FORM 10-Q
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 |
For the quarterly period ended September 30, 2007.
or
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o |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to .
Commission File Number: 001-33354
Alpha Security Group Corp.
(Exact name of registrant as specified in its charter)
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Delaware
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03-0561397 |
(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.) |
328 West 77th Street
New York, New York 10024
(Address of Principal Executive Offices including Zip Code)
212-877-1588
(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,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange. (Check one):
Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes þ No o
There were 7,580,000 shares of the Registrants common stock issued and outstanding as of September
30, 2007.
ALPHA SECURITY GROUP CORPORATION INDEX TO FORM 10-Q
INDEX
2
ALPHA SECURITY GROUP CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED BALANCE SHEET
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September 30, 2007 |
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December 31, 2006 |
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(unaudited) |
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ASSETS |
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Current Assets |
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Cash |
|
$ |
96,764 |
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|
$ |
7,119 |
|
Investment in trust account |
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|
60,231,096 |
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|
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|
Prepaid expenses & taxes |
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42,262 |
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Total current assets |
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60,370,122 |
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7,119 |
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Deferred tax asset |
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104,656 |
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Property & equipment, net of depreciation |
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4,116 |
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Deferred offering costs |
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495,712 |
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Total assets |
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$ |
60,478,894 |
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$ |
502,831 |
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LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY) |
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Current Liabilities |
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Accrued offering costs principally professional fees |
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$ |
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$ |
325,386 |
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Accrued expenses and taxes |
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56,058 |
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Deferred underwriting fees |
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1,800,000 |
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Notes payable stockholders |
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250,000 |
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187,802 |
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Total liabilities |
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2,106,058 |
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513,188 |
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Common stock, subject to possible redemption,
2,099,400 shares, at redemption value of $9.70 per
share |
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20,364,180 |
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Commitments |
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Stockholders equity (deficiency) |
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Preferred stock, $.0001 par value, authorized
1,000,000 shares, none issued |
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Common stock, $.0001 par value, authorized
30,000,000 shares; issued and outstanding
7,580,000 shares, inclusive of 2,099,400 shares
subject
to possible redemption and 1,580,000 shares at
September 30, 2007 and December 31, 2006 |
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758 |
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|
158 |
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Additional paid-in capital |
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37,488,281 |
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24,530 |
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Earnings (deficit) accumulated during the development stage |
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519,617 |
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(35,045 |
) |
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Total stockholders equity (deficiency) |
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38,008,656 |
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(10,357 |
) |
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Total liabilities and stockholders equity (deficiency) |
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$ |
60,478,894 |
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$ |
502,831 |
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See accompanying notes to condensed financial statements.
3
ALPHA SECURITY GROUP CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED STATEMENT OF OPERATIONS
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For the |
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For the period from |
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April 20, 2005 |
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Three months ended |
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Nine months ended |
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(inception) to |
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September 30, 2007 |
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September 30, 2006 |
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September 30, 2007 |
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September 30, 2006 |
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September 30, 2007 |
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(unaudited) |
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(unaudited) |
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(unaudited) |
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(unaudited) |
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(unaudited) |
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Formation and operating costs |
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$ |
(134,204 |
) |
|
$ |
(5,517 |
) |
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$ |
(353,319 |
) |
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$ |
(11,968 |
) |
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$ |
(388,364 |
) |
Interest and dividend income |
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663,210 |
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1,434,335 |
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1,434,335 |
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Net income (loss) before provision
for income taxes |
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529,006 |
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(5,517 |
) |
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1,081,016 |
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(11,968 |
) |
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1,045,971 |
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Provision for income taxes |
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(253,474 |
) |
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(526,354 |
) |
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(526,354 |
) |
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Net income (loss) |
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$ |
275,532 |
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$ |
(5,517 |
) |
|
$ |
554,662 |
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$ |
(11,968 |
) |
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$ |
519,617 |
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Weighted average shares outstanding |
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7,580,000 |
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|
1,595,000 |
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5,689,890 |
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1,598,315 |
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2,846,353 |
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Net income (loss) per share |
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$ |
0.04 |
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$ |
(0.00 |
) |
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$ |
0.10 |
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$ |
(0.01 |
) |
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$ |
0.18 |
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See accompanying notes to condensed financial statements.
4
ALPHA SECURITY GROUP CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIENCY)
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For the period from April 20, 2005 (inception) to September 30, 2007 |
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Deficit accumulated |
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Common stock |
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Additional paid-in |
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during the |
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Stockholders |
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Shares |
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Amount |
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capital |
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development stage |
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equity (deficiency) |
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Common shares issued
July 18, 2005 at $.0156 |
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1,600,000 |
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$ |
160 |
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$ |
24,840 |
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$ |
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$ |
25,000 |
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Net loss 2005 |
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(11,140 |
) |
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(11,140 |
) |
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Balance December 31, 2005 |
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|
1,600,000 |
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|
$ |
160 |
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|
$ |
24,840 |
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|
$ |
(11,140 |
) |
|
$ |
13,860 |
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Net loss 2006 |
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(23,905 |
) |
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|
(23,905 |
) |
Redemption September 15, 2006 |
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(20,000 |
) |
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|
(2 |
) |
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|
(310 |
) |
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|
(312 |
) |
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|
|
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Balance December 31, 2006 |
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|
1,580,000 |
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|
$ |
158 |
|
|
$ |
24,530 |
|
|
$ |
(35,045 |
) |
|
$ |
(10,357 |
) |
Proceeds of private placement
March 21, 2007 |
|
|
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|
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|
3,200,000 |
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|
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|
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|
3,200,000 |
|
Common shares issued
March 28, 2007 at $10 per share |
|
|
6,000,000 |
|
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|
600 |
|
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|
59,999,400 |
|
|
|
|
|
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|
60,000,000 |
|
Proceeds subject to possible
redemption |
|
|
|
|
|
|
|
|
|
|
(20,364,180 |
) |
|
|
|
|
|
|
(20,364,180 |
) |
Expenses of the Offering |
|
|
|
|
|
|
|
|
|
|
(5,311,569 |
) |
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|
(5,311,569 |
) |
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(Unaudited): |
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Net income January 1 to
September 30, 2007 |
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|
|
|
|
|
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|
554,662 |
|
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|
554,662 |
|
Proceeds of options sold |
|
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|
|
|
|
|
|
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|
100 |
|
|
|
|
|
|
|
100 |
|
Additional costs of offering |
|
|
|
|
|
|
|
|
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|
(60,000 |
) |
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|
(60,000 |
) |
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|
|
|
|
|
|
|
|
|
|
|
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|
Balance September 30, 2007 |
|
|
7,580,000 |
|
|
$ |
758 |
|
|
$ |
37,488,281 |
|
|
$ |
519,617 |
|
|
$ |
38,008,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
See accompanying notes to condensed financial statements.
5
ALPHA SECURITY GROUP CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED STATEMENT OF CASH FLOWS
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|
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For the period from |
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April 20, 2005 |
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|
January 1, 2007 |
|
|
January 1, 2006 |
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|
(Date of Inception) to |
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to |
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|
to |
|
|
|
September 30, 2007 |
|
|
September 30, 2007 |
|
|
September 30, 2006 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
519,617 |
|
|
$ |
554,662 |
|
|
$ |
(11,968 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to
net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
54 |
|
|
|
54 |
|
|
|
|
|
|
Increase in investment in Trust Account |
|
|
(228,265 |
) |
|
|
(228,265 |
) |
|
|
|
|
Increase in deferred tax asset |
|
|
(104,656 |
) |
|
|
(104,656 |
) |
|
|
|
|
Increase in prepaid expenses |
|
|
(42,262 |
) |
|
|
(42,262 |
) |
|
|
|
|
Increase in accounts payable and
accrued expenses |
|
|
56,058 |
|
|
|
54,824 |
|
|
|
51,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
200,546 |
|
|
|
234,357 |
|
|
|
39,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Payment to trust account |
|
|
(60,002,831 |
) |
|
|
(60,002,831 |
) |
|
|
|
|
Purchase of equipment |
|
|
(4,170 |
) |
|
|
(4,170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) financing activities |
|
|
(60,007,001 |
) |
|
|
(60,007,001 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Payment of expenses of offering |
|
|
(3,571,569 |
) |
|
|
(3,400,009 |
) |
|
|
|
|
Proceeds from sale of common stock |
|
|
25,000 |
|
|
|
|
|
|
|
|
|
Proceeds from notes payable stockholder |
|
|
250,000 |
|
|
|
250,000 |
|
|
|
|
|
Proceeds from initial public offering |
|
|
60,000,000 |
|
|
|
60,000,000 |
|
|
|
|
|
Proceeds from private placement |
|
|
3,200,000 |
|
|
|
3,200,000 |
|
|
|
|
|
Proceeds from sale of option |
|
|
100 |
|
|
|
100 |
|
|
|
|
|
Repayment of notes payable stockholders |
|
|
|
|
|
|
(187,802 |
) |
|
|
|
|
Payment of deferred offering costs |
|
|
|
|
|
|
|
|
|
|
(86,514 |
) |
Redemption of stock |
|
|
(312 |
) |
|
|
|
|
|
|
(312 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities |
|
|
59,903,219 |
|
|
|
59,862,289 |
|
|
|
(86,826 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
96,764 |
|
|
|
89,645 |
|
|
|
(47,085 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash beginning of period |
|
|
|
|
|
|
7,119 |
|
|
|
86,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of period |
|
$ |
96,764 |
|
|
$ |
96,764 |
|
|
$ |
39,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
639,971 |
|
|
$ |
639,971 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash
financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual of deferred offering costs |
|
$ |
1,800,000 |
|
|
$ |
1,800,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
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|
See accompanying notes to condensed financial statements.
6
ALPHA SECURITY GROUP CORPORATION
(a corporation in the development stage)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
September 30, 2007
Basis of Presentation
The financial statements of Alpha Security Group Corporation (the Company) at September 30,
2007 and for the period ended September 30, 2007 are unaudited. In the opinion of management, all
adjustments (consisting of normal adjustments) have been made that are necessary to present fairly
the financial position of the Company as of September 30, 2007 and the results of its operations
and its cash flows for the periods then ended. Operating results for the interim periods presented
are not necessarily indicative of the results to be expected for the full fiscal year. The
condensed balance sheet at December 31, 2006 has been derived from the audited financial
statements.
The statements and related notes have been prepared pursuant to the rules and regulations of
the U.S. Securities and Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules and regulations. These
financial statements should be read in conjunction with the financial statements that were
included in the Companys Form 8-Ks, as filed with the U.S. Securities and Exchange Commission
on April 3, 2007
1. Organization, Proposed Business Operations and Summary of Significant
Accounting Policies
Nature of Operations
Alpha Security Group Corporation (the Company) was incorporated in the State of Delaware
on April 20, 2005 as a blank check company formed to acquire, through a merger, capital stock
exchange, asset acquisition or other similar business combination, one or more businesses in the
U.S. homeland security or defense industries or a combination thereof.
At September 30, 2007, the Company had not yet commenced any operations. All activity
through September 30, 2007 relates to the Companys formation, a private placement and the public
offering described below. The Company has selected December 31 as its fiscal year-end.
The registration statement for the Companys initial public offering (the Public Offering)
was declared effective on March 23, 2007. On March 21, 2007, the Company completed a private
placement (the Private Placement) and received net proceeds of $3,200,000. The Company
consummated the Public Offering on March 28, 2007 and received net proceeds of $60,000,000. The
Companys management has broad discretion with respect to the specific application of the net
proceeds of the Private Placement and the Public Offering (collectively the Offerings) (as
described in Note 2), although substantially all of the net proceeds of the Offerings (exclusive
of working capital) are intended to be generally applied toward consummating a business
combination with a target company. As used herein, a target business shall include an operating
business in the U.S. homeland security or defense industries, or a combination thereof, and a
business combination shall mean the acquisition by the Company of such a target business. There
is no assurance that the Company will be able to effect a business combination successfully.
Of the proceeds of the Offerings, at September 30, 2007, $60,002,831 is being held in a trust
account (Trust Account) at JP MorganChase, New York, New York, maintained by American Stock
Transfer & Trust Company, the Companys transfer agent. This amount includes the net proceeds of
the Public Offering and the Private Placement (including interest thereon), and $1,800,000 of
deferred underwriting compensation fees (the Discount) which will be paid to Maxim Group LLC if,
and only if, a business combination is consummated, but which will be forfeited in part if public
stockholders elect to have their shares redeemed for cash and in full if a business combination is
not consummated.
7
ALPHA SECURITY GROUP CORPORATION
(a corporation in the development stage)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
September 30, 2007
1. Organization, Proposed Business Operations and Summary of Significant Accounting Policies
(continued)
The funds in the Trust Account will be invested until the earlier of (i) the consummation of the
Companys first business combination or (ii) the liquidation of the Trust Account as part of a
plan of dissolution and liquidation approved by our stockholders. Up to $1,825,000 of interest
income on the Trust Account may be used to fund the Companys working capital including payments
for business, legal and accounting, due diligence on prospective acquisitions and continuing
general and administrative expenses.
The Company, after signing a definitive agreement for the acquisition of a target business,
will submit such transaction for stockholder approval. In the event that public stockholders owning
35% or more of the outstanding stock excluding for this purpose, those persons who were
stockholders prior to the Offerings vote against the business combination, the business combination
will not be consummated. All of the Companys stockholders prior to the Offerings, including all of
the officers and directors of the Company (Initial Stockholders), have agreed to vote their
1,580,000 founding shares of common stock in accordance with the vote of the majority-in-interest
of all other stockholders of the Company with respect to any business combination. After
consummation of the Companys first business combination, all of these voting safeguards will no
longer be applicable.
With respect to the first business combination which is approved and consummated, any Public
Stockholder who voted against the business combination may demand that the Company redeem his or
her shares. The per share redemption price will equal $10 per share plus the pro-rata share of any
accrued interest earned on the Trust Account, net of: (i) taxes payable on interest income earned
on the Trust Account, State of Delaware franchise taxes, repayment of $250,000 of an additional
officer loan made prior to closing of the Public Offering by Steven M. Wasserman (such loan was to
be repaid within 90 days of the closing of the Public Offering, but has not been repaid through
September 30, 2007) and (ii) up to $1,825,000 of interest earned on the Trust Account released to
the Company to fund its working capital. Accordingly, Public Stockholders holding 34.99% of the
aggregate number of shares owned by all Public Stockholders may seek redemption 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 computed without regard to the shares held by Initial
Stockholders. In the event that more than 20% of the Public Stockholders exercise their redemption
rights, a proportional percentage of the common stock held by the Companys Initial Stockholders
will automatically, and without any further action required by the Company or such stockholders, be
forfeited and cancelled upon consummation of the business combination. The percentage of shares
forfeited will be equal to the percentage of redemptions above 20% and will be pro rata among the
Initial Stockholders on the 1,580,000 shares owned by them.
The Companys Amended and Restated Certificate of Incorporation provides for mandatory
liquidation of the Trust Account as part of a stockholder-approved plan of dissolution and
liquidation in the event that the Company does not consummate a business combination within 18
months from the date of the consummation of the Offering, or 24 months from the consummation of the
Public Offering if a letter of intent, agreement in principle or definitive agreement has been
executed within 18 months after consummation of the Public Offering and the business combination
has not yet been consummated within such 18 month period. In the event of such liquidation, the
amount in the Trust Account will be distributed to the holders of the shares sold in the Public
Offering. The Companys initial business combination must be for assets or with a target business
the fair market value of which is at least equal to 80% of the Companys net assets at the time of
such acquisition
8
ALPHA SECURITY GROUP CORPORATION
(a corporation in the development stage)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
September 30, 2007
1. Organization, Proposed Business Operations and Summary of Significant Accounting Policies
(continued)
(exclusive of Maxim Group LLCs deferred underwriting compensation, including interest thereon,
held in the trust account). Steven M. Wasserman, Chief Executive Officer, President and
Co-Chairman of the board of directors and Constantinos Tsakiris, a director of the Company,
purchased warrants to purchase an aggregate of 3,200,000 shares of common stock in the Private
Placement for an aggregate purchase price of $3,200,000 or $1.00 per warrant. The Private
Placement warrants are exercisable on the later of (i) the completion of a business combination
or (ii) March 23, 2008.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with original maturities of three months
or less when purchased to be cash equivalents. Such cash and cash equivalents, may exceed federally
insured limits. The Company maintains its accounts with financial institutions with high credit
ratings.
Income Taxes
The Company recorded a deferred tax asset of $134,204 and $11,915 at September 30, 2007 and
December 31, 2006, respectively, for the tax effect of temporary differences, aggregating $307,811
and $35,045. In recognition of the uncertainty regarding the ultimate amount of income tax benefits
to be derived, the Company recorded a valuation allowance of $29,548 and $11,915 at September 30,
2007 and December 31, 2006 respectively. The effective tax rate differs from the statutory rate of
34% due to the effect of state and local income taxes.
Share-Based payments
The Company accounts for share-based payments in accordance with Statement of Financial
Accounting Standards No. 123R (SFAS No. 123R) as of the date of issuance of the warrants
described in Note 2.
Recently issued accounting pronouncements
On January 1, 2007 the Company adopted FASB issue Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48
clarifies the accounting for uncertainty in tax positions recognized in a companys financial
statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 requires that the
impact of a tax position be recognized in the financial statements if it is more likely than not
that the tax position will be sustained on tax audit, based on the technical merits of the
position. FIN 48 also provides guidance on derecognition of tax positions that do not meet the
more likely than not standard, classification of tax assets and liabilities, interest and
penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The adoption of FIN 48 had no effect on our financial
condition or results of operations since the company has not identified any uncertain tax
positions.
The Company recognizes interest and penalties related to uncertain tax positions in income
tax expense. The tax years 2005 and 2006 remain open to examination by the major taxing
jurisdictions to which we are subject.
Management does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the accompanying
financial statements.
Income (Loss) per common share
Income (Loss) per share is computed by dividing net income (loss) by the weighted-average
number of shares of common stock outstanding during the period. Shares of common stock issuable
upon the exercise of options and warrants at September 30, 2007 (9,410,000 shares) are excluded
from the computation since such options and warrants are contingently exercisable.
9
ALPHA SECURITY GROUP CORPORATION
(a corporation in the development stage)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
September 30, 2007
1. Organization, Proposed Business Operations and Summary of Significant Accounting
Policies (continued).
Use of Estimates
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.
2. Public Offering and Private Placement
On March 28, 2007 the Company sold 6,000,000 units to the public at a price of $10.00 per
unit. Each unit consists of one share of the Companys common stock, $.0001 par value, and one
Redeemable Common Stock Purchase Warrant (Warrant). Each Warrant entitles the holder to
purchase from the Company one share of common stock at an exercise price of $7.50 commencing the
later of (i) the completion of a business combination with a target business or (ii) March 23,
2008, and expires March 23, 2011. The Warrants will be redeemable by the Company at a price of
$0.01 per warrant upon 30 days notice after the Warrants become exercisable, only in the event
that the closing price of the common stock is at least $14.25 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.
On March 21, 2007, Steven M. Wasserman, Chief Executive Officer, President and Co-Chairman of
the board of directors and Constantinos Tsakiris, a director, acquired warrants to purchase an
aggregate of 3,200,000 shares of common stock from the Company in a Private Placement. The total
purchase price for the warrants was $3,200,000 or $1.00 per warrant. The Warrants included in the
Private Placement have terms identical to the Warrants included in the Offering.
Under the terms of the Companys warrant agreement, no public warrants will be exercisable
unless at the time of exercise a registration statement relating to common stock issuable upon
exercise of the warrants is effective and current, a prospectus is available for use by the public
stockholders and those shares of common stock have been registered or been deemed to be exempt from
registration under the securities laws of the state of residence of the holder of the warrants. The
holders of the Warrants issued in the Private Placement will be able to exercise their Warrants
even if, at the time of exercise, a prospectus relating to the common stock issuable upon exercise
of such Warrants is not current.
In addition, in no event will the registered holders of the Warrants issued in the Public
Offering or the Private Placement be entitled to receive a net cash settlement of stock or other
consideration in lieu of physical settlement in shares of the Companys common stock. As such, the
Company has determined that the public warrants should be classified in stockholders equity in
accordance with the guidance of EITF 00-19 (EITF 00-19), Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Companys Own Stock.
The Company will use its best efforts to maintain the effectiveness of the registration
statement until the expiration of the Warrants. If the Company is unable to maintain the
effectiveness of such registration until the expiration of the Warrants and therefore is unable
to deliver registered shares, the Warrants may become worthless
10
ALPHA SECURITY GROUP CORPORATION
(a corporation in the development stage)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
September 30, 2007
3. Note payable, stockholder
The Company issued an unsecured promissory note to Steven Wasserman, a related party, totaling
$250,000 on
March 28, 2007. The Note does not bear interest and was to be repaid in full ninety days
thereafter and such repayment has not been made. Due to the short-term nature of the promissory
note, the fair value of the note approximates its carrying value.
4. Commitments
The Company has agreed to pay to an affiliated third party, $7,500 a month for 24 months for
office space and general and administrative expenses.
Upon completion of the Public Offering, the Company sold to the representative of the
underwriters, for $100, an option to purchase up to a total of 105,000 units. The units issuable
upon exercise of this option are identical to those offered in the Public Offering. This option is
exercisable at $11.00 per unit commencing after 180 days from March 23, 2007 and expiring March
23, 2012. The 105,000 units (the 105,000 shares of common stock and the 105,000 warrants
underlying such units, and the 105,000 shares of common stock underlying such warrants) have been
deemed compensation by the National Association of Securities Dealers (NASD) and are therefore
subject to a 180-day lock-up pursuant to Rule 2710(g)(1) of the NASD Conduct Rules. Additionally,
the option may not be sold, transferred, assigned, pledged or hypothecated for a 24-month period
(including the foregoing 180-day period) following March 23, 2007 (the effective date of the
prospectus pertaining to the Public Offering). However, the option may be transferred to any
underwriter and selected dealer participating in the Public Offering and their bona fide officers
or partners. This represents an amended agreement between the Company and the representative of
the underwriters, revising their original agreement which provided for the issuance of an option
to purchase 420,000 units with a lock-up period of one-year. The option may expire unexercised and
the underlying warrants unredeemed if the Company fails to maintain an effective registration
statement covering the units (including the common stock and warrants) issuable upon exercise of
the option. There are no circumstances upon which the Company will be required to net cash settle
the option.
The Company has accounted for this purchase option as a cost of raising capital and has
included the instrument as equity in its financial statements. Accordingly, there is no net impact
on the Companys financial position or results of operations, except for the recording of the $100
proceeds from the sale. The Company has estimated, based upon a Black Scholes model, that the fair
value of the purchase option on the date of sale was approximately $4.46 per unit (a total value of
$468,300), using an expected life of five years, volatility of 47.60% and a risk-free rate of
4.75%. The volatility calculation is based on the average volatility of 12 companies in the U.S.
homeland security and defense industries during the period from March 14, 2002 to March 15, 2007.
Because the Company does not have a trading history, the Company needed to estimate the potential
volatility of its unit price, which will depend on a number of factors which cannot be ascertained
at this time. The Company used these companies because management believes that the volatility of
these companies is a reasonable benchmark to use in estimating the expected volatility for the
Companys units. Although an expected life of five years was used in the calculation, if the
Company does not consummate a business combination within the prescribed time period and it
liquidates, the option will become worthless.
The Company has engaged the representative of the underwriters, on a non-exclusive basis, as
its agent for the solicitation of the exercise of the warrants. To the extent not inconsistent
with the guidelines of the NASD and the rules and regulations of the Securities and Exchange
Commission, the Company has agreed to pay the representative for bona fide services rendered a
cash commission equal to 5% of the exercise price for each warrant exercised more than one year
after the effective date of the prospectus if the exercise was solicited by the
11
ALPHA SECURITY GROUP CORPORATION
(a corporation in the development stage)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
September 30, 2007
4. Commitments (continued)
representative. In addition to soliciting, either orally or in writing, the exercise of the
warrants, the representatives services may also include disseminating information, either orally
or in writing, to warrant holders about the Company or the market for the Companys securities, and
assisting in the processing of the exercise of the warrants. No compensation will be paid to the
representative upon the exercise of the warrants if:
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the market price of the underlying shares of common stock is lower than the exercise
price; |
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the holder of the warrants has not confirmed in writing that the representative solicited
the exercise; |
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the warrants are held in a discretionary account; |
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the warrants are exercised in an unsolicited transaction; or |
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the arrangement to pay the commission is not disclosed in the prospectus provided to
warrant holders at the time of exercise |
5. Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with such designations,
voting and other rights and preferences, as may be determined from time to time by the Board of
Directors.
6. Stockholders Equity
On September 8, 2006, the Company redeemed 20,000 shares of its common stock at a price
of $0.0125 per share.
On September 15, 2006, the Company effected a 0.80 for 1 reverse stock split. All share
numbers herein reflect this adjustment.
On January 16, 2007, the Company filed its Third Amended and Restated Certificate of
Incorporation with the State of Delaware, reducing its authorized capitalization from 100,000,000
shares of common stock, par value $.0001 per share, and 1,000,000 shares of preferred stock, par
value $.0001 per share, to 30,000,000 shares of common stock, par value $.0001 per share, and
1,000,000 shares of preferred stock, par value $.0001 per share. Such reduction has been given
retroactive effect in these financial statements.
On February 7, 2007, the Company filed its Fourth Amended and Restated Certificate of
Incorporation with the State of Delaware, amending the restriction against the Company proceeding
with a business combination from disallowing such a transaction if the holders of less than 30% of
the number of shares sold in the Public Offering vote against a business combination and
subsequently exercise their dissolution rights, increasing such percentage to 35%.
12
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. 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
under Risk Factors (pages 16-36) in our final prospectus dated March 23, 2007, as amended,
relating to the Public Offering, and in our other Securities and Exchange Commission filings. The
following discussion should be read in conjunction with our Financial Statements and related Notes
thereto included elsewhere in this report.
Overview
We were formed on April 20, 2005, to serve as a vehicle to acquire one or more domestic or
international operating businesses in the U.S. homeland security or defense industries or a
combination thereof, through a merger, capital stock exchange, asset acquisition or other similar
business combination. We intend to utilize cash derived from the proceeds of our recently completed
public offering and private placement, our capital stock, debt or a combination thereof, in
effecting a business combination. The issuance of additional shares of our capital stock:
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may significantly reduce the equity interest of our stockholders; |
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will likely cause a change in control if a substantial number of our shares of common
stock are issued, which may affect, among other things, our ability to use our net operating
loss carry forwards, if any, and may also result in the resignation or removal of one or
more of our present officers and directors; and |
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may adversely affect prevailing market prices for
our common stock. |
Similarly, if we issued debt securities, it could result in:
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default and foreclosure on our assets if our operating revenues after a business
combination were insufficient to pay our debt obligations; |
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acceleration of our obligations to repay the indebtedness even if we have made all
principal and interest payments when due if the debt security contained covenants that
require the satisfaction or maintenance of certain financial ratios or reserves and any
such covenants were breached without a waiver or renegotiation of that covenant; |
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our immediate payment of all principal and accrued interest, if any, if the debt
securities were payable on demand; and |
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our inability to obtain additional financing, if necessary, if the debt securities
contained covenants restricting our ability to obtain additional financing while such
securities were outstanding. |
Results of operations for the three-month period ended September 30, 2007
We reported net income of $275,532 for the three-month period ended September 30, 2007. Net
income consisted of interest income of $663,210 reduced by of $134,204 of operating expenses,
Operating expenses of $134,204 consisted of consulting and professional fees of $36,650, insurance
expense of $16,113, travel expense of $26,606, Delaware franchise fees of $15,501 and other
operating costs of $39,334.
13
The trust account earned interest of $663,210 during the three months ended September 30,
2007, none of which is attributable to common stock subject to possible redemption.
Until we enter into a business combination, we will not generate operating revenues. We had no
funds in trust as of September 30, 2006.
For the three months ended September 30, 2006, we incurred operating expenses of $5,517 which
consisted of formation costs.
Results of operations for the nine-month period ended September 30, 2007
We reported net income of $554,662 for the nine-month period ended September 30, 2007. Net
income consisted of interest income of $1,434,335 reduced by $353,319 of operating expenses.
Operating expenses of $353,319 consisted of consulting and professional fees of $100,363, insurance
expense of $31,174, travel expense of $86,620, Delaware franchise fees of $41,387 and other
operating costs of $93,775.
The trust account earned interest of $1,429,470, during the nine months ended September 30,
2007, none of which is attributable to common stock subject to possible redemption.
Until we enter into a business combination, we will not generate operating revenues. We had no
funds in trust as of September 30, 2006.
For the nine months ended September 30, 2006, we incurred operating expenses of $11,968, which
consisted of formation costs.
Liquidity and Capital Resources
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On March 21, 2007, we sold to Steven M. Wasserman (500,000 warrants), our Chief Executive
Officer, President and Co-Chairman of the board of directors, and Constantinos Tsakiris (2,700,000
warrants), a director, an aggregate of 3,200,000 warrants in a private placement for $1.00 per
warrant or aggregate consideration of $3,200,000. The warrants in the private placement have
identical terms to the warrants included in the units offered as part of the public offering. On
March 28, 2007, we consummated our initial public offering of 6,000,000 units at a purchase price
of $10.00 per unit or gross proceeds of $60,000,000. Each unit in the public offering consisted of
one share of common stock and one redeemable common stock purchase warrant. Each warrant entitles
the holder to purchase from us one share of common stock at an exercise price of $7.50 per share.
Prior to the closing, Steven M. Wasserman loaned us $250,000 for expenses of the public offering,
which loan will be repaid within 90 days of the closing. |
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On March 28, 2007, the closing date of our public offering, $60,002,831 was placed in the
Trust Account at JP Morgan Chase New York, New York. This amount includes net proceeds of the
public offering of $56,800,000 and the private placement of $3,202,831 including interest
thereon. The funds in the Trust Account will be invested until the earlier of (i) consummation
of a business combination or (ii) the liquidation of the Trust Account as part of a plan of
distribution and liquidation approved by our stockholders. |
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In addition to the net proceeds from the sale of the units in this offering and the sale of
warrants in our private placement, on the closing date of the public offering the trust account
included $1,800,000 of deferred underwriting compensation to be paid to Maxim Group LLC with
accrued interest if and only if a business combination is consummated, and $90,000 of deferred
legal fees to be paid, without contingency, from interest income earned on the trust account
released to us. |
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While funds are held in the trust account, they will only be invested in Treasury Bills
issued by the United States government having a maturity of 180 days or less or money market
funds meeting the criteria under Rule 2a-7 under the 1940 Act. Interest earned will be applied
in the following order of priority: |
14
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payment of taxes on trust account interest income; |
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payment of State of Delaware franchise taxes; |
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repayment of up to $250,000 of an additional officer loan made prior to the closing of
this offering by Steven M. Wasserman; |
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our working capital requirements before we complete a business combination and, if
necessary, funding the costs of our potential dissolution and liquidation; |
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solely if we complete a business combination, interest on the amount of deferred
underwriters compensation payable to the underwriters; and |
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the balance, if any, to us if we complete a business combination or to our public
stockholders if we do not complete a business combination. |
We believe that the interest income earned on trust account funds in the period before we
effect a business combination will be sufficient to fund the costs and expenses relating to our
liquidation and dissolution if we do not consummate a business combination.
We will use substantially all of the net proceeds of the public offering and from the private
placement, and interest income earned on the funds in the trust account, to acquire a target
business, including identifying and evaluating prospective acquisition candidates, selecting the
target business, and structuring, negotiating and consummating the business combination. Costs and
expenses incurred prior to the consummation of a business combination, including those that relate
to a business combination that is not consummated, will be paid from the interest earned on funds
held in the trust account (to the extent such interest is released to us). To the extent that our
capital stock is used in whole or in part as consideration to effect a business combination, the
proceeds held in the trust account as well as any other net proceeds not expended will be used to
finance the operations of the target business.
We believe that the funds available to us from interest income earned on the trust account
($1,825,000) will be sufficient to allow us to operate for at least 24 months or March 2009,
assuming that a business combination is not consummated during that time. Over this time period,
the following estimated expenditures are anticipated: $400,000 of expenses for legal, accounting
and other expenses attendant to the structuring, negotiating and consummation of a business
combination, $500,000 of expenses for identification, evaluation and due diligence investigation
of a target business, $180,000 for administrative services and support payable to an affiliated
third party ($7,500 per month for 24 months), $100,000 of expenses in legal and accounting fees
relating to our SEC reporting obligations, $150,000 for directors and officers liability
insurance and $495,000 for general working capital that will be used for miscellaneous expenses
and reserves, deferred legal fees of $90,000, costs of dissolution and liquidation and reserves,
if any, which we currently estimate to be approximately $50,000 to $75,000, potential deposits,
down payments or funding of a no-shop provision in connection with a particular business
combination and key-man insurance.
We do not believe we will need to raise additional funds in order to meet the expenditures
required for operating our business prior to consummating 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.
In addition to the above described allocation of interest accrued on the trust account, at
September 30, 2007, we had funds aggregating $96,764 held outside of the trust account.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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 account, 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 have been invested only in Treasury Bills
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issued by the United States Government having a maturity of 180 days or less or money market funds
meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940.
Given our limited risk in our exposure to Treasury Bills and money market funds, 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 September
30, 2007, was made under the supervision and with the participation of our principal executive
officer and principal financial officer. Based on that
evaluation, he 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 Securities Exchange Act of 1934 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 been no significant
change in our internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
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 risk factors discussed in our Registration Statement on Form S-1 (pages 16-35) declared
effective by the SEC on March 23, 2007, which could materially affect our business, financial
condition or future results. The risks described in our Registration Statement on Form S-1 are not
the only risks facing our company. Additional risks and uncertainties not currently known to us or
that we currently deem to be immaterial also may materially adversely affect our business,
financial condition and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On March 21, 2007, we sold an aggregate of 3,200,000 warrants in a Private Placement to Steven
M. Wasserman (500,000 warrants), our Chief Executive Officer, President and Co-Chairman of our
board of directors and Constantinos Tsakiris (2,700,000 warrants), a member of our board of
directors. The warrants were sold at a purchase price of $1.00 per warrant. On March 28, 2007, we
consummated our initial public offering of 6,000,000 units, each unit consisting of one share of
common stock and one warrant. Each warrant entitles the holder to purchase from us one share of our
common stock at an exercise price of $7.50. The units were sold at an offering price of $10.00 per
unit, generating total gross proceeds of $60,000,000. Maxim Group LLC acted as lead underwriter.
The securities sold in the offering were registered under the Securities Act of 1933 on a
registration statement on Form S-1 (No. 333-127999). The Securities and Exchange Commission
declared the registration statement effective on March 23, 2007.
We incurred a total of $3,780,000 in underwriting discounts and commissions, and $1,591,569
of expenses related to the public offering and private placement.
After deducting the underwriting discounts and commissions and the offering expenses
(excluding $1,800,000 in underwriting discounts, commissions for which the payment was deferred),
the total net proceeds to us from the public offering and the private placement was $60,002,831.
All of such net proceeds, $60,002,831, is being held in a trust account and invested until the
earlier of (i) the consummation of the first business combination or (ii) the distribution of the
Trust Account as described in this report, subject to deductions from the Trust Account for the
following items: (i) taxes payable on interest income earned on the Trust Account, State of
Delaware franchise taxes, repayment of $250,000 of an additional officer loan made prior to closing
of the Public Offering by Steven M. Wasserman (such loan to be repaid within 90 days of the closing
of the Public Offering) and (ii) up to $1,825,000 of interest earned on the Trust Account
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may be released to us to fund our working capital. The amount in the Trust Account includes
$1,800,000 of contingent underwriting compensation which will be paid to the underwriters if a
business combination is consummated, but which will be forfeited if public stockholders elect to
have their shares redeemed for cash if a business combination is not consummated. $187,500 of the
proceeds of the Public Offering were used to repay debt to Mr. Wasserman ($137,802.50) and Robert
Blaha ($50,000), our Chief Management Officer, Executive Vice President and a director, for loans
used to cover expenses related to the public offering and $3,421,569 was used to pay accrued
offering costs and fees.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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Exhibit No. |
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Description |
31.1
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Certification of the Chief Executive Officer and Chief
Financial Officer (Principal Executive and Financial Officer)
pursuant to Rule 13a-14(a) of the Securities Exchange Act, as
amended. |
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32.1
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Certification of the Chief Executive Officer and Chief
Financial Officer (Principal Executive and Financial Officer)
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. |
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.
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ALPHA SECURITY GROUP CORPORATION |
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November 14, 2007
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By: /s/ Steven M. Wasserman |
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Steven M. Wasserman |
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Chief Executive Officer and Chief Financial Officer |
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(Principal Executive and Financial Officer) |
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