UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

x

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended September 30, 2007

 

 

 

or

 

 

 

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 000-51785

 


 

ORACLE HEALTHCARE ACQUISITION CORP.

(Exact name of registrant as specified in its charter)

 

Delaware

 

26-0126028

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

200 Greenwich Avenue, 3rd Floor
Greenwich, Connecticut

 


06830

(Address of principal executive
offices)

 

(Zip Code)

 

(203) 862-7900

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 Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes   x    No   o

 

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 Act. (Check one):

 

Large accelerated filer   o

Accelerated filer   o

Non-accelerated filer   x

 

 

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

 

As of November 14, 2007, 18,750,000 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding.

 

 



 

ORACLE HEALTHCARE ACQUISITION CORP.

(a corporation in the development stage)

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART I — FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

Item 1.

 

Condensed Financial Statements

 

 

 

 

 

 

 

 

 

 

 

Condensed Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

Condensed Statements of Operations

 

 

 

 

 

 

 

 

 

 

 

Condensed Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

Condensed Statements of Changes in Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

 

 

 

 

 

 

 

 

Item 2.

 

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

 

 

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

 

 

 

 

 

 

 

 

SIGNATURES

 

 

 

 

2



 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ORACLE HEALTHCARE ACQUISITION CORP.
(a corporation in the development stage)

 

CONDENSED BALANCE SHEETS

 

 

 

September, 30
2007

 

December 31,
2006

 

 

 

(Unaudited)

 

(Audited)

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

53,696

 

$

553,441

 

Deferred tax asset

 

365,000

 

 

Prepaid assets

 

117,382

 

 

Total current assets

 

536,078

 

553,441

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

Cash held in trust account

 

119,191,930

 

116,628,857

 

Total assets

 

$

119,728,008

 

$

117,182,298

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accrued expenses

 

$

250

 

$

250

 

Warrant liability

 

3,483,334

 

15,516,667

 

Deferred underwriter’s fee

 

1,920,000

 

1,920,000

 

Total current liabilities

 

$

5,403,584

 

$

17,436,917

 

 

 

 

 

 

 

Common stock, subject to possible conversion, 2,999,999 shares at conversion value plus interest income (net of taxes) of $1,169,087 and $630,803, respectively

 

23,879,079

 

23,340,795

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Preferred stock, $0.0001 par value, authorized 1,000,000 shares; none issued and outstanding

 

 

 

 

 

Common stock, $0.0001 par value, authorized 40,000,000 shares; issued and outstanding 18,750,000 shares (which 2,999,999 shares subject to possible conversion)

 

1,875

 

1,875

 

Additional paid-in capital

 

70,115,699

 

70,115,699

 

Retained earnings during the development stage

 

20,327,771

 

6,287,012

 

Total stockholders’ equity

 

90,445,345

 

76,404,586

 

Total liabilities and stockholders’ equity

 

$

119,728,008

 

$

117,182,298

 

 

The accompanying notes are an integral part of these condensed financial statements

 

3



 

ORACLE HEALTHCARE ACQUISITION CORP.
(a corporation in the development stage)

 

CONDENSED STATEMENTS OF OPERATIONS

Unaudited

 

 

 

 

 

 

 

 

 

 

 

For the period

 

 

 

For the three

 

For the three

 

For the nine

 

For the nine

 

September 1, 2005

 

 

 

months ended

 

months ended

 

months ended

 

months ended

 

(inception) to

 

 

 

September 30,
2007

 

September 30,
2006

 

September 30,
2007

 

September 30,
 2006

 

September 30,
2007

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

1,591,502

 

$

1,522,892

 

$

4,637,989

 

$

3,253,868

 

$

9,431,482

 

Unrealized gain from warrant liability

 

9,025,000

 

4,750,000

 

12,033,333

 

5,066,667

 

16,308,334

 

Formation and operating costs

 

(153,590

)

(66,021

)

(394,675

)

(481,787

)

(908,209

)

Income before income taxes

 

10,462,912

 

6,206,871

 

16,276,647

 

7,838,748

 

24,831,607

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

(299,949

)

(441,000

)

(1,697,604

)

(1,037,145

)

(3,334,749

)

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

10,162,963

 

$

5,765,871

 

$

14,579,043

 

$

6,801,603

 

$

21,496,858

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income attributable to common stock subject to possible conversion (net of taxes)

 

185,218

 

216,639

 

538,284

 

443,035

 

1,169,087

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocable to common stockholders not subject to possible conversion

 

$

9,977,745

 

$

5,549,232

 

$

14,040,759

 

$

6,358,568

 

$

20,327,771

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

18,750,000

 

18,750,000

 

18,750,000

 

15,082,117

 

15,024,639

 

Diluted

 

22,292,924

 

21,603,457

 

22,192,449

 

18,118,744

 

17,459,570

 

Net income per share, basic

 

$

0.54

 

$

0.31

 

$

0.78

 

$

0.45

 

$

1.43

 

Net income per share, diluted

 

$

0.46

 

$

0.27

 

$

0.66

 

$

0.38

 

$

1.23

 

 

The accompanying notes are an integral part of these condensed financial statements

 

4



 

ORACLE HEALTHCARE ACQUISITION CORP.
(a corporation in the development stage)

 

CONDENSED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

For the period

 

 

 

For the nine

 

For the nine

 

September 1, 2005

 

 

 

months ended

 

months ended

 

(inception) to

 

 

 

September 30, 2007

 

September 30, 2006

 

September 30, 2007

 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

14,579,043

 

$

6,801,603

 

$

21,496,858

 

Warrant liability

 

(12,033,333

)

(5,066,667

)

(16,308,334

)

Adjustments to reconcile net income to net cash provided by operations:

 

 

 

 

 

 

 

Prepaid assets

 

(117,382

)

 

(117,382

)

Deferred tax asset

 

 

 

250

 

Accrued expenses

 

(365,000

)

 

(365,000

)

Accrued taxes

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

2,063,328

 

1,734,936

 

4,706,392

 

 

 

 

 

 

 

 

 

Net cash used in investing activity:

 

 

 

 

 

 

 

Cash held in trust account

 

(2,563,073

)

(115,697,846

)

(119,191,930

)

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from note payable

 

 

 

100,000

 

Proceeds from issuance of common stock to existing stockholders

 

 

 

31,250

 

Gross proceeds from the issuance of common stock (public offering)

 

 

120,000,000

 

120,000,000

 

Proceeds from issuance of warrants in private placement

 

 

1,000,000

 

1,000,000

 

Repayment of notes payable to stockholders

 

 

(100,000

)

(100,000

)

Payments of deferred offering costs

 

 

(6,431,462

)

(6,492,016

)

Net cash provided by financing activities

 

$

 

$

114,468,538

 

$

114,539,234

 

Net increase (decrease) in cash and equivalents

 

(499,745

)

505,628

 

53,696

 

Cash and equivalents, beginning of period

 

553,441

 

71,320

 

 

 

Cash and equivalents, end of period

 

$

53,696

 

$

576,948

 

$

53,696

 

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

Cash paid for taxes

 

$

2,062,604

 

$

1,037,145

 

$

3,699,749

 

Offering costs

 

$

 

$

 

$

151,772

 

Supplemental disclosure of non-cash financing activity:

 

 

 

 

 

 

 

Deferred underwriter’s fees

 

$

 

$

1,920,000

 

$

1,920,000

 

 

The accompanying notes are an integral part of these condensed financial statements

 

5



 

ORACLE HEALTHCARE ACQUISITION CORP.

(a corporation in the development stage)

 

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Additional

 

Earnings Accumulated

 

 

 

 

 

Common Stock

 

Paid-In

 

During the

 

 

 

 

 

Shares

 

Amount

 

Capital

 

Development Stage

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances—September 1, 2005 (date of inception)

 

 

 

 

 

 

Issuance of common stock to existing stockholders

 

3,750,000

 

$

375

 

$

30,875

 

 

 

 

$

31,250

 

Balances-December 31,2005

 

3,750,000

 

$

375

 

$

30,875

 

 

$

31,250

 

Issuance of warrants in private placement

 

 

 

 

 

$

1,000,000

 

 

 

$

1,000,000

 

Sale of 15,000,000 units on March 8, 2006 at a price of $8 per unit, net of underwriters’ discount and offering expenses (including 2,999,999 shares subject to possible conversion)

 

15,000,000

 

$

1,500

 

$

111,586,484

 

 

 

$

111,587,984

 

Proceeds subject to possible conversion of 2,999,999 shares

 

 

 

 

 

$

(22,709,992

)

 

 

$

(22,709,992

)

Warrant Liability

 

 

 

 

 

$

(19,791,668

)

 

 

$

(19,791,668

)

Net income allocable to common stockholders not subject to possible conversion

 

 

 

 

 

 

 

$

6,287,012

 

$

6,287,012

 

Balances—December 31, 2006

 

18,750,000

 

$

1,875

 

$

70,115,699

 

$

6,287,012

 

$

76,404,586

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocable to common stockholders not subject to possible conversion

 

 

 

 

 

 

 

$

14,040,759

 

$

14,040,759

 

Balances—September 30, 2007

 

18,750,000

 

$

1,875

 

$

70,115,699

 

$

20,327,771

 

$

90,445,345

 

 

 

The accompanying notes are an integral part of these condensed financial statements.

 

6



 

CONDENSED NOTES TO FINANCIAL STATEMENTS

 

NOTE A — BASIS OF PRESENTATION

 

The accompanying unaudited condensed financial statements have been prepared by the Company (as defined below) and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position as of September 30, 2007 and the financial results for the three and nine months ended September 30, 2006 and 2007, and the period September 1, 2005 (inception) to September 30, 2007, in accordance with accounting principles generally accepted in the United States of America for interim financial statements and pursuant to Form 10-Q and Regulation S-X.

 

Certain information and footnote disclosures normally included in the Company’s annual audited financial statements have been condensed or omitted pursuant to such rules and regulations.  The results of operations for the three and nine months ended September 30, 2007 and for the period from September 1, 2005 (date of inception) to September 30, 2007 are not necessarily indicative of the results of operations to be expected for a full fiscal year.  These interim condensed financial statements should be read in conjunction with the financial statements for the fiscal year ended December 31, 2006, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 26, 2007.

 

NOTE B—ORGANIZATION AND BUSINESS OPERATIONS

 

Oracle Healthcare Acquisition Corp. (the “Company”) was incorporated in Delaware on September 1, 2005. The Company was formed to acquire an operating business in the healthcare industry through a merger, capital stock exchange, asset acquisition or other similar business combination. The Company has neither engaged in any operations nor generated revenues to date, with the exception of interest income. The Company is considered to be in the development stage as defined in Statement of Financial Accounting Standards (“SFAS”) No. 7, “Accounting and Reporting By Development stage Enterprises” and is subject to the risks associated with activities of development stage companies. The Company has selected December 31st as its fiscal year-end.

 

The registration statement for the Company’s initial public offering (the “Offering”) (as described in Note D) was declared effective on March 2, 2006. The Company consummated the Offering on March 8, 2006 and received net proceeds of approximately $113,500,000. The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Offering, although substantially all of the net proceeds of the Offering are intended to be generally applied toward consummating a business combination with (or acquisition of) an operating business in the healthcare industry (“Business Combination”). Upon the closing of the Offering, approximately 94.5% of the gross proceeds, after payment of certain expenses related to the Offering and amounts paid to the underwriters, was placed in a trust account at Lehman Brothers, Inc., maintained by Continental Stock Transfer & Trust Company acting as trustee (the “Trust Account”). The proceeds held in the Trust Account will be invested in U.S. “government securities,” defined as any Treasury Bill issued by the United States government having a maturity of one hundred and eighty days or less or any open ended investment company registered under the Investment Company Act of 1940 that holds itself out as a money market fund and bears the highest credit rating issued by a United States nationally recognized rating agency, until the earlier of (i) the consummation of the Company’s initial Business Combination or (ii) the distribution of the Trust Account as described below. On March 2, 2006, immediately prior to the Offering, two stockholders purchased in a private placement 416,667 Warrants (as defined below), for a combined total of 833,334 Warrants, at a price of $1.20 per Warrant (an aggregate purchase price of approximately $1,000,000) directly from the Company and not as part of the Offering. The proceeds from the sale of these Warrants 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. In the event that 20% or more of the outstanding stock (excluding, for this purpose, those shares of common stock issued prior to the Offering) vote against the Business Combination and exercise their conversion rights described below, the Business Combination will not be consummated. Public stockholders voting against a Business Combination will be entitled to convert their stock into a pro rata share of the trust account (including the additional 2% fee of the gross proceeds payable to the underwriters upon the Company’s consummation of a Business Combination), including any interest earned (net of taxes payable) on their pro rata share, if the Business Combination is approved and consummated. However, voting against the Business Combination alone will not result in an election to exercise a stockholder’s conversion rights. A stockholder must also affirmatively exercise such conversion rights at or prior to the time the Business Combination is voted upon by the stockholders. All of the Company’s

 

7



 

stockholders prior to the Offering, including all of the officers and directors of the Company, have agreed to vote all of the shares of common stock held by them, including any shares of common stock purchased in or following the Offering, in accordance with the vote of the majority of all other stockholders of the Company, other than the existing stockholders, officers and directors, with respect to any Business Combination.

 

In the event that the Company does not consummate a Business Combination within 18 months from the date of the consummation of the Offering, or 24 months from the consummation of the Offering if certain extension criteria have been satisfied, the proceeds held in the Trust Account will be distributed to the Company’s public stockholders, excluding the existing stockholders to the extent of their initial stock holdings. Since the Offering was consummated on March 8, 2006, the above-mentioned 18-month period was set to end on September 8, 2007 unless otherwise extended. In furtherance of the Company’s corporate purpose, on September 8, 2007, the Company entered into a letter of intent with a potential target business, thereby extending the deadline to consummate a business combination from September 8, 2007 to March 8, 2008. On October 17, 2007, the letter of intent with the potential target business was terminated. Pursuant to the provisions of the Company’s Amended and Restated Certificate of Incorporation, the Company will liquidate as promptly as practicable, unless negotiations in respect of this transaction are recommenced, and a business combination is consummated. However, there can be no assurance that the Company will be able to recommence negotiations with such potential target business or, if negotiations are recommenced, consummate a business combination in the time allotted.

 

NOTE C—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

[1] Common stock:

 

In February 2006, the Board of Directors of the Company approved a six-for-five stock split to all shareholders of record on February 16, 2006. All transactions and disclosures in the financial statements, related to the Company’s common stock, have been adjusted to reflect the effects of the stock split.

 

[2] Warrant liability:

 

The Company has outstanding Warrants pursuant to the terms of a Warrant Agreement, dated March 2, 2006 (the “Warrant Agreement”), which provides for the Company to register the shares underlying the Warrants but is silent as to the penalty to be incurred in the absence of the Company’s ability to deliver registered shares to the Warrant holders upon Warrant exercise. Under EITF No. 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF No. 00-19”), registration of the common stock underlying the Company’s Warrants is assumed to be not within the Company’s control. As a result, the Company must assume that it could be required to settle the Warrants on a net-cash basis, thereby necessitating the treatment of the potential settlement obligation as a liability. Further, EITF No. 00-19 requires the Company to record the potential settlement liability at each reporting date using the current estimated fair value of the Warrants, with any changes being recorded through the Company’s statements of operations. The potential settlement obligation related to the Warrants will continue to be reported as a liability until such time that the Warrants are exercised, expire, or the Company is otherwise able to modify the registration requirements in the Warrant Agreement to remove the provisions which require this treatment. The fair value of the warrant liability is determined using the trading value of the Warrants.

 

[3] Income per common share:

 

The Company complies with SFAS No. 128, “Earnings Per Share.” SFAS No. 128 requires dual presentation of basic and diluted income per common share for all periods presented. Basic income per common share excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted income per common 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 share in the income of the Company. The difference between the number of shares used to compute basic income per common share and diluted income per common share relates to additional shares to be issued upon the assumed exercise of stock options and warrants, net of shares hypothetically repurchased at the average market price with the proceeds of exercise.

 

8



 

[4] Use of estimates:

 

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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

[5] Income tax:

 

The Company complies with the Financial Accounting Standards Board (“FASB”) SFAS 109, “Accounting for Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for 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, 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 tax assets to the amount expected to be realized.

 

On July 13, 2006, FASB released FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. The Company feels that there are no uncertain tax positions being taken.

 

[6] Recently issued accounting standards:

 

In September 2006, the Statement of Financial Accounting Standard (the “FASB”) issued SFAS No. 157, “Fair Value Measurements.”  This Statement defines fair value, established a framework for measuring fair value in generally accepted accounting principles, expands disclosure about fair value measurements, and applies under other pronouncements that require or permit fair value measurements, SFAS 157 does not require any new fair value measurements. However, the FASB anticipates that for some entities, the application of SFAS No. 157 will change current practice. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, which for the Company would be its fiscal year beginning January 1, 2008. The Company is currently evaluating the impact of SFAS No. 157 but does not expect that it will have a material impact on its condensed interim financial statements.

 

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, “Considering the Effects of the Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides guidance on how prior year misstatements should be considered when quantifying misstatements in the current year financial statements. SAB 108 requires registrants to quantify misstatements using both balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108 does not change the guidance in SAB 99, “Materiality”, when evaluating the materiality of misstatements. SAB 108 is effective for fiscal years ending after November 15, 2006. Upon initial application, SAB 108 permits a one-time cumulative effect adjustment to beginning retained earnings. The Company is currently evaluating the potential impact, if any, that the adoption of SAB 108 will have on its condensed interim financial statements.

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.”  This statement permits entities to choose to measure many financial instruments at fair value. Unrealized gains and losses on items for which option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing impact of SFAS 159 on its condensed interim financial statements.

 

In November, 2007, the Securities and Exchange Commission's issued Staff Accounting Bulletin (SAB) No. 109, "Written Loan Commitments Recorded at Fair Value Through Earnings" ("SAB 109"). SAB 109 provides the Staff's views on the accounting for written loan commitments recorded at fair value under generally accepted accounting principles (GAAP). SAB 109 revises the Staff's views on incorporating expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. SAB 109 retains the Staff's views on incorporating expected net future cash flows related to internally-developed intangible assets in the fair value measurement of a written loan commitment. SAB 109 revises and rescinds portions of SAB 105, "Application of Accounting Principles to Loan Commitments", which provided the views of the Staff regarding derivative loan commitments that are accounted for at fair value through earnings pursuant to Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Company is currently evaluation the potential impact, if any, that the adoption of SAB 109 will have on its condensed interim financial statements.

 

[7] Cash and cash equivalents:

 

The Company considers all highly liquid investments purchased within an original maturity of three months or less to be cash equivalents.

 

9



 

[8] Concentration of credit risk:

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times, exceeds the Federal depository insurance coverage of $100,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

 

[9] Fair value of financial instruments:

 

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under SFAS No. 107, “Disclosure About Fair Value of Financial Instruments”, approximates the carrying amounts represented in the balance sheet.

 

NOTE D—THE OFFERING

 

On March 8, 2006, the Company sold 15,000,000 units (“Units”) at a price of $8.00 per Unit in the Offering. Each Unit consists of one share of the Company’s common stock, $0.0001 par value, and one redeemable common stock purchase warrant (“Warrant”). Each Warrant entitles the holder to purchase from the Company one share of common stock at an exercise price of $6.00 commencing on the later of (a) March 2, 2007 or (b) the completion of a Business Combination with a target business or the distribution of the Trust Account. The Warrants expire on March 2, 2010. The Warrants are redeemable at a price of $0.01 per Warrant upon 30 days notice after the Warrants become exercisable, only in the event that the last sale price of the common stock is at least $11.50 per share for any 20 trading days within a 30 trading day period ending on the third day prior to the date on which notice of redemption is given.

 

NOTE E —INCOME TAXES

 

Income tax expense for the three and nine months ended September 30, 2007 and the period from September 1, 2005 (inception) to September 30, 2007 was approximately $300,000, $1,700,000 and $3,300,000, respectively. The expense is for current federal and state income taxes as well as deferred taxes.

 

The effective tax rate of (3%) for the three months ended September 30, 2007 and (10%) for the nine month period ended September 30, 2007, differs from the federal statutory tax rate of approximately 35% as a result of the gain on the warrant liability, which is a permanent difference, and the deferred tax asset.

 

Deferred income taxes are provided for the differences between the bases of assets and liabilities for financial reporting and income tax purposes. As of September 30, 2007, the Company has a deferred tax asset of approximately $365,000. As of December 31, 2006, the deferred tax asset was approximately $206,000 and had a full valuation allowance on it. Management has changed its position at September 30, 2007 and feels that the deferred tax asset will be fully utilized.

 

NOTE F —SUBSEQUENT EVENT

 

On October 22, 2007, the Company issued a press release and filed a Form 8-K with the Securities and Exchange Commission announcing that it had terminated the letter of intent with a company for a potential business combination, which was entered into on September 8, 2007. Pursuant to the provisions of the Company’s Amended and Restated Certificate of Incorporation, the Company will liquidate as promptly as practicable, unless negotiations in respect of this transaction are recommenced, and a business combination is consummated. However, there can be no assurance that the Company will be able to recommence negotiations with such potential target business or, if negotiations are recommenced, consummate a business combination in the time allotted.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

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 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.

 

We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. We cannot assure you that any future results, performance or achievements will be achieved. For a discussion of certain of these risks, uncertainties and other factors, see “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included in our Final Prospectus dated March 2, 2006.

 

Overview

 

We were formed on September 1, 2005, for the purpose of acquiring an operating business in the healthcare industry through a merger, capital stock exchange, asset acquisition or other similar business combination. Our initial business combination must be with an operating business whose fair market value is equal to at least 80% of our net assets at the time of such acquisition.

 

On March 8, 2006, we consummated our initial public offering of 15,000,000 units. Each unit consists of one share of our common stock, $0.0001 par value, and one redeemable common stock purchase warrant. Each warrant entitles the holder to purchase from us one share of common stock at an exercise price of $6.00 commencing on the later of (a) March 2, 2007 or (b) the completion of a business combination with a target business or the distribution of the trust account. The warrants expire on March 2, 2010. The warrants are redeemable by us at a price of $0.01 per warrant upon 30 days notice after the warrants become exercisable, only in the event that the last sale price of the common stock is at least $11.50 per share for any 20 trading days within a 30 trading day period ending on the third day prior to the date on which notice of redemption is given.

 

To date, our efforts have been limited to organizational activities, completion of our initial public offering and the evaluation of possible business combinations. In furtherance of our corporate purpose, on September 8, 2007, we entered into a letter of intent with a potential target business, thereby extending the deadline to consummate a business combination from September 8, 2007 to March 8, 2008. On October 17, 2007, the letter of intent with the potential target business was terminated. We intended to utilize cash derived from the proceeds of our initial public offering, our capital stock, debt or a combination of cash, capital stock and debt, to effect such business combination. Pursuant to the provisions of our Amended and Restated Certificate of Incorporation, we will liquidate as promptly as practicable, unless negotiations in respect of this transaction are recommenced, and a business combination is consummated. However, there can be no assurance that we will be able to recommence negotiations with such potential target business or, if negotiations are recommenced, consummate a business combination in the time allotted. As described in greater detail below, if we are forced to liquidate, the per-share liquidation may be less than the price at which public stockholders purchased their shares because of the expenses related to our initial public offering, our general and administrative expenses and the anticipated costs of seeking a business combination.

 

For the three and nine months ended September 30, 2007, we had net income of $10,162,963 and $14,579 ,043, respectively, derived primarily from a gain on a change in the warrant liability and income related to the cash held in our trust account. For the period from September 1, 2005 (date of inception) through September 30, 2007, we had net income of $21,496,858, derived primarily from a gain on a change in the warrant liability and income related to the cash held in our trust account.

 

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Results of Operations and Known Trends or Future Events

 

We have neither engaged in any operations nor generated revenues to date (with the exception of interest income), nor is it likely that we will do so. Since our inception, our only activities have been organizational activities and those necessary to prepare for our Offering, and thereafter, certain expenses related to pursuing a target business. We will not generate any operating revenues until the completion of a business combination, if any. We have generated non-operating income in the form of interest income on cash and cash equivalents and our other short term investments. We have met with target companies, service professionals and other intermediaries to discuss our company, the background of our management and our combination preferences. In the course of these discussions, we have also spent time explaining the capital structure of the initial public offering, the business combination approval process and the timeline under which we may operate before the proceeds of our initial public offering are returned to investors. In furtherance of our corporate purpose, on September 8, 2007, we entered into a letter of intent with a potential target business, thereby extending the deadline to consummate a business combination from September 8, 2007 to March 8, 2008. On October 17, 2007, the letter of intent with the potential target business was terminated. Pursuant to the provisions of our Amended and Restated Certificate of Incorporation, we will liquidate as promptly as practicable, unless negotiations in respect of this transaction are recommenced, and a business combination is consummated . However, there can be no assurance that we will be able to recommence negotiations with such potential target business or, if negotiations are recommended, consummate a business combination in the time allotted.

 

Liquidity and Capital Resources

 

The net proceeds from our initial public offering, after deducting certain offering expenses of approximately $500,000, and an underwriting discount of $6,000,000, were approximately $113,500,000, all of which was placed into a trust account. On March 2, 2006, immediately prior to our initial public offering, two of our founding directors, Larry N. Feinberg and Joel D. Liffmann, each purchased in a private placement 416,667 warrants, for a combined total of 833,334 warrants, at a price of $1.20 per warrant (an aggregate purchase price of approximately $1,000,000) directly from us. The proceeds from the sale of these warrants are available to be used by us to provide for business, legal and accounting due diligence on prospective acquisitions and to pay for continuing general and administrative expenses. As of September 30, 2007 , we had $53,696 of proceeds available for such uses.

 

In the event that we recommence negotiations with the potential target business with whom we previously entered into a letter of intent, we would expect to use substantially all of the net proceeds from our initial public offering to acquire such target business, including structuring, negotiating and consummating such business combination. To the extent that our capital stock is used in whole or in part as consideration to effect such 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 such target business. We believe we will have sufficient available funds, or access to funds, outside of the trust account to operate through March 8, 2008. Until we enter into a business combination, if any, we expect to use our available resources for general working capital as well as legal, accounting and due diligence expenses for structuring and negotiating a business combination and legal and accounting fees relating to our Securities and Exchange Commission reporting obligations.

 

In the event that we recommence negotiations with the potential target business with whom we previously entered into a letter of intent, of which there can be no assurance, 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 with such target business. Our primary liquidity requirements through March 8, 2008 include approximately $400,000 for expenses for the due diligence and investigation of a target business which includes legal, accounting and other expenses associated with structuring, negotiating and documenting an initial business combination; $180,000 for administrative services and support payable to Oracle Investment Management, an affiliate of
Mr. Feinberg, representing an aggregate of $7,500 per month for up to 24 months; $80,000 for legal and accounting fees relating to our SEC reporting obligations; and approximately $340,000 for general working capital that will be used for miscellaneous expenses and reserves, as well as for director and officer liability insurance premiums.

 

In connection with the initial public offering, we agreed to pay the underwriters additional underwriting fees of $2,400,000, which the underwriters have agreed to defer until the consummation of our initial business combination. We expect that such fees will be paid out of the proceeds held in the trust account. In the event that negotiations in respect of the potential business combination discussed above are not recommenced, of which there can be no assurance, and we are required to liquidate, we will distribute to our public stockholders the principal and accumulated interest in the trust account,

 

12



 

including the amount representing the deferred portion of the underwriters’ fee held in the trust account following the consummation of our initial public offering.

 

As of September 30, 2007, the proceeds in the trust account were invested in a money market fund. The average credit rating in the portfolio of the money market fund was Aaa/AAA, as rated by Moody’s and S&P.

 

We currently have no operating business. Since our initial public offering, we have been actively engaged in sourcing a suitable business combination candidate. We have met with target companies, service professionals and other intermediaries to discuss our company, the background of our management and our combination preferences. In the course of these discussions, we have also spent time explaining the capital structure of the initial public offering, the combination approval process and the timeline under which we are operating before the proceeds of the offering are returned to investors. In furtherance of our corporate purpose, on September 8, 2007, we entered into a letter of intent with a potential target business, thereby extending the deadline to consummate a business combination from September 8, 2007 to March 8, 2008. On October 17, 2007, the letter of intent with the potential target business was terminated. If we are unable to recommence negotiations with the target business and consummate the business combination relating thereto by March 8, 2008, we will be forced to liquidate. However, there can be no assurance that we will be able to recommence negotiations with such potential target business or, if negotiations are recommenced, consummate a business combination in the time allotted. If we are forced to liquidate, the per-share liquidation may be less than the price at which public stockholders purchased their shares because of the expenses related to our initial public offering, our general and administrative expenses and the anticipated costs of seeking a business combination. Additionally, if third parties make claims against us, the offering proceeds held in the trust account could be subject to those claims, resulting in a further reduction to the per-share liquidation price. Under Delaware law, our stockholders who have received distributions from us may be held liable for claims by third parties to the extent such claims have not been paid by us. Furthermore, our warrants will expire worthless if we liquidate before the completion of a business combination.

 

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, unless we recommence negotiations with the potential target business with whom we previously entered into a letter of intent and consummate a business combination with such target business, we will 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 will be invested in either U.S. “government securities” or any open ended investment company registered under the Investment Company Act of 1940 that holds itself out as a money market fund and bears the highest credit rating issued by a United States nationally recognized rating agency. 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.

 

Our management carried out an evaluation, with the participation of our chief operating officer (principal executive officer) and our chief financial officer (principal financial and accounting officer), of the effectiveness of our disclosure controls and procedures as of September 30, 2007. Based upon that evaluation, our chief operating officer and chief financial officer 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 quarter ended  September 30, 2007, 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.

 

There are no material legal proceedings pending against us.

 

13



 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

On March 8, 2006, we consummated our initial public offering of 15,000,000 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 $6.00. The units were sold at an offering price of $8.00 per unit, generating total gross proceeds of $120,000,000. CRT Capital 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. 333-128748). The Securities and Exchange Commission declared the registration statement effective on March 2, 2006.

 

We paid a total of $6,000,000 in underwriting discounts and commissions, and approximately $500,000 has been paid for costs and expenses related to the offering. In connection with the initial public offering, we agreed to pay the underwriters an additional underwriting fee of $2,400,000 upon the consummation of our initial business combination. We expect that such fees and expenses will be paid out of the proceeds in the trust account. In the event that negotiations in respect of the potential business combination discussed above are not recommenced and we are required to liquidate, we will distribute to our public stockholders the principal and accumulated interest in the trust account, including the amount representing the deferred portion of the underwriters’ fee held in the trust account following the consummation of our initial public offering.

 

After deducting the underwriting discounts and the offering expenses, the total net proceeds to us from the offering were approximately $114,000,000, of which $113,500,000 was deposited into a trust fund (or $7.57 per unit sold in the offering) and the remaining proceeds are available to be used to provide for business, legal and accounting due diligence on prospective business combinations and continuing general and administrative expenses.

 

On March 2, 2006, immediately prior to our initial public offering, two of our founding directors, Larry N. Feinberg and Joel D. Liffmann, each purchased in a private placement 416,667 warrants, for a combined total of 833,334 warrants, at a price of $1.20 per warrant (an aggregate purchase price of approximately $1,000,000) directly from us. Each warrant entitles the holder to purchase from us one share of common stock at an exercise price of $6.00 commencing on the later of (a) March 2, 2007 or (b) the completion of a business combination with a target business or the distribution of the trust account. The warrants expire on March 2, 2010. The warrants are redeemable by us at a price of $0.01 per warrant upon 30 days notice after the warrants become exercisable, only in the event that the last sale price of the common stock is at least $11.50 per share for any 20 trading days within a 30 trading day period ending on the third day prior to the date on which notice of redemption is given.

 

For a description of the use of proceeds generated in our initial public offering and the sale of warrants to Larry N. Feinberg and Joel D. Liffmann, see Part I, Item 2 of this Form 10-Q.

 

Item  3. Defaults Upon Senior Securities.

 

Not applicable.

 

Item  4. Submission of Matters to a Vote of Security Holders.

 

Not applicable.

 

Item 5. Other Information

 

In furtherance of our corporate purpose, on September 8, 2007, we entered into a letter of intent with a potential target business, thereby extending the deadline to consummate a business combination from September 8, 2007 to March 8, 2008. On October 17, 2007, the letter of intent with the potential target business was terminated. We intended to utilize cash derived from the proceeds of our initial public offering, our capital stock, debt or a combination of cash, capital stock and debt, to effect such business combination. Pursuant to the provisions of our Amended and Restated Certificate of Incorporation, we will liquidate as promptly as practicable, unless negotiations in respect of this transaction are recommenced, and a business combination is consummated. However, there can be no assurance that we will be able to recommence negotiations with such potential target business or, if negotiations are recommenced, consummate a business combination in the time allotted. As described in greater detail above, if we are forced to liquidate, the per-share liquidation may be less than the price at which public stockholders purchased their shares because of the expenses related to our initial public offering, our general and administrative expenses and the anticipated costs of seeking a business combination.

 

14



 

Item 6. Exhibits

 

 

31.1

Section 302 Certification of Chief Operating Officer

 

31.2

Section 302 Certification of Chief Financial Officer

 

32

Section 906 Certification

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

 

 

ORACLE HEALTHCARE ACQUISITION CORP.

 

 

 

 

 

 

 

 

 

 

Date: November 14, 2007

 

 

By:

/s/ Joel D. Liffmann

 

 

 

 

 

Joel D. Liffmann

 

 

 

 

President and Chief Operating Officer

 

 

 

 

(Principal Executive Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ Mark A. Radzik

 

 

 

 

 

Mark A. Radzik

 

 

 

 

Chief Financial Officer and Secretary (Principal
Financial and Accounting Officer)

 

15


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