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Apex Bioventures Acquisition Corporation Form 10-Q

PART I - FINANCIAL INFORMATION	3
ITEM 1. FINANCIAL STATEMENTS	3
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statement of Stockholders' Equity (Deficiency)	5
Condensed Consolidated Statement of Cash Flows	6
Notes to Unaudited Condensed Consolidated Financial Statements	7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	13
ITEM 4. CONTROLS AND PROCEDURES	13
PART II - OTHER INFORMATION	13
ITEM 1. LEGAL PROCEEDINGS	13
ITEM 1A. RISK FACTORS	13
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	13
ITEM 5. OTHER INFORMATION	13
ITEM 6. EXHIBITS	14
SIGNATURES	14

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ITEM 1. FINANCIAL STATEMENTS

 

Apex Bioventures Acquisition Corporation and Subsidiary

(a development stage company)

Condensed Consolidated Balance Sheets

 

		June 30, 2008 (Unaudited)			December 31, 2007
Assets
Current assets
Cash and cash equivalents		$	221,007		$	1,060,427
Cash held in trust			65,204,309			65,514,688
Cash held in trust from underwriter			2,070,000			2,070,000
Refundable income taxes			483,454			-
Prepaid expenses			44,620			66,244
Total current assets		$	68,023,390		$	68,711,359
Deferred income taxes			237,418			198,106
Total assets		$	68,260,808		$	68,909,465
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses		$	84,969		$	126,007
Accounts payable, stockholders			7,521			2,776
Income taxes payable			-			704,281
Due to underwriter			2,070,000			2,070,000
Deferred dividend			129,707			-
Total current liabilities			2,292,197			2,903,064
Common stock subject to conversion (2,587,499 shares at conversion value)			20,208,367			20,208,367
Commitments
Stockholders' equity
Preferred stock, $0.0001 par value; 1,000,000 authorized shares; none issued			-			-
Common Stock, $0.0001 par value; 60,000,000 shares authorized; 10,781,250 shares (which includes 2,587,499 shares subject to possible conversion) issued and outstanding			1,078			1,078
Additional paid-in capital			45,152,355			45,152,355
Income accumulated during the development stage			606,811			644,601
Total stockholders' equity			45,760,244			45,798,034
Total liabilities and stockholders' equity		$	68,260,808		$	68,909,465

 

 

See notes to unaudited condensed consolidated financial statements.

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Apex Bioventures Acquisition Corporation and Subsidiary

(a development stage company)

Condensed Consolidated Statements of Operations

 

		Three Months Ended June 30,						Six Months Ended June 30,						Period from Inception (June 1, 2006) to
		2008			2007			2008			2007			June 30, 2008
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Formation and operating costs		$	(156,307	)	$	(78,370	)	$	(923,041	)	$	(83,935	)	$	(1,558,245	)
Dividend and interest income			275,878			116,026			887,011			116,535			2,673,791
Income (loss) before provision for income taxes			119,571			37,656			(36,030	)		32,600			1,115,546
Provision for income taxes			(48,662	)		-			(1,760	)		-			(508,735	)
Net Income (loss)		$	70,909		$	37,656		$	(37,790	)	$	32,600		$	606,811
Net income (loss) per share - basic and diluted		$	0.01		$	0.01		$	(0.00	)	$	0.01
Weighted average number of common shares outstanding - basic and diluted			10,781,250			3,767,514			10,781,250			2,966,333

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Apex Bioventures Acquisition Corporation and Subsidiary

(a development stage company)

Condensed Consolidated Statement of Stockholders' Equity (Deficiency)

For the period from June 1, 2006 (Inception) to June 30, 2008 

 

		Common Stock						Additional Paid-in			Income (Deficit) Accumulated During the Development			Total Stockholders' Equity
		Shares			Amount			Capital			Stage			(Deficiency)
Common shares issued on June 27, 2006 at $0.01159 per share			2,156,250		$	216		$	24,784		$	-		$	25,000
Net loss			-			-			-			(52,324	)		(52,324	)
Balances at December 31, 2006			2,156,250			216			24,784			(52,324	)		(27,324	)
Sale of private placement warrants			-			-			1,800,000			-			1,800,000
Sale of 8,625,000 Units net of underwriters' discount
and offering expenses (includes 2,587,499 shares
subject to conversion)			8,625,000			862			63,535,838			-			63,536,700
Proceeds subject to forfeiture of 2,587,499 shares			-			-			(20,208,367	)		-			(20,208,367	)
Sale of underwriter option			-			-			100			-			100
Net income			-			-			-			696,925			696,925
Balances at December 31, 2007			10,781,250			1,078			45,152,355			644,601			45,798,034
Unaudited:
Net loss			-			-			-			(37,790	)		(37,790	)
Balances at June 30, 2008			10,781,250		$	1,078		$	45,152,355		$	606,811		$	45,760,244

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Apex Bioventures Acquisition Corporation and Subsidiary

(a development stage company)

Condensed Consolidated Statement of Cash Flows

 

		Six Months Ended June 30,						Period from June 1, 2006 (inception) to
		2008			2007			June 30, 2008
		(Unaudited)			(Unaudited)			(Unaudited)
Cash flows from operating activities
Net income (loss)		$	(37,790	)	$	32,600		$	606,811
Adjustments to reconcile net income (loss) to net cash used in operating activities
Deferred income taxes			(39,312	)		-			(237,418	)
Dividends earned on trust account			(1,006,167	)		(115,798	)		(2,779,309	)
Change in operating assets and liabilities:									-
Prepaid expenses			21,624			(21,658	)		(44,620	)
Accounts payable and accrued expenses			(41,038	)		24,368			75,172
Refundable income taxes			(1,187,735	)		-			(483,454	)
Deferred dividend			129,707			-			129,707
Net cash used in operating activities			(2,160,711	)		(80,488	)		(2,733,111	)
Cash flows from investing activities
Disbursements from trust account			1,316,546			-			2,835,000
Cash held in trust account			-			(67,330,000	)		(67,330,000	)
Net cash provided by (used in) investing activities			1,316,546			(67,330,000	)		(64,495,000	)
Cash flows from financing activities
Proceeds from public offering			-			69,000,000			69,000,000
Proceeds from private placement of warrants			-			1,800,000			1,800,000
Proceeds from loans from stockholders			-			(225,000	)		225,000
Repayment of loans from stockholders			-			-			(225,000	)
Proceeds from advances from stockholders			89,265			109,348			240,330
Repayment of advances from stockholders			(84,520	)		(78,504	)		(232,809	)
Proceeds from sale of option			-			100			100
Proceeds from the sale of common stock			-			-			25,000
Payment of offering expenses			-			(3,213,396	)		(3,383,503	)
Net cash provided by financing activities			4,745			67,392,548			67,449,118
Net increase (decrease) in cash and cash equivalents			(839,420	)		(17,940	)		221,007
Cash and cash equivalents, beginning of period			1,060,427			82,739			-
Cash and cash equivalents, end of period		$	221,007		$	64,799		$	221,007
Supplemental schedule of non cash financing activities:
Accrual of offering costs		$	-		$	49,797		$	9,797
Accrual of deferred underwriting fees		$	-		$	2,070,000		$	2,070,000
Supplemental schedule of cash paid for:
Interest		$	-		$	-		$	-
Income taxes		$	1,235,000		$	800		$	1,235,800

 

 

See notes to unaudited condensed consolidated financial statements.

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Apex Bioventures Acquisition Corporation and Subsidiary

(a development stage company)

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2008

 

Note 1 -- Basis of Presentation

 

The financial statements at June 30, 2008 and for the periods ended June 30, 2008 and 2007 are unaudited. The condensed financial statements include the accounts of Apex Bioventures Acquisition Corporation (“Apex”) and its wholly owned subsidiary, Apex Acquisition Sub, Inc. (“Acquisition Sub”) (collectively referred to as the “Company”). All significant intercompany transactions and balances have been eliminated. 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 for the period from June 1, 2006 (inception) through June 30, 2008 and its cash flows for the six months ended June 30, 2008 and 2007 and for the period from June 1, 2006 (inception) through June 30, 2008.  Operating results for the interim periods presented are not necessarily indicative of the results to be expected for a full year.

 

The financial 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.  Audited financial statements as of and for the year ended December 31, 2007, prepared in accordance with generally accepted accounting principles, are contained in the Company’s 2007 annual report on Form 10-K filed with the Securities and Exchange Commission. The December 31, 2007 balance sheet included in this report has been derived from the audited financial statements included in said annual report.

Note 2 -- Organization and Business Operations

The Company was incorporated in Delaware on June 1, 2006. The Company was formed to acquire one or more domestic or foreign operating businesses in the healthcare industry through a merger, capital stock exchange, asset acquisition or other similar business combination. All activities through June 30, 2008 relate to the Company's formation and public offering described below, the search for a suitable business combination and the Dynogen transaction described in Note 5. The Company has neither engaged in any operations nor generated 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 Company's initial public offering (the “Public Offering”) (as described in Note 4) was declared effective on June 7, 2007. The Company consummated the Public Offering on June 13, 2007 and received net proceeds of approximately $65,300,000, including $1,800,000 of proceeds from the private placement (the “Private Placement”) sale of 1,800,000 insider warrants to the Company’s stockholders prior to the Public Offering (the “Initial Stockholders”). The warrants sold in the Private Placement are identical to the warrants sold in the Public Offering, except that such warrants are non-redeemable and can be exercised on a cashless basis as long as these persons hold such warrants. In addition, subject to certain limited exceptions, none of the warrants purchased by the Initial Stockholders are transferable or salable until six months after the consummation of a business combination.

 

The Company's management has broad discretion with respect to the specific application of the net proceeds of the Public Offering, although substantially all of the net proceeds of the Public Offering are intended to be generally applied toward consummating a business combination with (or acquisition of) one or more domestic or foreign operating businesses in the healthcare industry (“Business Combination”), which may not constitute a business combination for accounting purposes. Furthermore, there is no assurance that the Company will be able to successfully effect a Business Combination. Upon the closing of the Public Offering and Private Placement, $67,330,000, including $2,070,000 of the underwriters' discounts and commissions as described in Note 4, is being held in a trust account (the “Trust Account”) invested in government securities. The Trust Account will be maintained until the earlier of (i) the consummation of the Company's first Business Combination and (ii) liquidation of the Company. The placing of funds in the Trust Account may not protect those funds from third party claims against the Company. Although the Company will seek to have all vendors, prospective target businesses and 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. Our Initial Stockholders have agreed that they will be personally liable, on a joint and several basis, to cover claims made by such third parties, but only if, and to the extent, the claims reduce the amounts in the Trust Account available for payment to our public stockholders in the event of a liquidation and the claims are made by a vendor or service provider for services rendered, or products sold, to us or by a prospective acquisition target. However, our Initial Stockholders will not have any personal liability as to any claimed amounts owed to a third party who executed a waiver (including a prospective acquisition target) or the underwriters. However, there can be no assurance that that the Initial Stockholders will be able to satisfy those obligations. The remaining net proceeds (not held in the Trust Account), along with $1,600,000 in dividend income net of taxes payable on such dividends, may be used to pay for business, legal or accounting due diligence on prospective acquisitions, negotiations with prospective targets and satisfaction of closing conditions, and continuing general and administrative expenses.

 

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The Company, after signing a definitive agreement for a Business Combination is required to submit such transaction for stockholder approval. In the event that stockholders owning 30% or more of the shares sold in the Public Offering vote against the Business Combination and exercise their conversion rights described below, the Business Combination will not be consummated. All of the Company's Initial Stockholders have agreed to vote their 2,156,250 founding shares of common stock, as well as any shares of common stock acquired in connection with or following the Public Offering, in accordance with the vote of the majority in interest of all other stockholders of the Company (“Public Stockholders”) with respect to any Business Combination. After the consummation of a Business Combination, these voting agreements will terminate.

 

With respect to a Business Combination which is approved and consummated, any Public Stockholder who voted against the Business Combination may demand that the Company convert his or her shares to cash. The per share conversion price will equal the amount in the Trust Account (including dividends, but less amounts reserved or released to us for working capital and net of income taxes payable), calculated as of two business days prior to the consummation of the proposed Business Combination, divided by the number of shares of common stock held by Public Stockholders at the consummation of the Public Offering. Accordingly, Public Stockholders holding 29.99% of the aggregate number of shares owned by all Public Stockholders may seek conversion of their shares in the event of a Business Combination. Such Public Stockholders are entitled to receive their per share interest in the Trust Account (subject to distributions for working capital and amounts paid or accrued for taxes) computed without regard to the shares held by Initial Stockholders. Accordingly, a portion of the net proceeds from the Public Offering (29.99% of the amount that was placed in the Trust Fund) has been classified as common stock subject to possible conversion on the accompanying June 30, 2008 balance sheet. Deferred dividend represents 29.99% of the excess interest and dividends earned on the investments held in the Trust Fund above the $1,600,000 allowable to be released to the Company to fund working capital requirements and income tax obligations.

 

The Company's Second Amended and Restated Certificate of Incorporation provides that the Company will continue in existence only until 18 months from the date of the consummation of the Public Offering, or 24 months from the consummation of the Public Offering if certain extension criteria have been satisfied. If the Company has not completed a Business Combination by such date, its corporate existence will cease and, subject to stockholder approval, it will dissolve and liquidate for the purposes of winding up its affairs. In the event of liquidation, it is likely that the per share value of the residual assets remaining available for distribution (including Trust Fund assets) will be less than the initial public offering per share in the Public Offering (assuming no value is attributed to the Warrants contained in the Units sold in the Public Offering discussed in Note 4). The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Note 3 -- Summary of Significant Accounting Policies

New Accounting Pronouncements 

 

Note 10 -- Commitments

On July 23, 2008, the Company entered into finders agreements with a third-party. The agreements expire by their terms on April 30, 2009, but are terminable by either party upon 15 days prior written notice. If either the Company or the third-party introduces the other to a potential target with whom such other party consummates a Business Combination, such other party is obligated to pay the introducing party a success fee between 1% and 1.5% of the total value of the transaction. Neither the Company nor the third-party is obligated to pay the other any fee unless a Business Combination is consummated with a referred target.

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ITEM 2. MANAGEMENT'S 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-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 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 June 1, 2006 as a blank check company for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition or other similar business combination, one or more operating businesses in the healthcare industry. Until the closing of our initial public offering on June 13, 2007 (“Public Offering”), all of our activity related to our formation and our Public Offering. 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.

Apex Acquisition Sub, Inc. is a Delaware corporation and a wholly-owned subsidiary of Apex (“Acquisition Sub”). Acquisition Sub was formed for the purpose of effecting the proposed merger with Dynogen and has engaged in no other business activities or operations since its formation.

Results of Operations

The Company's net income of $70,909 for the three months ended June 30, 2008 consisted of formation and operating costs of $156,307, offset by dividend and interest income of $275,878. During the same three month period, we recorded a provision for income taxes in the amount of $48,662. For the three months ended June 30, 2007, the Company had net income of $37,656, consisting of formation and operating costs of $78,370 offset by dividend and interest income of $116,026.

The net loss for the six months ended June 30, 2008 amounted to $37,790 and consisted of formation and operating expenses of $923,041, dividend and interest income of $887,011 and a provision for income taxes of $1,760. For the six months ending June 30, 2007, the net income of $32,600 consisted of formation and operating expenses of $83,935 offset by dividend and interest income of $116,535.

The net income of $606,811 for the period from June 1, 2006 (date of inception) to June 30, 2008 consisted of formation and operating costs of $1,558,245, offset by dividend and interest income of $2,673,791 and a provision for income taxes of $508,735.

Operating costs during the six month period ending June 30, 2008 included $395,483 in expenses related to due diligence associated with the recently terminated merger with Dynogen. In addition, $150,000 of legal expenses, associated with the potential merger, were incurred. Operating costs in the near term are expected to be significantly below the first two quarters until we identify a new merger target and begin the due diligence process.

 

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Liquidity and Capital Resources

We will likely use all or substantially all of the net proceeds of the Public Offering and private placement that occurred immediately prior thereto held outside the trust account and the up to $1,600,000 of dividend income (net of income taxes payable thereon) available to us for working capital to acquire a target business, including identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating the business combination. We believe the funds currently available to us outside of the trust account, together with the balance of dividend income, net of income taxes on such dividends, to be released to us for working capital requirements will be sufficient to allow us to operate for at least the next three months. We may need to raise additional funds through a private offering of debt or equity securities if such funds are not adequate to consummate a business combination. To the extent that our capital stock is used in whole or in part as consideration to effect a business combination the proceeds held in the trust account as well as any other net proceeds not expended will be used to finance the operations of the target business.

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 Statement of Financial Accounting Standards 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) and are accordingly not accounted for as derivatives for purposes of SFAS 133, but instead are accounted for as equity. See Note 4 to the financial statements for more information.  

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

ITEM 4. CONTROLS AND PROCEDURES

 

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

ITEM 5. OTHER INFORMATION

None.

 

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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

 

 SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	APEX BIOVENTURES ACQUISITION CORPORATION
August 13, 2008	By:	/s/ Darrell J. Elliott
		Darrell J. Elliott
		Chief Executive Officer

 

August 13, 2008	By:	/s/ Gary E. Frashier
		Gary E. Frashier
		Chief Financial Officer

 

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