U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-KSB/A
x
|
Annual
report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934
for the fiscal year ended December 31,
2005
|
o
|
Transition
report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934
for the transition period from _____________to
_____________
|
Commission
File Number: 000-50813
SAND
HILL IT SECURITY ACQUISITION CORP.
(Name
of
Small Business Issuer in Its Charter)
|
|
|
Delaware
(State
or Other Jurisdiction of Incorporation or Organization)
3000
Sand Hill Road
Building
1, Suite 240
Menlo
Park, California
(Address
of Principal Executive Offices)
|
|
20-0996152
(I.R.S.
Employer
Identification
No.)
94025
(Zip
code)
|
|
|
|
(650)
926-7022
(Issuer’s
Telephone Number, Including Area Code)
Securities
registered under Section 12(b) of the Exchange Act:
None
(Title
of
class)
Securities
registered under Section 12(g) of the Exchange Act:
Units
consisting of one share of Common Stock,
par
value
$.01 per share, and two Warrants
Common
Stock, $.01 par value per share
Warrants
to purchase shares of Common Stock
(Title
of
class)
Check
whether the issuer: (1) filed all reports required to be filed by Section 13
or
15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for
such shorter period that the registrant was required to file such reports),
and
(2) has been subject to such filing requirements for the past 90
days.
Yes
x No
o
Indicate
by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to
the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to
this Form 10-KSB. x
Indicate
by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes
x No
o
State
issuer’s revenues for its most recent fiscal year: None
The
aggregate market value of the voting and non-voting stock held by non-affiliates
of the registrant as of March 8, 2006, was approximately $21.7 million. For
purposes of this computation, all executive officers, directors and 10%
stockholders were deemed affiliates. Such a determination should not be
construed as an admission that such executive officers, directors or 10%
stockholders are affiliates.
As
of
March 8, 2006, 5,110,000 shares of common stock, par value $.01 per share,
were issued and outstanding.
Transitional
Small Business Disclosure Format: Yes o No
x
Sand
Hill
IT Security Acquisition Corp., a Delaware corporation (the “Company”), hereby
amends, as set forth herein, the Company’s Annual Report on Form 10-KSB filed
with the Securities and Exchange Commission on March 17, 2006 (the “Form
10-KSB”). The item numbers and responses thereto are in accordance with the
requirements of Form 10-KSB. All capitalized terms used and not otherwise
defined herein shall have the meaning specified in the Form 10-KSB.
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This
report contains forward-looking statements within the meaning of Section 27A
of
the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical results or
anticipated results, including those set forth under “Management’s Discussion
and Analysis or Plan of Operation” and elsewhere in, or incorporated by
reference into, this report.
General
Sand
Hill IT Security Acquisition Corp. (the “Company”) is a blank check company
formed to serve as a vehicle for the acquisition of a target business in a
specified industry. Our objective is to acquire an operating business in the
IT
security industry. We were incorporated in Delaware on April 15, 2004. Our
initial stockholders purchased 1,000,000 shares of common stock, $.01 par value,
for $25,000. The registration statement for our initial public offering (the
“Offering”) was declared effective July 26, 2004. We consummated the
Offering on July 30, 2004. The net proceeds, after deducting the
underwriters discount and offering expenses, and including the sale of 510,000
units in the underwriters over-allotment option, was $22,022,462. $20,961,000
of
these net proceeds has been placed in a trust fund and invested in United States
government securities. The funds held in the trust account will not be released
until the earlier of the date on which we consummate a business combination
or
liquidate our assets.
Current
Trends in the Information Technology (IT) Security
Industry
The
IT
security market continues to be attractive from a business
perspective.
In
January of 2006, the investment banking firm of Goldman Sachs reported that
IT
security continues as the highest spending priority amongst CIOs and CTOs in
the
U.S. for 2006. The industry
is
generally characterized by the following:
· |
escalating
volume of Internet attacks on business, industry and government,
reaching
over 140,000 attacks in 2004;
|
· |
increasing
sophistication of attacks and increasing cost per
attack;
|
· |
material
loss in employee productivity due to unauthorized Internet usage
during
working hours;
|
· |
significant
recent increases in government and regulatory requirements specifically
targeting security, including but not limited to, Sarbanes-Oxley
(SOX),
HIPPA, BASEL II, Gramm-Leach-Bliley, GISRA,
etc;
|
· |
increases
in customer demand for integrated, full solution product suites;
and
|
· |
a
strong preference in Small and Medium Enterprises for easy to install
and
easy to use security appliances.
|
Many
organizations use the Internet to enable critical business applications that
are
accessed over their corporate networks. Many employees also use their
organization’s computing resources for recreational “web surfing,” peer-to-peer
file sharing, downloading of high-bandwidth content, instant messaging and
other
personal matters. However, unmanaged use of organizational computing and network
resources, including Internet access, results in increased risk and cost to
the
organization, including increased security risks, loss of intellectual property,
loss of a company’s customer and supplier data, lost employee productivity,
increased network bandwidth consumption, and potential legal liability. This
segment of IT security is commonly known as Secured Content Management, or
SCM.
Traditionally,
organizations have attempted to mitigate the legal liability, productivity
and
bandwidth waste risks through written policies governing acceptable employee
use
of computing resources, and they have sought to protect against external
security risks with a combination of firewalls, intrusion detection/prevention
software and anti-virus software. With the growth in spyware, key logging
applications, and phishing sites, combined with the rapid increase in employee
use of instant messaging and peer-to-peer file sharing and the proliferation
of
blended attacks on computing networks, organizations are finding that existing
security measures leave significant time and technology gaps in their
protection. Written Internet access and software application use policies are
easily ignored, difficult to enforce and do not proactively curtail undesirable
Internet and software application usage. Firewalls can provide protection
against external threats such as hacking, but do little to prevent employees
from accessing unauthorized data from within an organization. Anti-virus
software provides protection from e-mail borne viruses, but does not prevent
the
possible theft or corruption of corporate data by spyware and offers only
limited protection against viruses that proliferate via peer-to-peer networks
and instant messaging. Existing anti-virus and anti-spyware software also
requires time to identify and reverse engineer the virus or spyware application
before it can be remediated and removed from infected systems.
Given
the
necessity of corporate Internet access and the continuing adoption of the web
as
a mass communication, entertainment, information and commerce medium, we believe
there is a significant opportunity for SCM solutions, including secure
messaging, that effectively addresses the needs of organizations to manage
employee usage of the computing environment, including Internet access and
desktop application use. Additionally, although the web and e-mail are the
primary drivers of Internet traffic today, the rapid emergence of
Internet-enabled applications creates the need for software that applies
management policies to file types, applications, and protocols, as well as
web
pages, at multiple points on the information technology infrastructure. Software
tools are needed to implement policy-based bandwidth management and regulation
of applications such as instant messaging, peer-to-peer file exchange tools,
interactive games and desktop software applications. These solutions must also
be adaptable enough to manage new applications and technologies as they are
developed.
Recent
Developments
On
October 26, 2005 we entered into a definitive Agreement and Plan of Merger,
as
amended, with St. Bernard Software, Inc., a Delaware corporation
(“St. Bernard”). Pursuant to the merger agreement, Sand Hill Merger Corp.,
a Delaware corporation and wholly-owned subsidiary of the Company will merge
with and into St. Bernard and St. Bernard will be the surviving
corporation and become a wholly-owned subsidiary of the Company. At the
effective time and as a result of the merger, the holders of St. Bernard
common stock will receive, subject to a working capital adjustment,
approximately 9.76 million shares of our common stock and the holders of
St. Bernard options and warrants will receive options and warrants for
approximately 1.12 million shares of our common stock.
St.
Bernard Software is a recognized independent supplier of IT security software
products and services, with a special emphasis on Secure Content Management,
or
SCM, including secure messaging. St. Bernard’s products protect businesses,
government organizations and educational institutions from cyber attack, improve
worker productivity, reduce legal liability and assist in meeting regulatory
requirements for data/privacy protection. St. Bernard’s network-attached
security products are delivered as appliances that connect into the data path
between the Internet gateway and a company’s local area network. St. Bernard’s
system security products consist of software that is installed on workstations
and servers. St. Bernard has approximately 8,000 customers supporting over
3.5
million device licenses, primarily comprised of small to medium sized
businesses, educational institutions and governmental organizations. The
products offered by St. Bernard include Open File Manager, a data protection
product; UpdateEXPERT, a patch and settings management product; iPrism, Internet
access management product; and ePrism, a secure messaging, e-mail filtering
product. According to International Data Corporation, in September 2005, St.
Bernard’s iPrism product line was the leading Internet filtering appliance,
enabling customers to manage and control employee access to millions of web
sites that are updated continuously as part of St. Bernard’s fee-based
subscription service. Other St. Bernard’s products also have a subscription
component that increases deferred revenue, thereby increasing revenue
predictability.
For
a
more complete discussion of St. Bernard and our proposed business combination,
including the risks that are applicable to us with respect to our acquisition
of
St. Bernard see our current report on Form 8-K filed with the Securities and
Exchange Commission on October 27, 2005, as well as our registration statement
on Form S-4 (No. 333-130412).
Opportunity
for stockholder approval of business combination
Prior
to
the completion of a business combination, we will submit the transaction to
our
stockholders for approval, even if the nature of the acquisition is such as
would not ordinarily require stockholder approval under applicable state law.
In
connection with seeking stockholder approval of a business combination, we
will
furnish our stockholders with proxy solicitation materials prepared in
accordance with the Exchange Act, which, among other matters, will include
a
description of the operations of the target business and audited historical
financial statements of the business.
In
connection with the vote required for any business combination, all of our
initial stockholders, including all of our officers and directors, have agreed
to vote the 1,000,000 shares of common stock they owned immediately prior to
the
Offering in accordance with the vote of the public stockholders owning a
majority of the shares of our common stock sold in our initial public offering.
This voting arrangement does not apply to shares included in units purchased
in
the Offering or purchased following the Offering in the open market by any
of
our initial stockholders, officers and directors. We will proceed with the
business combination only if public stockholders who own at least a majority
of
the shares of common stock sold in the Offering vote in favor of the business
combination and public stockholders owning less than 20% of the shares sold
in
the Offering exercise their conversion rights.
Conversion
rights
At
the
time we seek stockholder approval of any business combination, we will offer
each public stockholder the right to have their shares of common stock converted
to cash if the stockholder votes against the business combination and the
business combination is approved and completed. The actual per-share conversion
price will be equal to the amount in the trust fund, inclusive of any interest,
as of the record date for determination of stockholders entitled to vote on
the
business combination, divided by the number of shares sold in the Offering.
With
taking into account the interest earned on the trust fund, the current per-share
conversion price, as of December 31, 2005, would be $5.29. An eligible
stockholder may request conversion at any time after the mailing to our
stockholders of the proxy statement and prior to the vote taken with respect
to
a proposed business combination at a meeting held for that purpose, but the
request will not be granted unless the stockholder votes against the business
combination and the business combination is approved and completed. Any request
for conversion, once made, may be withdrawn at any time up to the date of the
meeting. It is anticipated that the funds to be distributed to stockholders
entitled to convert their shares who elect conversion will be distributed
promptly after completion of a business combination. Public stockholders who
convert their stock into their share of the trust fund still have the right
to
exercise the warrants that they received as part of the units. We will not
complete any business combination if public stockholders, owning 20% or more
of
the shares sold in the Offering, exercise their conversion rights.
Liquidation
if no business combination
If
we
have not completed a business combination by July 27, 2006, we will be
dissolved and will distribute to all of our public stockholders, in proportion
to their respective equity interests, an aggregate sum equal to the amount
in
the trust fund, inclusive of any interest, plus any remaining net assets of
the
Company. Our initial stockholders have waived their rights to participate in
any
liquidation distribution with respect to shares of common stock owned by them
immediately prior to the Offering. There will be no distribution from the trust
fund with respect to our warrants.
If
we
were to expend all of the net proceeds of the Offering, other than the proceeds
deposited in the trust fund, and with taking into account the interest earned
on
the trust fund, the current per-share liquidation price, as of December 31,
2005, would be $5.29. The proceeds deposited in the trust fund could, however,
become subject to the claims of our creditors which could be prior to the claims
of our public stockholders. There is no assurance that the actual per-share
liquidation price will not be less than $5.29, due to claims of creditors.
Humphrey P. Polanen, our chairman of the board and chief executive officer,
has
agreed pursuant to an agreement with us and the representatives of the
underwriters in the Offering, that, if we liquidate prior to the consummation
of
a business combination, he will be personally liable to pay debts and
obligations to vendors or other entities that are owed money by us for services
rendered or products sold to us in excess of the net proceeds of the Offering
not held in the trust account. There can be no assurance, however, that Mr.
Polanen would be able to satisfy those obligations.
If
we
are
unable to complete a business combination by July 27, 2006, upon notice from
us,
the trustee of the trust account will commence liquidating the investments
constituting the trust fund and will turn over the proceeds to the transfer
agent for distribution to the stockholders. We anticipate that the instruction
to the trustee would be given promptly after July 27, 2006.
Our
public stockholders are entitled to receive funds from the trust fund only
in
the event of our liquidation or if the stockholders seek to convert their
respective shares into cash upon a business combination that the stockholder
voted against and which is actually completed by us. In no other circumstances
shall a stockholder have any right or interest of any kind to or in the trust
fund. There will be no distribution from the trust fund with respect to our
warrants.
Competition
If
we
succeed in effecting the business combination with St. Bernard, there will
be
intense competition from competitors of St. Bernard in the IT security industry.
For a more complete discussion of the risks that will be applicable to us
following the business combination with St. Bernard, see our filings referred
to
above under “Recent Developments.” We cannot assure you that, subsequent to our
business combination, we will have the resources or ability to compete
effectively.
Facilities
We
maintain our executive offices at 3000 Sand Hill Road, Building 1, Suite 240,
Menlo Park, California 94025. The cost for this space is included in the $7,500
per-month fee Sand Hill Security, LLC charges us for general and administrative
services pursuant to a letter agreement between us and Sand Hill Security,
LLC.
Sand Hill Security, LLC is an affiliate of certain of our directors and
executive officers. We believe, based on rents and fees for similar services
in
the Menlo Park, California metropolitan area, that the fee charged by Sand
Hill
Security, LLC is at least as favorable as we could have obtained from an
unaffiliated person. We consider our current office space adequate for our
current operation.
Employees
We
have
three executive officers, each of whom are members of our board of directors.
These individuals are not obligated to contribute any specific number of hours
per week and intend to devote only as much time as they deem necessary to our
affairs. The executive officers are also involved with business ventures other
than the Company. We have no employees.
Risks
Associated with Our Business
In
addition to other information included in this report, you should consider
all
the risks relating to the proposed acquisition of St. Bernard and our operations
following the business combination in our filings referred to above under
“Recent Developments”. In addition, the following factors should be considered
in evaluating our business and future prospects.
If
we
are unable to complete the business combination with St. Bernard, we will not
have enough time to negotiate and consummate another business combination and
will be required to liquidate.
We
must
complete our business combination by July 27, 2006. Accordingly, if we are
unable to complete the business combination with St. Bernard, we will not have
enough time to negotiate and consummate another business combination. We will
therefore be forced to liquidate our assets. If we are unable to complete a
business combination and are forced to liquidate our assets, the per-share
liquidation distribution could be less than the purchase price per share that
purchasers paid for our securities because of the expenses of the Offering,
our
general and administrative expenses. Furthermore, there will be no distribution
with respect to our outstanding warrants and, accordingly, the warrants will
expire worthless if we liquidate before the completion of a business
combination.
If
third parties bring claims against us, the proceeds held in trust could be
reduced and the per share liquidation price received by stockholders could
be
less than their purchase price per share.
Our
placing of funds in trust may not protect those funds from third party claims
against us. The proceeds held in trust could be subject to claims which could
take priority over the claims of our public stockholders. There can be no
assurance that the per-share liquidation price will not be less than the
purchase price per share that purchasers paid for our securities, plus interest,
due to claims of creditors. If we liquidate before the completion of a business
combination, Humphrey P. Polanen, our chairman of the board and chief executive
officer, will be personally liable under certain circumstances to ensure that
the proceeds in the trust fund are not reduced by the claims of various vendors
or other entities that are owed money by us for services rendered or products
sold to us. However, we cannot assure you that Mr. Polanen will be able to
satisfy those obligations.
Upon
consummation of our business combination with St. Bernard, there will be a
substantial number of shares of our common stock available for resale in the
future that may increase the volume of common stock available for sale in the
open market and may cause a decline in the market price of our common stock.
The
consideration to be issued in the merger with St. Bernard will include
approximately
9.76 million shares of our common stock and options and warrants for
approximately 1.12 million shares of our common stock. Except for a portion
of the shares that will be held by certain affiliates of St. Bernard and are
subject to a lock-up period, the shares will be freely saleable immediately
after the consummation of the merger. The presence of this additional number
of
shares of common stock eligible for trading in the public market may have an
adverse effect on the market price of our common stock.
Our
initial stockholders, including our officers and directors, control a
substantial interest in us and thus may influence certain actions requiring
stockholder vote.
All
of
our officers and directors own stock in our company, but have waived their
right
to receive distributions upon our liquidation with respect to their shares
purchased prior to our initial public offering. Additionally, some of our
officers and directors own warrants to purchase additional shares of our common
stock. The shares and warrants owned by our directors and officers will be
worthless if we do not consummate the business combination with St. Bernard.
The
personal and financial interests of our directors and officers may influence
their motivation in accepting any changes or waiving any terms with respect
to
our business combination with St. Bernard. Consequently, our directors’ and
officers’ discretion in agreeing to such changes or waivers may result in a
conflict of interest when determining whether such changes or waivers are
appropriate and in our stockholders’ best interest.
Our
outstanding warrants and options may have an adverse effect on the market price
of our common stock and make it more difficult to effect a business combination.
We
currently have 8,820,000 shares of common stock reserved for issuance upon
exercise of issued and outstanding warrants, the option to purchase 270,000
units that we granted to the representatives of the underwriters in the Offering
(including the warrants underlying the option), and the options to purchase
an
aggregate of 60,000 shares of common stock granted to Advisory Board members.
To
the extent we issue shares of common stock to effect a business combination,
the
potential for the issuance of substantial numbers of additional shares upon
exercise of these warrants and options could make us a less attractive
acquisition vehicle in the eyes of a target business as such securities, when
exercised, will increase the number of issued and outstanding shares of our
common stock, reduce the ownership the stockholders would have had excluding
the
shares issued from the exercise of warrants and options, and may reduce the
value of the shares issued to complete the business combination. Accordingly,
our warrants and options may make it more difficult to effectuate a business
combination or increase the cost of the target business. Additionally, the
sale,
or even the possibility of sale, of the shares underlying the warrants and
options could have an adverse effect on the market price for our securities
or
on our ability to obtain future public financing. If and to the extent these
warrants and options are exercised, stockholders may experience dilution to
their holdings.
If
our initial stockholders exercise their registration rights, it may have an
adverse effect on the market price of our common stock and the existence of
theses rights may make it more difficult to effect a business combination.
Our
initial stockholders are entitled to demand that we register the resale of
their
shares of common stock at any time after the date on which their shares are
released from escrow. If our initial stockholders exercise their registration
rights with respect to all of their shares of common stock, then there will
be
an additional 1,000,000 shares of common stock eligible for trading in the
public market. The presence of this additional number of shares of common stock
eligible for trading in the public market may have an adverse effect on the
market price of our securities. In addition, the existence of these rights
may
make it more difficult to effectuate a business combination, or may increase
the
cost of the target business, as the stockholders of the target business may
be
discouraged from entering into a business combination with us or will request
a
higher price for their securities as a result of these registration rights
and
the potential future effect their exercise may have on the trading market for
our securities.
If
we
are deemed to be an investment company, we may be required to institute
burdensome compliance requirements and our activities may be restricted.
If
we are
deemed to be an investment company under the Investment Company Act of 1940,
we
may have imposed upon us burdensome requirements, including:
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•
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registration
as an investment company;
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|
•
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|
adoption
of a specific form of corporate structure; and
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|
•
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|
reporting,
record keeping, voting, proxy and disclosure requirements and other
rules
and regulations.
|
We
do not
believe that our anticipated principal activities will subject us to the
Investment Company Act of 1940. To this end, the proceeds held in trust have
only been invested by the trust agent in “government securities” with specific
maturity dates. By restricting the investment of the proceeds to these
instruments, we intend to meet the requirements for the exemption provided
in
Rule 3a-1 promulgated under the Investment Company Act of 1940. If we were
deemed to be subject to the act, compliance with these additional regulatory
burdens would require additional expense that we have not allotted for.
We
may experience volatility in earnings due to how we are required to account
for
our warrants.
Under
EITF No. 00-19, “Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in,
a
Company’s Own Stock” (EITF
No.
00-19), the fair value of the warrants issued as part of the units issued in
our
initial public offering must be reported as a liability. The warrant agreement
provides for us to register the shares underlying the warrants and is silent
as
to the penalty to be incurred in the absence of our ability to deliver
registered shares to the warrant holders upon warrant exercise. Under EITF
No.
00-19, we are required to assume that this situation could give rise to us
ultimately having to net-cash settle the warrants, thereby necessitating the
treatment of the warrants as a liability. Further, EITF No. 00-19 requires
us to
record the warrant liability at each reporting date at its then estimated fair
value, with any changes being recorded through our statement of operations
as
other income/expense. The warrants will continue to be reported as a liability
until such time that they are exercised, expire, or we are otherwise able to
modify the registration rights agreement to remove the provisions which require
this treatment. As a result, we could experience volatility in our net income
due to changes that occur in the value of the warrant liability at each
reporting date.
We
maintain our executive offices at 3000 Sand Hill Road, Building 1, Suite 240,
Menlo Park, California 94025. The cost for this space is included in the $7,500
per-month fee Sand Hill Security, LLC charges us for general and administrative
services pursuant to a letter agreement between us and Sand Hill Security,
LLC.
We believe, based on rents and fees for similar services in the Menlo Park,
California metropolitan area, that the fee charged by Sand Hill Security, LLC
is
at least as favorable as we could have obtained from an unaffiliated person.
We
consider our current office space adequate for our current
operation.
We
are
not presently a party to any pending legal proceeding.
Item
4. Submission of Matters to a Vote of Security
Holders
There
were no matters for submission to a vote of security holders during the fourth
quarter ended December 31, 2005.
Item
5. Market for Common Equity and Related
Stockholder Matters
The
units, common stock and warrants are listed on the OTC
Bulletin Board under the symbols SHQCU, SHQC and SHQCW, respectively. The
following table indicates the quarterly high and low bid price for the units,
common stock and warrants on the OTC Bulletin Board for the periods indicated
since such units began trading on July 27, 2004 and common stock and warrants
began trading on August 24, 2004. Such inter-dealer quotations do not
necessarily represent actual transactions, and do not reflect retail mark-ups,
mark-downs or commissions.
OTC
BULLETIN
BOARD
BID
CLOSING PRICE
|
|
Common
Stock
|
|
Warrants
|
|
Units
|
|
Quarter
Ended
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
March
31, 2005
|
|
$
|
5.25
|
|
$
|
4.80
|
|
$
|
0.95
|
|
$
|
0.55
|
|
$
|
7.25
|
|
$
|
6.00
|
|
June
30, 2005
|
|
$
|
5.47
|
|
$
|
4.91
|
|
$
|
0.96
|
|
$
|
0.56
|
|
$
|
7.25
|
|
$
|
6.00
|
|
September
30, 2005
|
|
$
|
5.50
|
|
$
|
5.10
|
|
$
|
1.60
|
|
$
|
0.75
|
|
$
|
8.51
|
|
$
|
6.45
|
|
December
31, 2005
|
|
$
|
5.50
|
|
$
|
5.10
|
|
$
|
1.70
|
|
$
|
0.77
|
|
$
|
8.80
|
|
$
|
6.60
|
|
As
of
December 31, 2005, we had 1 holder of record of our units, 8 holders of
record of our common stock, and 1 holder of record of our warrants.
We
have
not paid any dividends on our common stock to date and do not intend to pay
dividends in the foreseeable future, but intend to retain earnings for future
growth.
Equity
Compensation Plan
The
following table provides information as of December 31, 2005, about our common
stock that may be issued upon the exercise of options, warrants and rights
under
all of our existing equity compensation plans (including individual
arrangements):
Plan
Category
|
|
Number
of securities to be
issued
upon exercise of
outstanding
options,
warrants
and rights
(a)
|
|
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights
(b)
|
|
Number
of securities remaining
available
for future issuance under
equity
compensation plans
(excluding
securities reflected in
column
(a))
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Equity
compensation plans not approved by security holders
|
|
|
60,000
|
|
$
|
4.75
|
|
|
40,000
|
|
Total
|
|
|
60,000
|
|
$
|
4.75
|
|
|
40,000
|
|
In
December, 2004, the Board of Directors of the Company authorized the Company
to
reserve 100,000 shares of common stock for issuance pursuant to the exercise
of
stock options to purchase shares of common stock at an exercise price of $4.75
per share to be granted to certain individuals acting as advisors to the
Company. In January, 2005, the Company granted options to purchase an aggregate
of 60,000 shares of common stock at an exercise price of $4.75 per share to
Robert Medrano, John Garvey, Lou Ryan and Raj Dhingra who have acted as advisors
to the Company. These options will vest 50% one year from the grant of the
option and 50% two years from the grant of the option and are exercisable for
a
period of five years from the date on which the options were granted; however,
the options will not be exercisable prior to the consummation of a business
combination by the Company.
Recent
Sales of Unregistered Securities
In
April
2004, we sold the following shares of Common Stock without registration under
the Securities Act:
Stockholders
|
|
Number of Shares
|
|
Humphrey
Polanen
|
|
|
459,441
|
|
Sand
Hill Security, LLC
|
|
|
100,000
|
|
Keith
Walz
|
|
|
174,825
|
|
Scott
Broomfield
|
|
|
174,825
|
|
Cary
Grossman
|
|
|
48,951
|
|
Dan
Johnson
|
|
|
20,979
|
|
Alberto
Micalizzi
|
|
|
20,979
|
|
Such
shares were issued in connection with our organization pursuant to the exemption
from registration contained in Section 4(2) of the Securities Act as they were
sold in a transaction not involving a public offering. The shares were sold
at
purchase prices of $0.025 per share.
On
July
30, 2004, we closed the Offering of 3,600,000 Units, with each Unit consisting
of one share of our common stock and two warrants, each to purchase one share
of
our common stock at an exercise price of $5.00 per share. The Units were sold
at
an offering price of $6.00 per Unit, generating gross proceeds of $21,600,000.
Additionally, the underwriters’ purchased 510,000 units, pursuant to the
exercise of the over-allotment option granted in connection with the Offering,
generating gross proceeds of $3,060,000. The representatives of the underwriters
in the Offering were I-Bankers Securities Incorporated and Newbridge Securities
Corporation. The securities sold in the Offering were registered under the
Securities Act pursuant to a registration statement on Form S-1 (No.
333-114861). The Securities and Exchange Commission declared the registration
statement effective on July 26, 2004.
We
paid a
total of $2,250,900 in underwriting discounts and commissions, including
$648,000 for the underwriters’ non-accountable expense allowance, and
approximately $386,000 for other costs and expenses related to the
Offering.
After
deducting the underwriting discounts and commissions and the Offering expenses,
the total net proceeds to us from the Offering were approximately $22,022,462,
of which $20,961,000 was deposited into a trust fund and the remaining proceeds
are available to be used to provide for business, legal and accounting due
diligence on prospective business combinations and continuing general and
administrative expenses. From inception through December 31, 2005, we have
had negative cash flow from operations of $948,866 from the net proceeds that
were not deposited into the trust fund to pay or accrue general and
administrative expenses. The net proceeds deposited into the trust fund remain
on deposit in the trust fund and have earned $780,492 in interest through
December 31, 2005.
Item
6. Management’s Discussion and Analysis or Plan
of Operation
The
following discussion should be read in conjunction with the Financial
Statements, including the notes thereto, included elsewhere in this
report.
We
were
formed on April 15, 2004, to serve as a vehicle to effect a merger, capital
stock exchange, asset acquisition or other similar business combination with
an
operating business in the IT security industry. We intend to utilize cash
derived from the proceeds of the Offering, our capital stock, debt or a
combination of cash, capital stock and debt, in effecting a business
combination. We consummated the Offering on July 30, 2004.
Operations
commenced July 31, 2004. The net loss of $49,907
reported for the period from April 15, 2004 (inception) through
December 31, 2004 consists primarily of $51,408 for director and officer
liability and other insurance, $37,500 for facilities, $32,500 for professional
fees, $34,360 for travel and travel related costs, and $36,178 for other
operating expenses. Total interest income was $142,039.
As
of
December 31, 2005, the Company had cash of $73,596, and treasury securities
in
our trust account (including interest) of $21,730,543. From inception through
December 31, 2005, we have had negative cash flow from operations of $948,866
from the net proceeds that were not deposited into the trust fund. The
cumulative net loss of $1,595,121 reported for the period from April 15, 2004
(inception) through December 31, 2005 consists primarily of $174,772 for
director and officer liability and other insurance, $127,500 for facilities,
$562,657 for professional fees, $147,052 for travel and travel related costs,
$103,733 for taxes, and $183,079 for other operating expenses and warrant
liability expense of $1,076,820. The net proceeds deposited into the trust
fund
remain on deposit in the trust fund and have earned $780,492 in interest through
December 31, 2005.
Under
EITF No. 00-19, “Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in,
a
Company’s Own Stock” (“EITF
No. 00-19), the fair value of the warrants issued as part of the Units have
been
reported as a liability. The warrant agreement provides for the Company to
register the shares underlying the warrants and is silent as to the penalty
to
be incurred in the absence of the Company’s ability to deliver registered shares
to the warrant holders upon warrant exercise. Under EITF No. 00-19, the Company
is required to assume that this situation could give rise to it ultimately
having to net-cash settle the warrants, thereby necessitating the treatment
of
the warrants as a liability. Further, EITF No. 00-19 requires the Company to
record the warrant liability at each reporting date at its then estimated fair
value, with any changes being recorded through the Company’s statement of
operations as other income/expense. The warrants will continue to be reported
as
a liability until such time that they are exercised, expire, or the Company
is
otherwise able to modify the registration rights agreement to remove the
provisions which require this treatment. As a result, the Company could
experience volatility in its net income due to changes that occur in the value
of the warrant liability at each reporting date.
The
Company had previously issued financial statements which did not present the
warrants as a liability. The accompanying financial statements have been
restated to correct this error.
For
the
twelve months ended December 31, 2005, the Company earned interest income of
$638,453. Sand Hill incurred operating expenses of approximately $1,106,847
for
that same period. These expenses consist primarily of $123,364 for director
and
officer liability and other insurance, $90,000 for facilities, $530,157 for
professional fees, $112,692 for travel and travel related costs, $103,733 for
taxes, and $146,901 for other operating expenses and costs associated with
being
a public company.
Over
the
24-month period subsequent to the consummation of the Offering, the Company
had
anticipated approximately $250,000 of expenses for legal, accounting and other
expenses related to the due diligence investigations, and structuring and
negotiating of a business combination, $180,000 for the administrative fee
payable to Sand Hill Security, LLC ($7,500 per month for two years), $100,000
of
expenses for the due diligence and investigation of a target business, $75,000
of expenses in legal and accounting fees relating to our SEC reporting
obligations and $475,000 for general working capital to be used for
miscellaneous expenses and reserves, including approximately $180,000 for
director and officer liability insurance premiums, inclusive of the amounts
set
out in the preceding paragraph. We do
not
believe that the Company has sufficient available cash resources outside of
the
trust fund to operate until the merger is consummated, without accruing for
certain professional expenses, such as legal and accounting costs and,
therefore, we may
need
to raise additional funds through a private offering of debt or equity
securities if such funds are required to consummate the business combination
with St. Bernard. Anticipating
closure of the merger by the end of May, 2006, Sand Hill estimates total costs
to consummation of approximately $15,000 for the administrative fee payable
to
Sand Hill Security LLC, $10,000 for accounting fees relating to quarterly SEC
reporting obligations, $40,000 for legal costs related to the joint proxy
statement/prospectus and registration statement on Form S-4, $25,000 in
printing costs for the joint proxy statement/prospectus and registration
statement on Form S-4, plus an additional $30,000 in travel costs, investor
relations costs and general corporate working capital requirements. This is
a
total estimate of $120,000 to operate until the consummation of a business
combination. To the extent that these costs exceed amounts available outside
the
trust fund, trust fund assets will be used to fund the excess costs of the
merger if the merger is completed and the trust fund assets are released to
the
Company.
On
October 26, 2005 we entered into a definitive Agreement and Plan of Merger,
as
amended, with St. Bernard. Pursuant to the Merger Agreement, Sand Hill
Merger Corp., a Delaware corporation and wholly-owned subsidiary of the Company
will merge with and into St. Bernard and St. Bernard will be the
surviving corporation and become a wholly-owned subsidiary of the Company.
At
the effective time and as a result of the merger, the holders of
St. Bernard common stock will receive, subject to a working capital
adjustment, approximately 9.76 million shares of our common stock and the
holders of St. Bernard options and warrants will receive options and
warrants for approximately 1.12 million shares of our common stock.
For
a
more complete discussion of St. Bernard and our proposed business combination,
including the risks that are applicable to us with respect to our acquisition
of
St. Bernard see our current report on Form 8-K filed with the Securities and
Exchange Commission on October 27, 2005, as well as our registration statement
on Form S-4 (No. 333-130412).
We
are
obligated, commencing July 26, 2004, to pay to Sand Hill Security, LLC, an
affiliate of our directors and executive officers, a monthly fee of $7,500
for
general and administrative services. In addition, in April 2004, Sand Hill
Security, LLC advanced an aggregate of $40,000 to us, on a non-interest bearing
basis, for payment of offering expenses on our behalf. This amount was repaid
in
August 2004 out of the proceeds of the Offering.
Off-balance
Sheet Arrangements
There
were no off-balance sheet arrangements during the period from April 15,
2004 (inception) through December 31, 2005, that have or are reasonably
likely to have a current or future effect on our financial condition, changes
in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures, or capital resources that is material to our
investors.
Report
of Independent Certified Public Accounts
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors of
Sand
Hill
IT Security Acquisition Corp.
We
have
audited the accompanying balance sheets of Sand Hill IT Security Acquisition
Corp. (a corporation in the development stage) as of December 31, 2004 and
2005,
and the related statement of operations, stockholders’ equity and cash flows for
the period from April 15, 2004 (inception) to December 31, 2004, and for the
year ended December 31, 2005. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with auditing standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company has
determined that it is not required to have, nor were we engaged to perform,
an
audit of its internal control over financial reporting. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provides a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Sand Hill IT Security Acquisition
Corp. at December 31, 2004 and 2005, and the results of its operations and
their
cash flows for the period from April 15, 2004 (inception) to December 31, 2004,
and for the year ended December 31, 2005, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in note 10 to the financial
statements, the Company has suffered significant losses and has a working
capital deficit (net of Treasury Bill Held in Trust) of $169,570 at December
31,
2005 and does not have any remaining due diligence funds to satisfy its current
obligations, which matters raise substantial doubt about its ability to continue
as a going concern. Management’s plans in regard to these matters are also
described in note 10. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As
discussed in Note 1 to the financial statements, the Company has restated the
accompanying financial statements to reflect the warrants outstanding in
connection with the Company’s initial public offering as a
liability.
/s/
HEIN
& ASSOCIATES LLP
March
14,
2006 (except for paragraphs 4, 5 and 6 of Note 1, to which the date is June
19,
2006)
Houston,
Texas
SAND
HILL IT SECURITY ACQUISITION CORP.
(A
Corporation in the Development Stage)
BALANCE
SHEETS
ASSETS
|
|
Restated
December
31, 2005
|
|
Restated
December
31, 2004
|
|
Current
assets:
|
|
|
|
|
|
Cash
|
|
$
|
73,596
|
|
$
|
783,133
|
|
Treasury
bill held in trust
|
|
|
21,730,543
|
|
|
21,100,510
|
|
Prepaid
expenses
|
|
|
11,789
|
|
|
132,131
|
|
Total
current assets
|
|
|
21,815,928
|
|
|
22,015,774
|
|
Total
Assets
|
|
$
|
21,815,928
|
|
$
|
22,015,774
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
254,955
|
|
$
|
15,772
|
|
Warrant
liability
|
|
$
|
6,419,820
|
|
$
|
5,343,000
|
|
Total
Current Liabilities
|
|
$
|
6,674,775
|
|
$
|
5,358,772
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
$
|
6,674,775
|
|
$
|
5,358,772
|
|
|
|
|
|
|
|
|
|
Common
stock subject to shareholder’s right to conversion; 821,589
shares at conversion value
|
|
|
4,343,935
|
|
|
4,217,992
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value
Authorized
5,000,000 shares; none issued
|
|
|
—
|
|
|
|
|
Common
stock, $0.01 par value
|
|
|
|
|
|
|
|
Authorized
50,000,000 shares
|
|
|
|
|
|
|
|
Issued
and outstanding, 5,110,000 (including the 821,589 subject to conversion)
and 1,000,000 shares, respectively
|
|
|
42,884
|
|
|
42,884
|
|
Additional
paid-in capital
|
|
|
12,349,455
|
|
|
12,446,033
|
|
Deficit
accumulated during the development stage
|
|
|
(1,595,121
|
)
|
|
(49,907
|
)
|
Total
Stockholders’ Equity
|
|
|
10,797,218
|
|
|
12,439,010
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
21,815,928
|
|
$
|
22,015,774
|
|
SAND
HILL IT SECURITY ACQUISITION CORP.
(A
Corporation in the Development Stage)
STATEMENTS
OF OPERATION
|
|
Restated
Twelve
months ended
December
31, 2005
|
|
Period
from April 15, 2004 (inception) to
December
31, 2004
|
|
Restated
Period
from April 15, 2004 (inception)
to
December
31, 2005
|
|
Professional
Fees
|
|
$
|
(530,157
|
)
|
$
|
(32,500
|
)
|
$
|
(562,657
|
)
|
Facilities
|
|
|
(90,000
|
)
|
|
(37,500
|
)
|
|
(127,500
|
)
|
Director
and Officer Insurance
|
|
|
(123,364
|
)
|
|
(51,408
|
)
|
|
(174,772
|
)
|
Travel,
Lodging and Meals
|
|
|
(112,692
|
)
|
|
(34,360
|
)
|
|
(147,052
|
)
|
State
Franchise Taxes.
|
|
|
(103,733
|
)
|
|
|
|
|
(103,733
|
)
|
Other
Operating Expense
|
|
|
(146,901
|
)
|
|
(36,178
|
)
|
|
(183,079
|
)
|
Operating
loss
|
|
|
(1,106,847
|
)
|
|
(191,946
|
)
|
|
(1,298,793
|
)
|
Interest
income
|
|
|
638,453
|
|
|
142,039
|
|
|
780,492
|
|
Warrant
liability expense
|
|
|
(1,076,820
|
)
|
|
|
|
|
(1,076,820
|
)
|
Net
loss
|
|
$
|
(1,545,214
|
)
|
$
|
(49,907
|
)
|
$
|
(1,595,121
|
)
|
Weighted
Average Shares Outstanding
|
|
|
5,110,000
|
|
|
3,468,784
|
|
|
4,433,893
|
|
Net
Loss Per Share (Basic and Diluted)
|
|
$
|
(0.30
|
)
|
$
|
(0.01
|
)
|
$
|
(0.36
|
)
|
SAND
HILL IT SECURITY ACQUISITION CORP.
(A
Corporation in the Development Stage)
STATEMENTS
OF CASH FLOW
|
|
Restated
For
the twelve months ending December 31, 2005
|
|
Restated
Period
from April 15, 2004 (inception) to December 31,
2004
|
|
Restated
Period
from April 15, 2004 (inception) to December 31,
2005
|
|
CASH
FLOW FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,545,214
|
)
|
$
|
(49,907
|
)
|
$
|
(1,595,121
|
)
|
Stock
compensation related to issuance of Advisory Board options
|
|
|
29,364
|
|
|
2,447
|
|
|
31,811
|
|
Accretion
of treasury bill
|
|
|
(630,033
|
)
|
|
(75,510
|
)
|
|
(705,543
|
)
|
Decrease
(Increase) in prepaid expenses
|
|
|
120,342
|
|
|
(132,131
|
)
|
|
(11,788
|
)
|
Increase
in accounts payable and accrued expenses
|
|
|
239,183
|
|
|
15,772
|
|
|
254,955
|
|
Increase
in warrant liability
|
|
|
1,076,820
|
|
|
|
|
|
1,076,820
|
|
Net
cash provided by (used) in operating activities
|
|
|
(709,536
|
)
|
|
(239,329
|
|
|
(948,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Purchase
of treasury bill in trust account
|
|
|
|
|
|
(21,025,000
|
)
|
|
(21,025,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
|
|
|
(21,025,000
|
)
|
|
(21,025,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock to initial stockholders
|
|
|
|
|
|
25,000
|
|
|
25,000
|
|
Gross
proceeds from public offering
|
|
|
|
|
|
24,660,000
|
|
|
24,660,000
|
|
Costs
of public offering
|
|
|
|
|
|
(2,637,538
|
)
|
|
(2,637,538
|
)
|
Proceeds
from stockholder loan
|
|
|
|
|
|
40,000
|
|
|
40,000
|
|
Repayment
of stockholder loan
|
|
|
|
|
|
(40,000
|
)
|
|
(40,000
|
)
|
Net
cash provided by financing activities
|
|
|
|
|
|
22,047,462
|
|
|
22,047,462
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
|
|
(709,537
|
)
|
|
783,133
|
|
|
73,596
|
|
CASH
AT BEGINNING OF PERIOD
|
|
|
783,133
|
|
|
|
|
|
|
|
CASH
AT END OF PERIOD
|
|
$
|
73,596
|
|
$
|
783,133
|
|
$
|
73,596
|
|
|
|
|
|
|
|
|
|
|
|
|
SAND
HILL IT SECURITY ACQUISITION CORP.
(A
Corporation in the Development Stage)
STATEMENT
OF STOCKHOLDERS’ EQUITY
Restated
|
|
Preferred
Stock
|
|
Common
Stock
Shares
|
|
Common
Stock
Amount
|
|
Additional
Paid-In
Capital
|
|
Deficit
Accumulated during the Development
Stage
|
|
Total
|
|
Balance,
April 15, 2004 (inception)
|
|
$
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of 1,000,000 shares of common stock to initial stockholders at $0.025
per
share
|
|
|
|
|
|
1,000,000
|
|
$
|
10,000
|
|
$
|
15,000
|
|
|
|
|
$
|
25,000
|
|
Sale
of 3,600,000 shares of common stock to public stockholders at $6.00
per
share, net of underwriters’ discount and offering expenses of
$2,637,538
|
|
|
|
|
|
3,600,000
|
|
$
|
36,000
|
|
$
|
18,926,462
|
|
|
|
|
$
|
18,962,462
|
|
Sale
of 510,000 shares of common stock to underwriters at $6.00 per
share
|
|
|
|
|
|
510,000
|
|
$
|
5,100
|
|
$
|
3,054,900
|
|
|
|
|
$
|
3,060,000
|
|
Amortization
of Advisory Board Compensation
|
|
|
|
|
|
|
|
|
|
|
$
|
2,447
|
|
|
|
|
$
|
2,447
|
|
Reduction
of capital related to the warrant liability
|
|
|
|
|
|
|
|
|
|
|
|
(5,343,000
|
)
|
|
|
|
|
(5,343,000
|
)
|
Reduction
of capital related to the common stock subject to possible conversion
(821,589
shares at conversion value)
|
|
|
|
|
|
|
|
$
|
(8,216
|
)
|
$
|
(4,194,682
|
)
|
|
|
|
$
|
(4,202,898
|
)
|
Increase
in value of shares of common stock subject to possible
conversion
|
|
|
|
|
|
|
|
|
|
|
$
|
(15,094
|
)
|
|
|
|
$
|
(15,094
|
)
|
Net
loss for the period April 15, 2004 (inception)
to December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(49,907
|
)
|
$
|
(49,907
|
)
|
Balance,
December 31, 2004
|
|
$
|
|
|
|
5,110,000
|
|
$
|
42,884
|
|
$
|
12,446,033
|
|
$
|
(49,907
|
)
|
$
|
12,439,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of Advisory Board Compensation
|
|
|
|
|
|
|
|
|
|
|
$
|
29,364
|
|
|
|
|
$
|
29,364
|
|
Increase
in value of shares of common stock subject to possible
conversion
|
|
|
|
|
|
|
|
|
|
|
$
|
(125,942
|
)
|
|
|
|
$
|
(125,942
|
)
|
Net
loss for twelve months ending
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,545,214
|
)
|
$
|
(1,545,214
|
)
|
Balance,
December 31, 2005
|
|
$
|
|
|
|
5,110,000
|
|
$
|
42,884
|
|
$
|
12,349,455
|
|
$
|
(1,595,121
|
)
|
$
|
10,797,218
|
|
SAND
HILL IT SECURITY ACQUISITION CORP.
(A
Corporation in the Development Stage)
NOTES
TO FINANCIAL STATEMENTS
1. ORGANIZATION,
BUSINESS OPERATIONS
Sand
Hill
IT Security Acquisition Corp. was incorporated in Delaware on April 15, 2004
as
a blank check company whose objective is to merge with or acquire an operating
business in the IT Security industry. The Company’s initial stockholders’
purchased 1,000,000 shares of common stock, $0.01 par value, for $25,000 on
April 20, 2004.
The
registration statement for the Company’s initial public offering (the
“Offering”) was declared effective on July 26, 2004. The Company consummated the
Offering on July 30, 2004 and received proceeds, net of the underwriters’
discount of $22,022,462, which includes proceeds of $2,861,100 received from
the
exercise by the underwriters of the over allotment option. The Company’s
management has broad discretion with respect to the specific application of
the
net proceeds of the Offering, although substantially all of the net proceeds
of
the Offering are intended to be generally applied toward consummating a merger
with or acquisition of an operating business in the IT security industry
(“Business Combination”). There is no assurance that the Company will be able to
successfully affect a Business Combination. A treasury bill of $21,025,000
was
purchased at a discount for $20,961,000 with funds initially deposited in an
interest bearing trust account (“Trust Fund”) and is being held until the
earlier of (i) the consummation of its first Business Combination or (ii)
liquidation of the Company. Under the agreement governing the Trust Fund, funds
may only be invested in United States government securities with a maturity
of
180 days or less. The trust fund balance has been invested in a United States
Treasury Bill, which is accounted for as a trading security and is recorded
at
its market value of approximately $21,730,543 at December 31, 2005. The
excess of market value over cost is included in interest income in the
accompanying Statement of Operations. The remaining proceeds of the Offering
may
be used to pay for business, legal and accounting due diligence on prospective
mergers or acquisitions and continuing general and administrative
expenses.
Under
EITF No. 00-19, “Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in,
a
Company’s Own Stock” (“EITF
No. 00-19”), the fair value of the warrants issued as part of the Units have
been reported as a liability. The warrant agreement provides for the Company
to
register the shares underlying the warrants and is silent as to the penalty
to
be incurred in the absence of the Company’s ability to deliver registered shares
to the warrant holders upon warrant exercise. Under EITF No. 00-19, the Company
is required to assume that this situation could give rise to it ultimately
having to net-cash settle the warrants, thereby necessitating the treatment
of
the warrants as a liability. Furthermore, EITF No. 00-19 requires the Company
to
record the warrant liability at each reporting date at its then estimated fair
value, with any changes being recorded through the Company’s statement of
operations as other income/expense. The warrants will continue to be reported
as
a liability until such time that they are exercised, expire, or the Company
is
otherwise able to modify the registration rights agreement to remove the
provisions which require this treatment.
The
fair
value of the warrant liability in the accompanying balance sheet has been
determined using the trading value of the warrants. The value assigned to the
fair value of the warrant liability at July 30, 2004 (date of issuance),
December 31, 2004, and December 31, 2005 was $5,343,000, $5,343,000, and
$6,419,820, respectively.
Amounts
reported as warrant liability expense in the accompanying statement of
operations resulting from the change in valuation of the warrant liability
was
$0 and $1,076,820 for 2004 and 2005, respectively.
The
Company had previously issued financial statements which did not present the
warrants as a liability. The accompanying financial statements have been
restated to correct this error. The impact of the correction of this error
in
previously reported financial statements is as follows:
2004
|
|
As
of September 30, 2004
|
|
As
of December 31, 2004
|
|
|
|
As
Previously Reported
|
|
As
Restated
|
|
As
Previously Reported
|
|
As
Restated
|
|
Total
Assets
|
|
$
|
22,045,626
|
|
$
|
22,045,626
|
|
$
|
22,015,774
|
|
$
|
22,015,774
|
|
Total
Liabilities
|
|
$
|
13,772
|
|
|
4,452,572
|
|
$
|
15,772
|
|
$
|
5,358,772
|
|
Common
Stock Subject to Conversion
|
|
|
4,199,392
|
|
|
4,199,392
|
|
$
|
4,217,992
|
|
$
|
4,217,992
|
|
Stockholders’
Equity
|
|
$
|
17,832,472
|
|
|
13,393,672
|
|
$
|
17,782,010
|
|
$
|
12,439,010
|
|
|
|
For
the Three-Month
Period
Ended September 30, 2004
|
|
For
the Three-Month
Period
Ended December
31, 2004
|
|
|
|
As
Previously
Reported
|
|
As
Restated
|
|
As
Previously
Reported
|
|
As
Restated
|
|
Warrant
liability Income (Expense)
|
|
$
|
—
|
|
$
|
904,200
|
|
$
|
—
|
|
$
|
(904,200
|
)
|
Net
Income (Loss)
|
|
$
|
(3,680
|
)
|
$
|
900,520
|
|
$
|
(46,227
|
)
|
$
|
(950,427
|
)
|
Net
Income Per Share-Basic
|
|
$
|
0.00
|
|
$
|
0.24
|
|
$
|
(0.01
|
)
|
$
|
(0.19
|
)
|
Net
Income Per Share-Diluted
|
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
(0.01
|
)
|
$
|
(0.19
|
)
|
2005
|
|
As
of March 31, 2005
|
|
As
of June 30, 2005
|
|
As
of September 30, 2005
|
|
As
of December 31, 2005
|
|
|
|
As
Previously Reported
|
|
As
Restated
|
|
As
Previously Reported
|
|
As
Restated
|
|
As
Previously Reported
|
|
As
Restated
|
|
As
Previously Reported
|
|
As
Restated
|
|
Total
Assets
|
|
$
|
22,019,364
|
|
$
|
22,019,364
|
|
$
|
21,950,544
|
|
$
|
21,950,544
|
|
$
|
21,904,815
|
|
$
|
21,904,815
|
|
$
|
21,815,928
|
|
$
|
21,815,928
|
|
Total
Liabilities
|
|
$
|
60,270
|
|
$
|
4,992,270
|
|
$
|
92,522
|
|
$
|
6,421,922
|
|
$
|
145,910
|
|
$
|
11,407,310
|
|
$
|
254,955
|
|
$
|
6,674,775
|
|
Common
Stock Subject to Conversion
|
|
$
|
4,241,936
|
|
$
|
4,241,936
|
|
$
|
4,268,649
|
|
$
|
4,268,649
|
|
$
|
4,304,016
|
|
$
|
4,304,016
|
|
$
|
4,343,935
|
|
$
|
4,343,935
|
|
Stockholders'
Equity
|
|
$
|
17,717,158
|
|
$
|
12,785,158
|
|
$
|
17,589,373
|
|
$
|
11,259,973
|
|
$
|
17,454,889
|
|
$
|
6,193,489
|
|
$
|
17,217,038
|
|
$
|
10,797,218
|
|
|
|
For
the Three Months Ended
March
31, 2005
|
|
For
the Three Months Ended
June
30, 2005
|
|
For
the Three Months Ended September 30, 2005
|
|
For
the Three Months Ended December 31, 2005
|
|
|
|
As
Previously Reported
|
|
As
Restated
|
|
As
Previously Reported
|
|
As
Restated
|
|
As
Previously Reported
|
|
As
Restated
|
|
As
Previously Reported
|
|
As
Restated
|
|
Warrant
liability Income (Expense)
|
|
$
|
—
|
|
$
|
411,000
|
|
$
|
|
|
$
|
(1,397,400
|
)
|
$
|
|
|
$
|
(4,932,000
|
)
|
$
|
|
|
$
|
4,841,580
|
|
Net
Income (Loss)
|
|
$
|
(48,250
|
)
|
$
|
362,750
|
|
$
|
(108,413
|
)
|
$
|
(1,505,813
|
)
|
$
|
(107,458
|
)
|
$
|
(5,039,458
|
)
|
$
|
(204,274
|
)
|
$
|
(4,637,306
|
)
|
Net
Income (Loss) Per Share-Basic
|
|
$
|
(0.01
|
)
|
$
|
0.10
|
|
$
|
(0.02
|
)
|
$
|
(0.29
|
)
|
$
|
(0.02
|
)
|
$
|
(0.99
|
)
|
$
|
(0.04
|
)
|
$
|
0.91
|
|
Net
Income (Loss) Per Share-Diluted
|
|
$
|
(0.01
|
)
|
$
|
0.00
|
|
$
|
(0.02
|
)
|
$
|
(0.29
|
|
$
|
(0.02
|
)
|
$
|
(0.99
|
)
|
$
|
(0.04
|
)
|
$
|
(0.02
|
)
|
|
|
For
the Six Months Ended
June
30, 2005
|
|
For
the Nine Months Ended
September
30, 2005
|
|
|
|
As
Previously
Reported
|
|
As
Restated
|
|
As
Previously
Reported
|
|
As
Restated
|
|
Warrant
liability Income (Expense)
|
|
$
|
—
|
|
$
|
(986,400
|
)
|
$
|
—
|
|
$
|
(5,918,400
|
)
|
Net
Income (Loss)
|
|
$
|
(156,663
|
)
|
$
|
(1,143,063
|
)
|
$
|
(263,121
|
)
|
$
|
(6,181,521
|
)
|
Net
Income (Loss) Per Share-Basic
|
|
$
|
(0.03
|
)
|
$
|
(0.22
|
)
|
$
|
(0.05
|
)
|
$
|
(1.21
|
)
|
Net
Income (Loss) Per Share-Diluted
|
|
$
|
(0.03
|
)
|
$
|
(0.22
|
)
|
$
|
(0.05
|
)
|
$
|
(1.21
|
)
|
|
|
Year
Ended December 31, 2004
|
|
Year
Ended December 31, 2005
|
|
|
|
As
Previously
Reported
|
|
As
Restated
|
|
As
Previously
Reported
|
|
As
Restated
|
|
Warrant
liability (Expense)
|
|
$
|
—
|
|
$
|
|
|
$
|
|
|
$
|
(1,076,820
|
)
|
Net
Loss
|
|
$
|
(49,907
|
)
|
$
|
(49,907
|
)
|
$
|
(468,394
|
)
|
$
|
(1,545,214
|
)
|
Net
Loss Per Share-Basic
|
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.09
|
)
|
$
|
(0.30
|
)
|
Net
Income (Loss) Per Share-Diluted
|
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.09
|
)
|
$
|
(0.30
|
)
|
The
Company, now that it has signed a merger agreement with St. Bernard Software,
will submit this transaction for stockholder approval. In the event that
stockholders owning 20% or more of the outstanding stock excluding, for this
purpose, those persons who were stockholders immediately prior to the Offering,
vote against the Business Combination, the Business Combination will not be
consummated. All of the Company’s stockholders prior to the Offering, including
all of the officers and directors of the Company (“Initial Stockholders”), have
agreed to vote their founding shares of common stock in accordance with the
vote
of the majority in interest of all other stockholders of the Company (“Public
Stockholders”) with respect to a Business Combination. After consummation of the
Company’s first Business Combination, these voting safeguards no longer apply.
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
the amount in the Trust Fund as of the record date for determination of
stockholders entitled to vote on the Business Combination divided by the number
of shares of common stock held by Public Stockholders at the consummation of
the
Offering. Accordingly, Public Stockholders holding 19.99% 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 Fund computed
without regard to the shares held by Initial Stockholders.
The
Company’s Certificate of Incorporation provides for the mandatory liquidation of
the Company, without stockholder approval, in the event that the Company does
not consummate a Business Combination within 18 months from the date of the
consummation of the Offering (January 30, 2006), or 24 months from the
consummation of the Offering (July 30, 2006) if certain extension criteria
have been satisfied. The Company met this first criterion by signing a
definitive merger agreement with St. Bernard on October 26, 2005. 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 price per share in the Offering (assuming
no
value is attributed to the Warrants contained in the Units to be offered in
the
Offering as described in Note 3).
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
financial statements include the accounts of the Company. The Company commenced
operations effective July 31, 2004. All activity through July 30, 2004, is
related to the Company’s formation and preparation of the Offering.
Certain
reclassifications have been made to prior period financial statements to conform
with current period presentations.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingencies at the date of the financial statements and the reported amounts
of expenses during the reporting period. Actual amounts could differ from those
estimates.
Cash
Equivalents
The
Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to credit risk consist of
cash
and cash equivalents. The Company’s policy is to limit the amount of credit
exposure to any one financial institution and place investments with financial
institutions evaluated as being creditworthy, or in short-term money market
funds which are exposed to minimal interest rate and credit risk.
Federal
Income Taxes
The
Company recognizes deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Company’s financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement carrying amounts and the tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse. At December 31, 2005, a deferred income tax asset of
approximately $70,000 relating to the Company’s net operating loss is offset by
a full valuation allowance based upon a lack of earnings history for the
Company.
Franchise
Taxes
The
Company is subject to Delaware state franchise taxes which is computed under
the
Assumed Per Value Method for the year ended December 31, 2005. The Company
had $103,733 of tax expense related to these taxes.
Earnings
per Common Share
Basic
earnings per share (“EPS”) is computed by dividing net income applicable to
common stock by the weighted average common shares outstanding during the
period. Diluted EPS reflects the additional dilution for all potentially
dilutive securities such as stock warrants.
Recently
Issued Accounting Standards
On
December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) will require companies to measure
all employee stock-based compensation awards using a fair value method and
record such expense in its financial statements. In addition, the adoption
of
SFAS No. 123(R) requires additional accounting and disclosure related to the
income tax and cash flow effects resulting from share-based payment
arrangements. SFAS No. 123(R) is effective beginning January 1, 2006. The
Company does not expect the impact of applying this guidance to be material
to
its financial statements.
3. PUBLIC
OFFERING
On
July 30, 2004, the Company sold 3,600,000 units (“Units”) in a public
offering, which included granting the underwriters’ an over-allotment option to
purchase up to an additional 540,000 Units. Subsequently, the underwriters
exercised their over-allotment option and purchased an additional 510,000
shares. Each Unit consists of one share of the Company’s common stock, $0.01 par
value, and two Redeemable common stock Purchase Warrants (“Warrants”). Each
Warrant will entitle the holder to purchase from the Company one share of common
stock at an exercise price of $5.00 commencing on the later of the completion
of
a Business Combination or July 25, 2005 and expiring July 25, 2009. 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 last
sale price of the common stock is at least $8.50 per share for any 20 trading
days within a 30 trading day period ending on the third day prior to the date
on
which notice of the redemption is given. In connection with the Offering, the
Company issued an option for $100 to the underwriters’ to purchase 270,000 Units
at an exercise price of $7.50 per Unit. The Units issuable upon exercise of
this
option are identical to those included in the Offering except that exercise
price of the Warrants included in the Units will be $6.65 per
share.
The
sale
of the option has been accounted for as an equity transaction in accordance
with
Emerging Issues Task Force No. 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in a Company’s Own Stock, and
therefore has been measured at its fair value on the date of the sale in
accordance with Statements of Financial Accounting Standards No. 123 (revised
2004), Share-based Payment, which resulted in an increase in the Company’s cash
position and shareholders’ equity by the $100 proceeds from the sale. The
Company has determined based upon a trinomial model, that the estimated fair
value of the option on the date of sale would be approximately $.658 per unit
or
an aggregate of $177,660 , assuming an expected life of four years, volatility
of 11.58% and a risk-free interest rate of 4.393%. Given the parameters used
in
the computation of the fair value of the option change over time, the actual
fair value of the option on the date of sale is expected to be different from
the estimated fair value computed above.
The
volatility calculation of 11.58% is based on the latest 90 days average
volatility of the Standard and Poor’s IT sector (“Index”). Due to the fact the
Company does not have a trading history, the Company referred to the latest
90
days average volatility of the Index because management believes that the
average volatility of such index is a reasonable benchmark to use in estimating
the expected volatility of the Company’s common stock after consummation of a
business combination. Although an expected life of four years was taken into
account for purposes of assigning a fair value to this option, if the Company
does not consummate a Business Combination within the prescribed time period
and
liquidates, this option would become worthless. Pursuant to Rule 2710(g)(1)
of
the NASD Conduct Rule, the option to purchase 270,000 units is deemed to be
underwriting compensation and therefore upon exercise, the underlying shares
and
warrants are subject to a 180-day lock-up.
4. COMMITMENT
The
Company presently occupies office space provided by an Initial Stockholder.
Such
affiliate has agreed that, until the acquisition of a target business by the
Company, 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 July 31, 2004.
5. NOTE
PAYABLE
Sand
Hill
Security, LLC, an Initial Stockholder and affiliate of the officers and
directors of the Company, entered into a revolving credit agreement with the
Company in the amount of $60,000. Advances under the credit facility amounted
to
$40,000 as of July 30, 2004. The loan was repaid out of the net proceeds of
the
Offering.
6. PREFERRED
STOCK
The
Company is authorized to issue 5,000,000 shares of preferred stock, par value
$.01, with such designations, voting and other rights and preferences as may
be
determined from time to time by the Board of Directors as of December 31, 2005,
no shares of preferred stock have been issued.
7. INVESTMENTS
HELD IN TRUST
Investments
held in trust as of December 31, 2005 is comprised of a zero coupon United
States treasury bill with a face value of $21,730,543 purchased at a discount
of
99.53% due April 20, 2006.
8. EARNINGS
PER SHARE
The
following table sets forth the computation of basic and diluted earnings per
share for the year ended December 31, 2005 and for the period from April 15,
2004 (inception) to December 31, 2004.
BASIC:
|
|
2005
|
|
2004
|
|
Numerator:
Net loss
|
|
$
|
(1,545,214
|
)
|
$
|
(49,907
|
)
|
Denominator:
Average common shares outstanding
|
|
|
5,110,000
|
|
|
3,468,784
|
|
Basic
earnings per share
|
|
$
|
(0.30
|
)
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
DILUTED:
|
|
|
|
|
|
|
|
Numerator:
Net loss
|
|
$
|
(1,545,214
|
)
|
$
|
(49,907
|
)
|
Denominator:
Average common shares outstanding
|
|
|
5,110,000
|
|
|
3,468,784
|
|
Diluted
earnings per share
|
|
$
|
(0.30
|
)
|
$
|
(0.01
|
)
|
Operations
commenced subsequent to the Offering, therefore, average common shares
outstanding reflect shares issued in the Offering. No computation for diluted
earnings per share was reflected in the above table for the common stock
Purchase Warrants and the underwriters’ option to purchase an aggregate of
8,820,000 shares of common stock at $5.00 per share and $6.65 per share,
respectively, because the inclusion of such warrants would be
anti-dilutive.
9. STOCK
OPTION PLAN
On
December 1, 2004, the Board of Directors of the Company created an Advisory
Board, consisting of four independent members to advise the Company with respect
to the research and structuring of a business combination with an operating
business in the IT security industry. The Board of Directors authorized the
Company to reserve 100,000 shares of common stock for issuance pursuant to
the
exercise of stock options to purchase shares of commons stock at an exercise
price of $4.75 per share, to be granted to the initial members of the Advisory
Board. Pursuant to the terms of the stock option agreement, the options will
vest (i) 50% one year from the grant of the option and (ii) 50% two years from
the grant of the option; however, the options will not be exercisable prior
to
the consummation of a business combination by the Company.
The
fair
value of these options was estimated at the date of grant using a Black-Scholes
option pricing (“Black-Scholes”) model with the following weighted average
assumptions for 2005: (i) risk-free interest rate of 4.76%, (ii) a dividend
yield of 0.00%, (iii) volatility factors of the historical market price of
the
Company’s common stock of 12.97% and (iv) a weighted average expected life of 4
years.
The
Black-Scholes model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions, including the expected volatility. Because the Company’s stock
options have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management’s opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
stock
options. The estimated fair value of the options is amortized to expense over
the vesting period of the stock options, which is two years.
A
summary of the activity of the Company’s fixed stock option plans is presented
below:
|
|
Shares
|
|
Weighted
Average Exercise Prices
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
Stock
options outstanding at April 15, 2004
|
|
|
|
|
$
|
-
|
|
$
|
-
|
|
Options
granted
|
|
|
60,000
|
|
|
4.75
|
|
|
0.98
|
|
Options
cancelled
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Stock
options outstanding at December 31, 2004
|
|
|
60,000
|
|
$
|
4.75
|
|
|
0.98
|
|
Options
granted
|
|
|
-
|
|
|
-
|
|
|
|
|
Options
cancelled
|
|
|
-
|
|
|
-
|
|
|
|
|
Stock
options outstanding at December 31, 2005
|
|
|
60,000
|
|
$
|
4.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares authorized under the 2004 Stock Plan
|
|
|
100,000
|
|
|
|
|
|
|
|
Outstanding
options
|
|
|
(60,000
|
)
|
|
|
|
|
|
|
Outstanding
stock grants
|
|
|
-
|
|
|
|
|
|
|
|
Options
available for grant at December 31, 2004
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
exercisable at December 31, 2005
|
|
|
60,000
|
|
$
|
4.75
|
|
$
|
0.98
|
|
Outstanding
option
|
|
|
(60,000
|
)
|
|
-
|
|
|
|
|
Outstanding
stock grants
|
|
|
-
|
|
|
-
|
|
|
|
|
Options
available for grant at December 31, 2005
|
|
|
40,000
|
|
$
|
4.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
weighted average remaining contractual life of options is 4 years.
10. MANAGEMENT
PLANS
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the accompanying financial
statements, the Company had current liabilities of $6,674,775 as of December
31,
2005 and net loss of $1,545,214 for the year ended December 31, 2005. The
Company does not have any more due diligence funds to satisfy its current
obligations. This matter raises doubt about the Company’s ability to continue as
a going concern without additional infusions of equity capital or
debt.
The
financial statements do not include any adjustments should the Company be unable
to continue as a going concern. On October 26, 2005, the Company entered into
a
definitive Agreement and Plan of Merger with St. Bernard Software, Inc. which
management believes will provide the necessary funds in 2006 to satisfy its
immediate obligations. In the event that the merger is not consummated in 2006,
the Company will be required to liquidate. The Company believes that it will
be
successful in removing the uncertainty concerning its ability to continue as
a
going concern by consummating the merger with St. Bernard Software, Inc. in
2006.
Item
8. Changes In and Disagreements With Accountants or
Accounting and Financial Disclosure
None.
Under
the
supervision and with the participation of our management, including our chief
executive officer and chief financial officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2005 (the “Evaluation Date”), and, based on their
evaluation, our chief executive officer and chief financial officer have
concluded that these controls and procedures were effective as of the Evaluation
Date. However, in connection with the preparation of Amendment No. 4 to the
Registration Statement on Form S-4 related to the Agreement and Plan of Merger,
dated as of October 26, 2005, by and among our company, St. Bernard Software,
Inc. and Sand Hill Merger Corp., we were advised by our independent registered
accounting firm, Hein & Associates LLP (“Hein”) on June 19, 2006, that we
may need to reclassify certain amounts in our financial statements to report
the
warrants issued as part of the units in our initial public offering as a
liability. Hein based its conclusions upon on a comment received from the
Securities and Exchange Commission in connection with the preparation of the
Amendment No. 4 to the Registration Statement on Form S-4 and after further
discussion with the Staff of the Securities and Exchange Commission. We
addressed this concern by determining to restate our Form 10-KSB for the fiscal
year ended December 31, 2005 and our Form 10-QSB/A for the period ended March
31, 2006 to reflect this reclassification. There were no significant changes
in
our internal controls or in other factors that could significantly affect these
controls subsequent to the Evaluation Date.
Item
9. Directors, Executive Officers, Promoters and
Control Persons
Our
current directors and executive officers are as follows:
Name
|
|
Age
|
|
Position
|
Humphrey
P. Polanen
|
|
56
|
|
Chief
Executive Officer and Chairman of the Board of
Directors
|
Keith
Walz
|
|
38
|
|
President,
Chief Financial Officer and Director
|
Scott
Broomfield
|
|
49
|
|
Executive
Vice President of Corporate Development and Director
|
Cary
M. Grossman
|
|
52
|
|
Director
|
Daniel
Johnson, Jr.
|
|
57
|
|
Director
|
Alberto
Micalizzi
|
|
37
|
|
Director
|
HUMPHREY
P. POLANEN
has been
our chairman of the board and chief executive officer since our inception.
He
has had a career as an entrepreneur in technology, a global executive for
leading technology companies and as an international corporate lawyer. From
January 2004 until March 2004 Mr. Polanen worked on preparations for Sand
Hill’s initial public offering. From January 2000 until December 2003, Mr.
Polanen served as Managing Director of Internet Venture Partners, a strategic
consulting and venture capital management firm for technology companies. From
February 1998 through February 1999, he was president and CEO of Trustworks
Systems, a network security software company. Between 1995 and 1998 he was
general manager of two divisions of Sun Microsystems where he led the Internet
Commerce Group and the Network Security Division. From 1981 to 1995, he was
with
Tandem Computers (acquired by Compaq/Hewlett-Packard), where he held several
executive positions and was director of worldwide business development and
a
director of several subsidiaries. Mr. Polanen has been a member of the board
of
directors of Heritage Bank of Commerce since the bank’s inception and has been
chair of the board’s audit committee for ten years. Mr. Polanen is a
graduate of Hamilton College and the Harvard Law School.
KEITH
WALZ
has been
our chief financial officer since January 10, 2005 and a member of our
board since inception. Mr. Walz is President of ABN AMRO Capital (USA) and
a
Managing Director in ABN AMRO’s Global Private Equity division. Mr. Walz joined
ABN AMRO Capital (USA) at inception in 1996. As a Senior Partner, Mr. Walz
participated in the sourcing, evaluation, and monitoring of over 35 investments,
representing $200 million of capital invested. Mr. Walz focused on Enterprise
Software and Network Infrastructure investments. Mr. Walz has served on the
board of directors of over a dozen companies in which ABN AMRO has invested.
Also, he has held operating roles with ABN AMRO portfolio companies, including
Chairman and CEO of Worldweb.net and was a member of the Argus Systems, board
of
directors, a developer of Trusted Computer Operating Systems. Prior to joining
ABN AMRO Capital, Mr. Walz was a vice president in ABN AMRO’s Investment Banking
division, responsible for financial reporting, analysis, and systems. Prior
to
joining ABN AMRO he spent two years as a finance associate with Tyson Foods,
Inc., where he focused on enhancing enterprise business processes and systems
through the use of client/server computing technologies. Mr. Walz is also a
director of GT Nexus, Yellowbrix, and Oasis Technology. He received an M.B.A.
from DePaul University and a B.S. in Finance from the University of Arkansas.
SCOTT
BROOMFIELD
has been
a member of the board of directors of Sand Hill IT Security Acquisition Corp.
and EVP of Corporate Development since April 2004, and has worked full time
with
Sand Hill since August 2005. Until recently, Mr. Broomfield was the CEO of
Xtegra Corporation, a private software company specializing in enterprise
information integration, EII, which he sold to SAP AG (NYSE: SAP) in August
2005. Previously, Mr. Broomfield had been the CEO of Visuale, a private business
process software company that he sold to Onyx Software Corporation (NASDAQ:
ONXS) in April 2004. Prior to joining Visuale and from 1997 until 2001, Mr.
Broomfield was the CEO of Centura Software Corporation (formerly Gupta
Technologies, a NASDAQ traded company), a $50 million software business
specializing in secure, embedded and mobile databases and application
development tools. During his tenure as CEO of Centura, Mr. Broomfield completed
the acquisition of Raima Corporation and in three years built its market
capitalization from $6 million to $700 million by early 2000. He eventually
sold
the assets of Centura to Platinum Equity Holdings and Birdstep Corporation.
Prior to Centura, he was a Managing Director of Hickey & Hill, Inc., a
turnaround consultancy. At Hickey & Hill he was in charge of the high
technology restructuring practice. Mr. Broomfield structured the acquisition
of
Polyscan and the equity recapitalization for ETEC Corporation. He was also
instrumental in the following company divestitures: Dazix, Domain Technologies,
Priam, Everex and Zitel, where he acquired 2 businesses to reposition Zitel
in
the market. Prior to Hickey & Hill, Mr. Broomfield was the CFO of Trilogy
Technology Corporation which was sold to Digital Equipment Corporation. Mr.
Broomfield holds an MBA from Santa Clara University and is a member of Business
Executives for National Security (BENS), where he was the co-chair of BENS’
cyber security task force and Y2K initiatives.
CARY
M. GROSSMAN
has been
a member of our board since inception and served as our chief financial officer
from inception through January 10, 2005. Since May 19, 2004, Mr.
Grossman has been the Chairman and Co-Chief executive officer of Coastal
Bancshares Acquisition Corp. (OTCBB: CBAS), a blank check company formed to
acquire or merge with a commercial bank or bank holding company. Mr. Grossman
has been Executive Vice president and chief financial officer of Gentium, S.p.A,
an Italian biopharmaceutical company, since August 2004. He is also a director
of I-Sector Corp., an internet telephony company, since December 2004. From
2002
until 2003 he served as executive vice president and chief financial officer
at
U S Liquids, Inc, an AMEX listed environmental services company. Mr. Grossman
left U S Liquids, Inc. in 2003 as a result of the acquisition of three of its
businesses by a private equity firm and was president and chief executive
officer of the acquiring company, ERP Environmental Services until November
2003. From 1997 until 2002, Mr. Grossman served Pentacon, Inc. (NSYE: JIT),
a
provider of inventory management services and distributor of components to
Fortune 50 original equipment manufacturers, as a board member and in several
senior executive positions including: chairman of the board of directors, acting
chief financial officer (2001-2002) and Lead Director (1998-2001) from the
time
the Pentacon went public in March 1998 until becoming Chairman in 2001. Pentacon
acquired five businesses when it completed its initial public offering and
subsequently acquired four other businesses. Pentacon and substantially all
of
its subsidiaries filed a Joint Chapter 11 Plan of Debtors in 2002. From 1991
until 2002, Mr. Grossman was the managing partner of McFarland, Grossman &
Company, Inc., an investment banking and financial advisory firm he co-founded
in 1991. Prior to that, Mr. Grossman practiced public accounting for 15 years.
He earned a bachelor of business administration in accounting from The
University of Texas, and is a certified public accountant.
DANIEL
JOHNSON, JR. has
been
a member of our board since inception and is a senior partner in the Silicon
Valley law firm Morgan Lewis, where he specializes in patent litigation and
other complex intellectual property cases. From 1998 thru March 2005, he was
a
senior partner in the Silicon Valley law firm Fenwick
& West. He
has
acted as lead trial counsel in numerous technology cases involving, among other
things, Internet software, firmware, non-volatile memory, printed circuit board
design, digital cellular technology and lasers. Mr. Johnson has also advised
client companies on acquisition matters, including Netscreen in its acquisition
by Juniper Networks. Mr. Johnson is recognized as an outstanding trial lawyer
by
numerous national and international associations and publications. He is a
co-author of the Rules of Civil Procedure in Patent Cases for the Northern
District of California, has participated in numerous panels on trial advocacy
and has presented on the use of multi-media at trial on behalf of the American
Bar Association. Mr. Johnson is a graduate of Yale University Law School, J.D.,
and of the University of California, Berkeley, A.B., in political science,
with
honors.
ALBERTO
MICALIZZI has
been
a member of our board since inception. Dr Micalizzi is the chairman of Dynamic
Decisions Group Ltd, an independent quantitative research house providing
advisory activity to large institutional investors in the fields of equity
research and asset management. Mr. Micalizzi joined Dynamic Decision Group
Ltd
in September 2001. He is Professor of Finance at Bocconi University, Milan
(Italy), and Researcher at the Centre for Quantitative Finance, Imperial
College, London University (UK), where he specializes in the Bio-Pharma and
Telecom-Technology sector sectors. Until July 2001, he was the CEO of the Real
Options Group, an international research center affiliated to several US and
European universities and business schools. From December 1998 to March 2000,
Mr. Micalizzi worked with an association of researchers that developed into
the
Real Ophons Group. In 1997 he was appointed by Nomura International (Milan)
as
an external advisor for the designing of structured products in the bond market.
In 1999 he was appointed by Andersen Consulting (London) as an advisor on the
valuation of start up businesses in the e-venture segment. Other advisory
experiences include Eli Lilly, Schering Plough, Glaxo, La Roche, Danone Group
and Ernst & Young. Dr. Micalizzi earned a degree in Business Administration
at Bocconi University (Milan, Italy), is a Chartered Professional Accountant
(CPA) and received his Ph.D in finance at Imperial College, London University
(UK).
The
Company is not aware of any “family relationships” among directors, executive
officers, or persons nominated or chosen by the Company to become directors
or
executive officers.
The
Company is not aware of any event (as listed in Item 401(d) of Regulation S-B
promulgated by the Securities and Exchange Commission) that occurred during
the
past five years that are material to an evaluation of the ability or integrity
of any director, person nominated to become a director, executive officer,
promoter or control person of the Company.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires the Company’s officers and directors, and
persons who own more than 10% of a registered class of the Company’s equity
securities (the “10% Stockholders”) to file reports of ownership and changes of
ownership with the Securities and Exchange Commission (“SEC”). Officers,
directors and 10% Stockholders of the Company are required by SEC regulations
to
furnish the Company with copies of all Section 16(a) forms so filed. Based
solely on correspondence with, and a review of copies of Section 16(a) forms
received from executive officers and directors and 10% Stockholders (if any),
the Company does not believe that, during the last fiscal year any of the
Reporting Persons was deficient in filing reports of ownership or changes in
ownership with the SEC.
Audit
Committee
We
do not
have a standing audit committee or an audit committee financial expert serving
on our board of directors. As our plan of operations involves identifying a
target business and completing a business combination with such business, we
presently do not have material operations and do not experience complex
accounting issues. Accordingly, our board of directors has determined that
it is
not necessary for us to have a standing audit committee or an audit committee
financial expert at this time.
Code
of Ethics
In
August
2004, our board of directors adopted a code of business conduct and ethics
that
applies to our directors, officers and employees as well as those of our
subsidiaries. A copy of our code of ethics has been filed as an exhibit to
our
Quarterly Report on Form 10-Q for the period ending July 30, 2004, and is
available on our website at www.sandhillsecurity.com.
No
executive officer has received any cash compensation for services rendered.
Commencing on July 31, 2004 through the acquisition of a target business, we
will pay Sand Hill Security, LLC, an affiliate of our directors and executive
officers, a fee of $7,500 per month for providing us with office space and
certain office and secretarial services. Other than this $7,500 per-month fee,
no compensation of any kind, including finder’s and consulting fees, will be
paid to any of our initial stockholders, or any of their respective affiliates
for services rendered to us prior to or with respect to a business combination.
However, our initial stockholders will be reimbursed for any out-of-pocket
expenses incurred in connection with activities on our behalf such as
identifying potential target businesses and performing due diligence on suitable
business combinations. There is no limit on the amount of these out-of-pocket
expenses and there will be no review of the reasonableness of the expenses
by
anyone other than our board of directors, which includes persons who may seek
reimbursement, or a court of competent jurisdiction if such reimbursement is
challenged.
Item
11. Security Ownership of Certain Beneficial Owners
and Management
The
following table sets forth information regarding the beneficial ownership of
our
common stock as of February 1, 2005 by:
· |
each
person known by us to be the beneficial owner of more than 5% of
our
outstanding shares of common stock;
|
· |
each
of our officers and directors; and
|
· |
all
our officers and directors as a
group.
|
Unless
otherwise indicated, we believe that all persons named in the table have sole
voting and investment power with respect to all shares of common stock
beneficially owned by them.
Name
and Address of Beneficial Owner(1) |
|
Amount
and Nature of
Beneficial
Ownership
|
|
Approximate
Percentage of
Outstanding
Common Stock
|
|
Humphrey
Polanen(2)
|
|
|
459,441
|
|
|
9.0
|
%
|
Sand
Hill Security, LLC(3)
|
|
|
100,000
|
|
|
2.0
|
%
|
Keith
Walz
|
|
|
174,825
|
|
|
3.4
|
%
|
Scott
Broomfield(4)
|
|
|
174,825
|
|
|
3.4
|
%
|
Cary
Grossman(5)
|
|
|
48,951
|
|
|
1.0
|
%
|
Dan
Johnson(6)
|
|
|
20,979
|
|
|
*
|
|
Alberto
Micalizzi(7)
|
|
|
20,979
|
|
|
*
|
|
Sapling,
LLC(8)
|
|
|
400,000
|
|
|
7.8
|
%
|
Amaranth,
LLC(9)
|
|
|
299,098
|
|
|
5.9
|
%
|
Roger
Feldman and Harvey Hanerfeld(10)
|
|
|
385,600
|
|
|
7.5
|
%
|
All
directors and executive officers as a group (6
individuals)
|
|
|
1,000,000
|
|
|
19.6
|
%
|
|
|
|
|
|
|
|
|
(1)
|
Unless
otherwise indicated, the business address of each of the following
is 3000
Sand Hill Road, Building 1, Suite 240, Menlo Park, California
94025.
|
(2)
|
Does
not include 108,500 shares of common stock issuable upon exercise
of
warrants that are not currently
exercisable.
|
(3)
|
Sand
Hill Security, LLC Membership Interests are held by (i) the Polanen
and
Nicodimos Family Trust, of which Mr. Polanen is a trustee, (ii) the
Broomfield Family Trust, of which Mr. Broomfield is a trustee, (iii)
Dan
Johnson, (iv) Keith Walz, (v) Alberto Micalizzi, and (vi) the Grossman
Family Limited Partnership, of which Mr. Grossman is a general
partner.
|
(4)
|
Mr.
Broomfield’s shares are held by the Broomfield Family Trust, of which Mr.
Broomfield is a Co-Trustee. Does not include 105,000 shares of common
stock issuable upon exercise of warrants that are not currently
exercisable.
|
(5)
|
Mr.
Grossman’s shares are held by Grossman Family Limited Partnership, of
which Mr. Grossman is a general partner. Does not include 8,000 shares
of
common stock issuable upon exercise of warrants that are not currently
exercisable.
|
(6)
|
Does
not include 75,000 shares of common stock issuable upon exercise
of
warrants that are not currently
exercisable.
|
(7)
|
Mr.
Micalizzi’s business address is Corso Italia 66, 20136 Milan,
Italy.
|
(8)
|
Represents
shares beneficially owned by Sapling, LLC. FirTree Master Fund, LP,
is the
sole member of Sapling, LLC, and Fir Tree, Inc. is the manager of
Sapling,
LLC. The business address is 535 Fifth Ave., 31st
floor, New York, New York 10003.
|
(9)
|
Represents
shares beneficially owned by Amaranth, LLC, Amaranth Advisors L.L.C.
and
Nicholas M. Maounis. The business address is One American Lane, Greenwich,
Connecticut 06831.
|
(10)
|
Represents
shares of common stock held by West Creek Partners Fund, L.P., certain
private accounts and Cumberland Investment Partners, L.L.C. Messrs.
Feldman and Hanerfeld are the sole stockholders, directors and executive
officers of West Creek Capital, Inc., a Delaware corporation that
is the
general partner of West Creek Capital, L.P., a Delaware limited
partnership that is the investment adviser to (i) West Creek Partners
Fund
L.P., a Delaware limited partnership (the “Fund”) and (ii) certain private
accounts (the “Accounts”), Messrs. Feldman and Hanerfeld may be deemed to
have the shared power to direct the voting and disposition of the
232,000
shares of common stock owned by the Fund and the 22,100 shares of
common
stock held in the Accounts. As voting members of Cumberland Investment
Partners, L.L.C., a Delaware limited liability company (“Cumberland”),
Messrs. Feldman and Hanerfeld may be deemed to have the shared power
to
direct the voting and disposition of the 131,500 shares of common
stock
owned by Cumberland. Neither of Messrs. Feldman or Hanerfeld has
sole
power to direct the voting and disposition of any of the shares of
common
stock beneficially owned by them. The business address for Messrs.
Feldman
and Hanerfeld is 1919 Pennsylvania Avenue, NW, Suite 725, Washington,
DC
20006.
|
All
of
the shares of our common stock owned by the initial stockholders have been
placed in escrow with American Stock Transfer & Trust Company, as escrow
agent, until the earliest of:
· |
the
consummation of a liquidation, merger, stock exchange or other similar
transaction that results in all of our stockholders having the right
to
exchange their shares of common stock for cash, securities or other
property subsequent to our consummating a business combination with
a
target business.
|
During
the escrow period, the holders of these shares will not be able to sell or
transfer their securities except to their spouses and children, trusts or family
partnerships established for their benefit, or to a transferee that does not
affect beneficial ownership but will retain all other rights as our
stockholders, including, without limitation, the right to vote their shares
of
common stock and the right to receive cash dividends, if declared. If dividends
are declared and payable in shares of common stock, such dividends will also
be
placed in escrow. If we are unable to effect a business combination and
liquidate, none of our initial stockholders will receive any portion of the
liquidation proceeds with respect to common stock owned by them prior to the
Offering.
Mr.
Polanen may be deemed to be our “parent” and “promoter,” as these terms are
defined under the federal securities law.
Item
12. Certain Relationships and Related Transactions
Prior
to
the Offering, we issued 1,000,000 shares of our common stock to the individuals
set forth below for $25,000 in cash, at an average purchase price of
approximately $0.025 per share, as follows:
Name
|
|
Number of Shares
|
|
Relationship
To Us
|
Humphrey
Polanen
|
|
459,441
|
|
Chief
Executive Officer and Chairman of the Board of
Directors
|
Sand
Hill Security, LLC
|
|
100,000
|
|
Affiliate
of our directors and executive officers
|
Keith
Walz
|
|
174,825
|
|
President,
Chief Financial Officer and Director
|
Scott
Broomfield
|
|
174,825
|
|
Executive
Vice President of Corporate Development and Director
|
Cary
Grossman
|
|
48,951
|
|
Director
|
Dan
Johnson
|
|
20,979
|
|
Director
|
Alberto
Micalizzi
|
|
20,979
|
|
Director
|
The
holders of the majority of these shares are entitled to make up to two demands
that we register these shares pursuant to an agreement executed in connection
with the Offering. The holders of the majority of these shares may elect to
exercise these registration rights at any time after the date on which these
shares of common stock are released from escrow. In addition, these stockholders
have certain “piggy-back” registration rights on registration statements filed
subsequent to the date on which these shares of common stock are released from
escrow. We will bear the expenses incurred in connection with the filing of
any
such registration statements.
Sand
Hill
Security, LLC, an affiliate of certain of our directors and executive officers,
has agreed that, commencing July 31, 2004 through the acquisition of a target
business, it will make available to us a small amount of office space and
certain office and secretarial services, as we may require from time to time.
We
have agreed to pay Sand Hill Security, LLC $7,500 per month for these services.
In
addition, in April 2004, Sand Hill Security, LLC advanced an aggregate of
$40,000 to us, on a non-interest bearing basis, for payment of offering expenses
on our behalf. This amount was repaid in August 2004 out of the proceeds of
the
Offering.
We
will
reimburse our officers and directors for any reasonable out-of-pocket business
expenses incurred by them in connection with certain activities on our behalf
such as identifying and investigating possible target businesses and business
combinations. There is no limit on the amount of accountable out-of-pocket
expenses reimbursable by us, which will be reviewed only by our board or a
court
of competent jurisdiction if such reimbursement is challenged.
Other
than the $7,500 per month administrative fee and reimbursable out-of-pocket
expenses payable to our officers and directors, no compensation or fees of
any
kind, including finders and consulting fees, will be paid to any of our initial
stockholders, officers or directors who owned our common stock prior to the
Offering, or to any of their respective affiliates for services rendered to
us
prior to or with respect to the business combination.
All
ongoing and future transactions between us and any of our officers and directors
or their respective affiliates will be on terms believed by us to be no less
favorable than are available from unaffiliated third parties and will require
prior approval in each instance by a majority of the members of our board who
do
not have an interest in the transaction.
(a) |
The
following exhibits are filed as part of report
K:
|
Exhibit
No.
|
|
Description
|
3.1
|
|
Certificate
of Incorporation (incorporated by reference to Exhibit 3.1 of the
Company’s Registration Statement on Form S-1, registration
no. 333-114861, filed with the Securities and Exchange
Commission).
|
3.2
|
|
By-laws
(incorporated by reference to Exhibit 3.2 of the Company’s
Registration Statement on Form S-1, registration no. 333-114861,
filed with the Securities and Exchange Commission).
|
4.1
|
|
Specimen
Unit Certificate (incorporated by reference to Exhibit 4.1 of the
Company’s Registration Statement on Form S-1, registration
no. 333-114861, filed with the Securities and Exchange
Commission).
|
4.2
|
|
Specimen
Common Stock Certificate (incorporated by reference to Exhibit 4.2 of
the Company’s Registration Statement on Form S-1, registration
no. 333-114861, filed with the Securities and Exchange
Commission).
|
4.3
|
|
Specimen
Warrant Certificate (incorporated by reference to Exhibit 4.3 of the
Company’s Registration Statement on Form S-1, registration
no. 333-114861, filed with the Securities and Exchange
Commission).
|
4.4.1
|
|
Unit
Purchase Option No. UPO-2 dated July 30, 2004, granted to Newbridge
Securities Corporation (filed as Exhibit 4.4.1 to the Company’s annual
report on Form 10-KSB for the fiscal year ended 2004 (the “2004 10-K”) and
incorporated herein by reference).
|
4.4.2
|
|
Unit
Purchase Option No. UPO-3 dated July 30, 2004, granted to James E.
Hosch
(filed as Exhibit 4.4.2 to the 2004 10-K and incorporated herein
by
reference).
|
4.4.3
|
|
Unit
Purchase Option No. UPO-4 dated July 30, 2004, granted to Maxim Group,
LLC
(filed as Exhibit 4.4.3 to the 2004 10-K and incorporated herein
by
reference).
|
4.4.4
|
|
Unit
Purchase Option No. UPO-5 dated July 30, 2004, granted to Broadband
Capital Management, LLC (filed as Exhibit 4.4.4 to the 2004 10-K
and
incorporated herein by reference).
|
4.4.5
|
|
Unit
Purchase Option No. UPO-6 dated July 30, 2004, granted to I-Bankers
Securities Incorporated (filed as Exhibit 4.4.5 to the 2004 10-K
and
incorporated herein by reference).
|
4.5
|
|
Warrant
Agreement between American Stock Transfer & Trust Company and the
Registrant (filed as Exhibit 4.5 to the 2004 10-K and incorporated
herein
by reference).
|
10.1
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Humphrey P. Polanen (filed as Exhibit
10.1 to the 2004 10-K and incorporated herein by
reference).
|
10.2
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Cary M. Grossman (filed as Exhibit 10.2
to the 2004 10-K and incorporated herein by reference).
|
10.3
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Daniel J. Johnson (filed as Exhibit 10.3
to the 2004 10-K and incorporated herein by reference).
|
10.4
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Keith A. Walz (filed as Exhibit 10.4 to
the 2004 10-K and incorporated herein by reference).
|
10.5
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Scott Broomfield (filed as Exhibit 10.5
to the
2004 10-K and incorporated herein by reference).
|
10.6
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Alberto Micalizzi (filed as Exhibit 10.6
to
the 2004 10-K and incorporated herein by reference).
|
10.8
|
|
Investment
Management Trust Agreement between American Stock Transfer & Trust
Company and the Registrant (filed as Exhibit 10.8 to the 2004 10-K
and
incorporated herein by reference).
|
10.9
|
|
Stock
Escrow Agreement between the Registrant, American Stock Transfer
&
Trust Company and the Initial Stockholders (filed as Exhibit 10.9
to the
2004 10-K and incorporated herein by reference).
|
10.10
|
|
Registration
Rights Agreement among the Registrant and the Initial Stockholders
(filed
as Exhibit 10.10 to the 2004 10-K and incorporated herein by
reference).
|
10.11
|
|
Letter
Agreement between Sand Hill Security, LLC and Registrant regarding
administrative support (filed as Exhibit 10.11 to the 2004 10-K and
incorporated herein by reference).
|
10.12
|
|
Revolving
Credit Agreement in the principle amount of $60,000 between the Registrant
and Sand Hill Security, LLC (filed as Exhibit 10.12 to the 2004 10-K
and incorporated herein by reference).
|
10.13
|
|
M&A
Advisory Services Agreement, dated effective as of March 30, 2005,
by and
between the Company and Software Equity Group, L.L.C. (filed as Exhibit
10.2 to the Company’s quarterly report on Form 10-QSB for the quarter
ended March 31, 2005 and filed with the Securities and Exchange Commission
on May 16, 2005, and incorporated herein by reference).
|
10.14
|
|
Form
of Stock Option Agreement (filed as Exhibit 10.1 to the Company’s
quarterly report on Form 10-QSB for the quarter ended March 31, 2005
and
filed with the Securities and Exchange Commission on May 16, 2005,
and
incorporated herein by reference).
|
10.15
|
|
Agreement
and Plan of Merger dated as of October 26, 2005 among the Company.,
Sand Hill Merger Corp. and St. Bernard Software, Inc. (filed as
Exhibit 2.1 to the Company’s Registration Statement on Form S-4 ,
registration no. 333-130412, and incorporated herein by reference).
|
10.16
|
|
Amendment
to Agreement and Plan of Merger, dated as of December 15, 2005, by
and
among Sand Hill IT Security Acquisition Corp., Sand Hill Merger Corp.
and
St. Bernard Software, Inc. (filed as Exhibit 2.2 to the Company’s
Registration Statement on Form S-4, registration no. 333-130412, and
incorporated herein by reference).
|
14
|
|
Code
of Business Conduct and Ethics (filed as Exhibit 14 to the Company’s
quarterly report on Form 10-QSB for the quarter ended June 30, 2004
and
filed with the Securities and Exchange Commission on September 8,
2004 and
incorporated herein by reference).
|
23.1
|
|
Consent
of Independent Registered Public Account Firm**
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002*
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002*
|
32.1
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
Section
906 of the Sarbanes-Oxley Act of 2002*
|
|
|
|
Form
8-K
filed on January 13, 2005, including items 5.02 and 9.01.
Form
8-K
filed on January 27, 2005, including items 1.01, 8.01 and 9.01
Form
8-K
filed on April 4, 2005, including items 1.01
Form
8-K
filed on October 27, 2005, including items 1.01 and 9.01
Form
8-K/A filed on October 28, 2004, including items 1.01 and 9.01
Form
8-K
filed on December 16, 2005, including item 4.02
Form
8-K
filed on December 19, 2005, including items 8.01 and 9.01
Form
8-K/A filed on December 27, 2005, including items 4.02 and 9.01
Item
14. Principal Accounting Fees and Services.
The
firm
of Hein & Associates LLP acts as our principal accountant. The following is
a summary of fees paid to our principal accountant for services
rendered.
AUDIT
FEES
During
the fiscal year ended December 31, 2005, the fees for our principal accountant
are $56,000 in connection with our registration statement on Form S-4, the
review of our Quarterly Reports on Form 10-QSB and the audit of our December
31,
2005 Annual Report on Form 10-KSB.
During
the fiscal year ended December 31, 2004, the fees for our principal accountant
were $23,600 in connection with our initial public offering (financial
statements included in the Form S-1 and Current Report on Form 8-K filed with
the Securities and Exchange Commission on August 3, 2004), the review of our
June 30 and September 30 Quarterly Reports on Form 10-QSB and the audit of
our
December 31, 2004 Annual Report on Form 10-KSB.
AUDIT-RELATED
FEES
During
2005, our principal accountant did not render assurance and related services
reasonably related to the performance of the audit or review of financial
statements.
During
2004, our principal accountant did not render assurance and related services
reasonably related to the performance of the audit or review of financial
statements.
TAX
FEES
During
2005, the fees for our principal accountant are $11,000 in connection with
tax
compliance, tax advice and tax planning.
During
2004, our principal accountant did not render services to us for tax compliance,
tax advice and tax planning.
ALL
OTHER FEES
During
2005, there were no fees billed for products and services provided by the
principal accountant other than those set forth above.
AUDIT
COMMITTEE APPROVAL
We
currently do not have an audit committee. Our Board of Directors approved the
engagement of Hein Associates as our independent registered public accounting
firm by unanimous consent on September 30, 2004.
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the
registrant has duly caused this annual report on Form 10-KSB/A to be signed
on
its behalf by the undersigned thereto duly authorized.
|
|
|
|
SAND
HILL
IT SECURITY ACQUISITION CORP.
(Registrant)
|
|
|
|
Date:
June
21, 2006 |
By: |
/s/ Humphrey
P. Polanen |
|
|
|
Name:
Humphrey P. Polanen
Title:
Chief Executive Officer
|
INDEX
TO EXHIBITS
(a) |
The
following exhibits are filed as part of report
K:
|
Exhibit
No.
|
|
Description
|
3.1
|
|
Certificate
of Incorporation (incorporated by reference to Exhibit 3.1 of the
Company’s Registration Statement on Form S-1, registration
no. 333-114861, filed with the Securities and Exchange
Commission).
|
3.2
|
|
By-laws
(incorporated by reference to Exhibit 3.2 of the Company’s
Registration Statement on Form S-1, registration no. 333-114861,
filed with the Securities and Exchange Commission).
|
4.1
|
|
Specimen
Unit Certificate (incorporated by reference to Exhibit 4.1 of the
Company’s Registration Statement on Form S-1, registration
no. 333-114861, filed with the Securities and Exchange
Commission).
|
4.2
|
|
Specimen
Common Stock Certificate (incorporated by reference to Exhibit 4.2 of
the Company’s Registration Statement on Form S-1, registration
no. 333-114861, filed with the Securities and Exchange
Commission).
|
4.3
|
|
Specimen
Warrant Certificate (incorporated by reference to Exhibit 4.3 of the
Company’s Registration Statement on Form S-1, registration
no. 333-114861, filed with the Securities and Exchange
Commission).
|
4.4.1
|
|
Unit
Purchase Option No. UPO-2 dated July 30, 2004, granted to Newbridge
Securities Corporation (filed as Exhibit 4.4.1 to the Company’s annual
report on Form 10-KSB for the fiscal year ended 2004 (the “2004 10-K”) and
incorporated herein by reference).
|
4.4.2
|
|
Unit
Purchase Option No. UPO-3 dated July 30, 2004, granted to James
E. Hosch
(filed as Exhibit 4.4.2 to the 2004 10-K and incorporated herein
by
reference).
|
4.4.3
|
|
Unit
Purchase Option No. UPO-4 dated July 30, 2004, granted to Maxim
Group, LLC
(filed as Exhibit 4.4.3 to the 2004 10-K and incorporated herein
by
reference).
|
4.4.4
|
|
Unit
Purchase Option No. UPO-5 dated July 30, 2004, granted to Broadband
Capital Management, LLC (filed as Exhibit 4.4.4 to the 2004 10-K
and
incorporated herein by reference).
|
4.4.5
|
|
Unit
Purchase Option No. UPO-6 dated July 30, 2004, granted to I-Bankers
Securities Incorporated (filed as Exhibit 4.4.5 to the 2004 10-K
and
incorporated herein by reference).
|
4.5
|
|
Warrant
Agreement between American Stock Transfer & Trust Company and the
Registrant (filed as Exhibit 4.5 to the 2004 10-K and incorporated
herein
by reference).
|
10.1
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Humphrey P. Polanen (filed as Exhibit
10.1 to the 2004 10-K and incorporated herein by
reference).
|
10.2
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Cary M. Grossman (filed as Exhibit 10.2
to the 2004 10-K and incorporated herein by reference).
|
10.3
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Daniel J. Johnson (filed as Exhibit 10.3
to the 2004 10-K and incorporated herein by reference).
|
10.4
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Keith A. Walz (filed as Exhibit 10.4 to
the 2004 10-K and incorporated herein by reference).
|
10.5
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Scott Broomfield (filed as Exhibit
10.5 to the
2004 10-K and incorporated herein by reference).
|
10.6
|
|
Letter
Agreement among the Registrant, Newbridge Securities and I-Bankers
Securities Incorporated and Alberto Micalizzi (filed as Exhibit
10.6 to
the 2004 10-K and incorporated herein by reference).
|
10.8
|
|
Investment
Management Trust Agreement between American Stock Transfer & Trust
Company and the Registrant (filed as Exhibit 10.8 to the 2004 10-K
and
incorporated herein by reference).
|
10.9
|
|
Stock
Escrow Agreement between the Registrant, American Stock Transfer
&
Trust Company and the Initial Stockholders (filed as Exhibit 10.9
to the
2004 10-K and incorporated herein by reference).
|
10.10
|
|
Registration
Rights Agreement among the Registrant and the Initial Stockholders
(filed
as Exhibit 10.10 to the 2004 10-K and incorporated herein by
reference).
|
10.11
|
|
Letter
Agreement between Sand Hill Security, LLC and Registrant regarding
administrative support (filed as Exhibit 10.11 to the 2004 10-K
and
incorporated herein by reference).
|
10.12
|
|
Revolving
Credit Agreement in the principle amount of $60,000 between the
Registrant
and Sand Hill Security, LLC (filed as Exhibit 10.12 to the 2004 10-K
and incorporated herein by reference).
|
10.13
|
|
M&A
Advisory Services Agreement, dated effective as of March 30, 2005,
by and
between the Company and Software Equity Group, L.L.C. (filed as
Exhibit
10.2 to the Company’s quarterly report on Form 10-QSB for the quarter
ended March 31, 2005 and filed with the Securities and Exchange
Commission
on May 16, 2005, and incorporated herein by reference).
|
10.14
|
|
Form
of Stock Option Agreement (filed as Exhibit 10.1 to the Company’s
quarterly report on Form 10-QSB for the quarter ended March 31,
2005 and
filed with the Securities and Exchange Commission on May 16, 2005,
and
incorporated herein by reference).
|
10.15
|
|
Agreement
and Plan of Merger dated as of October 26, 2005 among the Company.,
Sand Hill Merger Corp. and St. Bernard Software, Inc. (filed as
Exhibit 2.1 to the Company’s Registration Statement on Form S-4 ,
registration no. 333-130412, and incorporated herein by reference).
|
10.16
|
|
Amendment
to Agreement and Plan of Merger, dated as of December 15, 2005,
by and
among Sand Hill IT Security Acquisition Corp., Sand Hill Merger
Corp. and
St. Bernard Software, Inc. (filed as Exhibit 2.2 to the Company’s
Registration Statement on Form S-4, registration no. 333-130412, and
incorporated herein by reference).
|
14
|
|
Code
of Business Conduct and Ethics (filed as Exhibit 14 to the Company’s
quarterly report on Form 10-QSB for the quarter ended June 30,
2004 and
filed with the Securities and Exchange Commission on September
8, 2004 and
incorporated herein by reference).
|
23.1
|
|
Consent
of Independent Registered Public Account Firm**
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002*
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002*
|
32.1
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant
to Section
906 of the Sarbanes-Oxley Act of 2002*
|
|
|
|