(a
development stage company)
Notes
to Unaudited Financial Statements — (Continued)
NOTE
A — ORGANIZATION AND PROPOSED BUSINESS OPERATIONS
Nature
of Operations
Star
Maritime Acquisition Corp. (the “Company”) was incorporated in Delaware on May
13, 2005. The Company was formed to serve as a vehicle for the acquisition
through a merger, capital stock exchange, asset acquisition, or other similar
business combination (“Business Combination”) with one or more businesses in the
shipping industry. The Company has not acquired an entity as of June 30,
2006. The Company has selected December 31 as its fiscal year end. The Company
is considered to be in the development stage and is subject to the risks
associated with activities of development stage companies.
The
financial statements at June 30, 2006 and for the periods from inception
to June
30, 2006, for the three months ended June 30, 2006, and for the six months
ended
June 30, 2006 are unaudited. In the opinion of management, all adjustments
(consisting of normal adjustments) have been made that are necessary to the
present fairly the financial position of the Company as of June 30, 2006,
the
results of its operation for the three month and six month period ended June
30,
2006, for the period May 13, 2005 (inception) through June 30, 2005, and
for the
period from May 13, 2005 (inception) through June 30, 2006. Operating results
for the interim period presented are not necessarily indicative of the results
to be expected for a full year. The condensed balance sheet at December 31,
2005
has been derived from the audited financial statements.
The
registration statement for the Company’s initial public offering (the “Public
Offering”) was declared effective on December 15, 2005. The Company completed a
private placement (the “Private Placement”) on such date and received net
proceeds of $10,532,250. The Company consummated the Public Offering on December
21, 2005 and
received net proceeds (net of both paid and accrued financing costs) of
$174,567,370. The Company’s management has broad discretion with respect
to the specific application of the net proceeds of the Private Placement
and the
Public Offering (collectively the “Offerings”) (as described in Note 2),
although substantially all of the net proceeds of the Offerings are intended
to
be generally applied toward consummating a business combination with a target
company. As used herein, a “target business” shall include an operating business
in the international maritime industry and a “business combination” shall mean
the acquisition by the Company of a target business.
Of
the
proceeds of the Offerings, $188,675,000 was deposited in a trust
account (“Trust Account”) and invested until the earlier of (i) the consummation
of the first business combination or (ii) the distribution of the Trust Account
as described below. The amount in the Trust Account includes $3,773,500 of
contingent underwriting compensation and $226,500 of contingent
private placement fees (collectively, the “Discount”) which will be paid to the
underwriters if a business combination is consummated, but which will be
forfeited in part if public stockholders elect to have their shares redeemed
for
cash if a business combination is not consummated. The remaining proceeds
may be
used to pay for additional financing costs accrued but not yet paid, business,
legal and accounting due diligence on prospective acquisitions and continuing
general and administrative expenses.
Star
Maritime Acquisition Corporation
(a
development stage company)
Notes
to Unaudited Financial Statements — (Continued)
The
Company, after signing a definitive agreement for the acquisition of a target
business, will submit such transaction for stockholder approval. In the event
that public stockholders owning 33% or more of the outstanding stock sold
in the
Proposed Offerings vote against the business combination and elect to have
the
Company redeem their shares for cash, the business combination will not be
consummated. All of the Company’s stockholders prior to the Proposed Offerings,
including all of the officers and directors of the Company (“Initial
Stockholders”), have agreed to vote their 9,026,924 founding shares of common
stock in accordance with the vote of the majority in interest of all other
stockholders of the Company with respect to any business combination and
to vote
the shares they acquired in the Private Placement or in the aftermarket in
favor
of the business combination. After consummation of the Company’s first business
combination, all of these voting safeguards will no longer be
applicable.
With
respect to the first business combination which is approved and consummated,
any
holder of shares sold in the Public Offering, other than the Initial
Stockholders and their nominees (the “Public Stockholders”) who voted against
the business combination may demand that the Company redeem his or her shares.
The per share redemption price will equal $10.00 per share (inclusive of
a pro
rata portion of the discount ($.20 per share) and interest earned thereon,
net
of taxes payable). Accordingly, Public Stockholders holding 32.99% of the
aggregate number of shares sold in the Proposed Offerings may seek redemption
of
their shares in the event of a business combination.
The
Company’s Certificate of Incorporation provides for 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 consummation
of the Public Offering, or 24 months from the consummation of the Public
Offering if certain extension criteria have been satisfied. Our founding
stockholders have agreed to waive their rights to participate in any liquidation
distribution occurring upon our failure to consummate a business combination
with respect to those shares of common stock acquired by them prior to this
offering and with respect to the shares included in the 1,132,500 units our
officers and directors or their nominees are purchasing in the private
placement. In addition, the underwriters have agreed to waive their rights
to
the $3,773,500 of contingent compensation and $226,500 of placement fees
deposited in the trust account for their benefit. Accordingly, in the event
we
liquidate, our public stockholders will receive $10.00 per unit plus interest
(net of taxes payable and that portion of the earned interest previously
released o us). We will pay the costs of liquidation and dissolution from
our
remaining assets outside of the trust account.
Note
B - Recent Accounting Pronouncements
In
December 2004, the Financial Accounting Standards Board issued statement
of
Financial Accounting Standards No. 123 (revised 2004) (“SFAS 123 (R)”), “Share
Based Payment”. SFAS 123 (R) required all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial
statements based on their fair values. The company does not believe that
the
adoption of SFAS 123(R) would have had a significant impact on its financial
condition or result of operations.
In
June
2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in
Income Taxes-an Interpretation of FASB Statement No. 109" ("FIN 48"). FIN
48
clarifies the accounting for uncertainty in income taxes recognized in
a
company's financial statements in accordance with SFAS No. 109, "Accounting
for
Income Taxes." FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a
tax
position taken or expected to be taken in a tax return. FIN 48 is
effective for fiscal years beginning after December 15, 2006.
Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect
on the
accompanying financial statements.
Star
Maritime Acquisition Corporation
(a
development stage company)
Notes
to Unaudited Financial Statements —
(Continued)
NOTE
C—COMMITMENTS
The
Company has agreed to pay to an unaffiliated third party, $7,500 a month
for 24
months, which commenced in January 2006, for office space and general and
administrative expenses. Rent expense under this agreement for each of the
periods from May 13, 2005 (inception) to June 30, 2006 and from January 1,
2006
to June 30, 2006 amounted to $44,000 and $44,000 respectively.
NOTE
D—COMMON STOCK RESERVED FOR ISSUANCE
On
May
17, 2005, the Company issued 9,026,924 shares of common stock. On December
15,
2005 the Company issued 1,132,500 shares of common stock in connection with
a
private placement. On December 21, 2005 the Company issued 18,867,500 shares
of
common stock in connection with the IPO. At March 31, 2006 20,000,000 shares
of
common stock were reserved for issuance upon exercise of redeemable
warrants.
Note
E - Preferred Stock
The
Company is authorized to issue 1,000,000 shares of preferred stock with such
designations, voting, and other rights and preferences, as maybe determined
from
time to time by the Board of Directors.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS
Forward
Looking Statements
This
Quarterly Report on Form 10-Q includes forward-looking statements within
the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to known and
unknown
risks, uncertainties and assumptions about us that may cause our actual results,
levels of activity, performance or achievements to be materially different
from
any future results, levels of activity, performance or achievements expressed
or
implied by such forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as “may,” “should,” “could,”
“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or
the negative of such terms or other similar expressions. Factors that might
cause or contribute to such a discrepancy include, but are not limited to,
those
described under Item 1A “Risk Factors” in our Annual Report on Form 10-K and in
our other Securities and Exchange Commission filings. The following discussion
should be read in conjunction with our Financial Statements and related Notes
thereto included elsewhere in this report.
Overview
We
were
formed on May
13,
2005 to acquire, through a merger, capital stock exchange, asset acquisition
or
other similar
business combination, one or more businesses in the shipping
industry.
Our
initial business combination must be with a target business or businesses
whose
fair market value is at least equal to 80% of our net assets at the time
of such
acquisition. We intend to utilize cash derived from the proceeds of our recently
completed initial public offering, our capital stock, debt or a combination
of
cash, capital stock and debt, in effecting a business combination.
Critical
Accounting Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to
make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of
expenses during the reporting period. Actual results could differ from those
estimates.
In
June
2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in
Income Taxes-an Interpretation of FASB Statement No. 109" ("FIN 48").
FIN 48
clarifies the accounting for uncertainty in income taxes recognized in
a
company's financial statements in accordance with SFAS No. 109, "Accounting
for
Income Taxes." FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of
a tax
position taken or expected to be taken in a tax return. FIN 48 is effective
for fiscal years beginning after December 15, 2006.
Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect
on the
accompanying financial statements.
Results
of Operations for the Period April 1, 2006 to June 30, 2006
For
the quarter ending June 30, 2006 we earned net income after taxes of
$788,119
($1,150,007
before the deduction of $361,888 of net interest attributable to common stock
subject to possible redemption). Since we did not have any operations, all
of
our income was derived from interest income, most of which was earned on
funds
held in the trust account. Our operating expenses during the period were
$267,397
and consisted primarily of expenses related to pursuing a business combination,
professional fees and the monthly administrative fee of $7,500 paid to Schwartz
& Weiss, P.C. We also provided for $316,801 in income taxes.
Results
of Operations for the Period January 1, 2006 to June 30, 2006
For
the six months ending June 30, 2006 we earned net income after taxes of
$1,645,312 ($2,496,883
before the deduction of $851,571 of net interest attributable to common stock
subject to possible redemption). Since we did not have any operations, all
of
our income was derived from interest income, most of which was earned on
funds
held in the trust account. Our operating expenses during the period were
$
383,228
and consisted primarily of expenses related to pursuing a business combination,
professional fees and the monthly administrative fee of $7,500 paid to Schwartz
& Weiss, P.C. We also provided for $338,431 in income taxes.
Liquidity
and Capital Resources.
On
December 15, 2005, we sold 1,132,500 units in a private placement to certain
of
our officers and directors. On December 21, 2005, we consummated our initial
public offering of 18,867,500 units. Each unit in the private placement and
the
public offering consists of one share of common stock and one redeemable
common
stock purchase warrant. Each warrant entitles the holder to purchase from
us one
share of our common stock at an exercise price of $8.00. Our common stock
and
warrants started trading separately as of February 27, 2006.
The
net
proceeds from the sale of our units, after deducting certain offering expenses
of $10,217,665 including underwriting discounts and commissions and placement
fees, were $189,807,335. Of this amount, $188,675,000 was placed in the trust
account, $599,163 was used to repay debt and interest to Mr. Tsirigakis for
a
loan used to cover expenses related to the public offering and the remaining
proceeds of $533,172 was deposited and is being held outside of the trust
account. The remaining proceeds (less $170,000 of additional financing fees
which are accrued but not yet paid) are available to be used by us to provide
for business, legal and accounting due diligence on prospective acquisitions
and
continuing general and administrative expenses. The net proceeds deposited
into
the trust account remain on deposit in the trust account earning interest.
During the quarter ended June 30, 2006 we transferred $690,185 from the trust
account to the operating account for various general and administrative expenses
incurred during the quarter. As of June 30, 2006, there was approximately
$191,000,000 held in the trust account, of which up to $4,000,000 will be
paid
to the underwriters if a business combination is consummated, but which will
be
forfeited in part if public stockholders elect to have their shares redeemed
for
cash if a business combination is not consummated. We will use substantially
all
of the net proceeds of the public offering to acquire a target business,
including identifying and evaluating prospective acquisition candidates,
selecting the target business, and structuring, negotiating and consummating
the
business combination. To the extent that our capital stock is used in whole
or
in part as consideration to effect a business combination, the proceeds held
in
the trust account as well as any other net proceeds not expended will be
used to
finance the operations of the target business.
At
the
time we seek stockholder approval of our initial business combination, we
will
offer each public stockholder the right to have such stockholder’s shares of
common stock redeemed for cash if the stockholder votes against the business
combination and the business combination is approved and completed. The actual
per-share redemption price will be equal to the amount in the trust account
(calculated as of two business days prior to the consummation of the proposed
business combination), inclusive of any interest, net of taxes payable, divided
by the number of shares sold in the public offering. We may effect a business
combination so long as public stockholders owning no more than 32.99% of
the
shares sold in the offering vote against the business combination and exercise
their redemption rights. In accordance with the terms of the Offering, 6,598,000
shares of common stock are subject to possible redemption. Accordingly, at
June
30, 2006 , $64,660,400, of the net proceeds from the Offering, has been
classified as common stock subject to possible redemption in the Company’s
balance sheet.
We
believe we will have sufficient available funds outside of the trust account
to
operate through December 21, 2007, assuming that a business combination is
not
consummated during that time. We do not believe we will need to raise additional
funds in order to meet the expenditures required for operating our business.
However, we may need to raise additional funds through a private offering
of
debt or equity securities if such funds are required to consummate a business
combination that is presented to us. We would only consummate such a financing
simultaneously with the consummation of a business combination.
Off-Balance
Sheet Arrangements
We
have
never entered into any off-balance sheet financing arrangements and have
never
established any special purpose entities. We have not guaranteed any debt
or
commitments of other entities or entered into any options on non-financial
assets.
Contractual
Obligations.
We
do not
have any long term debt, capital lease obligations, operating lease obligations,
purchase obligations or other long term liabilities.
ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market
risk is the sensitivity of income to changes in interest rates, foreign
exchanges, commodity prices, equity prices, and other market-driven rates
or
prices. We are not presently engaged in and, if a suitable business target
is
not identified by us prior to the prescribed liquidation date of the trust
account, we may not engage in, any substantive commercial business. Accordingly,
we are not and, until such time as we consummate a business combination,
we will
not be, exposed to risks associated with foreign exchange rates, commodity
prices, equity prices or other market-driven rates or prices. The net proceeds
of our initial public offering held in the trust account have been invested
only
in money market funds meeting certain conditions under Rule 2a-7 promulgated
under the Investment Company Act of 1940. Given our limited risk in our exposure
to money market funds, we do not view the interest rate risk to be significant.
ITEM
4. CONTROLS AND PROCEDURES
An
evaluation of the effectiveness of our disclosure controls and procedures
as of
June 30, 2006 was made under the supervision and with the participation of
our
management, including our chief executive officer and chief financial officer.
Based on that evaluation, they concluded that our disclosure controls and
procedures are effective as of the end of the period covered by this report
to
ensure that information required to be disclosed by us in reports that we
file
or submit under the Securities Exchange Act of 1934 is accumulated and
communicated to our management (including such officers) as appropriate to
allow
timely decisions regarding required disclosure and recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. During the period covered by this Quarterly
Report on Form 10-Q, there has been no significant change in our internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
None.
ITEM
1A. RISK FACTORS
In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual
Report on Form 10-K for the year ended December 31, 2005, which could materially
affect our business, financial condition or future results. The risks described
in our Annual Report on Form 10-K are not the only risks facing our Company.
Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our
business, financial condition and/or operating results.
If
we liquidate, the procedures we must follow under Delaware law are
time-consuming and may result in residual liability for our
stockholders
If
we do
not consummate a business combination by the later of June 21, 2007, or
December
21, 2007 in the event that a letter of intent, an agreement in principle
or a
definitive agreement to complete a business combination was executed but
not
consummated by June 21, 2007, then, pursuant to Article SIXTH of our certificate
of incorporation, and in accordance with Section 281(b) of the Delaware
General
Corporation Law , we will adopt a plan of dissolution, and as soon as reasonably
possible after dissolution, make liquidating distributions to our
stockholders.
Under
the
Delaware General Corporation Law, stockholders may be held liable for claims
by
third parties against a corporation to the extent of distributions received
by
them in a dissolution. To mitigate against this possibility, we have received
executed agreements from our vendors waiving any right, title, interest
or claim
of any kind in or to any monies held in the trust account. As a result
of this,
the claims that could be made against us are significantly limited and
the
likelihood that any claim would result in any liability extending to the
trust
account is minimal. If we wind up our affairs in compliance with either
Section
280 or 281(b) of the Delaware General Corporation Law following a dissolution,
pursuant to Section 282 of the Delaware General Corporation Law, the potential
liability of our stockholders will be limited to the lesser of the stockholder’s
pro-rata share of any claim or the amount distributed to the stockholder.
As we
do not anticipate seeking dissolution under the complex procedures of Section
280, we expect that, in accordance with Section 281(b), we will be required
to
seek stockholder approval of a plan of dissolution to provide for our payment,
based on facts known to us at such time, of existing and pending claims,
and claims that may be potentially brought against us within the subsequent
10 years. We estimate the costs associated with the implementation and
completion of such a plan of dissolution and liquidation, to be approximately
$50,000 to $75,000, which would be funded by any funds not held in our
trust
account and funds released to Stone to fund working capital.
The
procedures required for us to liquidate under the DGCL, or a vote to reject
any
plan of dissolution and distribution by our stockholders, may result in
substantial delays in the liquidation of our trust account to our public
stockholders as part of our plan of dissolution and distribution.
We
may choose to redeem our outstanding warrants at a time that is
disadvantageous to our warrant holders.
Subject
to there being a current prospectus under the Securities Act of 1933 , we
may redeem all our outstanding warrants at any time after they become
exercisable at a price of $.01 per warrant, upon a minimum of 30 days
prior written notice of redemption, if and only if, the last sale price of
our common stock equals or exceeds $14.25 per share for any 20 trading days
within a 30 trading day period ending three business days before we send
the notice of redemption. Calling all of our outstanding warrants for
redemption could force the warrant holders:
|
·
|
to
exercise the warrants and pay the exercise price therefor at a time
when it may be disadvantageous for the holders to do
so,
|
|
·
|
to
sell the warrants at the then current market price when they might
otherwise wish to hold the warrants,
or
|
|
·
|
to
accept the nominal redemption price which, at the time the warrants
are called for redemption, is likely to be substantially less than
the market value of
the warrants.
|
Our
warrant holders may not be able to exercise their warrants, which may create
liability for us.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
On
December 21, 2005,
we
consummated our initial public offering of 18,867,500 units. Each unit consists
of one share of common stock and one warrant. Each warrant entitles the holder
to purchase from us one share of our common stock at an exercise price of
$8.00.
The units were sold at an offering price of $10.00 per unit, generating total
gross proceeds of $188,675,000. Maxim Group LLC acted as lead underwriter.
The
securities sold in the offering were registered under the Securities Act
of 1933
on a registration statement on Form S-1 (No. 333-125662). The Securities
and
Exchange Commission declared the registration statement effective on December
15, 2005.
On
December 15, 2005, we consummated a private placement whereby certain of
our
officers and directors purchased an aggregate of 1,132,500 units at $10.00
per
unit, generating gross proceeds of $11,325,000. Maxim Group LLC acted as
the
placement agent.
We
incurred a total of $7,547,000 in underwriting discounts and commissions,
$453,000 in placement fees and $2,900,380 of expenses related to the public
offering and private placement.
After
deducting the underwriting
discounts and commissions, the placement fee and the offering expenses, the
total net proceeds to us from the offering and the private placement was
$189,782,335. Of
the
proceeds of the Offerings, $188,675,000 was deposited in a trust account
and
invested until the earlier of (i) the consummation of the first business
combination or (ii) the distribution of the trust account as described below.
The amount in the Trust Account includes $3,773,500 of contingent underwriting
compensation and $226,500 of contingent private placement fees which will
be
paid to the underwriters if a business combination is consummated, but which
will be forfeited in part if public stockholders elect to have their shares
redeemed for cash if a business combination is not consummated. $599,163
of the
net proceeds were used to repay debt and interest to Mr. Tsirigakis for a
loan
used to cover expenses related to the public offering and the remaining proceeds
in the amount of $533,172 (less approximately $170,000 of additional financing
fees accrued but not yet paid) may be used to pay for business, legal and
accounting due diligence on prospective acquisitions and continuing general
and
administrative expenses.
From
April 1, 2006 through June 30, 2006, we have incurred $267,397 of expenses
towards the net proceeds that were not deposited into the trust account to
pay
operating expenses. The net proceeds deposited into the trust account remain
on
deposit in the trust account earning interest. As of June 30, 2006, there
was
$191,071,916 held in the trust account, including interest income of
$2,396,916
The
net
proceeds of the offering in the amount of $188,675,000 deposited into the
trust
account have been invested in short-term U.S. Government Securities,
specifically Treasury Bills, having a maturity date of 180 days or
less.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM
5. OTHER INFORMATION
None
ITEM
6. EXHIBITS
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|
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Exhibit
No.
|
|
Description
|
31.1
|
|
Certification
of the Chief Executive Officer (Principal Executive Officer)
pursuant to
Rule 13a-14(a) of
the Securities Exchange Act, as amended
|
31.2
|
|
Certification
of the Chief Financial Officer and (Principal Accounting Officer)
pursuant
to Rule 13a-14(a) of
the Securities Exchange Act, as amended
|
32.1
|
|
Certification
of the Chief Executive Officer (Principal Executive Officer)
and Chief
Financial Officer (Principal Accounting Officer) pursuant to
18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 .
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SIGNATURES