1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
Commission File No. 0-27836
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
EMBASSY ACQUISITION CORP.
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(Exact name of small business issuer as specified in its charter)
Florida 65-0643773
- ------------------------------- -------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1428 Brickell Avenue
Miami, Florida 33131
----------------------------------------
(Address of principal executive offices)
(305) 374-6700
---------------------------
(Issuer's Telephone Number)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 X No
--- ---
As of September 30, 1996 the Company had a total of 2,540,000 shares (the
"Shares") of Common Stock, par value $.0001 per share (the "Common Stock")
outstanding. Additionally, as of such date Underwriter Options to purchase
120,000 shares of Common Stock (the "Underwriter Options") remain outstanding
and unexercised. Each Underwriter Warrant entitles the holder thereof to
purchase one share of Common Stock at a purchase price of $7.80 per share
through April 1, 2001.
2
DOCUMENTS INCORPORATED BY REFERENCE
Certain Exhibits to the Parts I and II of this Report
Registration Statement
on Form SB-2, as amended
(File No. 33-00568).
(ii)
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EMBASSY ACQUISITION CORP.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . . . 1
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 4. Submission of Matters to Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
(iii)
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PART I
ITEM 1. FINANCIAL STATEMENTS
The unaudited, condensed financial statements included herein,
commencing at page F-1, have been prepared in accordance with the requirements
of Regulation S-B and supplementary financial information included herein, if
any, has been prepared in accordance with Item 310(b) of Regulation S-B and,
therefore, omit or condense certain footnotes and other information normally
included in financial statements prepared in accordance with generally accepted
accounting principles. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation of the financial information for the interim periods reported have
been made. Results of operations for the three and nine months ended
September 30, 1996 are not necessarily indicative of the results for the year
ending December 31, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Embassy Acquisition Corp. (the "Company") was formed in November 1995
to seek to effect a merger, exchange of capital stock, asset acquisition or
similar business combination (a "Business Combination") with an acquired
business (an "Acquired Business"). In connection with its initial
capitalization, the Company issued an aggregate of 1,160,000 shares of Common
Stock to its officers, directors, and other shareholders for an aggregate
purchase price of $76,078. On April 2, 1996, the Company's Registration
Statement on Form SB-2 (the "Registration Statement") was declared effective by
the U.S. Securities and Exchange Commission (the "SEC"). Pursuant to the
Registration Statement, the Company, in its initial public offering of
securities, offered and sold 1,380,000 shares of Common Stock, par value $.0001
per share, at a purchase price of $6.00 per share (the "Offering") and received
net proceeds of approximately $7,050,000 after the payment of all expenses of
the Offering (the "Net Proceeds"). In addition, the Company issued Underwriter
Options to purchase 120,000 shares of Common Stock. The Offering was a "blank
check" offering.
Liquidity and Capital Resources/Plan of Operation
As of September 30, 1996 the Company had cash and cash equivalents of
$769,277 and restricted short-term investments of $6,494,156. As of
September 30, 1996 the Company had total liabilities of $51,517 and total
shareholders' equity of $7,213,377. 90% of the Net Proceeds ($6,348,329) (the
"Escrow Fund") were delivered to Fiduciary Trust International of the South,
as Escrow Agent, to be held in escrow by such firm, until the earlier of (i)
written notification by the Company of its need for all or substantially all of
the Escrow Fund for the purpose of implementing a Business Combination; or
(ii) the exercise by certain shareholders of the Redemption Offer (as defined
in the Registration Statement). As of September 30, 1996, there was $6,494,156
(at market value) in the Escrow Fund. The Escrow Fund is currently invested in
United States government-backed short-term securities.
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5
Other than the Escrow Fund, the Company, as of September 30, 1996, had
$769,277 in cash and cash equivalents all of which was received from the
Offering (other than interest income earned thereon) (the "Operating Funds").
The Company believes the Operating Funds will be sufficient for its cash
requirements for at least the next twelve months.
The Company's objective is to seek to effect a Business Combination
with an Acquired Business, which the Company believes has growth potential.
The expenses required to select and evaluate an Acquired Business
candidate (including conducting a due diligence review) and to structure and
consummate a Business Combination (including the negotiation of relevant
agreements and the preparation of requisite documents for filing pursuant to
applicable securities laws and state corporation laws) cannot be presently
ascertained with any degree of certainty. For the quarter ended September 30,
1996, the Company incurred $11,655 of operating expenses.
The Company anticipates that it will make contact with business
prospects primarily through the efforts of its officers, who will meet
personally with existing management and key personnel, visit and inspect
material facilities, assets, products and services belonging to such prospects
and undertake such further reasonable investigation as management deems
appropriate, to the extent of its limited financial resources. The Company
anticipates that certain Acquired Business candidates may be brought to its
attention from various unaffiliated sources, including securities
broker-dealers, investment bankers, venture capitalists, bankers, other members
of the financial community, and affiliated sources. While the Company does not
presently anticipate engaging the services of professional firms that
specialize in business acquisitions on any formal basis, the Company may engage
such firms in the future, in which event the Company may pay a finder's fee or
other compensation. In no event, however, will the Company pay a finder's fee
or commission to officers or directors of the Company or any entity with which
they are affiliated for such services. During the period from April 1996
through September 30, 1996 the Company's officers conducted an analysis of in
excess of 50 prospective Acquired Businesses engaged in the following
industries: entertainment, security protection, healthcare, medical staffing
and practice management, retailing, factoring, industrial distribution,
manufacturing, wholesale jewelry distribution, food distribution, and travel.
As part of the Company's investigation of prospective enterprises,
products and services, management intends to request that current owners of a
prospective Acquired Business provide, among other things, written materials
regarding the current owner's business, product or service, available market
studies, as well as the assumptions upon which they are made, appropriate title
documentation with respect to the assets, products and services of the
potential Acquired Business, detailed written descriptions of any transactions
between the potential Acquired Business and any of its affiliates, copies of
pleadings and material litigation, if any, copies of material contracts and any
and all other information deemed relevant. Additionally, the Company may
verify such information, if possible, by interviewing competitors, certified
public accountants and other
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6
persons in a position to have independent knowledge regarding the product or
service as well as the financial condition of the potential Acquired Business.
Key-man Insurance
The Company has obtained a $1,000,000 "key man" policy insuring the
life of Glenn L. Halpryn, the Company's President and a member of the Board of
Directors. There can be no assurances that such "key man" insurance will be
maintained at reasonable rates, if at all. The loss, incapacity or
unavailability Mr. Halpryn at the present time or in the foreseeable future,
before a qualified replacement was obtained, could have a material, adverse
effect on the Company's operations.
Conflicts of Interest
None of the Company's key personnel are required to commit their full
time to the affairs of the Company and, accordingly, such personnel may have
conflicts of interest in allocating time among various business activities.
The Company's officers devote approximately 20% of their time to the affairs of
the Company. Certain of these key personnel are or may in the future become
affiliated with entities, including other "blank check" companies, engaged in
business activities similar to those intended to be conducted by the Company.
In the course of their other business activities, including private
investment activities, the Company's officers and directors may become aware
of investment and business opportunities which may be appropriate for
presentation to the Company as well as the other entities with which they are
affiliated. Such persons may have conflicts of interest in determining to
which entity a particular business opportunity should be presented. In
general, officers and directors of corporations incorporated under the laws of
the State of Florida are required to present certain business opportunities to
such corporations. Accordingly, as a result of multiple business affiliations,
the Company's officers and directors may have similar legal obligations
relating to presenting certain business opportunities to multiple entities. In
addition, conflicts of interest may arise in connection with evaluations of a
particular business opportunity by the Board of Directors with respect to the
foregoing criteria. There can be no assurances that any of the foregoing
conflicts will be resolved in favor of the Company.
In order to minimize potential conflicts of interest which may arise
from multiple corporate affiliations, each of the Company's officers and
directors have agreed that, in the event any of the them believes that a
business combination opportunity would be appropriate to be considered by an
entity other than the Company with which such officer or director is affiliated
(the "Other Entity"), so long as this affiliation with the Other Entity existed
prior to November 30, 1995, then the Company will be presented with the
business combination opportunity only after the Other Entity has determined not
to pursue such business combination opportunity.
3
7
To further minimize potential conflicts of interest, the Company shall
not consider Business Combinations with entities owned or controlled by
officers, directors and holders of greater than 10% of the Common Stock of the
Company, or with any person who directly or indirectly controls, is controlled
by or is under common control with the Company. There can be no assurances
that any of the foregoing conflicts will be resolved in favor of the Company.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to, nor is it aware of, any pending
litigation to which it is a party or of which its property is subject.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
During the third quarter ended September 30, 1996, no matters were
submitted to a vote of security holders of the Company, through the
solicitation of proxies or otherwise.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
1. Financial Statements - Reference is made to Financial
Statements, commencing at page F-1.
27. Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
None.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
EMBASSY ACQUISITION CORP.
Date: November 11, 1996 By: /s/ Glenn L. Halpryn
---------------------------------------
Glenn L. Halpryn,
President
Date: November 11, 1996 By: /s/ Craig A. Brumfield
---------------------------------------
Craig A. Brumfield,
Principal Financial Officer
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9
FINANCIAL STATEMENTS
F-1
10
EMBASSY ACQUISITION CORP.
(A Development Stage Corporation)
BALANCE SHEETS
ASSETS
September 30, 1996 December 31, 1995
------------------ -----------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 769,277 $ 76,078
Restricted short - term investments 6,494,156 -
Accrued interest receivable 1,461 -
---------- --------
Total current assets 7,264,894 76,078
OTHER ASSETS:
Deferred registration costs - 28,144
---------- --------
Total assets $7,264,894 $104,222
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 246 $ 28,144
Income taxes payable 51,271
---------- --------
Total current liabilities 51,517 28,144
---------- --------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 100,000,000 shares
authorized, 2,540,000 and 1,160,000 issued and outstanding
at September 30, 1996 and December 31, 1995, respectively 254 116
Additional paid-in-capital 7,128,087 75,962
Retained earnings during development stage 56,056 -
Unrealized gain on investments 28,980
---------- --------
Total stockholders' equity 7,213,377 76,078
---------- --------
Total liabilities and stockholders' equity $7,264,894 $104,222
========== ========
See accompanying notes to financial statements
F-2
11
EMBASSY ACQUISITION CORP.
(A Development Stage Corporation)
STATEMENTS OF OPERATIONS
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1996
---- ----
(Unaudited) (Unaudited)
OPERATING REVENUES $ - $ -
---------- ----------
OPERATING EXPENSES
General and administrative 11,655 26,246
---------- ----------
Total operating expenses 11,655 26,246
---------- ----------
Loss from operations (11,655) (26,246)
---------- ----------
Other income:
Interest income 58,517 116,100
---------- ----------
Other income 58,517 116,100
---------- ----------
Income before income tax provision 46,862 89,854
Income tax provision 17,620 33,798
---------- ----------
Net income $ 29,242 $ 56,056
========== ==========
Net income per share $ 0.01 $ 0.03
========== ==========
Weighted average common and common stock
equivalent shares outstanding: 2,540,000 2,039,560
========== ==========
See accompanying notes to financial statements
F-3
12
EMBASSY ACQUISITION CORP.
(A Development Stage Corporation)
STATEMENT OF CASH FLOWS
for the Nine
Months Ended
September 30, 1996
------------------
(unaudited)
Cash flows from operating activities:
Net income $ 56,056
----------
Changes in certain assets and liabilities:
Accrued interest receivable (1,461)
Accrued expenses 246
Income taxes payable 33,798
----------
Net cash provided by operating activities 88,639
----------
Cash flows from investing activities:
Funding of restricted short-term investments (6,447,703)
----------
Net cash used in investing activities (6,447,703)
----------
Cash flows from financing activities:
Net proceeds from issue of common stock 7,052,263
----------
Net cash provided by financing activities 7,052,263
----------
Net increase in cash and cash equivalents 693,199
Cash and cash equivalents at beginning of period 76,078
----------
Cash and cash equivalents at end of period $ 769,277
==========
See accompanying notes to financial statements
F-4
13
EMBASSY ACQUISITION CORP.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying interim financial statements presented herein do not include
all disclosures provided in the annual financial statements. These unaudited
financial statements should be read in conjunction with the annual financial
statements and the footnotes for the fiscal year ended on December 31, 1995
thereto contained in the Company's Registration Statement on Form SB-2 which
was declared effective by the U.S. Securities and Exchange Commission on April
2, 1996 (the "Registration Statement").
In the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments, which are of a normal recurring nature, necessary for
a fair presentation of the financial statements. The results of operations for
the three and nine months ending September 30, 1996 are not necessarily
indicative of the results of operation to be expected for the full year.
(2) PUBLIC OFFERING OF SECURITIES
On April 9, 1996, the Company sold to the public 1,380,000 shares of its common
stock, including 180,000 shares purchased by the underwriter to cover
overallotments, $.0001 par value at a price of $6 per share (the "Offering").
Proceeds totaled $7,053,700, which was net of $1,226,300 in underwriting and
other expenses.
In connection with the Offering, the Company sold to the managing underwriter
(the "Underwriter") and its designees, for total consideration of $10, stock
purchase options ("the "Underwriter Options") to purchase up to 120,000 shares
of the Company's common stock at an exercise price of $7.20 per share. The
Underwriter Options will be exercisable for a period of five years from the
effective date of the Company's Registration Statement. The Company has also
agreed to certain registration rights with respect to the shares underlying the
Underwriter Options.
In accordance with the Offering, 90% of the net proceeds therefrom were placed
in an interest bearing escrow account (the "Escrow Fund") subject to release
upon the earlier of (i) written notification by the Company of its need for all
or substantially all of the Escrow Fund for the purpose of implementing a
business combination, (ii) the exercise by certain shareholders of the
Redemption Offer, as defined, or (iii) the
F-5
14
expiration of no more than 30 months from the date of the Offering. Amounts in
the Escrow Fund, including interest earned thereon, are prohibited from being
used for any purpose other that a business combination. Such amounts are
included in Restricted short-term investments at September 30, 1996.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents - Cash and cash equivalents are defined as all highly
liquid financial instruments with maturities of 90 days or less at the date of
purchase. The Company maintains its cash and cash equivalents which consist
principally of demand deposits and repurchase agreements with one financial
institution.
Restricted Short-term Investments - The Company determines the appropriate
classification of its restricted short-term investments at the time of purchase
and reevaluates such determination at each balance sheet date. Investments are
classified as available for sale and are carried at fair market value, with
unrealized gains and losses, net of tax, reported as a separate component of
stockholders' equity. Fair value is determined by the most recently traded
price of the security at the balance sheet date.
F-6
5
9-MOS
DEC-31-1995
JAN-01-1996
SEP-30-1996
769,277
6,494,156
1,461
0
0
7,264,894
0
0
7,264,894
51,517
0
0
0
254
7,213,123
7,264,894
0
0
26,246
26,246
(116,100)
0
0
89,854
33,798
56,056
0
0
0
56,056
0.03
0.03
