KHA Kbl Healthcare Acquisition Iii

The following discussion should be read in conjunction with the Company’s Consolidated Financial Statements and footnotes thereto contained in this report.

Forward Looking Statements

The statements discussed in this Report include forward looking statements that involve risks and uncertainties detailed from time to time in the Company’s reports filed with the Securities and Exchange Commission.

Overview

We were formed on January 9, 2007 as a vehicle to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business in the healthcare or healthcare-related industries. We intend to utilize cash derived from the proceeds of our recently completed public offering, our capital stock, debt or a combination of cash, capital stock and debt, in effecting a business combination.

On March 13, 2009, we entered into an Agreement and Plan of Reorganization (“Merger Agreement”) with PRWT Services, Inc. (“PRWT”), PRWT Merger Sub, Inc. (“Merger Sub”), and the holders of all outstanding capital stock of PRWT (“PRWT Stockholders”).  Pursuant to the Merger Agreement, we will engage in a business combination with PRWT.  The business combination will be accomplished by our company merging into Merger Sub, with Merger Sub being the surviving corporation (“Merger”).  As a result of the Merger and related transaction, PRWT will become the public company following the Merger (“New Pubco”).  In this regard, all of our outstanding common stock, warrants and units shall be automatically converted into the same number of shares of common stock, warrants and units of PRWT.  The terms of our securities, such as the exercise price and exercise period of the public warrants, will remain the same.

 

PRWT and its subsidiaries are a diversified enterprise of pharmaceutical manufacturing and distribution, facilities management, and business process outsourcing services.  Cherokee Pharmaceuticals LLC, PRWT’s wholly-owned subsidiary, provides bulk chemical manufacturing of active pharmaceutical ingredients, specializing in handling antibiotics, high hazard reactions and potent compounds.  U.S. Facilities, Inc., PRWT’s 51%-owned subsidiary, provides professional facilities management and outsourcing services focusing on complex and highly-secure maintenance and management projects.  PRWT offers business process outsourcing to clients throughout the United States, including document processing, payment processing, mailroom services, lockbox, scanning and imaging, walk-in and call-center based customer service, and toll collection operations services.  PRWT is a certified minority business enterprise.

 

The merger is expected to be consummated in the third quarter of 2009, after the required approval by our stockholders and the fulfillment of certain other conditions, as described in the Merger Agreement.

 

For a more complete discussion of our proposed business combination with PRWT, see our Current Report on Form 8-K, dated March 13, 2009 and filed with the SEC on March 19, 2009, and our Registration Statement on Form S-4 filed with the SEC on April 22, 2009.

Results of Operations

For the three months ended March 31, 2009, we had a net loss of $(605,141) derived from interest income of $84,294 offset by $17,500 for officer liability insurance, $482,538 for professional fees, $127,046 in Capital and Delaware franchise taxes, $30,000 in administrative fees, $4,310 for dues and subscriptions and $28,041 in other operating expenses.

For the three months ended March 31, 2008, we had a net income of $338,453 derived from interest income of $817,269 offset by $17,500 for officer liability insurance, $141,656 for professional fees, $127,572 in Capital and Delaware franchise taxes, $26,927 in New York State and City income taxes, $30,000 in administrative fees, $7,219 for dues and subscriptions and $127,942 in other operating expenses.

For the period from January 9, 2007 (inception) to March 31, 2009, we had a net income of $627,412 derived from interest income of $3,998,553 offset by $118,968 for officer liability insurance, $1,536,495 for professional fees, $944,152 in Capital and Delaware franchise taxes, $91,732 in New York State and City income taxes, $203,871 in administrative fees, $49,181 for dues and subscriptions and $426,742 in other operating expenses.

Comparison- Three Months Ended March 31, 2009 with Three Months Ended March 31, 2008

 

Decrease in interest income was the result of interest rates decreasing over the periods reported on.  $69,826 of the interest income for the three months ended March 31, 2009 was a result of a reversal from deferred trust income.  The increase in professional fees is due to legal, accounting and consulting fees relating to the proposed business combination.  The decrease in other operating expenses is due to travel and other related costs during the three months ended March 31, 2008 relating to acquisition prospects that did not materialize.

 

Financial Condition and Liquidity

 

We consummated our initial public offering on July 25, 2007. Gross proceeds from our initial public offering (including from our private placement of warrants and exercise of the underwriters’ over-allotment option) were $138,000,000. We incurred a total of $9,660,000 in underwriting discounts and commissions and $609,108 for other costs and expenses related to the offering and the over-allotment option. After deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds to us from the offering were approximately $131,871,000, of which $131,855,000 was deposited into the trust account. In addition, all of the proceeds from the private sale of the warrants were deposited into the trust fund, for a total of $133,930,000 held in trust (or approximately $7.76 per share sold in the offering).

 

We intend to use substantially all of the net proceeds of this offering to acquire a target business, including identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating the business combination. To the extent that our capital stock or debt securities are used in whole or in part as consideration to effect a business combination, the proceeds held in the trust fund as well as any other available cash will be used to finance the operations of the target business. At March 31, 2009, we had current assets (excluding cash held in the trust fund) of $201,093 and current liabilities of $995,256 (excluding deferred underwriting fees), leaving us with a working capital deficiency of $(794,163), net of $135,388,509 which is cash held in trust.

 

ITEM 4.  CONTROLS AND PROCEDURES.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief operating officer, as appropriate to allow timely decisions regarding required disclosure.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our chief executive officer and chief operating officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2009. Based upon their evaluation, they concluded that our disclosure controls and procedures were effective.

Our internal control over financial reporting is a process designed by, or under the supervision of, our chief executive officer and chief operating officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization of our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II.

OTHER INFORMATION

ITEM 2:

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On July 25, 2007, we consummated our initial public offering of 17,250,000 Units, including 2,250,000 units subject to the underwriters’ over-allotment option.   Each Unit consisted of one share of our common stock and one warrant, each to purchase one share of our common stock at an exercise price of $5.00 per share.  The units were sold at an offering price of $8.00 per unit, generating total gross proceeds of $138,000,000.  Simultaneously with the consummation of the IPO, we consummated the private sale of 2,075,000 warrants (“Insider Warrants”) at a price of $1.00 per warrant, generating total proceeds of $2,075,000.  Citigroup Global Markets, Inc. was the managing underwriter in the offering. The securities sold in the offering were registered under the Securities Act of 1933 on a registration statement on Form S-1 (Nos. 333-141342 and 333-144722). The Securities and Exchange Commission declared the registration statement effective on July 19, 2007.

We paid a total of $9,660,000 in underwriting discounts and commissions. Of that total, $4,140,000 has been accrued and deferred and will not be payable unless and until the Company completes a Business Combination. In addition, we incurred approximately $609,108 for costs and expenses related to the offering.

After deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds to us from the offering were approximately $131,871,000, of which $131,855,000 was deposited into the trust account 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. In addition, all of the proceeds from the private sale of the warrants were deposited into the Trust Fund, for a total of $133,930,000 (or approximately $7.76 per share sold in the offering).

For a description of the use of the proceeds generated in our initial public offering, see Part I, Item 2 of this Form 10-Q.

ITEM 6:  EXHIBITS

(a)          Exhibits:

31.1 – Section 302 Certification by CEO

31.2 – Section 302 Certification by COO

32.1 – Section 906 Certification by CEO

32.2 – Section 906 Certification by COO

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.

	KBL HEALTHCARE ACQUISITION CORP. III
Dated:  May 8, 2009
	/s/ Marlene Krauss, M.D.
	Marlene Krauss, M.D.
	Chief Executive Officer
	(Principal Executive Officer)
	/s/ Michael Kaswan
	Michael Kaswan
	Chief Operating Officer
	(Principal Accounting and Financial Officer)