UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 000-51840
ASCEND ACQUISITION CORP. | |
(Exact Name of Small Business Issuer as Specified in Its Charter) | |
Delaware | 20-3881465 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
435 Devon Park Drive, Bldg. 400, Wayne, PA 19087
(Address of principal executive offices)
(610) 519-1336
(Issuer’s telephone number)
Check whether the issuer (1) 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 x No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ý No ¨
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 8,566,667 common shares as of August 14, 2008
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ASCEND ACQUISITION CORP.
(a corporation in the development stage)
CONDENSED BALANCE SHEETS
(Unaudited) June 30, 2008 | December 31, 2007 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 8,212 | $ | 10,508 | ||||
Investments held in trust | 41,075,575 | 40,656,728 | ||||||
Prepaid expenses and other receivables | 13,775 | 10,937 | ||||||
Deferred income taxes | 29,900 | 29,900 | ||||||
Total assets | $ | 41,127,462 | $ | 40,708,073 | ||||
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses (including related parties of $165,484 and $114,498, respectively) | $ | 842,355 | $ | 680,414 | ||||
Income taxes payable | 29,900 | 29,900 | ||||||
Deferred interest | - | 429,088 | ||||||
Deferred payment due to underwriter | - | 952,200 | ||||||
Liability due to public shareholders | 41,010,509 | - | ||||||
Total liabilities | 41,882,764 | 2,091,602 | ||||||
Commitments | ||||||||
Common stock, subject to possible conversion, 1,379,310 shares | - | 7,698,189 | ||||||
Stockholders’ (Deficit) Equity: | ||||||||
Preferred stock, $.0001 par value, authorized 1,000,000 shares; none issued | - | - | ||||||
Common stock, $.0001 par value, authorized 30,000,000 shares; issued and outstanding 8,566,667 shares (which includes 1,379,310 shares subject to possible conversion at December 31, 2007) | 857 | 857 | ||||||
Additional paid-in capital | - | 30,529,388 | ||||||
Retained (deficit) earnings accumulated during development stage | (756,159 | ) | 388,037 | |||||
Total stockholders’ (deficit) equity | (755,302 | ) | 30,918,282 | |||||
Total liabilities and stockholders’ (deficit) equity | $ | 41,127,462 | $ | 40,708,073 |
See accompanying notes to unaudited condensed financial statements.
2
ASCEND ACQUISITION CORP.
(a corporation in the development stage)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Quarter Ended June 30, | Six Months Ended June 30, | December 5, 2005 (Inception) to June 30, | ||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | ||||||||||||||||
General and administrative expenses | $ | (84,995 | ) | $ | 206,380 | $ | 161,398 | $ | 358,845 | $ | 1,503,488 | |||||||||
Operating income (loss) | 84,995 | (206,380 | ) | (161,398 | ) | (358,845 | ) | (1,503,488 | ) | |||||||||||
Other income: | ||||||||||||||||||||
Interest income | - | 1,469 | - | 3,991 | 12,689 | |||||||||||||||
Interest on trust fund investment | 141,229 | 267,750 | 335,119 | 520,996 | 2,052,557 | |||||||||||||||
Total other income | 141,229 | 269,219 | 335,119 | 524,987 | 2,065,246 | |||||||||||||||
Income before income taxes | 226,224 | 62,839 | 173,721 | 166,142 | 561,758 | |||||||||||||||
Income tax benefit | - | - | - | 32,700 | - | |||||||||||||||
Net income | $ | 226,224 | $ | 62,839 | $ | 173,721 | $ | 198,842 | $ | 561,758 | ||||||||||
Weighted average shares of common | ||||||||||||||||||||
stock outstanding (basic and | ||||||||||||||||||||
diluted) | 8,566,667 | 8,566,667 | 8,566,667 | 8,566,667 | 7,371,850 | |||||||||||||||
Earnings per common share (basic and diluted) | $ | .03 | $ | .01 | $ | .02 | $ | .02 | $ | .08 | ||||||||||
See accompanying notes to unaudited condensed financial statements.
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ASCEND ACQUISITION CORP.
(a corporation in the development stage)
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Retained | ||||||||||||||||||||
Earnings | ||||||||||||||||||||
(Deficit) | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Additional | during the | |||||||||||||||||||
Common Stock | Paid-In | Development | ||||||||||||||||||
Shares | Amount | Capital | Stage | Total | ||||||||||||||||
Balance, December 31, 2007 | 8,566,667 | $ | 857 | $ | 30,529,388 | $ | 388,037 | $ | 30,918,282 | |||||||||||
Net income for the six months ended June 30, 2008 | - | - | - | 173,721 | 173,721 | |||||||||||||||
Adjustment for liability due to | ||||||||||||||||||||
public shareholders | - | - | (30,529,388 | ) | (1,317,917 | ) | (31,847,305 | ) | ||||||||||||
Balance, June 30, 2008 | 8,566,667 | $ | 857 | $ | - | $ | (756,159 | ) | $ | (755,302 | ) | |||||||||
See accompanying notes to unaudited condensed financial statements.
4
ASCEND ACQUISITION CORP.
(a corporation in the development stage)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, 2008 | Six Months Ended June 30, 2007 | December 5, 2005 (Inception) to June 30, 2008 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 173,721 | $ | 198,842 | $ | 561,758 | ||||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||||
Interest income on investments held in trust | (418,847 | ) | (651,164 | ) | (2,565,372 | ) | ||||||
Change in operating assets and liabilities: | ||||||||||||
Increase in prepaid expenses and other receivables | (2,838 | ) | (1,572 | ) | (13,775 | ) | ||||||
Increase in deferred tax asset | - | - | (29,900 | ) | ||||||||
Increase in accounts payable and accrued expenses | 161,941 | 101,623 | 842,355 | |||||||||
(Decrease) increase in income taxes payable | - | (14,700 | ) | 29,900 | ||||||||
Increase in deferred interest | 83,727 | 130,168 | 512,815 | |||||||||
Net cash used in operating activities | (2,296 | ) | (236,803 | ) | (662,219 | ) | ||||||
Cash flows from investing activities: | ||||||||||||
Purchase of treasury bills held in trust | - | - | (15,485,695 | ) | ||||||||
Purchase of municipal securities held in trust | - | - | (30,809,507 | ) | ||||||||
Sale/maturity of treasury bills held in trust | - | - | 15,613,788 | |||||||||
Sale of municipal securities held in trust | - | - | 31,176,329 | |||||||||
Purchase of Pennsylvania municipal securities held in trust | - | - | (39,005,118 | ) | ||||||||
Net cash used in investing activities | - | - | (38,510,203 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||
Gross proceeds from initial public offering | - | - | 41,400,000 | |||||||||
Proceeds from note payable to stockholder | - | - | 80,000 | |||||||||
Repayment of note payable to stockholder | - | - | (80,000 | ) | ||||||||
Proceeds from sale of shares of common stock to founding stockholders | - | - | 25,000 | |||||||||
Proceeds from issuance of option | - | - | 100 | |||||||||
Proceeds from sale of insider units | - | - | 1,000,002 | |||||||||
Payment of costs of public offering | - | - | (3,244,468 | ) | ||||||||
Net cash provided by financing activities | - | - | 39,180,634 | |||||||||
Net (decrease) increase in cash and cash equivalents | (2,296 | ) | (236,803 | ) | 8,212 | |||||||
Cash and cash equivalents at beginning of period | 10,508 | 423,590 | - | |||||||||
Cash and cash equivalents at end of period | $ | 8,212 | $ | 186,787 | $ | 8,212 |
Supplemental schedule of non-cash financing activity: | ||||||||||||
Deferred payment due to underwriter | $ | (952,200 | ) | $ | - | $ | - |
See accompanying notes to unaudited condensed financial statements.
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ASCEND ACQUISITION CORP.
(a corporation in the development stage)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The condensed financial statements at June 30, 2008 and for the three and six month periods ended June 30, 2008 and 2007 and for the period from December 5, 2005 (inception) to June 30, 2008 are unaudited and include the accounts of Ascend Acquisition Corp. (a corporation in the development stage) (“the Company”). The condensed balance sheet at December 31, 2007 has been derived from the audited financial statements included in the Company’s 10-KSB filed on March 28, 2008.
In the opinion of management, all adjustments (consisting of normal accruals) have been made that are necessary to present fairly the financial position of the Company as of June 30, 2008 and the results of its operations for the three and six months ended June 30, 2008 and 2007 and its cash flows for the six months ended June 30, 2008 and 2007. All activity from December 5, 2005 (inception) through May 17, 2006 relates to the Company’s formation and the public offering described below. Operating results for the interim period presented are not necessarily indicative of the results to be expected for a full year.
The statements and related notes have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations.
2. Organization and Business Operations
The Company was incorporated in Delaware on December 5, 2005 as a blank check company whose objective is to acquire an operating business.
The registration statement for the Company’s initial public offering (“the Offering”) was declared effective May 11, 2006. The Company consummated the Offering, including the over-allotment option, on May 17, 2006 and May 22, 2006, respectively, and received total net proceeds of approximately $37,203,000 (Note 6). Substantially all of the net proceeds of the Offering were intended to be generally applied toward consummating a business combination with an operating business (“Business Combination”). The Company was required to complete a Business Combination by May 17, 2008. On April 28, 2008, the Company announced that it was abandoning its proposed Business Combination with e.PAK Resources (S) Pte. Ltd. (“ePAK”) (Note 7). Accordingly, the Company faces mandatory liquidation, which raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty, other than to classify amounts in the Trust Account as due to public shareholders. Upon liquidation, it is likely 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 due to costs related to the Offering, general and administrative expenses incurred prior to the liquidation event and since no value would be attributed to the Warrants contained in the Units sold (Note 5).
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ASCEND ACQUISITION CORP.
(a corporation in the development stage)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS – (Continued)
3. Investments Held in Trust
Investments held in trust at June 30, 2008 consist of a Pennsylvania Municipal Money Market trust obligation of $41,024,483, plus accrued interest of $51,092. Investments held in trust at December 31, 2007 consist of a Pennsylvania Municipal Money Market trust obligation of $40,553,795, plus accrued interest of $102,933.
4. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share:
Quarter Ended June 30, | Six Months Ended June 30, | December 5, 2005 (Inception) to June 30, | ||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | ||||||||||||||||
Numerator: Net income | $ | 226,224 | $ | 62,839 | $ | 173,721 | $ | 198,842 | $ | 561,758 | ||||||||||
Denominator: Average common shares outstanding | 8,566,667 | 8,566,667 | 8,566,667 | 8,566,667 | 7,371,850 | |||||||||||||||
Basic and diluted earnings per share | $ | .03 | $ | .01 | $ | .02 | $ | .02 | $ | .08 | ||||||||||
No computation for diluted earnings per share was prepared for the Redeemable Common Stock Purchase Warrants (see Note 6) to purchase an aggregate of 14,133,334 shares of common stock at $5.00 per share and the underwriters’ option (see Note 6) to purchase 300,000 Units at an exercise price of $7.50 per Unit, respectively, that were outstanding at June 30, 2008 because the shares underlying the conversion of the warrants are contingently issuable and the exercise price of the underwriters’ option is in excess of the related market value of the Units.
5. Stockholders’ Equity
The Offering
On May 17, 2006, the Company sold 6,000,000 units (“Units”) in the Offering and on May 22, 2006, the Company sold an additional 900,000 Units related to the underwriter’s over-allotment option. Each Unit consists of one share of the Company’s common stock, $.0001 par value, and two Redeemable Common Stock Purchase Warrants (“Warrants”). Each Warrant entitles the holder to purchase from the Company one share of common stock at an exercise price of $5.00 commencing upon completion of a Business Combination with a target business and expiring May 10, 2010. The Warrants will be redeemable, at the Company’s option, at a price of $.01 per Warrant upon 30 days’ notice after the Warrants become exercisable, only in the event that the last sale price of the common stock is at least $8.50 per share for any 20 trading days within a 30 trading day period ending on the third day prior to the date on which notice of redemption is given. The Company agreed to pay EarlyBirdCapital, Inc., the underwriter in the Offering (“Underwriter”), an underwriting discount of 8% of the gross proceeds of the Offering and a non-accountable expense allowance of 1% of the gross proceeds of the Offering. However, the Underwriter agreed that 2.3% of the underwriting discount ($952,200) would not be
7
ASCEND ACQUISITION CORP.
(a corporation in the development stage)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS – (Continued)
5. Stockholders’ Equity (continued)
The Offering (continued)
payable unless and until the Company completes a Business Combination and waived its right to receive such payment upon the Company's liquidation if it is unable to complete a Business Combination. Since the acquisition of ePAK was abandoned in April 2008 and the Company faces mandatory liquidation, the $952,200 deferred payment due to the underwriter is longer be payable and was reclassified to additional paid in capital.
In connection with this Offering, the Company also issued an option (“Option”), for $100, to the Underwriter to purchase 300,000 Units at an exercise price of $7.50 per Unit. The Units issuable upon exercise of the Option are identical to the Units sold in the Offering. The Company has accounted for the fair value of the Option, inclusive of the receipt of the $100 cash payment, as an expense of the Offering resulting in a charge directly to stockholders’ equity. The Company estimated that, as of the date of issuance, the fair value of the Option was approximately $711,000 ($2.37 per Unit) using a Black-Scholes option-pricing model. The fair value of the Option granted to the Underwriter was estimated using the following assumptions: (1) expected volatility of 46.56%, (2) risk-free interest rate of 4.31% and (3) expected life of 5 years. The Option may be exercised for cash or on a "cashless" basis, at the holder's option, such that the holder may use the appreciated value of the Option (the difference between the exercise prices of the Option and the underlying Warrants and the market price of the Units and underlying securities) to exercise the option without the payment of any cash.
Common Stock
The Company’s initial stockholders purchased 875,000 common shares for $25,000 on December 5, 2005. On April 19, 2006, the Company's Board of Directors authorized a stock dividend of 0.714285 shares of common stock for each share of common stock outstanding, bringing the initial outstanding shares to 1,500,000. On April 20, 2006, the Company's Certificate of Incorporation was amended to increase the authorized shares of common stock from 15,000,000 to 30,000,000 shares of common stock. All references in the accompanying financial statements to the number of shares of stock have been retroactively restated to reflect these transactions.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock, par value $.0001 per share, with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.
The agreement with the Underwriter prohibits the Company, prior to a Business Combination, from issuing preferred stock which participates in the proceeds of the Trust Account or which votes as a class with the Common Stock on a Business Combination.
8
ASCEND ACQUISITION CORP.
(a corporation in the development stage)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS – (Continued)
6. Commitments
The Company presently occupies office space provided by an affiliate of the Company’s special advisor. Such affiliate has agreed that, until the Company consummates a Business Combination or liquidates, it will make such office space, as well as certain office and secretarial services, available to the Company, as may be required by the Company from time to time. The Company has agreed to pay such affiliate $7,500 per month for such services commencing May 11, 2006. However, as a result of the failure to achieve a business combination, $97,500 of unpaid amounts due under this agreement were waived.
Pursuant to letter agreements with the Company and the Underwriter, the Initial Stockholders have waived their right to receive distributions with respect to their founding shares upon the Company's liquidation.
One of the Initial Stockholders purchased 166,667 Units at $6.00 per unit (for an aggregate purchase price of $1,000,002) privately from the Company simultaneously with the consummation of the Offering. All of the proceeds received from this purchase have been placed in the Trust Account. The Units purchased by such Initial Stockholder are identical to the Units offered in the Offering except that if the Company calls the Warrants for redemption, the Warrants underlying these Units may be exercisable on a "cashless basis" so long as such Warrants are held by such Initial Stockholder or his affiliates. Additionally, such Initial Stockholder has waived his right to receive distributions upon the Company’s liquidation prior to a Business Combination with respect to the securities underlying these Units. This Initial Stockholder has further agreed that the Units and underlying securities will not be sold or transferred by him until after the Company has completed a Business Combination and has agreed to vote the shares of common stock underlying these Units in accordance with the vote of the majority in interest of the Public Stockholders with respect to any Business Combination.
The Initial Stockholders are entitled to registration rights with respect to their founding shares pursuant to an agreement signed on May 11, 2006. The holders of the majority of these shares are entitled to make up to two demands that the Company register these shares at any time commencing February 11, 2009. In addition, the Initial Stockholders have certain "piggy-back" registration rights on registration statements filed subsequent to May 11, 2009.
7. Business Combination Failure
On April 28, 2008, the Company announced that it had abandoned its proposed Business Combination with e.PAK Resources (S) Pte. Ltd. (“ePAK”). The Company was required to complete its Business Combination with ePAK by May 17, 2008. Because the Company did not consummate a qualifying Business Combination prior to May 17, 2008, the board of directors is (among other things) contemplating alternatives for preserving value for stockholders.
As a result of the preceding, the Company’s board of directors has determined it would be in the best interests of the Company’s stockholders to distribute now to stockholders holding shares of the Company’s common stock (“IPO Shares”) issued in its initial public offering (“IPO”) all amounts in the Trust Fund established by the Company at the consummation of its IPO and into which a certain amount of the net proceeds of the IPO were deposited (the “Trust Fund”). As of July 31, 2008, approximately $41,124,515 (approximately $5.96 per IPO Share) was in the Trust Fund. Further, the Company’s board of directors also determined that it would be in the
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ASCEND ACQUISITION CORP.
(a corporation in the development stage)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS – (Continued)
7. Business Combination Failure (continued)
best interests of the Company’s remaining stockholders for the Company to continue its corporate existence after the distribution of the Trust Fund, rather than dissolve as required by our certificate of incorporation, and to do so with a new certificate of incorporation that would be suitable for the company as a non-blank check company. As a result, the Company filed a Preliminary Schedule 14A Proxy Statement with the Securities and Exchange Commission (“SEC”) on July 1, 2008. On August 8, 2008, the Company filed its Definitive Proxy Statement on Schedule 14A and set the date for a special meeting of shareholders for September 4, 2008, in which certain proposals, including a proposal to continue the Company’s corporate existence, will be voted on.
During the second quarter of 2008, management negotiated reduced rates with several vendors as a result of the failure of the business combination. Two legal firms with outstanding balances totaling $641,171 at June 30, 2008 are still under negotiation. The reduction in the amounts due gives rise to negative general and administrative expenses for the quarter.
10
Item 2. Plan of Operation.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
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. The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report.
We were formed on December 5, 2005 to serve as a vehicle to effect a merger, capital stock exchange, asset acquisition or other similar business combination with a currently unidentified operating business. We intend to utilize the proceeds of our initial public offering, our capital stock, debt or a combination of cash, capital stock and debt, in effecting a business combination. All activity from December 5, 2005 through May 17, 2006 related to our formation and initial public offering.
On April 28, 2008, we announced that we have abandoned our proposed business combination with e.PAK Resources (S) Pte. Ltd. (“ePAK”). We were required to complete our business combination with ePAK by May 17, 2008. Because the Company did not consummate a qualifying Business Combination prior to May 17, 2008, the board of directors is (among other things) contemplating alternatives for preserving value for stockholders.
The Company intends to distribute the amounts in the Trust Fund as soon as reasonably practicable. As of July 31, 2008, there was approximately $41,124,515 (approximately $5.96 per IPO Share) in the Trust Fund. Only holders of our IPO Shares are entitled to receive proceeds from the distribution of the Trust Fund, after establishing a reserve for Delaware franchise taxes expected to be paid in the amount of approximately $75,000. We have accrued and unpaid liabilities of approximately $872,000 as of the balance sheet date, including an aggregate of approximately $165,000 owed to Don K. Rice, an officer and a director of ours. If we liquidate before the completion of a business combination and distribute the proceeds held in trust to our public stockholders, Mr. Rice has agreed that he will be personally liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us. Mr. Rice has confirmed that he is currently negotiating with creditors regarding the satisfaction of our liabilities, which he expects to complete prior to the special meeting. However, we cannot assure you that Mr. Rice will be able to satisfy those obligations. Since any obligations of Mr. Rice are not collateralized or otherwise guaranteed, we cannot assure you that he will perform any obligation that he may have or that stockholders will be able to enforce any such obligation. As a result, the indemnification described above may not effectively mitigate the risk of creditors' claims upon the amounts distributed to the holders of the IPO Shares from the Trust Fund. Under Delaware law, holders of IPO Shares could be required to return a portion of the distributions that they receive up to their pro rata share of the liabilities not so discharged, but not in excess of the total amounts that they separately receive.
Net income of $226,224 reported for the quarter ended June 30, 2008 consists of $6,256 expense for director and officer liability insurance, a credit of $97,500 for a monthly administrative services agreement (waiver of unpaid amount), $9,313 for franchise and taxes, a credit of $55,985 for legal, accounting and consulting expenses (representing adjustments of several unpaid amounts waived) and $52,921 for other expenses. Interest on the trust fund investment was $141,229, excluding $35,285 of deferred interest.
11
Net income of $62,839 reported for the quarter ended June 30, 2007 consists of $6,278 expense for director and officer liability insurance, $22,500 expense for a monthly administrative services agreement, $9,125 for franchise and state capital stock taxes, $151,252 for legal, accounting and consulting expenses (which includes $149,552 of third party legal and consulting costs related to the merger) and $17,225 for other expenses. Interest on the trust fund investment was $267,750, excluding $66,896 of deferred interest, and interest earned on the money market accounts was $1,469.
Net income of $173,721 reported for the six months ended June 30, 2008 consists of $12,456 expense for director and officer liability insurance, a credit of $75,000 for a monthly administrative services agreement (waiver of unpaid amount), $18,625 for franchise and state capital stock taxes, $126,207 for legal, accounting and consulting expenses, and $79,110 for other expenses. Interest on the trust fund investment was $335,119, excluding $83,728 of deferred interest.
Net income of $198,842 reported for the six months ended June 30, 2007 consists of $12,528 expense for director and officer liability insurance, $45,000 expense for a monthly administrative services agreement, $12,750 for franchise and state capital stock taxes, $237,208 for legal, accounting and consulting expenses (which includes $216,805 of third party legal and consulting costs related to the merger), ($32,700) reversal of prior period state income taxes and $51,359 for other expenses. Interest on the trust fund investment was $520,996, excluding $130,168 of deferred interest, and interest earned on the money market accounts was $3,991.
Net income of $561,758 reported for the period from December 5, 2005 (inception) to June 30, 2008 consists of $53,500 expense for director and officer liability insurance, $72,500 expense for a monthly administrative services agreement, $101,787 for franchise and state capital stock taxes, $1,031,666 for legal, accounting and consulting expenses and $244,005 for other expenses. Interest on the trust fund investment was $2,052,557, excluding $512,815 of deferred interest, and interest earned on the money market accounts was $12,689.
We consummated our Offering on May 17, 2006 and the over-allotment option on May 22, 2006. $38,510,202, which includes $36,558,000 of the net proceeds of the Offering, $1,000,002 related to the sale of insider units and $952,200 deferred payment due to the underwriter, is held in trust.
We are obligated, commencing May 11, 2006 and ending upon our liquidation, to pay to 400 Building LLC, an affiliate of Arthur Spector, our special advisor, a monthly fee of $7,500 for general and administrative services.
On December 20, 2005, Don K. Rice advanced an aggregate of $80,000 to us for payment of offering expenses on our behalf. The loan was payable without interest on the earlier of December 20, 2006 or the consummation of the Offering. This loan was repaid on May 24, 2006 out of proceeds of the Offering.
Don K. Rice had also purchased 166,667 units at $6.00 per unit (for an aggregate purchase price of $1,000,002) from us on a private placement basis simultaneously with the consummation of the Offering on May 17, 2006.
In connection with our initial public offering, we issued to the underwriter, for $100, an option to purchase up to a total of 300,000 units. We estimated that the fair value of this option was approximately $711,000 ($2.37 per Unit) using a Black-Scholes option-pricing model. The fair value of the option granted to the underwriter was estimated as of the date of grant using the following assumptions: (1) expected volatility of 46.56%, (2) risk-free interest rate of 4.31% and (3) expected life of 5 years.
We intend to reimburse our officers and directors for any reasonable out-of-pocket expenses incurred by them in connection with certain activities on our behalf such as identifying and investigating possible target businesses and business combinations. From our inception through August 14, 2008, we have reimbursed our officers and directors an aggregate of $72,373 incurred by them on our behalf.
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Although the accompanying financial statements have been prepared assuming that we will continue as a going concern, because of the abandonment of the business combination discussed above, there is substantial doubt about our ability to continue as a going concern. The financial statements do not reflect this contingency.
Off-balance sheet arrangements
Options and warrants issued in conjunction with our initial public offering are equity-linked derivatives and, accordingly, represent off-balance sheet arrangements. The options and warrants meet the scope exception in paragraph 11(a) of FAS 133 and are accordingly not accounted for as derivatives for purposes of FAS 133, but instead are accounted for as equity. See Note 5 to the financial statements for more information.
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Item 4. Controls and Procedures.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our chief executive officer, as appropriate to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer (principal executive, financial and accounting officer) carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2008. Based upon his evaluation, he concluded that our disclosure controls and procedures were effective.
Our internal control over financial reporting is a process designed by, or under the supervision of, our chief executive officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles (United States). Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles (United States), and that our receipts and expenditures are being made only in accordance with the authorization of our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On May 17, 2006, we consummated the Offering of 6,000,000 Units, with each Unit consisting of one share of our common stock and two warrants, each to purchase one share of our common stock at an exercise price of $5.00 per share. On May 22, 2006, we closed on an additional 900,000 Units that were subject to the underwriters’ over-allotment option. The Units were sold at an offering price of $6.00 per unit, generating total gross proceeds of $41,400,000. EarlyBirdCapital, Inc. acted as lead underwriter. The securities sold in the Offering were registered under the Securities Act of 1933 on a registration statement on Form S-1 (No. 333-131529). The Securities and Exchange Commission declared the registration statement effective on May 11, 2006.
We paid a total of $3,244,000 in underwriting discounts and commissions and offering expenses, excluding the $952,200 of deferred offering costs due to the underwriter when a Business Combination is consummated, which was deposited in the trust account. After deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds to us from the Offering, including $1,000,002 related to the sale of insider units, were approximately $38,203,000. $38,510,202 was deposited into the trust account (or $5.58 per share sold in the Offering), which includes the $952,200 of deferred payment due to the underwriter. The remaining proceeds are available to be used to provide for business, legal and accounting due diligence on prospective business combinations and continuing general and administrative expenses.
For a description of the use of the proceeds generated in the Offering, see Part I, Item 2 of this Form 10-QSB.
Item 6. Exhibits.
EXHIBITS
Exhibit No. Description
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ASCEND ACQUISITION CORP. | ||
By: | /s/ Don K. Rice | |
Don K. Rice | ||
Chairman of the Board, Chief Executive Officer, President and Treasurer (Principal executive officer and principal financial and accounting officer) |
Date: August 14, 2008
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