Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 June 30, 2006.
 
or
 
o 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: 001-32685
 
Star Maritime Acquisition Corporation
(Exact name of registrant as specified in its charter)
 
Delaware
  
20-2873585
(State or Other Jurisdiction of
Incorporation or Organization)
  
(I.R.S. Employer
Identification No.)
 
c/o Schwartz & Weiss, P.C.
457 Madison Avenue
New York, New York 10022
(Address of Principal Executive Offices including Zip Code)
 
212-752-3100
(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  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. (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
 
There were 29,026,924 shares of the Registrant’s common stock issued and outstanding as of August 14, 2006.
 
 
 
Star Maritime Acquisition Corporation Index to Form 10-Q

Part I.
Financial Information
 
     
 
Item 1. Financial Statements (unaudited)
3
     
 
Condensed Balance Sheet
3
     
 
Condensed Statements of Income
4
     
 
Condensed Statement of Stockholders’ Equity
5
     
 
Condensed Statement of Cash Flows
6
     
 
Notes to Financial Statements
7
     
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
10
     
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
12
     
 
Item 4. Controls and Procedures
12
     
Part II.
Other Information
  
     
 
Item 1. Legal Proceedings
13
     
 
Item 1A. Risk Factors
13
     
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
13
     
 
Item 3. Defaults Upon Senior Securities
13
     
 
Item 4. Submission of Matters to a Vote of Security Holders
13
     
 
Item 5. Other Information
13
     
 
Item 6. Exhibits
13
     
SIGNATURES
14
 
2
PART I - FINANCIAL INFORMATION
 
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
 
Star Maritime Acquisition Corp
(a development stage company)
Condensed Balance Sheet
 
 
 
   
June 30, 2006
  
December 31, 2005
  
   
(unaudited)
  
(audited)
  
ASSETS
          
Current Assets
           
 Cash
  
$
1,032,247
  
$
593,281
  
 Investments in trust account
    
191,071,916
   
188,858,542
 
 Prepaid expenses and other current assets
    
60,614
   
118,766
 
               
Total Current Assets 
    
192,164,777
   
189,570,589
 
Other Assets-Deferred tax asset 
    
230,656
   
9,000
 
               
TOTAL ASSETS
  
$
192,395,433
  
$
189,579,589
  
               
LIABILITIES & STOCKHOLDERS' EQUITY
              
Liabilities 
              
 Accounts payable and accrued expenses
  
$
118,512
  
$
344,638
  
 Deferred Interest on investments
    
851,571
       
 Deferred underwriting fees
    
4,000,000
   
4,000,000
 
 Income taxes payable
    
545,087
       
               
Total Liabilities 
    
5,515,170
   
4,344,638
 
 Common Stock, $.0001 par value, 6,598,000 shares subject to possible redemption, at redemption value of $9.80 per share
    
64,660,400
   
64,660,400
 
  
    
 
      
Commitments and Contingencies
              
               
Stockholders' Equity 
              
 Preferred Stock, $.0001 par value; authorized, 1,000,000 shares; none issued or outstanding
    
-
       
 Common Stock, $.0001 par value, authorized, 100,000,000 shares; 29,026,924 shares issued and outstanding. (including 6,598,000 shares subject to possible redemption)
    
2,903
   
2,903
 
 
              
 Additional paid in capital
    
120,461,317
   
120,461,317
 
               
 Earnings accumulated in the development stage
    
1,755,643
   
110,331
 
Total Stockholders' Equity 
    
122,219,863
   
120,574,551
 
               
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  
$
192,395,433
  
$
189,579,589
  
 
 
 
See accompanying notes to unaudited condensed financial statements

3
 
Star Maritime Acquisition Corp
(a development stage company)
Condensed Statements of Income
 

   
For the Three Months Ending June 30, 2006
  
For the Six Months Ended June 30, 2006
  
May 13, 2005 (date of inception) to June 30, 2005
  
May 13, 2005 (date of inception) to June 30, 2006
  
   
(unaudited)
  
(unaudited)
  
(unaudited)
  
(unaudited)
  
                   
Formation and operating costs
  
$
(267,397
)
$
(383,228
)
$
(6,770
)
$
(433,439
)
Interest income
    
1,372,317
   
2,366,971
   
-
   
2,550,513
 
Income/(loss) before provision for income tax
    
1,104,920
   
1,983,743
   
(6,770
)
  
2,117,074
 
Provision for income taxes
    
316,801
   
338,431
   
-
   
361,431
 
Net income/(loss)
  
$
788,119
  
$
1,645,312
  
$
(6,770
)
$
1,755,643
  
Earnings per share (basic and diluted)
  
$
0.03
  
$
0.06
  
$
(0.00
)
$
0.10
  
                           
Weighted average shares outstanding - basic and diluted
    
29,026,924
    
29,026,924
    
9,026,924
    
18,292,771
  
 
 
See accompanying notes to unaudited condensed financial statements
4
 
Star Maritime Acquisition Corp
(a development stage company)
Condensed Statements of Stockholders’ Equity
(unaudited)
 
 
 
   
Common Stock
  
Additional
paid-in
  
Earnings
accumulated
in the
development
  
Total
stockholders'
  
   
Shares
  
Amount
  
capital
  
stage
  
equity
  
May 13, 2005 (inception) to
                      
June 30, 2006
                      
                       
Stock Issuance on May 17, 2005 at $.003 per share
    
9,026,924
 
$
903
  
$
24,097
  
$
-
  
$
25,000
  
                                 
Private placement issued December 15, 2005 at $10 per share
    
1,132,500
   
113
   
11,324,887
         
11,325,000
 
                                 
Common shares issued December 21, 2005 at $10 per share
    
18,867,500
   
1,887
   
188,673,113
         
188,675,000
 
                                 
Expenses of offerings
                
(14,900,380
)
        
(14,900,380
)
                                 
Proceeds subject to possible conversion of 6,598,000 shares
                
(64,660,400
)
        
(64,660,400
)
                                 
Net Income for the period
    
-
   
-
   
-
   
110,331
   
110,331
 
                                 
Balance, December 31, 2005
    
29,026,924
 
$
2,903
  
$
120,461,317
  
$
110,331
  
$
120,574,551
  
                                 
Net Income for the three months ended March 31, 2006
    
-
   
-
   
-
   
857,193
   
857,193
 
                                 
Balance, March 31, 2006
    
29,026,924
   
2,903
   
120,461,317
   
967,524
   
121,431,744
 
                                 
Net Income for the three months ended June 30, 2006
    
-
   
-
   
-
   
788,119
   
788,119
 
                                 
Balance, June 30, 2006
  
$
29,026,924
  
$
2,903
  
$
120,461,317
  
$
1,755,643
  
$
122,219,863
  

 
 
See accompanying notes to unaudited condensed financial statements

5
 
Star Maritime Acquisition Corp
(a development stage company)
Condensed Statements of Cash Flows 
 
 
   
Six months ended June 30, 2006
  
May 13, 2005 (date of inception) to June 30, 2005
  
May 13, 2005 (date of inception) to June 30, 2006
  
   
(unaudited)
  
(unaudited)
  
(unaudited)
  
Cash flows from operating activities:
                    
Net Income/(loss)
  
$
1,645,312
  
$
(6,770
)
$
1,755,643
  
Adjustments to reconcile net income(loss) to net cash provided by (used in) operating activities:
                    
Changes in operating assets and liabilities: 
                    
Increase in value of trust account 
    
(2,213,374
)
  
-
   
(2,396,916
)
Decrease/(increase) in prepaid expenses and other current assets
    
58,152
   
(272,979
)
  
(60,613
)
Increase in deferred tax asset 
    
(221,656
)
    -    
(230,656
)
Increase/(Decrease) in accounts payable and accrued expenses 
    
(226,126
)
  
23,802
   
(52,074
)
Increase in deferred interest 
    
851,571
   
-
   
851,571
 
Increase in taxes payable 
    
545,087
   
-
   
545,087
 
   
 
    
 
 
  
 
 
Net cash provided by (used in) operating activities
    
438,966
   
(255,947
)
  
412,042
 
Cash flows from investing activites:
                    
Payment to trust account 
    
-
   
-
   
(188,675,000
)
Net cash used in investing activities
    
-
   
-
   
(188,675,000
)
Cash flows from financing activites:
                    
Gross proceeds from public offering 
                
188,675,000
 
Gross proceeds from private offering 
                
11,325,000
 
Proceeds of note payable to stockholder 
    
-
   
390,000
   
590,000
 
Repayment of note payable to stockholder 
    
-
   
-
   
(590,000
)
Proceeds from sale of shares of common stock 
    
-
   
25,000
   
25,000
 
Payment of offering costs 
    
-
   
-
   
(10,729,795
)
Net cash provided by financing activities
    
-
   
415,000
   
189,295,205
 
Net cash increase for period
    
438,966
   
159,053
   
1,032,247
 
Cash, beginning of period
    
593,281
    
-
   
-
 
Cash at end of period
  
$
1,032,247
  
$
159,053
  
$
1,032,247
  
Supplemental cash disclosure
                    
Interest paid 
  
$
-
  
$
-
  
$
9,163
  
Supplemental schedule of non-cash financial activities
                    
Accrual of deferred underwriting fees 
  
$
-
  
$
-
  
$
4,000,000
  
Accrual of offering costs 
  
$
-
  
$
-
  
$
170,585
  
 
 
See accompanying notes to unaudited condensed financial statements
 
6
Star Maritime Acquisition Corporation
(a development stage company)
Notes to Unaudited Financial Statements — (Continued)

NOTE A — ORGANIZATION AND PROPOSED BUSINESS OPERATIONS 
 
 
Nature of Operations
 
Star Maritime Acquisition Corp. (the “Company”) was incorporated in Delaware on May 13, 2005. The Company was formed to serve as a vehicle for the acquisition through a merger, capital stock exchange, asset acquisition, or other similar business combination (“Business Combination”) with one or more businesses in the shipping industry. The Company has not acquired an entity as of June 30, 2006. The Company has selected December 31 as its fiscal year end. The Company is considered to be in the development stage and is subject to the risks associated with activities of development stage companies.
 
The financial statements at June 30, 2006 and for the periods from inception to June 30, 2006, for the three months ended June 30, 2006, and for the six months ended June 30, 2006 are unaudited. In the opinion of management, all adjustments (consisting of normal adjustments) have been made that are necessary to the present fairly the financial position of the Company as of June 30, 2006, the results of its operation for the three month and six month period ended June 30, 2006, for the period May 13, 2005 (inception) through June 30, 2005, and for the period from May 13, 2005 (inception) through June 30, 2006. Operating results for the interim period presented are not necessarily indicative of the results to be expected for a full year. The condensed balance sheet at December 31, 2005 has been derived from the audited financial statements.
 
The registration statement for the Company’s initial public offering (the “Public Offering”) was declared effective on December 15, 2005. The Company completed a private placement (the “Private Placement”) on such date and received net proceeds of $10,532,250. The Company consummated the Public Offering on December 21, 2005 and received net proceeds (net of both paid and accrued financing costs) of $174,567,370. 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 international maritime industry and a “business combination” shall mean the acquisition by the Company of a target business.
 
Of the proceeds of the Offerings, $188,675,000 was deposited in a trust account (“Trust Account”) and invested until the earlier of (i) the consummation of the first business combination or (ii) the distribution of the Trust Account as described below. The amount in the Trust Account includes $3,773,500 of contingent underwriting compensation and $226,500 of contingent private placement fees (collectively, the “Discount”) which will be paid to the underwriters if a business combination is consummated, but which will be forfeited in part if public stockholders elect to have their shares redeemed for cash if a business combination is not consummated. The remaining proceeds may be used to pay for additional financing costs accrued but not yet paid, business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses.
 
7
Star Maritime Acquisition Corporation
(a development stage company)
Notes to Unaudited Financial Statements — (Continued)
 
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 public stockholders owning 33% or more of the outstanding stock sold in the Proposed Offerings vote against the business combination and elect to have the Company redeem their shares for cash, the business combination will not be consummated. All of the Company’s stockholders prior to the Proposed Offerings, including all of the officers and directors of the Company (“Initial Stockholders”), have agreed to vote their 9,026,924 founding shares of common stock in accordance with the vote of the majority in interest of all other stockholders of the Company with respect to any business combination and to vote the shares they acquired in the Private Placement or in the aftermarket in favor of the business combination. After consummation of the Company’s first business combination, all of these voting safeguards will no longer be applicable.
 
With respect to the first business combination which is approved and consummated, any holder of shares sold in the Public Offering, other than the Initial Stockholders and their nominees (the “Public Stockholders”) who voted against the business combination may demand that the Company redeem his or her shares. The per share redemption price will equal $10.00 per share (inclusive of a pro rata portion of the discount ($.20 per share) and interest earned thereon, net of taxes payable). Accordingly, Public Stockholders holding 32.99% of the aggregate number of shares sold in the Proposed Offerings may seek redemption of their shares in the event of a business combination.
 
The Company’s Certificate of Incorporation provides for mandatory liquidation of the Company, without stockholder approval, in the event that the Company does not consummate a business combination within 18 months from the date of consummation of the Public Offering, or 24 months from the consummation of the Public Offering if certain extension criteria have been satisfied. Our founding stockholders have agreed to waive their rights to participate in any liquidation distribution occurring upon our failure to consummate a business combination with respect to those shares of common stock acquired by them prior to this offering and with respect to the shares included in the 1,132,500 units our officers and directors or their nominees are purchasing in the private placement. In addition, the underwriters have agreed to waive their rights to the $3,773,500 of contingent compensation and $226,500 of placement fees deposited in the trust account for their benefit. Accordingly, in the event we liquidate, our public stockholders will receive $10.00 per unit plus interest (net of taxes payable and that portion of the earned interest previously released o us). We will pay the costs of liquidation and dissolution from our remaining assets outside of the trust account.

Note B - Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued statement of Financial Accounting Standards No. 123 (revised 2004) (“SFAS 123 (R)”), “Share Based Payment”. SFAS 123 (R) required all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The company does not believe that the adoption of SFAS 123(R) would have had a significant impact on its financial condition or result of operations.

In June 2006, the FASB issued 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.
 
Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
 
8
Star Maritime Acquisition Corporation
(a development stage company)
Notes to Unaudited Financial Statements — (Continued)
 

NOTE C—COMMITMENTS 

 
The Company has agreed to pay to an unaffiliated third party, $7,500 a month for 24 months, which commenced in January 2006, for office space and general and administrative expenses. Rent expense under this agreement for each of the periods from May 13, 2005 (inception) to June 30, 2006 and from January 1, 2006 to June 30, 2006 amounted to $44,000 and $44,000 respectively.
 
NOTE D—COMMON STOCK RESERVED FOR ISSUANCE 
 
 
On May 17, 2005, the Company issued 9,026,924 shares of common stock. On December 15, 2005 the Company issued 1,132,500 shares of common stock in connection with a private placement. On December 21, 2005 the Company issued 18,867,500 shares of common stock in connection with the IPO. At March 31, 2006 20,000,000 shares of common stock were reserved for issuance upon exercise of redeemable warrants.
 
Note E - Preferred Stock
 
The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting, and other rights and preferences, as maybe determined from time to time by the Board of Directors.

9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

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 under Item 1A “Risk Factors” in our Annual Report on Form 10-K and 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.

Overview

We were formed on May 13, 2005 to acquire, through a merger, capital stock exchange, asset acquisition or other similar business combination, one or more businesses in the shipping industry. Our initial business combination must be with a target business or businesses whose fair market value is at least equal to 80% of our net assets at the time of such acquisition. We intend to utilize cash derived from the proceeds of our recently completed initial public offering, our capital stock, debt or a combination of cash, capital stock and debt, in effecting a business combination.

Critical Accounting Policies

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.

In June 2006, the FASB issued 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.
 
Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
 
Results of Operations for the Period April 1, 2006 to June 30, 2006
 
For the quarter ending June 30, 2006 we earned net income after taxes of $788,119 ($1,150,007 before the deduction of $361,888 of net interest attributable to common stock subject to possible redemption). Since we did not have any operations, all of our income was derived from interest income, most of which was earned on funds held in the trust account. Our operating expenses during the period were $267,397 and consisted primarily of expenses related to pursuing a business combination, professional fees and the monthly administrative fee of $7,500 paid to Schwartz & Weiss, P.C. We also provided for $316,801 in income taxes.

Results of Operations for the Period January 1, 2006 to June 30, 2006
 
For the six months ending June 30, 2006 we earned net income after taxes of $1,645,312 ($2,496,883 before the deduction of $851,571 of net interest attributable to common stock subject to possible redemption). Since we did not have any operations, all of our income was derived from interest income, most of which was earned on funds held in the trust account. Our operating expenses during the period were $ 383,228 and consisted primarily of expenses related to pursuing a business combination, professional fees and the monthly administrative fee of $7,500 paid to Schwartz & Weiss, P.C. We also provided for $338,431 in income taxes.

10
 
 
Liquidity and Capital Resources.
 
On December 15, 2005, we sold 1,132,500 units in a private placement to certain of our officers and directors. On December 21, 2005, we consummated our initial public offering of 18,867,500 units. Each unit in the private placement and the public offering consists of one share of common stock and one redeemable common stock purchase warrant. Each warrant entitles the holder to purchase from us one share of our common stock at an exercise price of $8.00. Our common stock and warrants started trading separately as of February 27, 2006.

The net proceeds from the sale of our units, after deducting certain offering expenses of $10,217,665 including underwriting discounts and commissions and placement fees, were $189,807,335. Of this amount, $188,675,000 was placed in the trust account, $599,163 was used to repay debt and interest to Mr. Tsirigakis for a loan used to cover expenses related to the public offering and the remaining proceeds of $533,172 was deposited and is being held outside of the trust account. The remaining proceeds (less $170,000 of additional financing fees which are accrued but not yet paid) are available to be used by us to provide for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. The net proceeds deposited into the trust account remain on deposit in the trust account earning interest. During the quarter ended June 30, 2006 we transferred $690,185 from the trust account to the operating account for various general and administrative expenses incurred during the quarter. As of June 30, 2006, there was approximately $191,000,000 held in the trust account, of which up to $4,000,000 will be paid to the underwriters if a business combination is consummated, but which will be forfeited in part if public stockholders elect to have their shares redeemed for cash if a business combination is not consummated. We will use substantially all of the net proceeds of the public offering to acquire a target business, including identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating the business combination. To the extent that our capital stock is used in whole or in part as consideration to effect a business combination, the proceeds held in the trust account as well as any other net proceeds not expended will be used to finance the operations of the target business.

11
 
At the time we seek stockholder approval of our initial business combination, we will offer each public stockholder the right to have such stockholder’s shares of common stock redeemed for cash if the stockholder votes against the business combination and the business combination is approved and completed. The actual per-share redemption price will be equal to the amount in the trust account (calculated as of two business days prior to the consummation of the proposed business combination), inclusive of any interest, net of taxes payable, divided by the number of shares sold in the public offering. We may effect a business combination so long as public stockholders owning no more than 32.99% of the shares sold in the offering vote against the business combination and exercise their redemption rights. In accordance with the terms of the Offering, 6,598,000 shares of common stock are subject to possible redemption. Accordingly, at June 30, 2006 , $64,660,400, of the net proceeds from the Offering, has been classified as common stock subject to possible redemption in the Company’s balance sheet.

We believe we will have sufficient available funds outside of the trust account to operate through December 21, 2007, assuming that a business combination is not consummated during that time. We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, 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 that is presented to us. We would only consummate such a financing simultaneously with the consummation of a business combination.

Off-Balance Sheet Arrangements

We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

Contractual Obligations.

We do not have any long term debt, capital lease obligations, operating lease obligations, purchase obligations or other long term liabilities.

 
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, if a suitable business target is not identified by us prior to the prescribed liquidation date of the trust account, we may 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 have been invested only in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940. 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
 
An evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2006 was made under the supervision and with the participation of our management, including our chief executive officer and chief financial officer. Based on that evaluation, they concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report 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 accumulated and communicated to our management (including such officers) as appropriate to allow timely decisions regarding required disclosure and recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. During the period covered by this Quarterly Report on Form 10-Q, there has been no significant 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.
 
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PART II - OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
None.
 
ITEM 1A. RISK FACTORS
 
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2005, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

If we liquidate, the procedures we must follow under Delaware law are time-consuming and may result in residual liability for our stockholders

If we do not consummate a business combination by the later of June 21, 2007, or December 21, 2007 in the event that a letter of intent, an agreement in principle or a definitive agreement to complete a business combination was executed but not consummated by June 21, 2007, then, pursuant to Article SIXTH of our certificate of incorporation, and in accordance with Section 281(b) of the Delaware General Corporation Law , we will adopt a plan of dissolution, and as soon as reasonably possible after dissolution, make liquidating distributions to our stockholders.

Under the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. To mitigate against this possibility, we have received executed agreements from our vendors waiving any right, title, interest or claim of any kind in or to any monies held in the trust account. As a result of this, the claims that could be made against us are significantly limited and the likelihood that any claim would result in any liability extending to the trust account is minimal. If we wind up our affairs in compliance with either Section 280 or 281(b) of the Delaware General Corporation Law following a dissolution, pursuant to Section 282 of the Delaware General Corporation Law, the potential liability of our stockholders will be limited to the lesser of the stockholder’s pro-rata share of any claim or the amount distributed to the stockholder. As we do not anticipate seeking dissolution under the complex procedures of Section 280, we expect that, in accordance with Section 281(b), we will be required to seek stockholder approval of a plan of dissolution to provide for our payment, based on facts known to us at such time, of existing and pending claims, and claims that may be potentially brought against us within the subsequent 10 years. We estimate the costs associated with the implementation and completion of such a plan of dissolution and liquidation, to be approximately $50,000 to $75,000, which would be funded by any funds not held in our trust account and funds released to Stone to fund working capital.

The procedures required for us to liquidate under the DGCL, or a vote to reject any plan of dissolution and distribution by our stockholders, may result in substantial delays in the liquidation of our trust account to our public stockholders as part of our plan of dissolution and distribution.

We may choose to redeem our outstanding warrants at a time that is disadvantageous to our warrant holders.

Subject to there being a current prospectus under the Securities Act of 1933 , we may redeem all our outstanding warrants at any time after they become exercisable at a price of $.01 per warrant, upon a minimum of 30 days prior written notice of redemption, if and only if, the last sale price of our common stock equals or exceeds $14.25 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption. Calling all of our outstanding warrants for redemption could force the warrant holders:

 
·
to exercise the warrants and pay the exercise price therefor at a time when it may be disadvantageous for the holders to do so,
 
·
to sell the warrants at the then current market price when they might otherwise wish to hold the warrants, or
 
·
to accept the nominal redemption price which, at the time the warrants are called for redemption, is likely to be substantially less than the market value of the warrants.

Our warrant holders may not be able to exercise their warrants, which may create liability for us.

Holders of the warrants we issued in our initial public offering will be able to receive shares upon exercise of the warrants only if (i) a current registration statement under the Securities Act of 1933 relating to the shares of our common stock underlying the warrants is then effective and (ii) such shares are qualified for sale or exempt from qualification under the applicable securities laws of the states in which the various holders of warrants reside. Although we have agreed to use our best efforts to maintain a current registration statement covering the shares underlying the warrants to the extent required by federal securities laws, and we intend to comply with such agreement, we cannot assure that we will be able to do so. In addition, some states may not permit us to register the shares issuable upon exercise of our warrants for sale. The value of the warrants will be greatly reduced if a registration statement covering the shares issuable upon the exercise of the warrants is not kept current or if the securities are not qualified, or exempt from qualification, in the states in which the holders of warrants reside. Holders of warrants who reside in jurisdictions in which the shares underlying the warrants are not qualified and in which there is no exemption will be unable to exercise their warrants and would either have to sell their warrants in the open market or allow them to expire unexercised. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to qualify the underlying securities for sale under all applicable state securities laws. Since our obligations in this regard are subject to a “best efforts” standard, it is possible that, even if we are able to successfully assert a defense to a claim by warrant holders due to impossibility, a court may impose monetary damages on us to compensate warrant holders due to the change in circumstances that led to us being unable to fulfill our obligations.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
On December 21, 2005, we consummated our initial public offering of 18,867,500 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 $8.00. The units were sold at an offering price of $10.00 per unit, generating total gross proceeds of $188,675,000. Maxim 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. 333-125662). The Securities and Exchange Commission declared the registration statement effective on December 15, 2005.
 
On December 15, 2005, we consummated a private placement whereby certain of our officers and directors purchased an aggregate of 1,132,500 units at $10.00 per unit, generating gross proceeds of $11,325,000. Maxim Group LLC acted as the placement agent.
 
We incurred a total of $7,547,000 in underwriting discounts and commissions, $453,000 in placement fees and $2,900,380 of expenses related to the public offering and private placement.
 
After deducting the underwriting discounts and commissions, the placement fee and the offering expenses, the total net proceeds to us from the offering and the private placement was $189,782,335. Of the proceeds of the Offerings, $188,675,000 was deposited in a trust account and invested until the earlier of (i) the consummation of the first business combination or (ii) the distribution of the trust account as described below. The amount in the Trust Account includes $3,773,500 of contingent underwriting compensation and $226,500 of contingent private placement fees which will be paid to the underwriters if a business combination is consummated, but which will be forfeited in part if public stockholders elect to have their shares redeemed for cash if a business combination is not consummated. $599,163 of the net proceeds were used to repay debt and interest to Mr. Tsirigakis for a loan used to cover expenses related to the public offering and the remaining proceeds in the amount of $533,172 (less approximately $170,000 of additional financing fees accrued but not yet paid) may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses.
 
From April 1, 2006 through June 30, 2006, we have incurred $267,397 of expenses towards the net proceeds that were not deposited into the trust account to pay operating expenses. The net proceeds deposited into the trust account remain on deposit in the trust account earning interest. As of June 30, 2006, there was $191,071,916 held in the trust account, including interest income of $2,396,916
 
The net proceeds of the offering in the amount of $188,675,000 deposited into the trust account have been invested in short-term U.S. Government Securities, specifically Treasury Bills, having a maturity date of 180 days or less.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
None
 
ITEM 5. OTHER INFORMATION
None
 
ITEM 6. EXHIBITS
 
     
Exhibit No.
  
Description
31.1
  
Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended
31.2
  
Certification of the Chief Financial Officer and (Principal Accounting Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended
32.1
  
Certification of the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Accounting Officer) pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 .


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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.
 
     
 
STAR MARITIME ACQUISITION CORPORATION
 
 		  
 		  
 
August 16, 2006
 By:   /s/ Prokopios (Akis) Tsirigakis
 
Prokopios (Akis) Tsirigakis
Chairman, Chief Executive Officer and President(Principal Executive Officer)
   
     
   
 
 		  
 		  
 
  By:   /s/ George Syllantavos
 
George Syllantavos
Chief Financial Officer (Principal Accounting Officer)
   
 
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