x
|
Quarterly
report under Section 13 or 15(d) of the Securities Exchange Act of
1934
|
|
For
the quarterly period ended June
30, 2006
|
o
|
Transition
report under Section 13 or 15(d) of the Exchange
Act
|
|
For
the transition period from _____________ to
_____________
|
Fortress
America Acquisition Corporation
|
||||||
(Exact
Name of Small Business Issuer as Specified in Its
Charter)
|
||||||
Delaware
|
|
20-2027651
|
||||
(State
or other Jurisdiction of Incorporation
or Organization)
|
|
(I.R.S.
Employer Identification
No.)
|
||||
4100
North Fairfax Drive, Suite 1150
|
||||||
Arlington,
Virginia 22203-1664
|
||||||
(Address
of Principal Executive Office)
|
||||||
(703)
528-7073
|
||||||
(Issuer's
Telephone Number, Including Area Code)
|
||||||
PART
I. FINANCIAL INFORMATION
|
Page
|
Item
1 - Financial Statements
|
|
Condensed
Balance Sheet
|
3
|
Condensed
Statements of Operations
|
4
|
Condensed
Statements of Stockholders' Equity
|
5
|
Condensed
Statements of Cash Flows
|
6
|
Notes
to Financial Statements
|
7
|
Item
2 - Management's Discussion and Analysis or Plan of
Operation
|
11
|
Item
3 - Controls and Procedures
|
12
|
PART
II. OTHER INFORMATION
|
13
|
Item
6 - Exhibits
|
13
|
Signatures
|
14
|
|
June
30, 2006 (unaudited)
|
December
31, 2005
|
|||||
|
|||||||
Assets
|
|||||||
Current
assets:
|
|||||||
Cash
|
$
|
217,732
|
$
|
992,547
|
|||
Investments
held in Trust Fund
|
43,557,243
|
42,603,801
|
|||||
Prepaid
expenses
|
11,250
|
50,165
|
|||||
Total
current assets
|
43,786,225
|
43,646,513
|
|||||
|
|||||||
Deferred
acquisition costs
|
75,000
|
-
|
|||||
Deferred
tax asset
|
314,315
|
132,000
|
|||||
Total
assets
|
$
|
44,175,540
|
$
|
43,778,513
|
|||
|
|||||||
Liabilities
and Stockholders’ Equity
|
|||||||
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable and accrued expenses
|
$
|
43,084
|
$
|
105,308
|
|||
Income
taxes payable
|
212,606
|
206,194
|
|||||
Deferred
interest on investments
|
318,497
|
127,904
|
|||||
Total
current liabilities
|
574,187
|
439,406
|
|||||
|
|||||||
Common
stock, subject to possible conversion, 1,559,220 shares at conversion
value
|
8,388,604
|
8,388,604
|
|||||
Commitment
|
|||||||
|
|||||||
Stockholders'
equity
|
|||||||
Preferred
stock, $.0001 par value, Authorized 1,000,000 shares; none
issued
|
-
|
-
|
|||||
Common
stock, $.0001 par value
|
|||||||
Authorized
50,000,000 shares
|
|||||||
Issued
and outstanding 9,550,000 shares (which includes 1,559,220 subject
to
possible conversion)
|
955
|
955
|
|||||
Additional
paid-in capital
|
34,819,062
|
34,819,062
|
|||||
Income
accumulated during the development stage
|
392,732
|
130,486
|
|||||
Total
stockholders' equity
|
35,212,749
|
34,950,503
|
|||||
Total
liabilities and stockholders' equity
|
$
|
44,175,540
|
$
|
43,778,513
|
|||
|
For
the Three Months
Ended June
30, 2006
|
For
the Six
Months
Ended
June
30, 2006
|
For
the Three
Months
Ended
June
30, 2005
|
For
the Six
Months
Ended
June
30, 2005
|
For
the Period December 20, 2004
(inception)
to
June
30, 2006
|
|||||||||||
Income:
|
||||||||||||||||
Net
interest income
|
$
|
410,904
|
$
|
772,465
|
$
|
-
|
$
|
-
|
$
|
1,297,895
|
||||||
Total
income
|
410,904
|
772,465
|
-
|
-
|
1,297,895
|
|||||||||||
Expenses:
|
||||||||||||||||
Formation
and operating costs
|
198,920
|
375,122
|
1,080
|
1,646
|
695,872
|
|||||||||||
|
||||||||||||||||
Net
income (loss) for the period before income taxes
|
211,984
|
397,343
|
(1,080
|
)
|
(1,646
|
)
|
602,023
|
|||||||||
SState and federal income taxes
|
72,075
|
135,097
|
-
|
-
|
209,291
|
|||||||||||
Net
income (loss) for the period
|
$
|
139,909
|
$
|
262,246
|
$
|
(1,080
|
)
|
$
|
(1,646
|
)
|
$
|
392,732
|
||||
Weighted
average number of shares outstanding - basic and
diluted
|
9,550,000
|
9,550,000
|
1,750,000
|
1,562,155
|
6,474,955
|
|||||||||||
Net
income (loss) per share - basic and diluted
|
$
|
.01
|
$
|
.03
|
$
|
(.00
|
)
|
$
|
(.00
|
)
|
$
|
.06
|
Common
Stock
|
Additional
paid-in |
Income
(Deficit) Accumulated During the
Development
|
|
|||||||||||||
|
Shares
|
Amount
|
capital
|
Stage
|
Total
|
|||||||||||
Common
shares issued December 20, 2004 at $.02 per share
|
1,250,000
|
$
|
125
|
$
|
24,875
|
$
|
25,000
|
|||||||||
Net
Loss
|
|
|
|
$
|
(1,056
|
)
|
(1,056
|
)
|
||||||||
Balance
at December 31, 2004
|
1,250,000
|
125
|
24,875
|
(1,056
|
)
|
23,944
|
||||||||||
Redemption
of common stock
|
(1,250,000
|
)
|
(125
|
)
|
(24,875
|
)
|
(25,000
|
)
|
||||||||
Common
shares issued March 9, 2005 at $0.01429 per share
|
1,750,000
|
175
|
24,825
|
25,000
|
||||||||||||
Common
shares issued July 20, 2005, net of underwriters’ discount and offering
expenses (includes 1,399,300 shares subject to possible
conversion)
|
7,000,000
|
700
|
38,687,329
|
38,688,029
|
||||||||||||
Common
shares issued August 24, 2005, net of underwriters’ discount and offering
expenses (includes 159,920 shares subject to possible
conversion)
|
800,000
|
80
|
4,495,412
|
4,495,492
|
||||||||||||
Proceeds
subject to possible conversion of 1,559,220 shares
|
(8,388,604
|
)
|
(8,388,604
|
)
|
||||||||||||
Proceeds
from issuance of option
|
100
|
100
|
||||||||||||||
Net
Income
|
|
|
|
131,542
|
131,542
|
|||||||||||
Balance
at December 31, 2005
|
9,550,000
|
955
|
34,819,062
|
130,486
|
34,950,503
|
|||||||||||
Unaudited:
|
||||||||||||||||
Net
income
|
|
|
262,246
|
262,246
|
||||||||||||
Balance
at June 30, 2006
|
9,550,000
|
$
|
955
|
$
|
34,819,062
|
$
|
392,732
|
$
|
35,212,749
|
|
For
the Six
Months Ended June 30, 2006 |
For
the Six
Months
Ended
June
30, 2005
|
For
the period December 20, 2004
(inception)
to
June
30, 2006
|
|||||||
Cash
flow from operating activities
|
||||||||||
Net
income (loss)
|
$
|
262,246
|
$
|
(1,646
|
)
|
$
|
392,732
|
|||
Adjustments
to reconcile net income (loss) to net cash used in operating
activities:
|
||||||||||
Deferred
income taxes
|
(182,315
|
)
|
-
|
(314,315
|
)
|
|||||
Interest
income on treasury bills
|
(953,442
|
)
|
-
|
(1,593,243
|
)
|
|||||
Decrease
(Increase) in prepaid expenses
|
38,915
|
-
|
(11,250
|
)
|
||||||
(Decrease)
Increase in accounts payable and accrued expenses
|
(62,224
|
)
|
-
|
43,084
|
||||||
Increase
in income taxes payable
|
6,412
|
-
|
212,606
|
|||||||
Increase
in deferred interest
|
190,593
|
-
|
318,497
|
|||||||
Net
cash used in operating activities
|
(699,815
|
)
|
(1,646
|
)
|
(951,889
|
)
|
||||
Cash
flows from investing activities
|
||||||||||
Payment
of deferred acquisition costs
|
(75,000
|
)
|
(75,000
|
)
|
||||||
Investments
placed in Trust Fund
|
-
|
-
|
(41,964,000
|
)
|
||||||
Net
cash used in investing activities
|
(75,000
|
)
|
-
|
(42,039,000
|
)
|
|||||
|
||||||||||
Cash
flows from financing activities
|
||||||||||
Gross
proceeds of public offering, including over-allotment option
exercise
|
-
|
-
|
46,800,000
|
|||||||
Proceeds
of issuance of option
|
-
|
-
|
100
|
|||||||
Proceeds
from notes payable, stockholders
|
-
|
57,500
|
70,000
|
|||||||
Payment
of notes payable, stockholders
|
-
|
-
|
(70,000
|
)
|
||||||
Proceeds
from sale of shares of common stock
|
-
|
25,000
|
50,000
|
|||||||
Redemption
of common stock
|
-
|
(25,000
|
)
|
(25,000
|
)
|
|||||
Payment
of costs of public offering, including over-allotment option
exercise
|
-
|
-
|
(3,616,479
|
)
|
||||||
Payment
of deferred offering costs
|
(80,204
|
)
|
-
|
|||||||
Advances
from stockholder
|
-
|
1,517
|
-
|
|||||||
Net
cash (used in) provided by financing activities
|
-
|
(21,187
|
)
|
43,208,621
|
||||||
|
||||||||||
Net
(decrease) increase in cash
|
(774,815
|
)
|
(22,833
|
)
|
217,732
|
|||||
Cash
at beginning of the period
|
992,547
|
25,000
|
-
|
|||||||
Cash
at the end of the period
|
$
|
217,732
|
$
|
2,167
|
$
|
217,732
|
1.
Organization
and Proposed Business Operations
|
|
Fortress
America Acquisition Corporation (the “Company”) was incorporated in
Delaware on December 20, 2004 as a blank check company, the objective
of
which is to acquire one or more operating businesses in the homeland
security industry. The Company has elected December 31 as its fiscal
year-end.
|
The
financial statements at June 30, 2006 and for the periods from inception
to June 30, 2006 and the three and six month periods ended June 30,
2006
are unaudited. In the opinion of management, all adjustments (consisting
of normal adjustments) have been made that are necessary to present
fairly
the financial position of the Company as of June 30, 2006, the results
of
its operations for the three and six month periods ended June 30,
2006 and
2005 and for the period from December 20, 2004 (inception) through
June
30, 2006, and its cash flows for the six month period ended June
30, 2006
and for the period from December 20, 2004 (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
Company was formed on December 20, 2004 and consummated an initial
public
offering (“IPO”) on July 20, 2005. In addition, on August 24, 2005 the
underwriters for the IPO exercised their over-allotment option (the
“Over-Allotment Option Exercise” and, together with the IPO, the
“Offering”). The Offering generated total net proceeds of $43,183,521. The
Company’s management has broad discretion with respect to the specific
application of the net proceeds of the Offering, although substantially
all the net proceeds of the Offering are intended to be generally
applied
toward consummating a business combination with (or acquisition of)
one or
more operating businesses in the homeland security industry (“Business
Combination”). Furthermore, there is no assurance that the Company will be
able to successfully effect a Business Combination. Upon the closing
of
the Offering, approximately $41,964,000 of the net proceeds was deposited
in a trust fund account (“Trust Fund”) and has been invested in Treasury
Bills until the earlier of (i) the consummation of its first Business
Combination; or (ii) the liquidation of the Company. The Treasury
Bills
have been accounted for as trading securities and are recorded at
their
market value of approximately $43,557,243 at June 30, 2006. The excess
of
market value over cost, exclusive of the deferred interest described
further below, is included in interest income in the accompanying
statement of operations. The proceeds not deposited into the Trust
Fund
may be used to pay for business, legal and accounting due diligence
on
prospective acquisitions and continuing general and administrative
expenses. The Company, after signing a definitive agreement for the
acquisition of a target business, will submit such transaction for
stockholder approval. All of the Company stockholders prior to the
Offering, including all of the officers and directors of the Company
(“Initial Stockholders”), have agreed to vote their 1,750,000 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 any Business Combination. After consummation of the
Company’s first Business Combination, all of these voting safeguards will
no longer be applicable.
|
In
the event (i) the Business Combination is not approved by a majority
of
the shares of common stock held by the Public Stockholders or (ii)
20% or
more of the shares of common stock held by the Public Stockholders
vote
against
the Business Combination and exercise their conversion rights described
below, the Business Combination will not be
consummated.
|
||
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 convert his or her shares
into
cash. The per share conversion price will equal the amount in the
Trust
Fund, calculated as of two business days prior to the proposed 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 approximately 19.99% of the aggregate
number
of shares owned by all Public Stockholders may seek conversion of
their
shares in the event of a Business Combination. Such Public Stockholders
are entitled to receive their per share interest in the Trust Fund
computed without regard to the shares held by the Initial Stockholders.
Accordingly, a portion of the net proceeds of the Offering (19.99%
of the
amount originally held in the Trust Fund) has been classified as
common
stock subject to possible conversion in the accompanying balance
sheets
and 19.99% of the related interest earned has been recorded as deferred
interest.
|
||
The
Company’s Amended and Restated Certificate of Incorporation provides for
the mandatory liquidation of the Company in the event that the Company
does not consummate a Business Combination within 12 months from
the date
of the consummation of the Offering, or 18 months from the consummation
of
the Offering if certain extension criteria have been satisfied. There
is
no assurance that the Company will be able to successfully effect
a
Business Combination during this period. This factor raises substantial
doubt about the Company’s ability to continue as a going concern. The
accompanying financial statements are prepared assuming the Company
will
continue as a going concern. The financial statements do not include
any
adjustments that might result from the outcome of this uncertainty.
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.
|
||
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) requires 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
is
required to adopt SFAS 123(R) effective January 1, 2006. The Company
does not believe that the adoption of SFAS No. 123(R) will have a
significant impact on its financial condition or results 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. The Company is currently reviewing
this new standard to determine the effects, if any, on its results
of
operations or financial position.
|
||
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.
|
||
2.
Commitment
|
Commencing
January 1, 2005, the Company occupied office space from, and had
certain
office and secretarial services made available to it by, an unaffiliated
third party. Rent expense under this agreement for each of the periods
from December 20, 2004 (inception) to June 30, 2006 and from January
1,
2006 to June 30, 2006 amounted to $1,362 and $0, respectively. The
rental
agreement expired June 30, 2005.
|
|
|
||
Commencing
on the consummation of the Offering, the Company occupies office
space
provided by an affiliate of an Initial Stockholder. Such affiliate
has
agreed that, until the acquisition or 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. Rent expense under this agreement for each
of the
periods from December 20, 2004 (inception) to June 30, 2006 and from
January 1, 2006 to June 30, 2006 amounted to $82,500 and $45,000,
respectively.
|
||
3.
Proposed Acquisition
|
On
June 5, 2006, the Company entered into a Membership Interest Purchase
Agreement (the “Purchase Agreement”) with VTC, L.L.C. (“VTC”), Vortech,
LLC (together with VTC, the “Acquisition Companies”), Thomas P. Rosato
(“Rosato”) and Gerard J. Gallagher (together with Rosato, the “Members”),
pursuant to which the Company will acquire (the “Acquisition”) all of the
issued and outstanding membership units of the Acquisition Companies
from
the Members.
|
On
June 26, 2006, the Company and the other parties to the Purchase
Agreement
entered into an Amended and Restated Membership Interest Purchase
Agreement, pursuant to which the cash portion of the initial purchase
consideration was reduced from $19.0 million to $11.0 million, the
portion
the initial purchase consideration consisting of convertible promissory
notes was increased from $8.0 million to $10.0 million and the portion
of
the initial purchase consideration consisting of the Company’s common
stock was increased from approximately $11.5 million to approximately
$17.5 million (subject, in both cases, to a dollar for dollar reduction
for assumed debt up to a maximum of $161,000). As a result of the
increase
in value of the initial purchase consideration consisting of the
Company’s
common stock, the maximum number of shares of the Company’s common stock
issuable at closing has increased from 2,107,385 to 3,205,128. The
aggregate initial purchase consideration, before adjustments for
assumption of debt and working capital adjustments, remained unchanged
at
$38.5 million. Through June 30, 2006, the Company incurred $75,000
of
costs in connection with the acquisition of the Acquisition Companies
which have been recorded as deferred acquisition costs on the accompanying
June 30, 2006 balance sheet.
|
||
4.
Common
Stock
|
On
December 20, 2004, the Company issued 1,250,000 shares of common
stock. On
March 8, 2005, the Company authorized the redemption of the 1,250,000
shares of common stock at the original subscription price. On March
9,
2005, the Company issued 1,750,000 shares of common stock to the
original
stockholders along with new stockholders (in the aggregate, these
stockholders are the “Initial Stockholders” defined in note 1,
above).
|
|
On
July 20, 2005, the Company issued 7,000,000 shares of Common Stock
in
connection with the IPO. On August 24, 2005, the Company issued 800,000
share of Common Stock pursuant to the Over-Allotment Option
Exercise.
|
||
5.
Preferred
Stock
|
The
Company is authorized to issue 1,000,000 shares of preferred stock
with
such designations, voting and other rights and preferences as may
be
determined from time to time by the Board of Directors.
|
|
· our
dependence on key personnel, some of whom may or may not 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 timely complete a business
combination;
|
· the
ownership of our securities being concentrated;
|
· risks
associated with the homeland security industry;
and
|
· those
other risks and uncertainties detailed in the Company’s filings with the
Securities and Exchange Commission.
|
(a)
|
Exhibits:
|
|
3.1
|
Amended
and restated certificate of incorporation (incorporated by reference
to
Exhibit 3.2 to Amendment No. 3 to Registrant’s Registration Statement on
Form S-1 (File No. 333-123504) filed with the SEC on July 5,
2005).
|
|
3.2
|
By-laws
(incorporated by reference to Exhibit 3.2 to Amendment No. 3 to
Registrant’s Registration Statement on Form S-1 (File No. 333-123504)
filed with the SEC on March 23, 2005).
|
|
4.1
|
Specimen
Unit Certificate (incorporated by reference to Exhibit 4.1 of the
Company’s Registration Statement No. 333-123504, effective July 13,
2005).
|
|
4.2
|
Specimen
Common Stock Certificate (incorporated by reference to Exhibit 4.2
of the
Company’s Registration Statement No. 333-123504, effective July 13,
2005).
|
|
4.3
|
Specimen
Warrant Certificate (incorporated by reference to Exhibit 4.3 of
the
Company’s Registration Statement No. 333-123504, effective July 13,
2005).
|
|
4.4
|
Warrant
Agreement between Continental Stock Transfer & Trust Company and
the Company.
|
|
31
|
Section
302 Certification by Principal Executive and Financial
Officer
|
|
32
|
Section
906 Certification by Principal Executive and Financial
Officer
|
|
FORTRESS
AMERICA ACQUISITION
CORPORATION
|
|
/s/
Harvey L.
Weiss
Harvey
Weiss
Chief
Executive Officer
|
Exhibit
Number
|
Description
of Document
|
3.1
|
Amended
and restated certificate of incorporation (incorporated by reference
to
Exhibit 3.2 to Amendment No. 3 to Registrant’s Registration Statement on
Form S-1 (File No. 333-123504) filed with the SEC on July 5,
2005).
|
3.2
|
By-laws
(incorporated by reference to Exhibit 3.2 to Amendment No. 3 to
Registrant’s Registration Statement on Form S-1 (File No. 333-123504)
filed with the SEC on March 23, 2005).
|
4.1
|
Specimen
Unit Certificate (incorporated by reference to Exhibit 4.1 of the
Company’s Registration Statement No. 333-123504, effective July 13,
2005).
|
4.2
|
Specimen
Common Stock Certificate (incorporated by reference to Exhibit 4.2
of the
Company’s Registration Statement No. 333-123504, effective July 13,
2005).
|
4.3
|
Specimen
Warrant Certificate (incorporated by reference to Exhibit 4.3 of
the
Company’s Registration Statement No. 333-123504, effective July 13,
2005).
|
4.4
|
Warrant
Agreement between Continental Stock Transfer & Trust Company and
the Company (incorporated by reference to Exhibit 4.4 of the Company’s
Annual Report on Form 10-K filed with the SEC on March 31,
2006).
|
31
|
Section
302 Certification by Principal Executive and Financial
Officer
|
32
|
Section
906 Certification by Principal Executive and Financial
Officer
|