation of 2,458,334 shares of JK Acquisition common stock owned by the current
officers and directors of JK Acquisition.
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NOTE 10LIQUIDITY
JK Acquisitions cash position as of September 30, 2007 is approximately $90,492. JK
Acquisition has outstanding payables of approximately $584,090 as of September 30, 2007. As of
September 30, 2007, advances from shareholders was $500,000. As described in Note 4, such
shareholders have waived any recourse against JK Acquisitions trust account with respect to the
advances in the event that a business combination is not consummated by JK Acquisition in a timely
manner as described herein above. Approximately $363,000 of the outstanding payables represent
legal expense incurred in conjunction with the proposed merger and will be due at the close of the
proposed merger described in Note 9. If we liquidate before the completion of a business
combination and distribute the proceeds of the trust to our public stockholders, Messrs. Wilson and
Spickelmier have agreed to indemnify us against any claims by any vendor or other entities that are
owed money by us for services rendered or products sold to us that would otherwise reduce the
amounts of the funds in the trust. However, we cannot assure you that Messrs. Wilson and
Spickelmier will be able to satisfy those obligations.
In the event the proposed merger is not consummated within the agreed upon time period, JK
Acquisition believes it will not have sufficient funds to operate through April 2008 unless we
receive additional advances from Messrs. Wilson and Spickelmier, or other interested parties
sufficient to continue operations.
NOTE 11 OTHER CONTINGENCIES
On July 16, 2007, JK Acquisition filed suit in the state district court of Harris County,
Texas against Multi-Shot, LLC and twelve other named defendants. JK Acquisition was seeking
injunctive relief and other damages related to various claims of breach of contract in connection
with the First Amended and Restated Agreement and Plan of Merger previously entered into with
Multi-Shot, LLC and other parties on February 14, 2007. Pursuant to a Settlement Agreement, JK
Acquisition, Multi-Shot and the other parties thereto agreed to abate the current lawsuit among the
parties pending in the 234
th
Judicial District Court of Harris County, Texas (the
Court) in exchange for, among other consideration, entering into the Amended Merger Agreement.
The parties to the Settlement Agreement have also agreed to waive any prior claims the parties
have, or may have had, on the date of the Settlement Agreement against any of the other parties to
the Settlement Agreement. The parties to the Settlement Agreement have agreed that the Court
will retain continuing jurisdiction over any dispute filed regarding the Settlement Agreement, and
that any such dispute will be submitted to the Court for resolution. In addition, the parties have
agreed that any dispute regarding the Amended Merger Agreement will be tried in the district courts
in Harris County, Texas. None of the parties to the Settlement Agreement have admitted any
liability or violation.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. We have based these forward-looking statements on our current expectations
and projections about future events, and we assume no obligation to update any such forward-looking
statements. These forward-looking statements are subject to known and unknown risks, uncertainties
and assumptions about us that may cause our actual results to be materially different from any
future results expressed or implied by such forward-looking statements. In some cases, you can
identify forward-looking statements by terminology such as may, should, could, would,
expect, plan, anticipate, believe, estimate, continue, or the negative of such terms or
other similar expressions. Factors that might cause our future results to differ from those
statements include, but are not limited to, those described in the section entitled Risk Factors
of the prospectus filed with the Securities and Exchange Commission in connection with our initial
public offering. The following discussion should be read in conjunction with our condensed
financial statements and related notes thereto included elsewhere in this report and with the
section entitled Risk Factors of the prospectus filed with the Securities and Exchange Commission
in connection with our initial public offering.
We were formed on May 11, 2005, for the purpose of acquiring, through a merger, capital stock
exchange, asset acquisition or other similar business combination, an operating business
headquartered in North America, focusing in the manufacturing, distribution or service sectors. Our
initial business combination must be with a target business whose fair market value is at least
equal to 80% of our net assets
6
(excluding deferred compensation of the underwriters held in trust) at the time of such
acquisition. We intend to use cash derived from the proceeds of our recently completed public
offering and concurrent private placement, our capital stock, debt or a combination of cash,
capital stock and debt, to effect such business combination.
On April 17, 2006, we consummated our initial public offering of 13,225,000 units, including
1,725,000 units that were subject to the underwriters over-allotment option. Each unit consists of
one share of common stock and two warrants. Each warrant entitles the holder to purchase from us
one share of our common stock at an exercise price of $5.00. Our common stock and warrants started
trading separately as of May 11, 2006.
Our net proceeds from the sale of our units, including the exercise of the underwriters
over-allotment option, after deducting certain offering expenses of approximately $750,100 and
underwriting discounts of approximately $3,967,000, were approximately $76,632,404. Of this amount,
$76,532,404 is being held in trust and the remaining $100,000 is not being held in trust. The
remaining proceeds of $100,000 not held in trust (plus up to $900,000 of interest earned on the
proceeds held in trust) are available to be used by us for working capital purposes to provide for
business, legal and accounting due diligence on prospective acquisitions and continuing general and
administrative expenses. We will use substantially all of the net proceeds of this offering to
acquire a target business, including identifying and evaluating prospective acquisition candidates,
selecting the target business, and structuring, negotiating and consummating the business
combination. To the extent that our capital stock is used in whole or in part as consideration to
effect a business combination, the proceeds held in the trust account as well as any other net
proceeds not expended will be used to finance the operations of the target business. We believe
that the funds available to us outside of the trust account will be sufficient to allow us to
operate until the proposed merger with Multi-Shot is consummated within the agreed upon time
period. In the event the proposed merger with Multi-Shot is not consummated within the agreed upon
time period, we believe that we will not have sufficient funds to operate through October 2007,
assuming a business combination is not consummated by that time, unless we receive advances from
Messrs. Wilson and Spickelmier, or other interested parties sufficient to continue operations.
Alternatively, we may need to raise additional funds to the extent such financing is required to
consummate a business combination, in which case we may issue additional securities or incur debt
in connection with such business combination. We expect that we would only consummate such a
financing simultaneously with the consummation of a business combination.
Commencing on April 10, 2006 and ending upon the acquisition of a target business, we began
incurring a fee of $7,500 per month for office space and certain administrative, technology and
secretarial services from 4350 Management, LLC, an affiliate of James P. Wilson, our chairman of
the board and chief executive officer. In addition, on May 18, 2005 and December 20, 2005, Messrs.
Wilson and Spickelmier advanced us an aggregate of $329,000 to us for payment of offering expenses
on our behalf. These advances were repaid following our initial public offering from the proceeds
of the offering.
Developments in Finding a Suitable Business Target
On August 27, 2007, JK Acquisition settled its lawsuit against Multi-Shot, LLC, a Texas
limited liability company (Multi-Shot), and Multi-Shots related parties and entered into a
Settlement Agreement (the Settlement Agreement) and a Second Amended and Restated Agreement and
Plan of Merger (the Amended Merger Agreement). The Amended Merger Agreement is among JK
Acquisition, Multi-Shot, Inc., a Delaware corporation and wholly-owned subsidiary of JK Acquisition
(MSI), Multi-Shot, and each of Catalyst/Hall Growth Capital Management Co., LLC
(Catalyst/Hall), and SG-Directional, LLC (SG-Directional), as Members Representative
(Catalyst/Hall and SG-Directional together as the Members Representative), and the members of
Multi-Shot (the Members).
Settlement Agreement
Pursuant to the Settlement Agreement, JK Acquisition, Multi-Shot and the other parties thereto
have agreed to abate the current lawsuit among the parties pending in the 234th
Judicial
District Court of Harris County, Texas (the Court) in exchange for, among other consideration,
entering into the Amended Merger Agreement. The parties to the Settlement Agreement have also
agreed to waive any prior claims the parties have, or may have had, on the date of the Settlement
Agreement against any of the other parties to the Settlement Agreement.
The parties to the Settlement Agreement have agreed that the Court will retain continuing
jurisdiction over any dispute filed regarding the Settlement Agreement, and that any such dispute
will be submitted to the Court for resolution. In addition, the parties have agreed that any
dispute regarding the Amended Merger Agreement will be tried in the district courts in Harris
County, Texas. None of the parties to the Settlement Agreement have admitted any liability or
violation.
Agreement and Plan of Merger
The Amended Merger Agreement fully amends and restates the First Amended and Restated
Agreement and Plan of Merger, dated February 14, 2007, by and among JK Acquisition, MSI,
Multi-Shot, Catalyst/Hall and the Members. Pursuant to the Amended Merger Agreement, Multi-Shot
will merge with and into MSI (the Merger). Following completion of the Merger, it is anticipated
that JK Acquisition will change its name to MS Energy Services, Inc.
7
The Merger is expected to be consummated by January 31, 2008, after the required approval by
JK Acquisitions stockholders and the fulfillment of certain other conditions, as discussed in
greater detail herein and in the Amended Merger Agreement.
The Amended Merger Agreement will terminate automatically if either (1) JK Acquisition fails
to file its definitive proxy materials with the SEC and mail such materials to its stockholders
prior to December 31, 2007, or (2) the merger is not completed on or before January 31, 2008.
The following description summarizes the material provisions of the Amended Merger Agreement.
Stockholders should read carefully the Amended Merger Agreement. The Amended Merger Agreement
contains representations and warranties which JK Acquisition and MSI, on the one hand, and
Multi-Shot and the Members, on the other hand, have made to one another and are for the benefit of
such parties only, and may not be relied upon by any other person. The assertions embodied in the
representations and warranties contained in the Amended Merger Agreement are qualified by
information in disclosure schedules to the Amended Merger Agreement, which we consider nonpublic
information. Although JK Acquisition does not believe the disclosure schedules contain information
the securities laws require JK Acquisition to publicly disclose, the disclosure schedules contain
information that modifies, qualifies and creates exceptions to the representations and warranties
set forth in the Amended Merger Agreement.
Merger Consideration
At closing, the initial merger consideration for all the issued and outstanding membership
interests of Multi-Shot is expected to be approximately $197,500,000, based upon the Gross
Enterprise Value of Multi-Shot, as such term is defined in the Amended Merger Agreement. Assuming
Third-Party Indebtedness of Multi-Shot, as such term is defined in the Amended Merger Agreement, of
$60,000,000 on the closing date, the consideration for the Merger would consist of the following:
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$20,000,000 in cash;
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21,759,259 shares of JK Acquisition common stock (the Parent Shares);
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28,516,668 contingent warrants (each contingent warrant may be
exchanged for one share of JK Acquisition common stock solely pursuant
to the grant of an Contingent Award (as defined in the Merger
Agreement) pursuant to the Merger Agreement); and
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the assumption of approximately $60,000,000 in Third-Party
Indebtedness, $15,000,000 of which must be repaid at the closing of
the Merger; and
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the cancellation of 2,458,334 shares of JK Acquisition common stock
owned by the current officers and directors of JK Acquisition.
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Furthermore, the Members will also be eligible to receive Redemption Liability Shares (as
defined in the Amended Merger Agreement) and Redemption Warrants (as defined in the Amended Merger
Agreement) if the cash consideration paid by JK Acquisition to its stockholders with respect to
such stockholders exercising their conversion rights exceeds $3,000,000.
A portion of the cash currently being held in the trust fund established in connection with JK
Acquisitions initial public offering will be used to (1) pay the transaction related expenses of
JK Acquisition, MSI, Multi-Shot and the Members, (2) pay the $20,000,000 cash portion of the
purchase price, and (3) repay $15,000,000 of the Third-Party Indebtedness that, by its terms, is
required to be repaid to SG-Directional (one of the Members of Multi-Shot) at the closing of the
Merger. In addition, additional cash from the trust fund may be used to repay all, or a portion of
the contemplated $45,000,000 of other assumed indebtedness.
If the holders of any warrants to purchase JK Acquisition common stock other than Parent
Warrants (Index Warrants) exercise Index Warrants during any of the periods ending on June 30,
2008, June 30, 2009 and April 30, 2010 (the Determination Periods), at the option of the holder
of each Parent Warrant, each of the Parent Warrants may be exchanged for either their pro rata
share of a Contingent Award or a Cash Exercise Warrant as such terms are defined in the Amended
Merger Agreement. A Contingent Award is a number of shares of JK Acquisition common stock as
calculated by a cashless exercise formula contained in Section 2.06(d) of the Amended Merger
Agreement that are issued for no additional consideration upon the tender of a number of Parent
Warrants equal to the aggregate amount of Index Warrants exercised during the applicable
Determination Period. The cashless exercise formula considers the aggregate number of Index
Warrants exercised during the Determination Period, the trading price of JK Acquisition common
stock at the time of each exercise and the weighted average exercise price of the Index Warrants
exercised. The formula is described in detail in Section 2.06(d) of the Amended Merger Agreement,
and an example of the calculation is attached to the Amended Merger Agreement filed herewith as
Schedule 2.06(d). For any holder of a Parent Warrant electing to receive a Cash Exercise Warrant,
such warrant represents the right to purchase a number of shares of JK Acquisition common stock
equal to the holders pro rata share of the aggregate number of Index Warrants exercised during the
Determination Period. The exercise price for any Cash Exercise Warrant will be equal, on a warrant
for warrant basis, to the exercise price of the Index Warrants exercised during such period, which
range from $5.00 to $6.25 per share.
8
The Cash Exercise Warrant will have substantially similar terms to the Parent Warrant, but
will be exercisable at a set exercise price (or prices) as described above.
All Parent Shares, Redemption Liability Shares and JK Acquisition common stock issued pursuant
to the exercise of any Parent Warrant, Cash Exercise Warrant or Redemption Warrant will be subject
to a registration rights agreement.
Termination
The Amended Merger Agreement terminates automatically, without action by any party, if either
(1) JK Acquisition fails to file its definitive proxy materials with the SEC and mail such
materials to its stockholders prior to December 31, 2007, or (2) the merger is not completed by
January 31, 2008. The Amended Merger Agreement may be terminated prior to the closing of the Merger
upon certain events, including the following:
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at any time, by mutual written agreement as duly authorized by the Board of Directors of JK
Acquisition and the Board of Managers of Multi-Shot;
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by JK Acquisition or Multi-Shot, upon the issuance of any order which is final and nonappealable
that would prevent or prohibit the consummation of the Merger;
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by JK Acquisition, if there is a material breach of any representation, warranty or obligation
by Multi-Shot under the Amended Merger Agreement that renders the satisfaction of any condition
to JK Acquisitions obligations impossible and such breach is not waived by JK Acquisition;
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by Multi-Shot, if there is a material breach by JK Acquisition of any representation, warranty
or obligation under the Amended Merger Agreement, that renders the satisfaction of any condition
to Multi-Shots obligations impossible and such breach is not waived by Multi-Shot;
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by Multi-Shot, if the aggregate liabilities and indebtedness of Parent and MSI exceed $4,202,500;
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by JK Acquisition, if Multi-Shots adjusted or updated 2007 Annualized Adjusted EBITDA (as
defined in the Amended Merger Agreement) is less than $29,000,000; or
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In some cases, in the event that JK Acquisition elects to terminate the Amended Merger Agreement,
JK Acquisition will be liable for certain fees and expenses incurred by Multi-Shot and the Members
during the Merger negotiations.
Effect of Termination
Except as described above, in the event the Amended Merger Agreement is terminated, it shall
become void, there shall be no liability under the agreement on the part of JK Acquisition, MSI or
Multi-Shot or any of their respective officers, managers or directors, and all rights and
obligations of each party hereto shall cease. Furthermore, if the Amended Merger Agreement is
terminated:
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JK Acquisition and MSI are obligated to return all document and work papers obtained from Multi-Shot or the Members;
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all filings with any government agencies shall be withdrawn, to the extent practicable;
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certain confidentiality obligations will survive closings; and
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no party shall be relieved of any liability for willful breach of the Amended Merger Agreement.
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RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 2007 and 2006
For the three months ended September 30, 2007, we had net income of $229,222, compared to net
income of $57,168 for the three months ended September 30, 2006. For the three months ended
September 30, 2007, we wrote off $381,286 of deferred transaction costs, due to the uncertainty of
completing our proposed merger with Multi-Shot. In addition, we incurred $108,292 of general and
administrative expenses, offset by interest income on the trust fund investments of $718,800 as
compared to the three months ended September 30, 2006,
9
when we incurred $85,268 of general and administrative expenses, offset by loss on derivative
liabilities of $548,690 and interest income on the trust fund investments of $725,534.
Comparison of Nine Months Ended September 30, 2007 with nine months ended September 30, 2006
For the nine months ended September 30, 2007 we had net income of $1,867,591, compared to
$3146,511 for the nine months ended September 30, 2006. For the nine months ended September 30,
2007, we incurred $345,286 of general and administrative expenses and the impairment of deferred
transaction costs of $1,356,704, offset by gain on derivative liabilities of $1,468,600 and
interest income on the trust fund investments of $2,101,058, compared to the nine months ended
September 30, 2006 when we incurred $152,933 of general and administrative expenses, offset by gain
on derivative liabilities of $2,046,025 and interest income on the trust fund investments of
$1,317,103.
CHANGES IN FINANCIAL CONDITION
Liquidity and Capital Resources
On April 10, 2006, we entered into an agreement with certain of our directors for the sale of
333,334 units in a private placement. Each unit consists of one share of common stock and two
warrants. Each warrant entitles the holder to purchase from us one share of our common stock at an
exercise price of $5.00.
On April 17, 2006, we consummated our initial public offering of 13,225,000 units, including
1,725,000 units that were attributable to the full exercise of the underwriters over-allotment
option. Each unit consists of one share of common stock and two warrants. Each warrant entitles the
holder to purchase from us one share of our common stock at an exercise price of $5.00. Our common
stock and warrants started trading separately as of May 11, 2006.
Our net proceeds from the sale of our units, including the exercise of the underwriters
over-allotment option, after deducting certain offering expenses of approximately $750,100 and
underwriting discounts of approximately $3,967,000, were approximately $76,632,404. Of this amount,
$76,532,404 is being held in a trust account at J.P. Morgan Chase Bank maintained by Continental
Stock Transfer & Trust Company, New York, New York, as trustee and the remaining $100,000 is not
being held in trust. The remaining proceeds of $100,000 not held in trust (plus up to $900,000 of
interest earned on the proceeds held in trust) are available to be used by us for working capital
purposes to provide for business, legal and accounting due diligence on prospective acquisitions
and continuing general and administrative expenses. We will use substantially all of the net
proceeds of this offering to acquire a target business, including identifying and evaluating
prospective acquisition candidates, selecting the target business, and structuring, negotiating and
consummating the business combination.
The proceeds held in the trust account may be used as consideration to pay the sellers of a
target business with which we complete a business combination. The underwriters have agreed to
defer approximately $1,552,500 of the proceeds attributable to their non-accountable expense
allowance until the consummation of a business combination. Upon the consummation of a business
combination, we will pay such deferred non-accountable expense allowance to the underwriters out of
the proceeds of this offering held in trust. Any amounts not paid as consideration to the sellers
of the target business or to the underwriters for deferred underwriting fees and expenses may be
used to finance operations of the target business. We expect that the operating expenses of a
target business may include some or all of the following: capital expenditures, expenditures for
future projects, general ongoing expenses including supplies and payroll, expanding markets and
strategic acquisitions or alliances. To the extent that our capital stock is used in whole or in
part as consideration to effect a business combination, the proceeds held in the trust account as
well as any other net proceeds not expended will be used to finance the operations of the target
business. We believe that the funds available to us outside of the trust account will be
sufficient to allow us to operate until the proposed merger with Multi-Shot is consummated within
the agreed upon time period. In the event the proposed merger with Multi-Shot is not consummated
within the agreed upon time period, we believe that we will not have sufficient funds to operate
through October 2007, assuming a business combination is not consummated by that time, unless we
receive advances from Messrs. Wilson and Spickelmier, or other interested parties sufficient to
continue operations. Alternatively, we may need to raise additional funds to the extent such
financing is required to consummate a business combination, in which case we may issue additional
securities or incur debt in connection with such business combination. We expect that we would only
consummate such a financing simultaneously with the consummation of a business combination.
Commencing on April 10, 2006 and ending upon the acquisition of a target business, we began
incurring a fee of $7,500 per month for office space and certain administrative, technology and
secretarial services from 4350 Management, LLC, an affiliate of James P. Wilson, our chairman of
the board and chief executive officer. In addition, on May 18, 2005 and December 20, 2005, Messrs.
Wilson and Spickelmier advanced us an aggregate of $329,000 to us for payment of offering expenses
on our behalf. These advances were repaid following our initial public offering from the proceeds
of the offering.
On May 23, 2007, June 14, 2007, July 19, 2007, and September 6, 2007 we received an aggregate
of $500,000 in advances for expenses from two shareholders, Messrs. Wilson and Spickelmier. On
October 9, 2007 we received and additional aggregate of $200,000 in advances for expenses from two
shareholders, Messrs. Wilson and Spickelmier. Proceeds from each of the advances will fund the
Companys ongoing continuing operating expenses. Under the terms of the advances, the Company
will: (i) pay no interest on such advances and (ii) the amounts of the advances are due to be
reimbursed upon the consummation of a business combination. In the event the Company fails to
complete a business combination with any entity (I) by October 10, 2007 or, (II) if a letter of
intent, agreement in principle or definitive agreement is executed, but not consummated, by October
10, 2007, then by April 10, 2008, then the Company shall not be required to repay the advances.
The two shareholders who advanced such funds, Messrs. Wilson and Spickelmier, have waived any
recourse against the Companys trust
10
account with respect to the advances in the event that a business combination is not
consummated by the Company in a timely manner as described herein above.
We currently have no operating business. If we are unable to find and close a suitable target
business by October 10, 2007 (or April 10, 2008 if a letter of intent, agreement in principle or a
definitive agreement has been executed by October 10, 2007), we will be forced to liquidate. If we
are forced to liquidate, the per-share liquidation may be less than the price at which public
stockholders purchased their shares because of the expenses related to our initial public offering,
our general and administrative expenses and the anticipated costs of seeking a business
combination. Additionally, if third parties make claims against us, the offering proceeds held in
the trust account could be subject to those claims, resulting in a further reduction to the
per-share liquidation price. Under Delaware law, our stockholders who have received distributions
from us may be held liable for claims by third parties to the extent such claims are not been paid
by us. Furthermore, our warrants will expire worthless if we liquidate before the completion of a
business combination.
Off-Balance Sheet Arrangements
Other than contractual obligations incurred in the normal course of business, we do not have
any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or
contingent interests in transferred assets or any obligation arising out of a material variable
interest in an unconsolidated entity. We do not have any majority-owned subsidiaries.
Contractual Obligations
In connection with our initial public offering, we agreed to pay the underwriters a deferred
non-accountable expense allowance of $1,552,500 upon the consummation of our initial business
combination. We expect that such allowance will be paid out of the proceeds in the trust account.
Other than contractual obligations incurred in the ordinary course of business, we do not have any
other long-term contractual obligations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is a broad term for the risk of economic loss due to adverse changes in the fair
value of a financial instrument. These changes may be the result of various factors, including
interest rates, foreign exchange rates, commodity prices and/or equity prices. Our exposure to
market risk is limited to interest income sensitivity with respect to the funds placed in the trust
account. However, the funds held in our trust account have been invested only in U.S. government
securities, defined as any Treasury Bill issued by the United States having a maturity of one
hundred and eighty days or less or in money market funds meeting certain conditions under Rule 2a-7
promulgated under the Investment Company Act of 1940, so we are not deemed to be an investment
company under the Investment Company Act. Thus, we are subject to market risk primarily through the
effect of changes in interest rates on government securities. The effect of other changes, such as
foreign exchange rates, commodity prices and/or equity prices, does not pose significant market
risk to us.
Item 4. Controls and Procedures.
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form
10-Q, our principal executive officer and principal financial officer have concluded that our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)) were effective as of the end of
the period covered by this report.
There were no changes in our internal controls over financial reporting in connection with the
evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the period
covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.
We believe that a control system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the control system are met, and no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, within a
company have been detected. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives, and our principal executive officer and our
principal financial officer have concluded that these controls and procedures are effective at the
reasonable assurance level.
11
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
On July 16, 2007, we filed suit in the 234
th
Judicial District Court of Harris
County, Texas (the Court) against Multi-Shot, LLC and twelve other named defendants. We were
seeking injunctive relief and other damages related to various claims of breach of contract in
connection with the First Amended and Restated Agreement and Plan of Merger previously entered into
with Multi-Shot, LLC and other parties on February 14, 2007. Pursuant to a Settlement Agreement, JK
Acquisition, Multi-Shot and the other parties thereto agreed to abate the current lawsuit among the
parties pending in the Court in exchange for, among other consideration, entering into the Amended
Merger Agreement. The parties to the Settlement Agreement have also agreed to waive any prior
claims the parties have, or may have had, on the date of the Settlement Agreement against any of
the other parties to the Settlement Agreement. The parties to the Settlement Agreement have
agreed that the Court will retain continuing jurisdiction over any dispute filed regarding the
Settlement Agreement, and that any such dispute will be submitted to the Court for resolution. In
addition, the parties have agreed that any dispute regarding the Amended Merger Agreement will be
tried in the district courts in Harris County, Texas. None of the parties to the Settlement
Agreement have admitted any liability or violation.
Item 1A. Risk Factors
There have been no material changes to the risk factors previously disclosed in the
registration statement on Form S-1 (File No. 333-133197) filed in connection with our initial
public offering, which the SEC declared effective on April 10, 2006.
Item 6. Exhibits.
|
|
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Number
|
|
Description
|
|
|
|
31.1
|
|
Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31.2
|
|
Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.1
|
|
Certification by Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
12
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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|
|
|
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JK ACQUISITION CORP.
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|
Date: November 14, 2007
|
By:
|
/s/
James P. Wilson
|
|
|
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James P. Wilson
|
|
|
|
Chairman of the Board of Directors, Chief
Executive Officer and Secretary
(Principal Executive Officer)
(Principal Financial and Accounting Officer)
|
|
13
INDEX TO EXHIBITS
|
|
|
Number
|
|
Description
|
|
|
|
31.1
|
|
Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31.2
|
|
Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.1
|
|
Certification by Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
14
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