Trinity
Partners Acquisition Company Inc.
Notes
to Condensed Financial Statements
NOTE
1
- - ORGANIZATION
AND ACTIVITIES
Trinity
Partners Acquisition Company Inc. (the “Company”) was incorporated in Delaware
on April 14, 2004 as a blank check company whose objective is to raise money and
acquire an operating business (a “Business Combination”) (See Recent
Events
below).
As
further discussed in Note 3, on July 29, 2004, the Company effected an initial
public offering of its securities (the "Offering") which closed on August 4,
2004.
Although
substantially all of the proceeds of the Offering are intended to be utilized to
effect a Business Combination, the proceeds are not specifically designated for
this purpose. The gross proceeds from the Offering and sale of the Series B
Units (defined in Note 3 below) of $7,549,750 were deposited into a trust fund
(the “Trust Fund”) until the earlier of the completion of a Business Combination
or the distribution of proceeds to Class B stockholders. If a Business
Combination is consummated, the conversion rights afforded to the Class B
stockholders may result in the conversion into cash of up to approximately
19.99% of the aggregate number of Class B shares sold, as further described
below. If a Business Combination is not contracted by July 29, 2005, or
consummated by January 29, 2006, all of the proceeds of the Trust Fund will be
returned to Class B stockholders.
As a
result of its limited resources, the Company will, in all likelihood, have the
ability to effect only a single Business Combination. Accordingly, the prospects
for the Company's success will be entirely dependent upon the future performance
of a single business.
The
Company will not effect a Business Combination unless the fair market value of
the target, as determined by the Board of Directors of the Company in its sole
discretion, based upon valuation standards generally accepted by the financial
community including, among others, book value, cash flow, and both actual and
potential earnings, is at least equal to 80% of the net assets of the Company at
the time of such acquisition.
Furthermore,
there is no assurance that the Company will be able to successfully effect a
Business Combination. As noted above, if the Company is unable to effect a
Business Combination by February 4, 2006, the Company's Certificate of
Incorporation provides for the Company's automatic liquidation. If the Company
were to expend all of the net proceeds of the Offering not held in the Trust
Fund prior to liquidation, but recognizing that such net proceeds could become
subject to the claims of creditors of the Company which could be prior to the
claims of stockholders of the Company, it is possible that the Company's
liquidation value may be less than the amount in the Trust Fund, inclusive of
any net interest income thereon. Moreover, all of the Company's initial
stockholders have agreed to waive their respective rights to participate in any
such liquidation distribution on shares owned prior to the
Offering.
At the
time the Company seeks Class B stockholder approval of any Business Combination,
the Company will offer each Class B stockholder who acquired Class B shares
through the Offering or subsequently in the after-market the right to have his
or her shares of the Company’s Class B common stock converted to cash if such
Class B stockholder votes against the Business Combination and the Business
Combination is approved and completed. The holders of the Company’s common stock
are not entitled to seek conversion of their shares. The actual per-share
conversion price will be equal to the amount in the Trust Fund (inclusive of any
interest thereon) as of the record date for determination of Class B
stockholders entitled to vote on such Business Combination, divided by the
number of Class B shares sold in the Offering, or approximately $5.11 per share
based on the value in the Trust Fund as of March 31, 2005. There will be no
distribution from the Trust Fund with respect to the warrants included in the
Series A and Series B Units. A Series B stockholder may request conversion of
his or her shares at any time prior to the vote taken with respect to a proposed
Business Combination at a meeting held for that purpose, but such request will
not be granted unless such Class B stockholder votes against the Business
Combination and the Business Combination is approved and consummated. It is
anticipated that the funds to be distributed to Class B stockholders who have
their shares converted will be distributed promptly after consummation of a
Business Combination. Any Class B stockholder who converts his or her stock into
his or her share of the Trust Fund still has the right to exercise the Class W
and Class Z warrants that was received as part of the Series B units. The
Company will not consummate any Business Combination if 20% or more in interest
of the Class B stockholders exercise their conversion rights. Accordingly, the
conversion value of $1,527,759 (298,851 shares, or 19.99% of the Class B shares
sold in the public offering) has been included in the accompanying condensed
balance sheet at March 31, 2005 as temporary capital.
Recent
Events
On March
24, 2005, the Company executed a definitive agreement for the merger of the
Company and FreeSeas, Inc. (“FreeSeas”), formerly known as Adventure Holdings,
S.A. (the “Transaction”). FreeSeas, through wholly-owned subsidiaries, owns and
operates two bulk carriers, the M/V “Free Destiny” and the M/V “Free Envoy.” In
additon, in April 2005, FreeSeas, through a newly formed subsidiary, entered
into a memorandum of agreement to acquire a new carrier. The purchase
price for the carrier is $11,025,000. Delivery of the carrier and
completion of the purchase is expected to occur in the late second quarter of
2005.
The
definitive merger agreement for the Transaction contemplates the merger of the
Company with and into FreeSeas, with the Company's current stockholders
receiving one share and one warrant of FreeSeas for each share and warrant they
presently own. After giving effect to the Transaction, the Company's
stockholders will own approximately 28.4% of FreeSeas. In addition, the
management of FreeSeas will receive options and warrants to acquire an
additional 950,000 shares of FreeSeas’ common stock, exercisable at $5.00 per
share over terms ranging from three to five years. The proposed merger is
subject to, among other things, the filing of definitive proxy materials with
the Securities and Exchange Commission and approval of the Transaction by the
Company's stockholders. On May 11, 2005, a joint proxy statement/prospectus
relating to the Transaction was filed as part of a FreeSeas registration
statement on Form F-1. There can be no assurance that the Transaction will
be consummated.
NOTE
2
- - BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Interim
Financial Statements — The
accompanying unaudited condensed financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). Comparative statements of operations and statements of cash flows for
the quarter ended March 31, 2004 have not been presented as the Company was not
incorporated and did not begin its operations until April 14, 2004. Certain
information and footnote disclosures 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. However, the Company believes that the disclosures are adequate
to make the information presented not misleading. The financial statements
reflect all adjustments (consisting only of normal recurring adjustments) that
are, in the opinion of management, necessary for a fair presentation of the
Company's financial position and results of operations. The operating results
for the period ended March 31, 2005 are not necessarily indicative of the
results to be expected for any other interim period of any future
year.
Cash
and Cash Equivalents -
Included in cash and cash equivalents are deposits with financial institutions
as well as short-term money market instruments with maturities of three months
or less when purchased.
Restricted
Investments - Restricted
investments consist of investments acquired, which were included in the Trust
Fund, with maturities exceeding three months but less than three years.
Consistent with Statement of Financial Accounting Standards (SFAS) No. 115,
“Accounting for Certain Investments in Debt and Equity Securities”, the Company
classifies all debt securities and all investments in equity securities that
have readily determinable fair values as available-for-sale, as the sale of such
securities may be required prior to maturity to implement management strategies.
Such securities are reported at fair value, with unrealized gains or losses
excluded from earnings and included in other comprehensive income (loss), net of
applicable taxes.
Net
Loss Per Share - Net
loss per share is computed based on the weighted average number of shares of
common and Class B common stock outstanding.
Basic
earnings (loss) per share excludes dilution and is computed by dividing income
(loss) available to common stockholders by the weighted average shares of common
stock and Class B common stock outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Since the effect of outstanding warrants of 3,657,500 is antidilutive,
they have been excluded from the Company’s computation of net loss per share.
Therefore, basic and diluted loss per share were the same for the three months
ended March 31, 2005.
Fair
Value of Financial Instruments - The
fair values of the Company's assets and liabilities that qualify as financial
instruments under Statement of Financial Accounting Standards No. 107
approximate their carrying amounts presented in the balance sheet at March 31,
2005.
Use
of Estimates and Assumptions - The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results can, and in many cases will, differ from
those estimates.
Income
Taxes -
Deferred income tax assets and liabilities are computed for differences between
the financial statement and tax bases of assets and liabilities that will result
in future taxable or deductible amounts and are based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred income tax assets to the amount expected to be realized.
Reclassifications - Certain prior
year amounts have been reclassified to conform to the current period
presentation.
New
Accounting Pronouncements - The Company does not believe that any
recently issued, but not yet effective, accounting standards if currently
adopted would have a material effect on the accompanying condensed
financial statements.
NOTE
3
- - PUBLIC
OFFERING OF SECURITIES
In the
Offering, effective July 29, 2004 (closed on August 4, 2004), the Company sold
to the public 143,750 Series A Units (the “Series A Units” or a “Series A Unit”)
and 747,500 Series B Units (the “Series B Units” or a “Series B Unit”) at a
price of $10.50 and $10.10 per unit, respectively, inclusive of an option issued
to the underwriters to purchase additional Series A Units and Series B Units,
which was exercised in full. Proceeds from the initial public offering,
including the exercise of the over allotment option, totaled $8,085,653 which
was net of $973,472 in underwriting and other expenses. Each Series A Unit
consists of two
shares of the Company’s common stock, five Class W Redeemable Warrants (a “Class
W Warrant”), and five Class Z Redeemable Warrants (a “Class Z
Warrant”). Each
Series B Unit consists of two shares of the Company’s Class B common stock, one
Class W Warrant, and one Class Z Warrant.
Both the
Company’s common stock and Class B common stock have one vote per share.
However, the Class B stockholders may, and the common stockholders may not, vote
in connection with a Business Combination. Further, should a Business
Combination not be consummated during the target business acquisition period,
the Trust Fund would be distributed pro-rata to all of the Class B common
stockholders and their Class B common shares would be cancelled and returned to
the status of authorized but unissued shares.
Each
Class W 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 (a) July
29, 2005 or (b) the earlier of the completion of a Business Combination with a
target business, or the distribution of the Trust Fund to the Class B
stockholders. The Class W Warrants will expire on July
29, 2009 or earlier upon redemption. Each Class Z
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 (a) July
29, 2005 or
(b) the earlier of the
completion of a Business Combination with a target business, or the distribution
of the Trust Fund to the Class B stockholders. The Class Z Warrants will expire
on July
29, 2011 or earlier upon redemption.
The
Company may redeem the outstanding Class W Warrants and/or Class Z Warrants with
the prior consent of HCFP/Brenner Securities LLC (“HCFP”),
the
representative of the underwriters of the Offering, in whole
and not in part, at a price of $.05 per warrant at any time after the warrants
become exercisable, upon a minimum of 30 days' prior written notice of
redemption, and if, and only if, the last sale price of the Company’s common
stock equals or exceeds $7.50 per share and $8.75 per share, for a Class W
Warrant and Class Z Warrant, respectively, for any 20 trading days within a 30
trading day period ending three business days before the Company sent the notice
of redemption.
As part
of the Offering, the Company sold to HCFP, as representative for the
underwriters, for $100, an option (the “Underwriter’s Purchase Option” or “UPO”)
to purchase up to a total of 12,500 additional Series A Units and/or 65,000
additional Series B Units. The Series A Units and Series B Units issuable upon
exercise of this option are identical to those in the Offering, except that the
exercise price of the warrants included in the units are $5.50 per share (110%
of the exercise price of the warrants included in the units sold to the public)
and the Class Z Warrants shall be exercisable by HCFP for a period of only five
years from the date of the Offering. The UPO is exercisable at $17.325 per
Series A Unit and $16.665 per Series B Unit commencing on the later of (a) July
29, 2005 or (b) the earlier of the completion of a Business Combination with a
target business, or the distribution of the Trust Fund to the Class B
stockholders, and expires on July 29, 2009.
NOTE
4 - CAPITAL STOCK
Preferred
Stock
The
Company is authorized to issue up to 5,000 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.
Common
Stock and Class B Common Stock
The
Company is authorized to issue 20,000,000 shares of common stock and 2,000,000
shares of Class B common stock. As of March 31, 2005 there were 287,600 shares
of the Company’s common stock issued and outstanding and 1,495,000 shares of the
Company’s Class B common stock issued and outstanding, including 298,851 Class B
common shares subject to possible conversion to cash.
With the
exercise of the over-allotment option (Note 3), subsequent to the Offering there
are 15,774,900 and 375,000 authorized but unissued shares of the Company’s
common stock and the Company’s Class B common stock, respectively, available for
future issuance, after appropriate reserves for the issuance of common stock in
connection with the Class W Warrants and Class Z Warrants, the Underwriters
Purchase Option and the officers' and directors' Class W Warrants and Class Z
Warrants.
The
Company has no commitments to issue any shares of common stock other than as
described herein.
Warrants
The Class
W Warrants are callable, subject to adjustment in certain circumstances, and
entitle the holder to purchase shares at $5.00 per share for a period commencing
on the later of: (a) July 29, 2005 and (b) the earlier of the completion of the
Business Combination or distribution of the Trust Fund to the Class B
stockholders, and ending July 29, 2009. As of March 31, 2005 there were
1,828,750 Class W Warrants outstanding.
The Class
Z Warrants are callable, subject to adjustment in certain circumstances, and
entitle the holder to purchase shares at $5.00 per share for a period commencing
on the later of: (a) July 29, 2005 and (b) the earlier of the completion of the
Business Combination or distribution of the Trust Fund to the Class B
stockholders, and ending July 29, 2011. As of March 31, 2005 there were
1,828,750 Class Z Warrants outstanding.
NOTE
5 -
RELATED PARTY TRANSACTIONS
The
President of the Company is a principal stockholder, officer and director of
Unity Venture Capital Associates Ltd. ("Unity") which at the time of the
Offering owned 90,000 Class W Warrants and 90,000 Class Z Warrants. In October
2004, Unity distributed an aggregate of 82,499 of such Class W Warrants and
82,499 of such Class Z Warrants to its stockholders (including 15,450
Class W Warrants and 15,450 Class Z Warrants to Mr. Burstein), leaving
Unity the beneficial owner of 7,501 Class W Warrants and 7,501 Class Z
Warrants. Since July 29, 2004, upon completion of the Offering, the Company has
been obligated to pay Unity a monthly fee of $4,000 for office and secretarial
services, including the use of office space in premises occupied by Unity.
In April
2004, the Company issued to each member of our Board of Directors, two of whom
are our founding stockholders, Class W Warrants to purchase an aggregate of
362,500 shares of the Company’s common stock, and Class Z Warrants to purchase
an aggregate of 362,500 shares of the Company’s common stock, for an aggregate
purchase price of $36,250.
Item
2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
The
following discussion should be read in conjunction with our financial statements
and footnotes thereto contained in this report and the audited financial
statements and footnotes included in our Form 10-K for the year ended December
31, 2004.
Recent
Events
On March
24, 2005, we executed a definitive agreement for our merger with FreeSeas,
Inc. (“FreeSeas”), formerly known as Adventure Holdings, S.A. (the
“Transaction”). FreeSeas, through wholly-owned subsidiaries, owns and operates
two bulk carriers, the M/V “Free Destiny” and the M/V “Free Envoy.” In additon,
in April 2005, FreeSeas, through a newly formed subsidiary, entered into a
memorandum of agreement to acquire a new carrier. The purchase price for
the carrier is $11,025,000. Delivery of the carrier and completion of the
purchase price is expected to occur in the late second quarter of
2005.
The
definitive merger agreement for the Transaction contemplates our merger with and
into FreeSeas, with our current stockholders receiving one share and one warrant
of FreeSeas for each share and warrant they presently own. After giving effect
to the Transaction, our stockholders will own approximately 28.4% of FreeSeas.
In addition, the management of FreeSeas will receive options and warrants to
acquire an additional 950,000 shares of FreeSeas’ common stock, exercisable at
$5.00 per share over terms ranging from three to five years. The Transaction is
subject to, among other things, the filing of definitive proxy materials with
the Securities and Exchange Commission and approval of the Transaction by our
stockholders. On May 11, 2005, a joint proxy statement / prospectus relating to
the Transaction was filed as part of a FreeSeas registration statement on Form
F-1. There can be no assurance that the Transaction will be
consummated.
General
We were
incorporated in April 2004 to serve as a vehicle to effect a business
combination with an operating business. On August 4, 2004, we completed our
initial public offering of 143,750 Series A Units and 747,500 Series B Units,
including 18,750 Series A Units and 97,500 Series B Units issued upon exercise
of the underwriters’ over allotment option. Each Series A Unit consists of two
shares of our common stock, five Class W Warrants and five Class Z Warrants and
each Series B Unit consists of two shares of our Class B Common Stock, one Class
W Warrant and one Class Z Warrant. Each Class W Warrant and Class Z Warrant
entitles the holder to purchase one share of our common stock at a price of
$5.00.
For a
description of the proceeds generated in the offering and a discussion of the
use of such proceeds, see liquidity and capital resources below and Notes 1
and 3 of the interim financial statements included elsewhere in this Form
10-Q.
Operations
Net loss
for the three months ended March 31, 2005 consisted of interest income on the
Trust Fund investment and cash and cash equivalents of $44,595, offset by
operating expenses of $190,116 for transaction costs, $22,443 for professional
fees, and $30,873 for other operating expenses, which includes $12,000 of
expense related to a monthly administrative services agreement with an
affiliate.
Liquidity
and Capital Resources
We
consummated our initial public offering on August 4, 2004. Gross proceeds from
our initial public offering, including the full exercise of the underwriters'
over-allotment option, were $9,059,125. After deducting offering expenses of
$973,472, net proceeds were $8,085,653. Of this amount, $7,549,750 was placed in
a trust account and the remaining proceeds have been available to be used to
provide for our business, legal and accounting due diligence costs on
prospective acquisitions and our continuing general and administrative expenses.
We will use substantially all of the net proceeds of our initial
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 fund as well as
any other net proceeds not expended will be used to finance the operations of
the target business. We believe that we have sufficient available funds outside
of the trust fund to operate through January 31, 2006, assuming that a business
combination is not consummated during that time. We do not believe we will need
to raise additional funds following the initial public offering in order to meet
the expenditures required for operating our business purpose.
Item
3. Quantitative
and Qualitative Disclosures About Market Risk.
Market
risk is the exposure to loss resulting from changes in interest rates, foreign
currency exchange rates, commodity prices and equity prices. We do not believe
we are exposed to significant market risk.
Item
4. Controls
and Procedures
Our
management carried out an evaluation, with the participation of Lawrence
Burstein, our principal executive officer and principal financial officer, of
the effectiveness of our
disclosure controls and procedures as of March 31, 2005. Based upon that
evaluation, Mr. Burstein concluded that our disclosure controls and procedures
were effective to ensure that information required to be disclosed by us in
reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported, within the time periods specified
in the rules and forms of the Securities and Exchange Commission.
There has
not been any change in our internal control over financial reporting in
connection with the evaluation required by Rule 13a-15(d) under the Exchange Act
that occurred during the three months ended March 31, 2005 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART
II - OTHER INFORMATION
Item
6. Exhibits
|
Exhibit
Number |
Exhibit
Description |
| |
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification
|
|
32
|
Section
1350 Certifications
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned thereunto
duly authorized.
| |
TRINITY PARTNERS ACQUISITION
COMPANY INC. |
| |
|
|
| |
By: |
/s/
Lawrence Burstein |
| |
|
|
| |
|
Lawrence Burstein |
| |
|
President and Treasurer |
| |
|
(Principal
Executive and Financial Officer) |
Date: May
20, 2005