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, 2008
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission file number: 001-33210
TRANSFORMA ACQUISITION GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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20-5389307
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(State or Other Jurisdiction of Incorporation or
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(I.R.S. Employer Identification No.)
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Organization)
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747 Third Avenue, 38th Floor
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New York, NY
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10017
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(Address of Principal Executive Offices)
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(Zip Code)
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(646) 521-7805
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large Accelerated Filer
o
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Accelerated Filer
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Non-Accelerated Filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes
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No
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As of October 15, 2008, 15,624,997 shares of the registrants 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, 2008 (unaudited)
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As of December 31, 2007
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2
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For the three months ended September 30, 2008
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For the three months ended September 30, 2007
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For the nine months ended September 30, 2008
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For the nine months ended September 30, 2007
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From inception (July 19, 2006) to September 30, 2008
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3
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From inception (July 19, 2006) to September 30, 2008
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4
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For the nine months ended September 30, 2008
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For the nine months ended September 30, 2007
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From inception (July 19, 2006) to September 30, 2008
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5
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13
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14
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14
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15
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15
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15
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15
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15
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15
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15
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EX-31.1
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EX-31.2
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EX-32.1
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EX-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, 2008
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December 31, 2007
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(unaudited)
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$
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824,883
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$
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917,710
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Cash and cash equivalents held in Trust Account (Note 1)
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101,433,457
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101,299,853
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Prepaid expenses and income taxes (Note 4)
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1,019,819
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73,290
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Deferred acquisition costs
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248,973
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TOTAL ASSETS
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103,278,159
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$
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102,539,826
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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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50,000
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Accrued acquisition costs
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135,343
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Accrued expenses
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1,231,938
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403,349
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Income taxes payable
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287,423
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Total current liabilities
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5,001,938
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4,596,115
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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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40,400,562
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40,088,182
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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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Common stock, par value $.0001 per share, 32,500,000
shares authorized, 10,624,998 shares issued and
outstanding (excluding 4,999,999 shares subject to
possible conversion)
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1,062
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1,062
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Additional paid-in capital
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54,860,594
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55,172,974
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Earnings accumulated in the development stage
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3,014,003
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2,681,493
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TOTAL STOCKHOLDERS EQUITY
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57,875,659
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57,855,529
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
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$
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103,278,159
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$
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102,539,826
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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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For the three
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For the three
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For the nine
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For the nine
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(July 19, 2006)
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months ended
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months ended
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months ended
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months ended
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to
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September 30, 2008
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September 30, 2007
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September 30, 2008
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Septemer 30, 2007
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September 30, 2008
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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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665,702
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$
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1,293,457
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$
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2,390,172
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$
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3,818,302
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$
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7,599,480
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General and administrative
expenses (Notes 4 and 5)
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1,418,741
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206,249
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1,844,585
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711,038
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3,000,727
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Income
(loss) before provision for income
taxes
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(753,039
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1,087,208
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545,587
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3,107,264
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4,598,753
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Provision
(benefit) for income taxes (Note 4)
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(256,033
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369,650
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213,077
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1,056,469
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1,584,750
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Net
income (loss) for the period
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$
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(497,006
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$
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717,558
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$
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332,510
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$
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2,050,795
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$
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3,014,003
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Accretion of Trust Account
relating to common stock subject
to possible conversion
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(87,108
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(169,640
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(312,380
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(501,812
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(1,000,570
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Net income
(loss) attributable to common
stockholders
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$
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(584,114
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$
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547,918
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$
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20,130
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$
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1,548,983
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$
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2,013,433
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Weighted average number of shares
outstanding
, basic and diluted
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10,624,998
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10,624,998
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10,624,998
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10,624,998
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Net
income (loss) per share
, basic and
diluted
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$
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(0.05
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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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Number of shares outstanding
subject to possible conversion
,
basic and diluted
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4,999,999
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4,999,999
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4,999,999
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4,999,999
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Net income per share subject to
possible conversion
, basic and
diluted
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$
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0.02
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$
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0.03
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$
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0.06
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$
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0.10
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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, 2008
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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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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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25,000
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Proceeds from sale of
underwriters unit purchase
option
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100
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100
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Proceeds from issuance of Warrants
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3,000,000
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3,000,000
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Sale of 12,500,000 units through
public offering net of
underwriters discount and public
offering expenses and net of
$39,399,992 of proceeds from
stockholders allocable to
4,999,999 shares of common stock
subject to possible conversion
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7,500,001
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750
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52,886,376
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52,887,126
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Net income for the period
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28,645
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28,645
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Accretion of Trust Account
relating to common stock subject
to possible conversion
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(18,767
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(18,767
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Balance, December 31, 2006
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11,093,748
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$
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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 (Note 6)
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3,501,562
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(3,501,562
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Cancellation of common stock
received from initial
stockholders
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(468,750
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(47
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(3,501,515
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3,501,562
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Public offering expenses accrued
related to the sale of 12,500,000
units through public offering
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(50,000
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(50,000
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Net income for the period
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2,652,848
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2,652,848
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Accretion of Trust Account
relating to common stock subject
to possible conversion
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(669,423
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(669,423
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Balance, December 31, 2007
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10,624,998
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$
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1,062
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$
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55,172,974
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$
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2,681,493
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$
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57,855,529
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Net income for the period
(unaudited)
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332,510
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332,510
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Accretion of Trust Account
relating to common stock subject
to possible conversion
(unaudited)
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(312,380
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)
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(312,380
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Balance, September 30, 2008
(unaudited)
|
|
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10,624,998
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1,062
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54,860,594
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3,014,003
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57,875,659
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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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From inception
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For the nine
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For the nine
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(July 19, 2006)
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months ended
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months ended
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to
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September 30, 2008
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September 30, 2007
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September 30, 2008
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(unaudited)
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(unaudited)
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(unaudited)
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OPERATING ACTIVITIES
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Net income for the period
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$
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332,510
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$
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2,050,795
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|
$
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3,014,003
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|
Changes in operating assets and liabilities:
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Prepaid expenses and income taxes
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(946,529
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)
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(104,696
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)
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(1,019,819
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)
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Accrued expenses
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828,589
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256,255
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1,231,938
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Income taxes payable
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(287,423
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)
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348,219
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NET CASH PROVIDED BY OPERATING ACTIVITIES
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(72,853
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)
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2,550,573
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3,226,122
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INVESTING ACTIVITIES
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Cash and cash equivalents held in Trust Account
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(133,604
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)
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(2,211,995
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)
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(101,433,457
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)
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Deferred acquisition costs paid
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113,630
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(100,000
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)
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NET CASH USED IN INVESTING ACTIVITIES
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(19,974
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)
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(2,311,995
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)
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(101,433,457
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)
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FINANCING ACTIVITIES
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Proceeds from issuances of common stock to initial
stockholders
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25,000
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Proceeds from notes payable to initial stockholders
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200,000
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Payments of notes payable to initial stockholders
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(200,000
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)
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Proceeds from issuance of warrants
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3,000,000
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Proceeds from sale of underwriters unit purchase option
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100
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Portion of net proceeds from sale of units through
public offering allocable to shares of common stock
subject to possible conversion
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39,399,992
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|
Net proceeds from sale of units through public offering
allocable to:
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Stockholders equity
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53,044,897
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Deferred underwriting fees
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3,720,000
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Registration costs paid
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(157,771
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)
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(157,771
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)
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NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
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(157,771
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)
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99,032,218
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
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|
|
(92,827
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)
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80,807
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|
824,883
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|
CASH AND CASH EQUIVALENTS
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Beginning of period
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917,710
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665,016
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End of period
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$
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824,883
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$
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745,823
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$
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824,883
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
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Cash paid for income taxes
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$
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1,483,500
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$
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708,250
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$
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2,567,750
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SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY:
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Accrued registration costs
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$
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$
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50,000
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$
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50,000
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Accrued acquisition costs
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$
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(135,343
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)
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$
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121,665
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$
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Accretion of Trust Account relating to common stock
subject to possible conversion
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$
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312,380
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$
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501,812
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$
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1,000,570
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Fair value of underwriters unit purchase option
included in public offering costs
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|
$
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$
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$
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1,218,750
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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 COMPANYS 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 Companys 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
Companys underwriters upon the successful closing of a Business Combination). The Companys
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 money market instruments, of which
$0.2976 per Unit will be paid to the underwriter upon the consummation of a Business Combination.
In light of current market uncertainties, the Company announced on October 3, 2008 that it had
transferred 100% of the funds held in its Trust Account from an institutional money market fund
investing in high quality U.S. Dollar-denominated short-term debt securities, primarily obligations
of U.S. and non-U.S. financial institutions and commercial paper, into Citi Institutional U.S.
Treasury Reserves, a fund that invests all of its assets in U.S. Treasury bills, notes and bonds,
Treasury receipts and securities issued by U.S. government agencies and instrumentalities that are
backed by the full faith and credit of the U.S. Treasury. 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. The Companys stockholders prior to the Offering (Initial Stockholders), have agreed
to vote their 3,124,997 founding shares of common stock (approximately 20% of the shares
outstanding) in accordance with the manner in which the majority of the shares of common stock
offered in the Offering are voted by the Companys 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 Companys 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, the Business Combination may then be consummated. Accordingly, Public Stockholders
holding approximately 39.99% of the aggregate number of shares owned by all Public Stockholders may
vote against such proposed Business Combination and exercise their conversion rights, and would be
entitled to convert their shares into a pro-rata distribution from the Trust Account (the
Conversion Right). If Public Stockholders holding 39.99% of the aggregate number of shares owned
by all Public Stockholders exercised the Conversion Right, the actual per-share conversion price
would be equal to the amount in the Trust Account, inclusive of any interest thereon, net of income
taxes payable on the interest income on the Trust Account and net of any amounts distributed to the
Company for working capital or other expenses, as of two business days prior to the proposed
Business Combination, multiplied
5
TRANSFORMA ACQUISITION GROUP INC.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
by 39.99%, and then divided by the number of shares converting, 4,999,999, or approximately $8.08
per share based on the value of the Trust Account as of September 30, 2008. As a result of the
Conversion Right, $39,399,992 plus accretion of $1,000,570, aggregating $40,400,562, has been
classified in common stock subject to possible conversion on the accompanying balance sheet as of
September 30, 2008.
On June 26, 2008 the Company announced that it had satisfied the criteria under its
certificate of incorporation that allows for an extension of time to complete its initial Business
Combination. If the Company fails to complete a Business Combination by December 26, 2008, the
Companys 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 such plan is approved, 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. Based on the value of the Trust Account as of September 30, 2008 the
per share value of assets remaining available for distribution was approximately $8.11 per share.
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 Companys common stock and one warrant to
purchase a share of the Companys 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 Companys audited financial statements and footnotes thereto for the period from inception
(July 19, 2006) to December 31, 2007 included in the Companys 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 Companys financial position,
results of operations and cash flows. The operating results for the period ended September 30, 2008
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 in
accordance with SFAS 141 and in the event the acquisition does not occur, the costs are expensed.
However, during the quarter ended September 30, 2008, the Company elected to expense deferred
acquisition costs of $460,275 related to pending business
combinations (see
New Accounting
Pronouncements
below).
TRUST ACCOUNT
The Companys restricted cash and cash equivalents held in the Trust Account
is invested in a money market fund that invests in U.S. Treasury securities.
The Company recognized interest income of $7,550,182 from inception (July 19, 2006) to September
30, 2008 on such money market fund in addition to $49,298 recognized for the same period on its
cash and cash equivalents, aggregating $7,599,480, 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, 2008,
468,750 initial shares cancelled by the Company on January 25, 2007 (retroactively restated to
August 2006 for this calculation) 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 Companys 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.
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. The adoption of this standard has had
no effect on the Companys financial statements.
FAIR VALUE MEASUREMENTS
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
7
TRANSFORMA ACQUISITION GROUP INC.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
the highest priority to quoted prices in active markets and the lowest priority to unobservable
data. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at
fair value.
Effective January 1, 2008, the Company implemented SFAS Statement No. 157, which did not have
impact on Companys financial results
The following table presents certain of the Companys assets that are measured at fair value
as of September 30, 2008. In general, fair values determined by Level 1 inputs utilize quoted
prices in active markets and the fair values described below were determined through market,
observable and corroborated sources.
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|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
Active Markets
|
|
Description
|
|
September 30, 2008
|
|
|
(Level 1)
|
|
Cash and cash equivalents
|
|
$
|
824,883
|
|
|
$
|
824,883
|
|
Cash and cash equivalents held
in Trust Account
|
|
|
101,433,457
|
|
|
|
101,433,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
102,258,340
|
|
|
$
|
102,258,340
|
|
|
|
|
|
|
|
|
In accordance with the provisions of FSP No. FAS 157-2,
Effective Date of FASB Statement No.
157,
the Company has elected to defer implementation of SFAS 157 as it relates to its non-financial
assets and non-financial liabilities until January 1, 2009 and is evaluating the impact, if any,
this standard will have on its financial statements.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued SFAS No. 141R, Business
Combinations (SFAS 141R). SFAS 141R replaces SFAS 141 and established principles and
requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, liabilities assumed and any non controlling interest in the acquirer
and the goodwill acquired. SFAS 141R also establishes disclosure requirements which will enable
users to evaluate the nature and financial effects of the business combination. This standard is
effective for fiscal years beginning after December 15, 2008.
Under the revised standard, direct costs related to proposed acquisitions are not considered
to increase the fair value of the businesses acquired and therefore will be charged to expense.
Since the Company has determined that its pending business combinations (for which costs of
$460,275 have been incurred as of September 30, 2008) are not expected to close until after the
effective date of this standard, such costs have been charged to operations and included in general
and administrative expenses in the current quarter.
In December 2007, the FASB issued SFAS 160, Non-controlling Interests in Consolidated
Financial Statements an amendment of ARB No. 51 (SFAS 160). SFAS 160 requires that ownership
interests in subsidiaries held by parties other than the parent, and the amount of consolidated net
income, be clearly identified, labeled and presented in the consolidated financial statements. It
also requires that, once a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary be initially measured at fair value. Sufficient disclosures are
required to clearly identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after December 15,
2008, and requires retroactive adoption of the presentation and disclosure requirements for
existing minority interests. All other requirements are applied prospectively.
On March 19, 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161), to improve financial reporting of derivative instruments and
hedging activities by requiring enhanced disclosures to enable investors to better understand their
effects on an entitys financial position, financial performance, and cash flows. SFAS 161 is
effective for financial statements issued for fiscal years and
8
TRANSFORMA ACQUISITION GROUP INC.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
interim periods beginning after November 15, 2008, which will require the Company to adopt these
provisions beginning in fiscal 2009 and thereafter. Management is currently evaluating the effect
that SFAS 161 may have on the Companys financial statement disclosures.
The Company does not believe that any other recently issued, but not yet effective, accounting
standards if currently adopted would have a material effect on the accompanying financial
statements.
NOTE 4 INCOME TAXES
Provision (benefit) for income taxes consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three
|
|
For the three
|
|
For the nine
|
|
For the nine
|
|
From inception
|
|
|
months ended
|
|
months ended
|
|
months ended
|
|
months ended
|
|
(July 19, 2006) to
|
|
|
September 30, 2008
|
|
September 30, 2007
|
|
September 30, 2008
|
|
September 30, 2007
|
|
September 30, 2008
|
|
|
|
Current-Federal
|
|
$
|
(99,540
|
)
|
|
$
|
369,650
|
|
|
$
|
369,570
|
|
|
$
|
1,056,469
|
|
|
$
|
1,741,243
|
|
Deferred-Federal
|
|
$
|
(156,493
|
)
|
|
$
|
|
|
|
$
|
(156,493
|
)
|
|
$
|
|
|
|
$
|
(156,493
|
)
|
Total
|
|
$
|
(256,033
|
)
|
|
$
|
369,650
|
|
|
$
|
213,077
|
|
|
$
|
1,056,469
|
|
|
$
|
1,584,750
|
|
The Companys effective tax rate approximates the federal statutory rate. Included in prepaid
income taxes is a deferred tax asset of $156,493 with respect to the acquisition costs of $460,275
related to pending business combinations that have been expensed in the current quarter. 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 $13,673 and $40,350 for the three and
nine months ended September 30, 2008, $575 and $30,927 for the three and nine months ended
September 30, 2007 and $187,358 for the period from inception (July 19, 2006) to September 30,
2008, respectively, are included as part of general and administrative expenses in the accompanying
statements of operations.
NOTE 5 COMMITMENTS
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 Companys behalf.
Administrative Fees
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, and $67,500 for the three and nine months ended September 30,
2008, $22,500 and $67,500 for the three and nine months ended September 30, 2007 and $160,645 for
the period from inception (July 19, 2006) to September 30, 2008, respectively, are included as part
of general and administrative expenses in the accompanying statements of operations.
9
TRANSFORMA ACQUISITION GROUP INC.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
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 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 Companys Initial Stockholders purchased 3,593,747 post reverse stock
split shares of the Companys common stock for an aggregate $25,000.
On January 25, 2007, the Initial Stockholders returned an aggregate of 468,750 shares of the
Companys 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 Companys liquidation.
10
TRANSFORMA ACQUISITION GROUP INC.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
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 Companys
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.
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 Companys 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 LLCs 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 was 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
11
TRANSFORMA ACQUISITION GROUP INC.
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
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 Companys common stock or any
voting rights until such holders exercise their respective Warrants and receive shares of the
Companys 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 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.
12
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. 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 finders fee to any unaffiliated
party that provides information regarding prospective targets to us.
Assuming that a business combination is not consummated, we believe that the funds available
to us outside of the trust account will be sufficient to allow us to operate through December 26,
2008 and to wind up and dissolve thereafter. As of September 30, 2008 the funds available to us
outside of the trust account totaled $1,157,922.
During the quarter ended September 30, 2008 the Company elected to expense deferred
acquisition costs of $460,275 related to pending business combinations. Under SFAS 141R, direct
costs related to proposed acquisitions are not considered to increase the fair value of the
businesses acquired and therefore should be charged to expense. Since the Company has determined
that its pending business combinations (for which costs of $460,275 have been
13
incurred as of September 30, 2008) are not expected to close until after the effective date of
this standard, such costs have been charged to operations and included in general and
administrative expenses in the current quarter.
Results of Operations
For the three months ended September 30, 2008 and September 30, 2007, we had net income (loss)
of ($497,006) and $717,558, respectively, which consisted of interest income on the trust account
investment of $660,071 and $1,285,470 and interest on cash of $5,631 and $7,987 respectively.
Income before provision for income taxes was offset by general and administrative expenses of
$1,418,741 and $206,249, which includes professional fees of $1,335,044 and $88,336, Delaware
franchise tax of $13,673 and $575, insurance expense of $39,709 and $35,772, travel and
entertainment expenses of $3,484 and $36,582, administrative fees of $22,500 and $22,500, and other
operating expenses of $4,331 and $22,484, respectively. The Company incurred a provision (benefit)
for Federal income taxes of ($256,033) and $369,650, respectively.
For the nine months ended September 30, 2008 and September 30, 2007, we had net income of
$332,510 and $2,050,795, respectively, which consisted of interest income on the trust account
investment of $2,367,104 and $3,802,553 and interest on cash of $23,068 and $15,749 respectively.
Income before provision for income taxes was offset by general and administrative expenses of
$1,844,585 and $711,038 which includes professional fees of $1,486,797 and $338,452, Delaware
franchise tax of $40,350 and $30,927, insurance expense of $111,253 and $107,314, travel and
entertainment expenses of $88,939 and $106,836, administrative fees of $67,500 and $67,500, filing
fees of $27,754 and $24,671, and other operating expenses of $21,992 and $35,338, respectively. The
Company incurred a provision for Federal income taxes of $213,077 and $1,056,469, respectively.
From inception (July 19, 2006) to September 30, 2008, we had net income of $3,014,003 which
consisted of interest income on the trust account investment of $7,550,182 and interest on cash of
$49,298, offset by general and administrative expenses of $3,000,727, which includes professional
fees of $2,026,277, Delaware franchise tax of $187,358, insurance expense of $259,459, travel and
entertainment expenses of $248,626, filing fees of $52,425, administrative fees of $160,645 and
other operating expenses of $65,937. The Company has a provision for Federal income taxes of
$1,584,750.
Our financial statements as of and for the period ending December 31, 2007 were audited, and
we filed these audited financial statements in our 2007 Annual Report on Form 10-K dated March 24,
2008.
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
2007 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, 2008, 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, 2008 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.
14
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
2007 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.
None.
Item 6. Exhibits.
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|
|
Exhibit
|
|
Exhibit
|
Number
|
|
Description
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31.1
|
|
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
|
|
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
|
|
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
|
|
|
|
32.2
|
|
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
|
15
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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|
TRANSFORMA ACQUISITION GROUP INC.
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|
|
|
|
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Date: November 7, 2008
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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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|
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|
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Title:
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President and Chief Executive Officer
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Exhibit Index.
|
|
|
Exhibit
|
|
Exhibit
|
Number
|
|
Description
|
|
|
|
31.1
|
|
Certificate Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934 of the Principal Executive Officer
|
|
|
|
31.2
|
|
Certificate Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934 of the Principal Financial Officer
|
|
|
|
32.1
|
|
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
|
|
|
|
32.2
|
|
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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