UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
___________________
FORM
10-QSB/A
(Amendment
No. 2)
__________________
(Mark
One)
xQUARTERLY
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE
QUARTERLY PERIOD ENDED MARCH 31, 2006
oTRANSITION
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.
__________________
(Exact
Name of Small Business Issuer as Specified in Its Charter)
Delaware 20-0996152
(State
or
other Jurisdiction of incorporation) (I.R.S.
Employer Identification No.)
3000
Sand Hill Road
Building
1, Suite 240
Menlo
Park, California
(Address
of Principal Executive Office)
(650)
926-7022
(Issuer’s
Telephone Number, Including Area Code)
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes
x
No o
As
of
March 31, 2006, 5,110,000 shares
of
common stock, par value $.01 per share, were issued and
outstanding.
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes x No o
Transitional
Small Business Disclosure Format (check one):
Yes
o
No x
Sand
Hill
IT Security Acquisition Corp., a Delaware corporation (the “Company”), hereby
amends, as set forth herein, the Company’s Quarterly Report on Form 10-QSB for
the period ended March 31, 2006 filed with the Securities and Exchange
Commission on May 15, 2006, as amended on Form 10-QSB/A filed with the
Securities and Exchange Commission on June 2, 2006 (collectively, the “Form
10-QSB”). The item numbers and responses thereto are in accordance with the
requirements of Form 10-QSB. All capitalized terms used and not otherwise
defined herein shall have the meaning specified in the Form 10-QSB.
Index
|
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Page
No.
|
|
|
|
|
|
Part
I. Condensed Financial Information
|
|
|
|
|
|
|
|
|
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Item
1 -Financial Statements
|
|
|
3
|
|
|
|
|
|
|
Unaudited
Condensed Balance Sheets
|
|
|
3
|
|
Unaudited
Condensed Statements of Operations
|
|
|
4
|
|
Unaudited
Condensed Statements of Cash Flows
|
|
|
5
|
|
Notes
to Unaudited Condensed Financial Statements
|
|
|
6
|
|
|
|
|
|
|
Item
2 - Management’s Discussion and Analysis or Plan of
Operation
|
|
|
10
|
|
|
|
|
|
|
Item
3 - Controls and Procedures
|
|
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13
|
|
|
|
|
|
|
Part
II. Other Information
|
|
|
|
|
|
|
|
|
|
Item
6 - Exhibits and Reports on Form 8-K
|
|
|
14
|
|
|
|
|
|
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Signatures
|
|
|
15
|
|
Exhibit
Index
|
|
|
16
|
|
PART
I. CONDENSED FINANCIAL INFORMATION
Item
1. Condensed Financial Statements
SAND
HILL IT SECURITY ACQUISITION CORP.
(A
Corporation in the Development Stage)
CONDENSED
BALANCE SHEET
ASSETS
|
|
Restated
March
31, 2006
(Unaudited)
|
|
Current
assets:
|
|
|
|
|
Cash
|
|
$
|
658
|
|
Treasury
securities held in trust, at market
|
|
|
21,952,760
|
|
Prepaid
expenses
|
|
|
10,887
|
|
Total
Assets
|
|
$
|
21,964,305
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
299,521
|
|
Advances
from stockholders
|
|
|
45,000
|
|
Warrant
liability
|
|
$
|
7,315,800
|
|
Total
current liabilities
|
|
$
|
7,660,321
|
|
|
|
|
|
|
Total
Liabilities
|
|
$
|
7,660,321
|
|
|
|
|
|
|
Common
stock subject to possible conversion (821,589
shares at conversion value)
|
|
$
|
4,368,599
|
|
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 shares
|
|
|
42,884
|
|
Additional
paid-in capital
|
|
|
12,332,121
|
|
Deficit
accumulated during the development stage
|
|
|
(2,439,620
|
)
|
Total
Stockholders’ Equity
|
|
|
9,935,385
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
21,964,305
|
|
See
accompanying notes to condensed financial
statements.
SAND
HILL IT SECURITY ACQUISITION CORP.
(A
Corporation in the Development Stage)
CONDENSED
STATEMENTS OF OPERATIONS
|
|
Restated
Three
months ended
March
31, 2006 (Unaudited)
|
|
Restated
Three
months ended
March
31, 2005 (Unaudited)
|
|
Restated
Period
from
April
15, 2004 (inception) to March 31, 2006
(Unaudited)
|
|
Professional
Fees
|
|
$
|
(84,782
|
)
|
$
|
(62,166
|
)
|
$
|
(647,439
|
)
|
Rents,
Fees and Taxes
|
|
|
(22,500
|
)
|
|
(22,500
|
)
|
|
(253,733
|
)
|
D&O
Insurance
|
|
|
(30,542
|
)
|
|
(30,845
|
)
|
|
(205,314
|
)
|
Travel,
Lodging & Meals
|
|
|
(16,019
|
)
|
|
(20,144
|
)
|
|
(163,072
|
)
|
Other
|
|
|
(16,892
|
)
|
|
(36,493
|
)
|
|
(199,971
|
)
|
Operating
loss
|
|
|
(170,735
|
)
|
|
(172,148
|
)
|
|
(1,469,529
|
)
|
Interest
income
|
|
|
222,217
|
|
|
123,898
|
|
|
1,002,709
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty
liability income (expense)
|
|
|
(895,980
|
)
|
|
411,000
|
|
|
(1,972,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(844,498
|
)
|
$
|
362,750
|
|
$
|
(2,439,620
|
)
|
Weighted
Average Shares Outstanding-Basic
|
|
|
5,110,000
|
|
|
3,468,784
|
|
|
4,518,884
|
|
Net
income (loss) Per Share-Basic
|
|
$
|
(0.17
|
)
|
$
|
0.10
|
|
$
|
(0.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding-Dilutive
|
|
|
5,110,000
|
|
|
11,688,784
|
|
|
4,518,884
|
|
Net
income (loss) Per Share-Diluted
|
|
$
|
(0.17
|
)
|
$
|
0.00
|
|
$
|
(0.54
|
)
|
See
accompanying notes to condensed financial statements.
SAND
HILL IT SECURITY ACQUISITION CORP.
(A
Corporation in the Development Stage)
CONDENSED
STATEMENTS OF CASH FLOWS
|
|
|
Restated
Three
months ended
March
31, 2006
(Unaudited)
|
|
|
Restated
Three
months ended
March
31, 2005
(Unaudited)
|
|
|
Restated
Period
from
April
15, 2004 (inception) to
March
31, 2006)
(Unaudited)
|
|
CASH
FLOW FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(844,498
|
)
|
$
|
362,750
|
|
$
|
(2,439,620
|
)
|
Compensation
expense related to issuance of Advisory Board options
|
|
|
7,341
|
|
|
7,341
|
|
|
39,152
|
|
Changes
in assets & liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accretion
of treasury bill and mark to market gain
|
|
|
(222,217
|
)
|
|
(119,782
|
)
|
|
(928,535
|
)
|
Prepaid
expenses
|
|
|
902
|
|
|
30,844
|
|
|
(10,887
|
)
|
Accounts
payable and accrued expenses
|
|
|
44,554
|
|
|
44,498
|
|
|
299,521
|
|
Warranty
liability expense (income)
|
|
|
895,980
|
|
|
(411,000
|
)
|
|
1,972,800
|
|
Net
cash used in operating activities
|
|
|
(117,938
|
)
|
|
(85,349
|
)
|
|
1,067,569
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Purchase
of treasury bill in trust account
|
|
|
-
|
|
|
-
|
|
|
(21,025,000
|
)
|
Net
cash used in investing activities
|
|
|
-
|
|
|
-
|
|
|
(21,025,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock to initial stockholders
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
Gross
proceeds from public offering
|
|
|
-
|
|
|
-
|
|
|
24,660,000
|
|
Costs
of public offering
|
|
|
-
|
|
|
-
|
|
|
(2,636,773
|
)
|
Proceeds
from stockholder loan
|
|
|
45,000
|
|
|
-
|
|
|
85,000
|
|
Repayment
of stockholder loan
|
|
|
-
|
|
|
-
|
|
|
(40,000
|
)
|
Net
cash provided by financing activities
|
|
|
45,000
|
|
|
-
|
|
|
22,093,227
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
|
|
(72,938
|
)
|
|
(85,349
|
)
|
|
658
|
|
CASH
AT BEGINNING OF PERIOD
|
|
|
73,596
|
|
|
783,133
|
|
|
-
|
|
CASH
AT END OF PERIOD
|
|
$
|
658
|
|
$
|
697,784
|
|
$
|
658
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed financial
statements.
SAND
HILL IT SECURITY ACQUISITION CORP.
(A
Corporation in the Development Stage)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
1. BASIS
OF PRESENTATION
The
financial statements included herein as of and for the three months ended March
31, 2006 and March 31, 2005, the period from inception (April 15, 2004) to
March
31, 2006, have been prepared by Sand Hill IT Security Acquisition Corp. (the
“Company”) without audit pursuant to the rules and regulations of the United
States Securities and Exchange Commission (“SEC”) and include the accounts of
the Company and its subsidiary, Sand Hill Merger Corp. Accordingly, these
statements reflect all adjustments (consisting only of normal recurring
entries), which are, in the opinion of the Company, necessary for a fair
presentation of the financial results for the interim periods. Certain
information and notes normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
of
America have been condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to make the
information presented not misleading. Operating results for the interim periods
presented are not necessarily indicative of the results that may be expected
for
the full fiscal year. These
financial statements should be read in conjunction with the financial statements
that were included in the Company’s Annual Report on Form 10-KSB for the year
ended December 31, 2005.
2. 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. Subsequently, the underwriters exercised their over
allotment option and the Company received an additional $2,861,100 in proceeds,
net of the underwriters’ discount. 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. An amount equal to $20,961,000 was placed in an interest bearing
trust account (the “Trust Fund”) 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 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.
The
Company, after signing a definitive agreement for the merger with or acquisition
of a target business, will submit such 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 and exercise their
conversion rights, 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 (the “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 (the “Public Stockholders”)
with respect to a Business Combination. The Business Combination will not be
completed unless more than 50% of the Public Stockholders vote in favor of
the
transaction. After consummation of the Company’s first Business Combination,
these voting safeguards will 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. 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 offered in the Offering as described in Note 3). On
October 26, 2005, the Company entered into a definitive merger agreement
(see Note 6).
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 units.
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 entitles 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 are 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 the exercise price of the Warrants included in
the
Units will be $6.65 per share.
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 the warrants 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
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), March
31, 2005, and March 31, 2006 was $5,343,000, $4,932,000, and $7,315,800,
respectively.
Amounts
reported as warrant liability income or expense in the accompanying statement
of
operations resulting from the change in valuation of the warrant liability
was
income in the amount of $411,000 and expense in the amount of $895,980 for
the
three months ended March 31, 2005 and 2006 respectively.
The
Company had previously issued financial statements which accounted for the
warrants as stockholders’ equity. 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:
|
|
As
of March 31, 2005
|
|
As
of March 31, 2006
|
|
|
|
|
As
Previously Reported
|
|
|
As
Restated
|
|
|
As
Previously Reported
|
|
|
As
Restated
|
|
Total
Assets
|
|
$
|
22,019,364
|
|
$
|
22,019,364
|
|
$
|
21,964,305
|
|
$
|
21,964,305
|
|
Total
Liabilities
|
|
$
|
60,270
|
|
$
|
4,992,270
|
|
$
|
344,521
|
|
$
|
7,660,321
|
|
Common
Stock Subject to Conversion
|
|
$
|
4,241,936
|
|
$
|
4,241,936
|
|
$
|
4,368,599
|
|
$
|
4,368,599
|
|
Stockholders’
Equity
|
|
$
|
17,717,158
|
|
$
|
12,785,158
|
|
$
|
17,251,185
|
|
$
|
9,935,385
|
|
|
|
Three
Months Ended
March
31, 2005
|
|
Three
Months Ended
March
31, 2006
|
|
|
|
|
As
Previously Reported
|
|
|
As
Restated
|
|
|
As
Previously Reported
|
|
|
As
Restated
|
|
Warrant
Liability Income (Expense)
|
|
$
|
--
|
|
$
|
411,000
|
|
$
|
--
|
|
$
|
(895,980
|
)
|
Net
Income (Loss)
|
|
$
|
(48,250
|
)
|
$
|
362,750
|
|
$
|
51,482
|
|
$
|
(844,498
|
)
|
Net
Income (Loss) Per Share-Basic
|
|
$
|
(0.01
|
)
|
$
|
0.10
|
|
$
|
0.01
|
|
$
|
(0.17
|
)
|
Net Income
(Loss) Per Share-Diluted
|
|
$
|
(0.01
|
)
|
$
|
0.00
|
|
$
|
0.01
|
|
$
|
(0.17
|
)
|
4. TREASURY
SECURITIES
Treasury
securities are classified as trading securities and are carried at fair value,
with gains or losses resulting from changes in fair value recognized currently
in earnings.
5. PROPOSED
BUSINESS COMBINATION
On
October 26, 2005, the Company and its wholly-owned subsidiary Sand Hill
Merger Corp., a Delaware corporation (“Merger Sub”), entered into a definitive
Agreement and Plan of Merger (the “Merger Agreement”) with St. Bernard
Software, Inc., a Delaware corporation (“St. Bernard”), pursuant to
which Merger Sub will merge with and into St. Bernard in an all-stock
transaction (the “Merger”). At the effective time of the Merger,
St. Bernard will be the surviving corporation and become a wholly-owned
subsidiary of the Company.
6. COMMITMENT
The
Company presently occupies office space provided by an Initial Stockholder
and
affiliate of the officers and directors of the Company. 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.
7. NOTES
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. During the quarterly period ended March 31, 2006 certain affiliates
of
the Company advanced an aggregate of $45,000 to the Company to cover expenses
related to the merger described in Note 6 above. The Broomfield Family Trust
advanced $25,000 to the Company and Sand Hill Security, LLC advanced $20,000
to
the Company. The Company entered into unsecured promissory notes in connection
with the loans. The loans accrue interest at a rate of ten percent per annum
and
are payable on
the
earlier of the consummation of the merger described in Note 6 above and July
26,
2006.
8. COMMON
STOCK
At
March
31, 2006, 50,000,000 shares of $0.01 par value common stock were authorized
and
5,110,000 shares were outstanding.
9. PREFERRED
STOCK
The
Company is authorized to issue 5,000,000 shares of preferred stock with such
designations, voting and other rights and preferences as may be determined
from
time to time by the Board of Directors.
10. EARNINGS
PER SHARE
For
the
three months ended March 31, 2005 and 2006 and the period from April 15, 2004
(inception) to March 31, 2006, the following table sets forth the number of
dilutive shares that may be issued pursuant to warrants currently outstanding,
which number was used in the per share calculations.
|
|
Three
Months Ended April 30,
|
|
|
2006
|
|
2005
|
|
|
|
|
|
Warrants
|
|
-
|
|
8,220,000
|
|
|
-
|
|
8,220,000
|
Item
2. Management’s Discussion and Analysis or Plan of
Operation
The
following discussion should be read in conjunction with the financial statements
and footnotes thereto incorporated by reference in this report.
Forward
Looking Statements
Certain
statements contained in this interim report that are not historical facts,
including, but not limited to, statements that can be identified by the use
of
forward-looking terminology such as “may,” “expect,” “anticipate,” “predict,”
“believe,” “plan,” “estimate” or “continue” or the negative thereof or other
variations thereon or comparable terminology, are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
and
involve a number of risks and uncertainties. The actual results of the future
events described in such forward-looking statements in this interim report
could
differ materially from those stated in such forward-looking statements due
to
various factors, including but not limited to, our being a development stage
company with no operating history, our dependence on key personnel some of
whom
may join us following a business combination, our personnel allocating their
time to other businesses and potentially having conflicts of interest with
our
business, our potentially being unable to obtain additional financing to
complete a business combination, the ownership of our securities being
concentrated, risks associated with the IT security industry and those other
risks and uncertainties detailed in the Company’s filings with the Securities
and Exchange Commission, including our Registration Statement on Form S-1 that
was declared effective July 26, 2004 and the definitive Prospectus thereunder,
our annual report on Form 10-KSB filed with the Securities and Exchange
Commission on March 17, 2006, and the uncertainties set forth from time to
time
in the Company’s filings and other public statements. The following discussion
should be read in conjunction with our Financial Statements and related Notes
thereto included elsewhere in this report.
Plan
of Operation
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 our initial public offering
(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. Our activities to date have been comprised solely of
organizational activities, preparing for and consummating the Offering, and
efforts associated with identifying a target for a business
combination.
The
net
proceeds from the Offering and the capital contributed by our Initial
Stockholders amounted to approximately $22.02 million. As of March 31, 2006,
we
had cash of $658, and treasury securities in our trust account (at cost) of
$21,530,847; a total of approximately $21.9 million. The difference between
the
sum of our initial capital plus the net proceeds of the Offering reduced by
our
cash and amount we placed in trust is approximately $140,000. Through
March 31, 2006, we have used $1,067,569 of the net proceeds that were not
deposited into the trust fund to pay general and administrative expenses. The
net proceeds deposited into the trust fund remain on deposit in the trust fund
and have earned $991,780 in interest and $10,929 on money market accounts
through March 31, 2006.
For
the
three months ended March 31, 2006, we recorded interest income from the
accretion in value of our trust account of $222,217. We incurred an operating
loss of $170,735 for that same period. Our expenses consist primarily of
professional fees, rents, fees and taxes, insurance, travel and other certain
other expenses 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 the second quarter of 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.
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. During
the quarterly period ended March 31, 2006 certain affiliates of the Company
advanced an aggregate of $45,000 to the Company to cover expenses related to
the
merger described below. The Broomfield Family Trust advanced $25,000 to the
Company and Sand Hill Security, LLC advanced $20,000 to the Company. The Company
entered into unsecured promissory notes in connection with the loans. The loans
accrue interest at a rate of ten percent per annum and are payable on
the
earlier of the consummation of the merger of St. Bernard Software, Inc. and
Sand
Hill Merger Corp. and July 26, 2006.
On
October 26, 2005, the Company
and its
wholly-owned subsidiary Sand Hill Merger Corp., a Delaware corporation (“Merger
Sub”) entered into a definitive Agreement and Plan of Merger (the “Merger
Agreement”) with St. Bernard Software, Inc., a Delaware corporation
(“St. Bernard”), pursuant to which Merger Sub will merge with and into
St. Bernard in an all-stock transaction (the “Merger”). At the effective
time of the Merger, St. Bernard will be the surviving corporation and
become a wholly-owned subsidiary of the Company. On December 16, 2005, the
Company filed a joint proxy statement/prospectus with the Securities and
Exchange Commission relating to the Merger as part of a registration statement
on Form S-4. The joint proxy statement/prospectus on Form S-4 was amended and
refiled with the Securities and Exchange Commission on March 17, 2006 and April
26, 2006.
Item
3. Controls and Procedures
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 March 31, 2006 (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.
PART
II. OTHER INFORMATION
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
(a) Unregistered
Sales of Equity Securities by Small Business Issuer.
None.
(b) Use
of
Proceeds.
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.
PART
II. OTHER INFORMATION
Item
6. Exhibits and Reports on Form 8-K
(a) Exhibits:
31.1 Section
302 Certification by CEO
31.2 Section
302 Certification by CFO
32.1 Section
906 Certification by CEO
32.2 Section
906 Certification by CFO
(b) Reports
on Form 8-K:
Date
|
|
Items
|
|
Financial
Statements
|
March
17, 2006
|
|
8.01
and 9.01
|
|
None
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the Registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
|
|
Dated: June 21, 2006 |
|
|
|
SAND
HILL IT
SECURITY ACQUISITION CORP. |
|
|
|
/s/ Humphrey P. Polanen |
|
Humphrey P. Polanen
Chief
Executive Officer
|
|
|
|
|
|
/s/ Keith Walz |
|
Keith Walz
Chief Financial Officer and Secretary
|
|
|
EXHIBIT
INDEX
Number |
Description |
|
|
31.1 |
Section
302 Certification by CEO |
|
|
31.2 |
Section 302 Certification by CFO |
|
|
32.1 |
Section
906 Certification by CEO
|
|
|
32.2 |
Section
906 Certification by CFO
|