UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended June 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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F
or the transition period from to .
Commission File Number: 001-33281
Union Street Acquisition Corp.
(Exact name of Registrant as specified in its charter)
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Delaware
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20-5221262
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(State or Other Jurisdiction of
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(I.R.S. Employer
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Incorporation or Organization)
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Identification No.)
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102 South Union Street, Alexandria, VA 22314
(Address of Principal Executive Offices including Zip Code)
(703) 682-0730
(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. (Check one):
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Large accelerated Filer
o
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Accelerated Filer
o
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Non-accelerated Filer
þ
(Do not check if a smaller reporting company)
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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
Exchange Act). Yes
þ
No
o
There were 15,625,000 shares of the Registrants common stock issued and outstanding as of August
12, 2008.
Union Street Acquisition Corp. Form 10-Q
Table of Contents
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
UNION STREET ACQUISITION CORP.
(A Development Stage Company)
Balance Sheet
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June 30, 2008
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(Unaudited)
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December 31, 2007
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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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573,884
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$
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1,324,566
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Trust Account
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100,665,539
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100,205,298
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Prepaid income tax
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50,901
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Prepaid expenses
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27,141
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81,561
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Total current assets
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$
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101,317,465
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$
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101,611,425
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Deferred tax asset
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401,471
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260,884
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Deferred transaction costs
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797,845
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100,000
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Total assets
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$
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102,516,781
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$
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101,972,309
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Liablilities and stockholders equity
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Current liabilities:
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Accounts payable and accrued expenses
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$
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41,468
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$
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160,000
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Deferred interest
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428,709
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325,558
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Taxes payable
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33,732
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Accrued transaction costs
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250,000
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100,000
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Deferred underwriting fee
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3,700,000
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3,700,000
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Total current liabilities
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4,420,177
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4,319,290
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Common Stock, subject to possible conversion, 2,499,999 shares at conversion value
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18,959,992
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18,959,992
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Commitments
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Stockholders equity
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Preferred
Stock, $0.0001 par value: 1,000,000 share authorized; no shares issued and outstanding
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Common Stock, $0.0001 par value; 100,000,000 shares authorized; 15,625,000 issued and
outstanding (including 2,499,999 shares subject to possible conversion)
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1,563
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1,563
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Additional paid-in capital
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76,425,959
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76,425,959
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Earnings accumulated during the development stage
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2,709,090
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2,265,505
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Total stockholders equity
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79,136,612
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78,693,027
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Total liabilities and stockholders equity
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$
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102,516,781
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$
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101,972,309
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED STATEMENTS.
3
UNION STREET ACQUISITION CORP
(A Development Stage Company)
Statement of Operations
(Unaudited)
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July 18, 2006
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(Date of Inception)
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Three Months Ended June 30,
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Six Months Ended June 30,
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Through
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2008
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2007
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2008
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2007
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June 30, 2008
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Formation and operating costs
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$
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193,883
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$
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144,576
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$
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395,116
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$
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331,689
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$
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1,019,867
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Net loss from operations
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(193,883
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(144,576
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(395,116
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(331,689
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(1,019,867
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Other income Interest
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294,958
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1,257,559
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1,067,214
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1,960,017
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5,135,318
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Income before provision for taxes
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101,075
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1,112,983
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672,098
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1,628,328
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4,115,451
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Provision for income taxes
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(34,365
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)
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(378,414
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(228,513
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(553,631
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(1,406,361
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Net income
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66,710
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734,569
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443,585
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1,074,697
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2,709,090
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Basic and diluted net earnings per share
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$
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0.00
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$
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0.05
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$
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0.03
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$
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0.08
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$
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0.23
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Weighted average shares outstanding
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15,625,000
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15,625,000
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15,625,000
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12,931,630
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12,018,557
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED STATEMENTS.
4
UNION STREET ACQUISITION CORP.
(A Development Stage Company)
Statement of Stockholders Equity
Cumulative Amounts from Inception (July 18, 2006) to June 30, 2008
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Earnings
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Accumulated
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Additional
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During the
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Common Stock
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Paid-In
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Development
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Shares
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Amount
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Capital
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Stage
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Total
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Initial capitalization from founding stockholder and
directors
on July 24, 2006 at $.008 per share
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3,125,000
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$
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313
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$
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24,687
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$
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$
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25,000
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Net loss (July 18 - December 31, 2006)
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$
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(20,906
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)
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$
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(20,906
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Balance December 31, 2006
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3,125,000
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$
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313
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$
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24,687
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$
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(20,906
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$
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4,094
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Proceeds from issuance of warrants
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$
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3,000,000
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$
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3,000,000
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Sale of 12,500,000 units through public offering net of
underwriters discount and offering expenses, including
2,499,999 shares subject to possible conversion)
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12,500,000
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$
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1,250
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$
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92,361,264
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$
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92,362,514
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Proceeds subject to possible conversion
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$
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(18,959,992
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)
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$
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(18,959,992
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)
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Net income (January 1, 2007 - December 31, 2007)
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$
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2,286,411
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$
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2,286,411
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Balance December 31, 2007
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15,625,000
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$
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1,563
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$
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76,425,959
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$
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2,265,505
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$
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78,693,027
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Unaudited:
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Net income (January 1, 2008 - June 30, 2008)
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443,585
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443,585
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Balance June 30, 2008
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15,625,000
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1,563
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$
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76,425,959
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$
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2,709,090
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$
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79,136,612
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED STATEMENTS.
.
5
UNION STREET ACQUISITION CORP.
(A Development Stage Company)
Statement of Cash Flows
(Unaudited)
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July 18, 2006
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Six Months
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Six Months
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(Date of Inception)
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Ended
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Ended
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Through
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June 30, 2008
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June 30, 2007
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June 30 2008
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Cash flows from operating activities:
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Net income
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$
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443,585
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$
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1,074,696
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$
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2,709,090
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Adjustments to reconcile net income to net cash provided by operating activities:
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Interest earned on trust
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(1,160,241
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)
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(1,953,068
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)
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(5,520,539
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)
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Deferred tax asset
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(140,587
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)
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(49,306
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)
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(401,471
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)
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Changes in:
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Accounts payable and accrued expenses
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(118,532
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)
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80,000
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41,468
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Prepaid expenses
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54,420
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(155,660
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)
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(27,141
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)
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Deferred interest
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103,151
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428,709
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Income taxes payable
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(84,633
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)
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638,493
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(50,901
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)
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Net cash used by operating activities
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(902,837
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)
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(364,845
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)
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(2,820,785
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)
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Cash flows from investing activities:
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Cash placed in trust
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(98,500,000
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)
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(98,500,000
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)
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Disbursements from trust
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700,000
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3,355,000
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Payment of transaction costs
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(547,845
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)
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(547,845
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)
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Net cash (used by)/provided by investing activities
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152,155
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(98,500,000
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)
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(95,692,845
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)
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Cash flows from financing activities:
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|
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Proceeds from note payable to a related party
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200,000
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Payment of note payable to a related party
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(200,000
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)
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(200,000
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)
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Proceeds from issuance of common stock to founding stockholders
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25,000
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Proceeds from sale of Units to public
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100,000,000
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100,000,000
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Proceeds from Private Placement warrants
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3,000,000
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3,000,000
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Payment of offering costs
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|
|
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(3,780,599
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)
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(3,937,486
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)
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Net cash provided by financing activities
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|
|
|
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|
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99,019,401
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|
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99,087,514
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Increase/(decrease) in cash
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(750,682
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)
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154,556
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|
573,884
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|
Cash, beginning of period
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|
1,324,566
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42,207
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|
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|
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Cash, end of period
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|
$
|
573,884
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|
|
$
|
196,763
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|
|
$
|
573,884
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Supplemental schedule of non-cash investing and financing activities:
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|
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Accrual of deferred transaction costs
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|
$
|
250,000
|
|
|
$
|
|
|
|
$
|
250,000
|
|
Accrual of deferred underwriting fee
|
|
|
|
|
|
|
3,700,000
|
|
|
|
3,700,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
453,733
|
|
|
$
|
450,000
|
|
|
$
|
1,438,733
|
|
|
|
|
|
|
|
|
|
|
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED STATEMENTS.
6
UNION STREET ACQUISITION CORP.
(A Development Stage Company)
Notes to Financial Statements
June 30, 2008
Note ABasis of Presentation
The financial statements of Union Street Acquisition Corp. (the Company) at June 30, 2008,
for the three and six months ended June 30, 2008, for the three and six months ended June 30, 2007
and for the period from July 18, 2006 (inception) to June 30, 2008 (cumulative) are unaudited. 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 and its cash flows for the three and six months ended June 30, 2008 and
June 30, 2007 and for the period from July 18, 2006 (inception) to June 30, 2008 (cumulative).
Operating results for the interim periods are not necessarily indicative of the results to be
expected for a full fiscal year. The December 31, 2007 balance sheet has been derived from audited
financial statements.
The statements and related notes have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance with generally
accepted accounting principles may be omitted pursuant to such rules and regulations. See the
Companys Annual Report on Form 10-K for the year ended December 31, 2007 for additional
disclosures relating to the Companys financial statements and accounting principles.
Note BOrganization and Business Operations
Union Street Acquisition Corp. was incorporated in Delaware on July 18, 2006. The Company was
formed to serve as a vehicle for the acquisition of an operating business through a merger, capital
stock exchange, stock purchase, asset acquisition, or other similar business combination (the
Business Combination). The Company has neither engaged in any operations nor generated any
revenue to date. The Company is considered to be in the development stage and is subject to the
risks associated with activities of development stage companies.
The registration statement for the Companys initial public offering (the Offering) was
declared effective February 1, 2007. The Company consummated the Offering on February 9, 2007 and
received net proceeds of approximately $92.4 million. The Companys executive officers and
directors have broad discretion with respect to the specific application of the net proceeds of the
offering of Units (as defined in Note C below) and the private placement of 3,000,000 warrants that
occurred immediately prior to the Offering (the Private Placement), although substantially all of
the net proceeds of the Offering and Private Placement are intended to be generally applied toward
consummating an initial Business Combination with (or acquisition of) one or more operating
businesses in the business services industry. Furthermore, there is no assurance that the Company
will be able to successfully consummate an initial Business Combination. An amount of $98,500,000,
which includes $3,000,000 relating to the sale of warrants in the Private Placement and $3,700,000
deferred payment to the underwriters in the Offering, of the net proceeds is being held in a trust
account (the Trust Account), and invested in money market funds meeting conditions of the
Investment Company Act of 1940 or securities principally issued or guaranteed by the U.S.
government until the earlier of (i) the consummation of its initial Business Combination or (ii)
the distribution of the Trust Account as described below. As of June 30, 2008, 100% of the funds
in the Trust Account were invested in the Treasury Trust Fund of BlackRock, Inc. 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 vendors, prospective target businesses or other entities it
engages, execute agreements with the Company waiving any right, title, interest or claim of any
kind in or to any monies held in the Trust Account, there is no guarantee that they will execute
such agreements. Certain of the Companys executive officers have agreed that they will be
personally liable under certain circumstances to ensure that the proceeds in the Trust Account are
not reduced by the claims of target businesses or vendors or other entities that are owed money by
the Company for services rendered, contracted for or products sold to the Company. However, there
can be no assurance that the executive officers will be able to satisfy those obligations. Interest
income earned on the funds in the Trust Account can be distributed to pay income taxes related to
the taxable income of the Trust Account and up to $1,500,000, after tax, may be released to us upon
demand, as follows: (x) an aggregate amount of up to $1,250,000, within 12 months after the
Offering, and (y) an aggregate amount of up to $250,000 plus any remaining portion of the
$1,250,000 not previously released to us during the initial 12-month period, during the period that
is between 12 months and 24 months after the Offering. Under the terms of the Investment
Management Trust Agreement the first release of funds from the Trust Account to the Company shall
include income through the first full calendar quarter following the effective date of the IPO,
which for the Company was the quarter ended June 30, 2007. As of June 30, 2008, there had been
$1,500,000 released to the Company from the Trust Account for working capital purposes and
$1,855,000 for income taxes.
7
The Company, after signing a definitive agreement for the acquisition of a target business, will
submit such transaction for stockholder approval. The Company will proceed with the initial
Business Combination only if:
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A majority of the shares of common stock voted by the public stockholders are voted in
favor of the initial Business Combination; and
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Public stockholders owning fewer than 20% of the shares sold in the Offering both vote
against the initial Business Combination and exercise their conversion rights.
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With respect to an initial Business Combination which is approved and consummated, any Public
Stockholder who voted against the initial Business Combination may demand that the Company convert
his or her shares. The per share conversion price will equal the amount in the Trust Account,
including all accrued interest income (net of taxes payable on such interest income and after
release of up to $1,500,000 of interest income, after tax, to fund working capital requirements),
calculated as of two business days prior to the consummation of the proposed initial Business
Combination, divided by the number of shares of common stock held by Public Stockholders at the
date of the Offering. Accordingly, Public Stockholders holding less than 20% of the aggregate
number of shares owned by all Public Stockholders may seek conversion of their shares in the event
of an initial Business Combination. Such Public Stockholders are entitled to receive their per
share interest in the Trust Account computed without regard to the shares held by Initial
Stockholders. Accordingly, a portion of the net proceeds from the offering (19.9999% of the amount
placed in the Trust Account) has been classified as common stock subject to possible conversion and
a portion of the interest earned on the Trust Account (19.9999% of the interest earned on the Trust
Account net of related taxes payable and net of the amounts released for working capital) has been
classified as deferred interest in the accompanying balance sheets.
In the event that the Company does not consummate a Business Combination within 24 months from the
Offering, the Company will dissolve and distribute the proceeds held in the Trust Account to public
stockholders, excluding the existing stockholders to the extent of its initial stockholdings and
the warrants purchased by it in the Private Placement. There is no assurance that the Company will
be able to successfully effect a Business Combination during this period. This factor raises
substantial doubt about the Companys ability to continue as a going concern. The accompanying
financial statements are prepared assuming the Company will continue as a going concern. The
financial statements do not include any adjustments that might result from the outcome of this
uncertainty. In the event of such distribution, the per share value of the residual assets
remaining available for distribution (including Trust Account assets) may be less than the initial
public offering price per share in the Offering (assuming no value is attributed to the Warrants
contained in the Units offered in the Offering discussed in
Note C).
Management does not believe that any recently issued, but not yet effective, accounting standards
if currently adopted would have a material effect on the accompanying financial statements.
Note CInitial Public Offering
On February 9, 2007, the Company sold 12,500,000 units (Units) at an offering price of $8.00 per
Unit. Each Unit consists of one share of the Companys common stock, $0.0001 par value, and one
redeemable common stock purchase warrant (each, a Warrant). Each Warrant will entitle the holder
to purchase from the Company one share of common stock at an exercise price of $6.00 commencing on
the later of (a) February 5, 2008 or (b) the consummation of an initial Business Combination with a
target business, and expiring January 30, 2011. After the Warrants become exercisable, the Warrants
will be redeemable at a price of $0.01 per Warrant upon 30 days notice and only in the event that
the last sale price of the common stock is at least $11.50 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. Holders of the Warrants are not entitled to net cash settlement and the Warrants may only be
settled by delivery of shares of our common stock and not cash. No Warrant shall be exercisable
unless at the time of exercise a registration statement relating to shares of common stock issuable
upon exercise of the Warrants is effective and a prospectus relating to the shares of common stock
issuable upon exercise of the warrants is available for use and the common stock has been
registered or qualified or deemed to be exempt under the securities laws of the state of residence
of the holder of the Warrants. Consequently, the Warrants may expire unexercised and unredeemed.
The Company agreed to pay the underwriters an underwriting discount of 7% of the gross proceeds of
the Offering. However, the underwriters have agreed that 3.7% of the underwriting discount will not
be payable unless and until the Company completes a Business Combination and has waived it rights
to receive such payment upon the Companys liquidation if the Company is unable to complete a
Business Combination. Accordingly, the deferred underwriting discount of $3,700,000 has been
classified as a liability in the accompanying balance sheets.
8
Note DRelated Party Transaction
The Company presently occupies office space provided by Union Street Capital Management, LLC, the
affiliate described above. Such affiliate has agreed that 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 on the effective date of the Offering and continuing until the earlier of the
consummation of an initial Business Combination by the Company or the Companys liquidation. The
statement of operations for the three and six months ended June 30, 2008 includes $22,500 and
$45,000 and for the three and six months ended June 30, 2007 includes $22,500 and $37,500 of
expense relating to this agreement, respectively.
Note EFounding Stockholders
Union Street Capital Management, LLC, a related party to the Company, purchased an aggregate of
3,000,000 warrants from the Company at a price of $1.00 per warrant, for an aggregate purchase
price of $3,000,000. The purchase price of the warrants was in excess of their fair value. All of
the proceeds from these purchases were placed in the Trust Account. These warrants were purchased
in a private placement that occurred immediately prior to the completion of the Offering.
Note FCommon Stock
At June 30, 2008, 15,500,000 shares were reserved for issuance upon the exercise of the
Warrants and the Private Placement Warrants.
Note G Proposed Acquisitions
On February 26, 2008 the Company entered into definitive agreements to acquire Archway
Marketing Services Inc. (Archway), a provider of marketing operations management services, which
is a subsidiary of AHL Services, Inc. (AHL) and RAZOR Business Strategy Consultants, LLC
(RAZOR), a direct and interactive retail marketing agency (the Acquisitions).
Under the terms of the acquisition agreements, Union Street will acquire both RAZOR and
Archway for an aggregate purchase price of $110.3 million, of which $10.0 million will be paid in
shares of our common stock. The completion of each transaction is contingent upon the closing of
the other.
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Archway Marketing Services, Inc.
Union Street will acquire Archway from AHL
Services for a purchase price of $80.3 million. Mr. A. Clayton Perfall, Chairman of the
Board of Directors, President and Chief Executive Officer of Union Street, is President,
Chief Executive Officer, a director and 4.6% shareholder of AHL Services and pursuant to a
Letter Agreement, dated February 26, 2008, Mr. Perfall has agreed to invest $3.0 million of
his proceeds in Union Street common stock, valued at $8.00 per share. The shares will be
restricted from disposition or transfer for a period of one year from closing. If mutually
agreed upon between a special committee of the board of directors of Union Street and Mr.
Perfall, he may fulfill some or all of this obligation by purchasing common stock of Union
Street in the open market or in privately negotiated transactions prior to closing of the
Acquisitions. Founded in 1953, Archway has grown to approximately 600 employees across
eight North American facilities and six on-site locations. Archway is primarily focused on
the operational components of outsourced marketing services, including program budgeting,
logistics management, vendor management, sales portals, inventory management, fulfillment
and distribution, customer care and analytics. Archway offers a comprehensive suite of
marketing solutions to meet the needs of clients across a broad range industries, including
food & beverage, retail, automotive, life sciences, financial services, consumer products,
and technology.
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RAZOR Business Strategy Consultants, LLC
Union Street will acquire RAZOR for
a purchase price of $30.0 million, of which $10.0 million will be paid in shares of our
common stock. The shares of common stock issued to RAZOR in connection with the
transaction will be restricted from disposition or transfer for a period of two years from
closing. Founded in 2003, RAZOR has approximately 165 employees and serves leading national
marketers. RAZOR is focused on heavy data analytics and program design capabilities,
including customer and transaction analytics, such as media mix modeling, segmentation, and
ROI analysis, and transaction-level communications, such as database marketing/CRM, direct
mail, promotion, web development and digital communications.
|
If the Archway Purchase Agreement is terminated because the holders of 19.99999% or more of
the number of shares of Union Streets common stock issued in Union Streets initial public
offering and outstanding as of the record date exercise their rights to convert the shares of Union
Street common stock held by them into cash in accordance with Union Streets certificate of
9
incorporation, Union Street will pay to AHL a termination fee equal to the lesser of: (a)
$200,000 in cash; and (b) 50% of the funds held by Union Street outside of the trust fund after
paying or reserving for all of its costs and expenses through liquidation.
If the Razor Purchase Agreement is terminated because the holders of 19.99999% or more of the
number of shares of Union Streets common stock issued in Union Streets initial public offering
and outstanding as of the record date exercise their rights to convert the shares of Union Street
common stock held by them into cash in accordance with Union Streets certificate of incorporation,
Union Street will pay to the Sellers a termination fee equal to the lesser of: (a) $200,000 in
cash; and (b) 50% of the funds held by Union Street outside of the trust fund after paying or
reserving for all of its costs and expenses through liquidation.
The Company received a loan commitment letter from Bank of America who has committed to
provide financing of up to $30.0 million to partially fund the acquisition consideration and
related fees and expenses, subject to borrowing base limitations. The commitment will expire on
January 31, 2009, provided, however, that if the acquisitions have not been completed by
October 31, 2008, the Company will be obligated to pay Bank of America a fee equal to 0.10% on the
aggregate principal amount of the commitment.
The Company has entered into certain arrangements with service providers that will result in
incremental transaction costs upon completion of a business combination. As of June 30, 2008,
these amounts would result in approximately $1,850,000 of additional costs.
For a more complete discussion of our proposed business combination, see our Current Report on
Form 8-K, dated February 26, 2008, as filed with the SEC on February 27, 2008, and our Preliminary
Proxy Statement on Schedule 14 A filed with the SEC on April 23, 2008, as amended on June 5, 2008
and July 14, 2008.
On June 23, 2008, Union Street entered into an agreement (the ''Argenbright Agreement) with
Archway and Argenbright, whereby Union Street agreed to waive Argenbrights compliance with the
''non-solicitation provisions of the Archway Purchase Agreement and release all claims that Union
Street may have against Argenbright in connection with the presentation of an alternative
transaction by certain principals of Union Street to Argenbright, provided that the pursuit of such
an alternative transaction does not hinder or delay the consummation of the Acquisitions by Union
Street. In consideration for such waiver, Argenbright agreed to waive its right to receive a
termination fee as set forth in the Archway Purchase Agreement, subject to the consummation of an
alternative transaction on or before the earlier of twenty (20) days after termination of the
Archway Purchase Agreement, or October 31, 2008. For a more complete discussion of the Argenbright
Agreement see our Current Report on Form 8-K filed on June 24, 2008.
On June 23, 2008, A. Clayton Perfall, Chief Executive Officer, President and Chairman of the
Board of Directors of Union Street and President, Chief Executive Officer, a director and 4.6%
shareholder of AHL and also a director and officer of its subsidiaries, including Archway, and
Brian H. Burke, Chief Financial Officer, Treasurer and a member of Union Streets Board of
Directors and a non-executive officer of AHL and certain of its subsidiaries, entered into a letter
agreement (the ''Letter Agreement) with Argenbright. Pursuant to the Letter Agreement,
Messrs. Perfall and Burke and Argenbright agreed that if Messrs. Perfall and Burke, or their
designee, are willing to enter into an alternative transaction to acquire Archway, then
Messrs. Perfall and Burke, on behalf of themselves or their designee, and Argenbright will
negotiate in good faith to enter into a stock purchase agreement on substantially the same terms as
are in the Archway Purchase Agreement, including the same price, the same representations and
warranties, the same covenants and indemnities and otherwise substantially similar except to the
extent related to differences in the nature of any such buyer and the fact that it may not be a
SPAC, and which shall have a condition to the closing of any alternative transaction be the failure
of Union Street stockholders to approve the Acquisitions. In the event that the Archway Purchase
Agreement is terminated, Messrs. Perfall and Burke and Argenbright agreed to use their
reasonable best efforts to consummate such an alternative transaction, provided that the closing of
any such alternative transaction occur prior to the earlier of twenty (20) days after termination
of the Archway Purchase Agreement, or October 31, 2008, after which date the parties obligations
under the Letter Agreement will expire and be of no further force or effect. For a more complete
discussion of the Letter Agreement see our Current Report on Form 8-K filed on June 24, 2008.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 (the Exchange Act). We have based these forward-looking statements on our
current expectations and projections about future events. These forward-
10
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 SEC filings.
The following discussion should be read in conjunction with our unaudited Financial Statements and
related Notes thereto included elsewhere in this report.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results could differ from
those estimates.
Management does not believe that any recently issued, but not yet effective, accounting
standards if currently adopted would have a material effect on the accompanying financial
statements.
Overview
We were formed on July 18, 2006 as a blank check company for the purpose of acquiring, through
a merger, stock exchange, asset acquisition, reorganization or similar business combination, one or
more operating businesses. We intend to use cash derived from the net proceeds of our initial
public offering, together with any additional financing arrangements that we undertake, to effect a
business combination.
On February 9, 2007, the Company sold 12,500,000 units (Units) at an offering price of $8.00
per Unit. Each Unit consists of one share of the Companys common stock, $0.0001 par value, and one
redeemable common stock purchase warrant (each, a Warrant). Each Warrant will entitle the holder
to purchase from the Company one share of common stock at an exercise price of $6.00 commencing on
the later of (a) February 5, 2008 or (b) the consummation of an initial Business Combination with a
target business and expiring January 30, 2011.
Recent Developments
On February 26, 2008, as previously disclosed in our Current Report on Form 8-K, dated
February 26, 2008 and filed with the SEC on February 27, 2008, the Company entered into definitive
agreements to acquire Archway Marketing Services Inc. (Archway), a provider of marketing
operations management services, which is a subsidiary of AHL Services, Inc. (AHL) and RAZOR
Business Strategy Consultants, LLC (RAZOR), a direct and interactive retail marketing agency (the
Acquisitions).
Under the terms of the acquisition agreements, Union Street will acquire both RAZOR and
Archway for an aggregate purchase price of $110.3 million, of which $10.0 million will be paid in
shares of our common stock. The completion of each transaction is contingent upon the closing of
the other.
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Archway Marketing Services, Inc.
Union Street will acquire Archway from AHL
Services for a purchase price of $80.3 million. Mr. A. Clayton Perfall, Chairman of the
Board of Directors, President and Chief Executive Officer of Union Street, is President,
Chief Executive Officer, a director and 4.6% shareholder of AHL Services and pursuant to
a Letter Agreement, dated February 26, 2008, Mr. Perfall has agreed to invest $3.0
million of his proceeds in Union Street common stock, valued at $8.00 per share. The
shares will be restricted from disposition or transfer for a period of one year from
closing. If mutually agreed upon between a special committee of the board of directors of
Union Street and Mr. Perfall, he may fulfill some or all of this obligation by purchasing
common stock of Union Street in the open market or in privately negotiated transactions
prior to closing of the Acquisitions. Founded in 1953, Archway has grown to
approximately 600 employees across eight North American facilities and six on-site
locations. Archway is primarily focused on the operational components of outsourced
marketing services, including program budgeting, logistics management, vendor management,
sales portals, inventory management, fulfillment and distribution, customer care and
analytics. Archway offers a comprehensive suite of marketing solutions to meet the needs
of clients across a broad range
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11
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industries, including food & beverage, retail, automotive, life sciences, financial
services, consumer products, and technology.
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RAZOR Business Strategy Consultants, LLC
Union Street will acquire RAZOR
for a purchase price of $30.0 million, of which $10.0 million will be paid in shares of
our common stock. The shares of common stock issued to RAZOR in connection with the
transaction will be restricted from disposition or transfer for a period of two years
from closing. Founded in 2003, RAZOR has approximately 165 employees and serves leading
national marketers. RAZOR is focused on heavy data analytics and program design
capabilities, including customer and transaction analytics, such as media mix modeling,
segmentation, and ROI analysis, and transaction-level communications, such as database
marketing/CRM, direct mail, promotion, web development and digital communications.
|
If the Archway Purchase Agreement is terminated because the holders of 19.99999% or more of
the number of shares of Union Streets common stock issued in Union Streets initial public
offering and outstanding as of the record date exercise their rights to convert the shares of Union
Street common stock held by them into cash in accordance with Union Streets certificate of
incorporation, Union Street will pay to AHL a termination fee equal to the lesser of: (a) $200,000
in cash; and (b) 50% of the funds held by Union Street outside of the trust fund after paying or
reserving for all of its costs and expenses through liquidation.
If the Razor Purchase Agreement is terminated because the holders of 19.99999% or more of the
number of shares of Union Streets common stock issued in Union Streets initial public offering
and outstanding as of the record date exercise their rights to convert the shares of Union Street
common stock held by them into cash in accordance with Union Streets certificate of incorporation,
Union Street will pay to the Sellers a termination fee equal to the lesser of: (a) $200,000 in
cash; and (b) 50% of the funds held by Union Street outside of the trust fund after paying or
reserving for all of its costs and expenses through liquidation.
The Company received a loan commitment letter from Bank of America who has committed to
provide financing of up to $30.0 million to partially fund the acquisition consideration and
related fees and expenses, subject to borrowing base limitations. The commitment will expire on
January 31, 2009, provided, however, that if the acquisitions have not been completed by
October 31, 2008, the Company will be obligated to pay Bank of America a fee equal to 0.10% on the
aggregate principal amount of the commitment.
The Company has entered into certain arrangements with service providers that will result in
incremental transaction costs upon completion of a business combination. As of June 30, 2008,
these amounts would result in approximately $1,850,000 of additional costs.
For a more complete discussion of our proposed business combination, see our Current Report on
Form 8-K, dated February 26, 2008, as filed with the SEC on February 27, 2008 and our Preliminary
Proxy Statement on Schedule 14 A filed with the SEC on April 23, 2008, as amended on June 5, 2008
and July 14, 2008.
On June 23, 2008, Union Street entered into an agreement (the ''Argenbright Agreement) with
Archway and Argenbright, whereby Union Street agreed to waive Argenbrights compliance with the
''non-solicitation provisions of the Archway Purchase Agreement and release all claims that Union
Street may have against Argenbright in connection with the presentation of an alternative
transaction by certain principals of Union Street to Argenbright, provided that the pursuit of such
an alternative transaction does not hinder or delay the consummation of the Acquisitions by Union
Street. In consideration for such waiver, Argenbright agreed to waive its right to receive a
termination fee as set forth in the Archway Purchase Agreement, subject to the consummation of an
alternative transaction on or before the earlier of twenty (20) days after termination of the
Archway Purchase Agreement, or October 31, 2008. For a more complete discussion of the Argenbright
Agreement see our Current Report on Form 8-K filed on June 24, 2008.
On June 23, 2008, A. Clayton Perfall, Chief Executive Officer, President and Chairman of the
Board of Directors of Union Street and President, Chief Executive Officer, a director and 4.6%
shareholder of AHL and also a director and officer of its subsidiaries, including Archway, and
Brian H. Burke, Chief Financial Officer, Treasurer and a member of Union Streets Board of
Directors and a non-executive officer of AHL and certain of its subsidiaries, entered into a letter
agreement (the ''Letter Agreement) with Argenbright. Pursuant to the Letter Agreement,
Messrs. Perfall and Burke and Argenbright agreed that if Messrs. Perfall and Burke, or their
designee, are willing to enter into an alternative transaction to acquire Archway, then
Messrs. Perfall and Burke, on behalf of themselves or their designee, and Argenbright will
negotiate in good faith to enter into a stock purchase agreement on substantially the same terms as
are in the Archway Purchase Agreement, including the same price, the same representations and
warranties, the same covenants and indemnities and otherwise substantially similar except to the
extent related to differences in the nature of any such buyer and the fact that it may not be a
SPAC, and which shall have a condition to the closing of any alternative transaction be the failure
of Union Street stockholders to approve the Acquisitions. In the event that the Archway Purchase
Agreement is terminated, Messrs. Perfall and Burke and Argenbright agreed to use their
reasonable best efforts
12
to consummate such an alternative transaction, provided that the closing of any such
alternative transaction occur prior to the earlier of twenty (20) days after termination of the
Archway Purchase Agreement, or October 31, 2008, after which date the parties obligations under
the Letter Agreement will expire and be of no further force or effect. For a more complete
discussion of the Letter Agreement see our Current Report on Form 8-K filed on June 24, 2008.
As of June 30, 2008, $100,665,539 was held in trust and we had $573,884 of cash available to
us for our activities in connection with identifying and conducting due diligence of a suitable
business combination, and for general corporate matters.
Through June 30, 2008, our efforts have been limited to organizational activities, activities
relating to our initial public offering, activities relating to identifying and evaluating
prospective acquisition candidates, entering into the agreements described above and activities
relating to general corporate matters; we have neither engaged in any operations nor generated any
revenues, other than interest income earned on the proceeds of our private placement and initial
public offering. For the three and six months ended June 30, 2008, we earned $336,388 and
$1,160,241, respectively, in interest income on the trust account of which $44,403 and $103,151,
respectively, was deferred and $291,985 and $1,057,090, respectively, is included in interest
income in the statements of operations.
On February 19, 2008 and July 17, 2007, the Company had released to it $250,000 and
$1,250,000, respectively, of investment income earned on the trust account for working capital
purposes in accordance with the Investment Management Trust Agreement.
The following table shows the total funds held in the trust account as of June 30, 2008:
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Net proceeds from our initial public offering and
private placement of warrants to Union Street Capital Management, LLC placed in trust
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$
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94,800,000
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Deferred underwriters discounts and commissions
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|
|
3,700,000
|
|
Total interest received through June 30,2008
|
|
|
5,520,539
|
|
Working capital disbursements through June 30, 2008
|
|
|
(1,500,000
|
)
|
Less total disbursed for taxes through June 30, 2008
|
|
|
(1,855,000
|
)
|
|
|
|
|
Total funds held in trust account as of June 30, 2008
|
|
$
|
100,665,539
|
|
Results of Operations for the three and six month period ended June 30, 2008
Net income of $66,710 reported for the three month period ended June 30, 2008 consisted
primarily of investment income on the trust account (net of deferred interest) of $291,985 and
other interest income of $2,973 offset by $48,212 expense for professional fees, $34,086 expense
for director and officer liability insurance, $22,500 expense for a monthly administrative services
agreement, $37,992 expense for travel and entertainment, $6,875 for AMEX listing fees, $40,000 for
franchise tax, $4,218 for other expenses and $34,365 of income taxes. At June 30, 2008, we had cash
outside of the trust fund of $573,883, prepaid expenses of $27,141 and accounts payable and accrued
expenses of $41,468. Until we enter into a business combination, we will not have revenues other
than interest income, and will continue to incur expenses relating to identifying a target business
to acquire.
Net income of $443,585 reported for the six month period ended June 30, 2008 consisted
primarily of investment income on the trust account (net of deferred interest) of $1,057,090 and
other interest income of $10,124 offset by $85,547 expense for professional fees, $68,171 expense
for director and officer liability insurance, $45,000 expense for a monthly administrative services
agreement, $85,437 expense for travel and entertainment, $13,750 for AMEX listing fees, $84,775 for
franchise tax, $12,325 for other expenses and $228,513 of income taxes. At June 30, 2008, we had
cash outside of the trust fund of $573,883, prepaid expenses of $27,141 and accounts payable and
accrued expenses of $41,468. Until we enter into a business combination, we will not have revenues
other than interest income, and will continue to incur expenses relating to identifying a target
business to acquire.
We presently occupy office space provided by Union Street Capital Management LLC, an affiliate
of our initial stockholders. Union Street Capital Management LLC has agreed that, until we
consummate the acquisition of a target business, it
will make such office space, as well as certain office and secretarial services, available to
us, as we may require from time to time. We have agreed to pay Union Street Capital Management LLC
$7,500 per month for such services commencing on February 1,
13
2007. The statement of operations for
the three and six months ended June 30, 2008 includes $22,500 and $45,000, respectively, related to
this agreement.
Liquidity and Capital Resources
Assuming the release of the full amount of the interest we are entitled to receive from the
trust account, we believe we will have sufficient available funds outside of the trust account to
operate through February 7, 2009, assuming that a business combination is not consummated during
that time. We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business prior to a business combination. However, we may
need to raise additional funds through a private offering of debt or equity securities if such
funds are required to consummate a business combination that is presented to us. We would only
consummate such a financing simultaneously with the consummation of a business combination.
Off-Balance Sheet Arrangements
Warrants issued in conjunction with our initial public offering are equity linked derivatives
and accordingly represent off-balance sheet arrangements. The warrants meet the scope exception in
paragraph 11(a) of Financial Accounting Standards (FAS) 133 and are accordingly not accounted for
as derivatives for purposes of FAS 133, but instead are accounted for as equity. See Note C to the
financial statements for more information.
Recent Accounting Pronouncements
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (SFAS
No. 157). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities.
This statement clarifies the principle that fair value should be based on the assumptions that
market participants would use when pricing the asset or liability. SFAS No. 157 establishes a fair
value hierarchy, giving the highest priority to quoted prices in active markets and the lowest
priority to unobservable data. SFAS No. 157 applies whenever other standards require assets or
liabilities to be measured at fair value. Effective January 1, 2008, the Company implemented SFAS
No. 157, which did not have an impact on Companys financial results. 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.
We adopted SFAS No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities
including an Amendment of FASB Statement No. 115
(SFAS 159) on January 1, 2008. SFAS 159 permits
entities to choose to measure many financial instruments and certain other items at fair value. We
have not made any fair value elections as permitted under the provisions of SFAS 159; therefore,
the adoption of this standard did not have an impact on our consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the sensitivity of income to changes in interest rates, foreign exchanges,
commodity prices, equity prices, and other market-driven rates or prices. We are not presently
engaged in and, if a suitable business target is not identified by us prior to the prescribed
liquidation date of the trust fund, we may not engage in, any substantive commercial business.
Accordingly, we are not and, until such time as we consummate a business combination, we will not
be, exposed to risks associated with foreign exchange rates, commodity prices, equity prices or
other market-driven rates or prices. The net proceeds of our initial public offering held in the
trust account are to be invested only in money market funds meeting certain conditions under Rule
2a-7 promulgated under the Investment Company Act of 1940 or United States treasury bills. Given
our limited risk in our exposure to money market funds and treasury bills, we do not view the
interest rate risk to be significant.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation of the effectiveness of our disclosure controls and procedures as of June 30,
2008 was made under the supervision and with the participation of our management. Based on that
evaluation, our management concluded that our disclosure controls and procedures are effective as
of the end of the period covered by this report 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. During the most recently completed fiscal quarter, there has not been any change in our
internal control over financial reporting in connection with the evaluation required by Rule
13a-15(d) under the Exchange Act that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
14
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider
the factors discussed in the section titled Risk Factors in our Annual Report on Form 10-K for
our fiscal year ended December 31, 2007 as filed with the SEC on March 17, 2008, which could
materially affect our business, financial condition or future results. There have been no material
updates or changes to such Risk Factors that are required to be disclosed in this Item 1A.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
|
|
|
Exhibit No.
|
|
Description
|
31.1
|
|
Section 302 Certification of Chief Executive Officer
|
|
31.2
|
|
Section 302 Certification of Chief Financial Officer
|
|
32.1
|
|
Section 906 Certification of Chief Executive Officer and Chief Financial Officer
|
15
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.
|
|
|
|
|
|
UNION STREET ACQUISITION CORP.
|
|
August 13, 2008
|
By:
|
/s/ A. Clayton Perfall
|
|
|
|
A. Clayton Perfall
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
August 13, 2008
|
By:
|
/s/ Brian H. Burke
|
|
|
|
Brian H. Burke
|
|
|
|
Chief Financial Officer
|
|
|
16
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