10-Q 1 file1.htm FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2007.


	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission File Number: 000-52247

VECTOR INTERSECT SECURITY ACQUISITION CORP.
(Exact name of registrant as specified in its charter)


Delaware			20-3200738
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

65 Challenger Road, Ridgefield Park, NJ 07660
(Address of Principal Executive Offices including Zip Code)

(201) 708-9801
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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 No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange. (Check one):

Large Accelerated Filer Accelerated Filer Non-Accelerated Filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

There were 9,375,000 shares of the Registrant’s common stock issued and outstanding as of June 6, 2007.

Vector Intersect Security Acquisition Corp.

Index to Form 10-Q

Part I.

Financial Information

Item 1.

Condensed Financial Statements (unaudited)

Condensed Balance Sheets

Condensed Statements of Operations

Condensed Statement of Stockholders’ Equity

Condensed Statement of Cash Flows

Notes to Condensed Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

Item 4T.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Submission of Matters to a Vote of Security Holders

SIGNATURES


	December 31, 2006				March 31, 2007
	Audited				(Unaudited)
ASSETS Current assets:
Cash		$	24,279			$	7,504
Deferred offering costs			432,338				449,838
Total assets		$	456,617			$	457,342
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses		$	182,550			$	207,381
Accrued interest on notes payable, stockholders			13,157				15,993
Due to stockholders			31,769				31,769
Notes payable, stockholders			348,791				348,791
Total liabilities			576,267				603,934
Commitments
STOCKHOLDERS’ DEFICIENCY
Preferred stock, $0.001 par value
Authorized 1,000,000 shares; none issued			—				—
Common stock, $0.001 par value
Authorized 50,000,000 shares
Issued and outstanding 1,875,000 shares			1,875				1,875
Additional paid-in-capital			23,125				23,125
Deficit accumulated during the development stage			(144,650	)			(171,592	)
Total stockholders’ deficiency			(119,650	)			(146,592	)
Total liabilities and stockholders’ deficiency		$	456,617			$	457,342


	January 1, 2006 to March 31, 2006				January 1, 2007 to March 31, 2007				For the period from July 19, 2005 (inception) to March 31, 2007
Operating expenses		$	7,500			$	24,106			$	155,599
Interest expense – related party			2,086				2,836				15,993
Net loss for the period			(9,586	)			(26,942	)		$	(171,592	)
Weighted average shares outstanding – basic and diluted			1,875,000				1,875,000				1,875,000
Net loss per share		$	(0.01	)		$	(0.02	)		$	(0.09	)


									Deficiency Accumulated During the Development Stage
						Additional Paid-in capital							Total Stockholders’ Deficiency
	Common Stock
	Shares		Amount
Common shares issued July 19, 2005 at (inception) at $0.0133		1,875,000		$	1,875			23,125		$	—			$	25,000
Net loss for the period ended December 31, 2005		—			—			—			(67,116	)			(67,116	)
Balances at December 31, 2005		1,875,000			1,875			23,125			(67,116	)			(42,116	)
Net loss for the year ended December 31, 2006		—			—			—			(77,534	)			(77,534	)
Balances at December 31, 2006		1,875,000			1,875			23,125			(144,650	)			(119,650	)
Unaudited:
Net loss for the three months ended March 31, 2007		—			—			—			(26,942	)			(26,942	)
Balances at March 31, 2007		1,875,000		$	1,875		$	23,125		$	(171,592	)		$	(146,592	)


1. Basis of Presentation, Organization, Proposed Business Operations and Summary of Significant Accounting Policies		Basis of Presentation The financial statements of Vector Intersect Security Acquisition Corp. (the ‘‘Company’’) at March 31, 2007, for the three months ended March 31, 2007 and 2006, and for the period from July 19, 2005 (inception) to March 31, 2007 (cumulative), 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 March 31, 2007 and the results of its operations and its cash flows for the three months ended March 31, 2007 and 2006, and for the period of from July 19, 2005 (inception) to March 31, 2007 (cumulative). Operating results for the interim periods presented are not necessarily indicative of the results to be expected for the full fiscal year. The condensed balance sheet at December 31, 2006 has been derived from the audited financial statements.


		The Company was incorporated in Delaware on July 19, 2005 as a blank check company, the objective of which is to acquire, through merger, capital stock exchange, asset acquisition or other similar Business Combination (as defined below), one or more businesses in the homeland security, national security and/or command and control industries.


		At March 31, 2007, the Company had not yet commenced any commercial operations. All activity through March 31, 2007 relates to the Company’s formation and the proposed public offering described below. The Company has elected December 31 as its fiscal year-end.


		The registration statement for the Company’s initial public offering (the ‘‘Public Offering’’) was declared effective on April 25, 2007. The Company completed a private placement (the ‘‘Private Placement’’) and received gross proceeds of $1,500,000 on April 25, 2007. The Company consummated the Public Offering on May 1, 2007 and received gross proceeds of $58,500,000. 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 homeland security or defense industries, or


		a combination thereof, and a ‘‘business combination’’ shall mean the acquisition by the Company of such a target business. There is no assurance that the Company will be able to effect a business combination successfully.


		Of the proceeds of the Offerings, $58,030,000 wa placed in a trust account (‘‘Trust Account’’) at JP MorganChase, New York, New York, maintained by American Stock Transfer & Trust Company, the Company’s transfer agent. This amount includes the net proceeds of the Public Offering and the Private Placement, and $2,340,000 of deferred underwriting compensation fees (the ‘‘Discount’’) which will be paid to Rodman & Renshaw, LLC if, and only if, a business combination is consummated. The funds in the Trust Account will be invested until the earlier of (i) the consummation of the Company’s first business combination or (ii) the liquidation of the Trust Account as part of a plan of dissolution and liquidation approved by our stockholders. Up to $1,500,000 of interest income on the Trust Account may be used to fund the Company’s working capital requirements including payments for legal, 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 each such transaction for stockholder approval. In the event (i) the Business Combination is not approved by a majority of the shares of common stock 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.


		Income Taxes


		On January 1, 2007 the Company adopted FASB Issue 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 adoptions of ‘‘FIN 48’’ had no effect on our financial condition or results of operations.


		We recognize interest and penalties related to uncertain tax positions in income tax expense. The tax years 2005 and 2006 remain open to examination by the major taxing jurisdictions to which we are subject.


		The effective tax rate differs from the statutory rate of 34% due to the increase in the valuation allowance.


		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 its, his or her shares. The per share redemption price will equal the amount in the Trust Fund, plus interest (net of taxes payable and net of up to $1,500,000 of interest income on the Trust Fund that may be used to fund the Company’s working capital) 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 Public Offering. Accordingly, Public Stockholders holding approximately 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 the Initial Stockholders.


		The Company recorded a deferred tax asset of $49,181 and $58,127, respectively, at December 31, 2006 and March 31, 2007, for the tax effect of temporary differences, aggregating $144,650 and $170,961 respectively for the periods ending on December 31, 2006 and March 31, 2007. In recognition of the uncertainty regarding the ultimate amount of income tax benefits it will realize, the Company has recorded a valuation allowance equal to 100% of the deferred tax asset at December 31, 2006 and March 31, 2007.


		Loss per share has been computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.


		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.


		Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material affect on the accompanying financial statements.


2. Offerings		On April 25 the Company sold 187,500 units in a Private Placement, and on May 1, 2007 the Company sold


		7,312,500 units in a Public Offering collectivity (the ‘‘Units’’). Each Unit consists of one share of the Company’s common stock, $0.001 par value, and one common stock purchase warrant (‘‘Warrants’’). Each Warrant entitles the holder to purchase from the Company one share of common stock at an exercise price of $5.00 per share (which Warrant may be exercised on a cashless basis) commencing the later of (a) one year from the effective date of the Public Offering; or (b) the completion of a Business Combination with a target business and expiring four years from the date of the prospectus (unless earlier redeemed). The Warrant is redeemable at a price of $0.01 per Warrant upon 30 days notice after the Warrant becomes exercisable, only in the event that (a) the last sales price of the common stock is at least $11.50 per share for any 20 trading days within a 30-trading-day period ending on the third business day prior to date on which notice of redemption is given.


		The Company will use its best efforts to cause a registration statement to become effective on or prior to the commencement of the Warrant exercise period and to maintain the effectiveness of such registration statement until the expiration of the Warrants The Warrants may not be exercised in the absence of an effective registration statement, and, in the event that the Company is unable to maintain the effectiveness of such registration statement until the expiration of the Warrants, and therefore is unable to deliver registered shares, the Warrants may expire unexercised and worthless. In no event will the Company be required to net-cash settle the Warrants. Accordingly, the Company has determined that the Warrants should be classified in stockholders’ equity in accordance with the guidance in EITF 00-19, ‘‘Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock’’.


3. Deferred Offering Costs		Deferred offering costs consist of legal, auditing, regulatory filing, underwriting fees and other costs incurred related to the Proposed Offerings that were charged to stockholders’ equity upon receipt of the capital raised.


4. Advances from Stockholder		In March 2006 and in September 2006 a stockholder advanced the Company a total of $8,820 and $22,950 respectively for operating expenses. The advance is non-interest bearing and is due on demand.


5. Notes Payable, Stockholders		In addition to their purchase of the Company’s common stock, two of the Company’s stockholders and directors have advanced the Company an aggregate of $205,000 in exchange for unsecured promissory notes. The notes bear interest at a rate of 4% per annum with principal and accrued interest due no later than the first anniversary of the initial public offering of the Company.


		The Company issued two additional notes with an aggregate principal amount of $143,791 to SCP Private Equity Management Company, LLC. The notes bear interest at a rate of 5.5% per annum with principal and accrued interest due no later than the first anniversary of the initial public offering of the Company.


		Due to the short-term nature of the notes, the fair value of the notes approximates their carrying value.


6. Commitments		In connection with the Public Offering the Company sold to the representative of the underwriter, for $100, an option to purchase up to a total of 731,250 Units. The Units issuable upon exercise of this option are identical to those offered to the public, except that the Warrants underlying this option are exercisable at $5.50 (110% of the exercise price of the Warrants included in the units sold in the Public Offering). This option is exercisable at $8.80 per unit commencing on the later of the consummation of a Business Combination and one year from the date of offerings and expiring five years from the date of offerings. The option and the 731,250 units, the 731,250 shares of common stock and the 731,250 Warrants underlying such units, and the 731,250 shares of common stock underlying such Warrants, have been deemed compensation by the National Association of Securities Dealers (‘‘NASD’’) and are therefore subject to a 180-day lock-up pursuant to Rule 2710(g)(1) of the NASD Conduct Rules. Additionally, the option may not be sold, transferred, assigned, pledged or hypothecated for a one-year period (including the foregoing 180-day period) following the date of Offerings. However, the option may be transferred to any underwriter and selected dealers participating in the offering and their bona fide officers or partners.


		The Company will account for this purchase option as a cost of raising capital and will include the instrument as equity in the financial statements. Accordingly, there will be no net impact on the Company’s financial position or results of operations, except for the recording of the $100 proceeds from the sale. The Company estimated, based upon a Black-Scholes model, that the fair value of the purchase option on the date of sale is approximately $3.40 per unit (or $2,486,250 in the aggregate), using an expected life of 5 years, volatility of 44%, and a risk-free rate of 5%. However, because the Company’s units do not have a trading history, the volatility assumption is based on information then available to management. The volatility estimate is derived using historical date of public companies in the proposed industry. The Company believes the volatility estimate calculated from these companies is a reasonable benchmark to use in estimating the expected volatility of our units; however, the use of an index to estimate volatility may not necessarily be


		representative of the volatility of the underlying securities. Although an expected life of five years was used in the calculation, if the Company does not consummate a Business Combination with the prescribed time period and it liquidates, the option will become worthless.


		The Company has engaged the representative of the underwriters in its Public Offering, on a non-exclusive basis, as an agent for the solicitation of target for a Business Combination. The Company has agreed to pay the representative of the underwriters a transaction fee in cash equal to 3% of the aggregate consideration paid by the Company in a Business Combination with a target business the representative of the underwriters introduces to the Company, if such Business Combination is consummated within twenty-four months of such introduction.


		•	The market price of the underlying shares of common stock is lower than the exercise price;


		•	The holder of the Warrants has not confirmed in writing that the representative solicited the exercise;


		•	The Warrants are exercised in an unsolicited transaction; or