**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

**FORM 10-K**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe fiscal year ended December 31, 2006**

**or**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Commissionfile number:  001-32688**

**HARBOR ACQUISITION CORPORATION**

(Exact name of registrantas specified in its charter)

| **Delaware**                             |   | **56-2518836**      |
|------------------------------------------|--------|---------------------|
| (State or other jurisdiction of          |   | (I.R.S. Employer    |
| incorporation or organization)           |   | Identification No.) |
| **One Boston Place,  Suite 3630**   |   | ** **          |
| **Boston, Massachusetts**                |   | **02108**           |
| (Address of principal executive offices) |   | (Zip Code)          |

 

**(617) 624-8409**

Registrant’s telephonenumber, including area code

**Securitiesregistered pursuant to Section 12(b) of the Act:**

| **Title of Each Class**                           |   | **Name of Each Exchange on Which Registered** |
|---------------------------------------------------|--------|-----------------------------------------------|
| **Common Stock, Par value $.0001 per share**      |   | **American Stock Exchange**                   |
| **Common Stock Purchase Warrants**                |   | **American Stock Exchange**                   |
| **Units consisting of one share of Common Stock** |   | **American Stock Exchange**                   |
| **and two Warrants**                              |   | ** **                                    |

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso   No x

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes o   Nox

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes x   No o

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained here, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kx

Indicate by check mark whether the registrant is largeaccelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. (Check one):

Large acceleratedfiler o      Acceleratedfiler o      Non-acceleratedfiler x

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

As of June 30, 2006, the aggregate market valueof the registrant’s common stock held by non-affiliates was approximately $55,600,000, calculated on the basis of the closing price of the registrant’scommon stock as reported by the American Stock Exchange on such date.

As of March 26, 2007, 16,800,000 shares of theregistrant’s common stock, par value $0.001 per share, were outstanding.

**DOCUMENTSINCORPORATED BY REFERENCE: NONE**

 

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**HARBOR ACQUISITION CORPORATION2006 ANNUAL REPORT ON FORM 10-KTABLE OF CONTENTS**
| **FORWARD-LOOKING  STATEMENTS** | ** ** | **1**                                                                                                                                     | ** ** |
|---------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **PART I**                 |       | **2**                                                                                                                                     |       |
| Item 1.                         |       | Business                                                                                                                                  |       | 2 |   |
| Item 1A.                        |       | Risk  Factors                                                                                                                             |       | 5 |   |
| Item 1B.                        |       | Unresolved Staff Comments                                                                                                                 |       | 24 |   |
| Item 2.                         |       | Properties                                                                                                                                |       | 24 |   |
| Item 3.                         |       | Legal  Proceedings                                                                                                                        |       | 24 |   |
| Item 4.                         |       | Submission of Matters to a Vote of Security Holders                                                                                       |       | 24 |   |
| **PART II**                |       | **25**                                                                                                                                    |       |
| Item 5.                         |       | Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities                        |       | 25 |   |
| Item  6.                        |       | Selected  Financial Data                                                                                                                  |       | 28 |   |
| Item 7.                         |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations       |       | 29 |   |
| Item 7A.                        |       | Quantitative and Qualitative Disclosures About Market  Risk                                                                               |       | 32 |   |
| Item 8.                         |       | Financial Statements and Supplementary Data                                                                                               |       | 32 |   |
| Item 9.                         |       | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure                            |       | 32 |   |
| Item 9A.                        |       | Controls and Procedures                                                                                                                   |       | 32 |   |
| Item  9B.                       |       | Other  Information                                                                                                                        |       | 33 |   |
| **PART III**               |       | **34**                                                                                                                                    |       |
| Item 10.                        |       | Directors, Executive Officers and Corporate Governance                                                                                    |       | 34 |   |
| Item 11.                        |       | Executive Compensation                                                                                                                    |       | 38 |   |
| Item 12.                        |       | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters                                           |       | 39 |   |
| Item 13.                        |       | Certain Relationships and Related Transactions and  Director Independence                                                                 |       | 41 |   |
| Item 14.                        |       | Principal Accountant Fees and Services                                                                                                    |       | 44 |   |
| **Part IV**                |       | **46**                                                                                                                                    |       |
| Item 15.                        |       | Exhibits and Financial Statement Schedules                                                                                                |       | 46 |   |
| **SIGNATURES**                  |       | **48**                                                                                                                                    |       |

 

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**FORWARD-LOOKINGSTATEMENTS**

This Annual Reporton Form 10-K contains statements relating to our future results(including certain projections and business trends) that are “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended, and are subject to the “safe harbor” created by those sections.Forward-looking statements frequently are identifiable by the use of words suchas “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,”“estimate,” “continue,” or the negative of such terms and other similarexpressions. Our actual results may differ materially from those projected as aresult of certain risks and uncertainties. These risks and uncertaintiesinclude, but are not limited to, those “Risk Factors” set forth in Item 1A andelsewhere in this report and those detailed from time to time in our otherfilings with the Securities and Exchange Commission. These statements are basedon our management’s current expectations, but actual results may differmaterially due to various factors, including, but not limited to:

·       thefailure of our stockholders to approve the acquisition of Elmet Technologies, Inc.(“Elmet”) as described elsewhere in this report and the transactionscontemplated thereby;

·       thenumber and percentage of our stockholders voting against the Elmet acquisitionand electing to exercise their conversion rights;

·       thecontinued ability of Elmet to successfully execute its business plan involvingthe proper management of its human resources and assets;

·       demandfor the products and services that Elmet provides;

·       continuedavailability of, and changes in pricing for, raw materials used by Elmet;

·       theability of Elmet to anticipate and adequately respond to competition;

·       changinginterpretations of generally accepted accounting principles;

·       costsassociated with continued compliance with government regulations;

·       legislationor regulatory environments, requirements or changes adversely affecting thebusinesses in which Elmet is engaged;

·       generaleconomic conditions, geopolitical events and regulatory changes; and

·       thoseother risks and uncertainties detailed under the heading “Risk Factors” setforth in Item 1A of this report.

By their nature, forward-looking statements involverisks and uncertainties because they relate to events and depend oncircumstances that may or may not occur in the future. We caution you thatforward-looking statements are not guarantees of future performance and thatour actual results of operations, financial condition and liquidity, anddevelopments in the industry in which Elmet operates, may differ materiallyfrom those made in or suggested by the forward-looking statements contained in thisreport. In addition, even if our results of operations, financial condition andliquidity, and developments in the industry in which Elmet operates, areconsistent with the forward-looking statements contained in this report, thoseresults or developments may not be indicative of results or developments insubsequent periods. Furthermore, the forward-looking statements in this reportspeak only as of the date of the report and the events described therein maynot occur in light of the risks, uncertainties and assumptions referencedabove.

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**PART I**

**ITEM 1.**                BUSINESS

**General**

We are a “blank check” company organized underDelaware law on June 20, 2005 for the purpose of acquiring, through amerger, capital stock exchange, asset acquisition, stock purchase or othersimilar business combination, an operating business in the consumer orindustrial products sectors. Our principal executive offices are located at OneBoston Place, Suite 3630, Boston, Massachusetts 02108. Our website is www.harboracquisition.comand our telephone number is 617-624-8409.

A registration statement for our initial publicoffering was declared effective on April 25, 2006. On May 1, 2006, wecompleted the sale of 13,800,000 units in our initial public offering,including 1,800,000 units attributable to the full exercise of the underwriters’over-allotment option. Each of our units consists of one share of our commonstock and two redeemable common stock purchase warrants. Each warrant entitlesthe holder to purchase from us one share of common stock at an exercise priceof $5.00. The net proceeds from our initial public offering were approximately$76,350,000, after deducting offering expenses of approximately $690,000,underwriting discounts of $4,140,000, and an underwriters’ non-accountableexpense allowance of $1,620,000. We deposited into a trust account a total of$79,460,000, consisting of the net proceeds of the public offering and the$1,300,000 proceeds from our concurrent warrant placement, the underwriters’non-accountable expense allowance, and the proceeds of a $150,000 loan from anaffiliate of two of our directors. The trust account also includes anadditional $40,000, representing the difference between estimated offeringexpenses of $650,000 and actual offering expenses of $690,000. The underwritershave agreed to defer payment of their non-accountable expense allowance untilwe consummate a business combination and to forfeit the allowance if we do notconsummate a business combination within the time period permitted by ourcertificate of incorporation. Upon the consummation of a business combination,we will pay the deferred non-accountable expense allowance to the underwriters,provided that, to the extent less than 20% of our public stockholders voteagainst the combination and elect to exercise their conversion rights, a *pro rata* portion of such allowance will be paid to suchstockholders and not to the underwriters.

We will use up to$1,850,000 of the interest earned on the trust account in order to repay the$150,000 loan described above (which we repaid in full, with interest at anannual rate of 4%, on July 5, 2006) and our business, legal and accountingdue diligence expenses on prospective business combinations and continuinggeneral and administrative expenses. As of December 31, 2006, we hadreceived from the trust account $1,599,500 (net of tax payments) of the$1,850,000 of interest which we may use for payment of our expenses. During theperiod from the completion of our initial public offering on May 1, 2006and December 31, 2006, we incurred a total of $1,132,067 of such expenses,and we have paid all of such amount (or will pay in regard to amounts accruedas of December 31, 2006) using interest withdrawn from the trust accountfor that purpose. Based on the total amount of such expenses which we incurredthrough December 31, 2006 and which we now estimate will be incurredthrough the closing of the acquisition referred to below, we anticipate thatthe $1,850,000 of interest available to pay such expenses will be sufficient topay all such expenses.

*Recent Developments*

On October 17, 2006,we entered into a stock purchase agreement with Elmet Technologies, Inc. (“Elmet”)and the holders of all of the outstanding shares and warrants of Elmet. Subjectto the terms and conditions of the stock purchase agreement, we have agreed toacquire all of the outstanding Elmet shares and all of its outstanding warrants.The acquisition is expected to be consummated during the second quarter of2007, after the required approval by our stockholders and the fulfillment ofcertain other 

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conditions.This pending transaction is further described in the Company’s current reportfiled with the Securities and Exchange Commission on Form 8-K on October 17,2006.

*Fair market valueof target business*

Pursuant to our certificateof incorporation, the initial target business that we acquire must have a fairmarket value equal to at least 80% of our net assets (excluding the deferrednon-accountable expense allowance of the underwriters held in trust) at thetime of such acquisition. Our board of directors has determined that this testwill be met in connection with our proposed acquisition of Elmet. Furthermore,our board of directors received a written opinion dated October 11, 2006from Houlihan Smith & Company, Inc., an independent investmentbanking firm, that, as of the date thereof and based upon and subject to theassumptions, factors, qualifications and limitations set forth therein, theconsideration to be paid by us in the proposed acquisition is fair, from a financialpoint of view, to our stockholders who are unaffiliated with Elmet and that thefair value of Elmet is at least 80% of our net assets.

*Stockholderapproval of business combination*

As required by ourcertificate of incorporation, we will proceed with the acquisition only if amajority of the shares of our common stock voted by our public stockholders arevoted in favor of the acquisition and public stockholders owning less than 20%of our shares sold in our initial public offering exercise their conversionrights. In connection with the vote required for our initial businesscombination, our initial stockholders have agreed to vote all of their sharesof common stock (whenever acquired) in accordance with the majority of theshares of common stock voted by the public stockholders.

*Conversion rights*

Each public stockholderwho votes against the acquisition has the right to have such stockholder’sshares of common stock converted to cash if the acquisition is approved andcompleted. Our initial stockholders will not have this right as to the3,000,000 shares of common stock they acquired prior to our initial publicoffering. The actual per share conversion price will be equal to the amount inthe trust account (including any interest to the extent not required to payaccrued taxes and our expenses as described above), calculated as of twobusiness days prior to the consummation of the acquisition, divided by thenumber of shares sold in our initial public offering. As of December 31,2006, we estimate that the per share conversion price was approximately $5.76,or $0.24 less than the price ($6.00 per unit) we sold each unit for in ourinitial public offering. An eligible stockholder may request conversion at anytime after receipt of the proxy statement and prior to the vote taken on theacquisition at the special meeting, but the request will not be granted unlessthe stockholder votes against the acquisition and timely exercises such holder’sconversion rights and the acquisition is approved and completed. Any requestfor conversion, once made, may be withdrawn at any time up to completion of thevote on the acquisition at the special meeting but (if the acquisition isapproved) will be irrevocable after such date. We anticipate that the funds tobe distributed to stockholders, if any, who are entitled to convert theirshares and who timely elect conversion will be distributed promptly aftercompletion of the acquisition. Public stockholders who convert their stock intotheir share of the trust account will retain the right to exercise the warrantsthey received as part of the units. We will not complete any businesscombination if public stockholders owning 20% or more of the shares sold in ourinitial public offering both vote against the acquisition and exercise theirconversion rights.

*Liquidation if nobusiness combination*

Our certificate of incorporation requires us toliquidate if we do not complete a business combination by October 31,2007, or April 30, 2008 if we enter into a letter of intent, an agreementin principle or a definitive agreement to complete a business combination priorto October 31, 2007. We signed the 

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definitive stock purchaseagreement with Elmet on October 17, 2006, and therefore have until April 30,2008 to complete the acquisition of Elmet.

As of December 31, 2006, we estimate the pershare liquidation price was approximately $5.76 per share as described above.The proceeds deposited in the trust account could, however, become subject tothe claims of our creditors which could be prior to the claims of our publicstockholders, and the actual per share liquidation price might be less than$5.76, due to claims of creditors. We have sought to obtain from any potentialcreditors waivers of any claims that they might make against the trust account.The stock purchase agreement contains such a waiver from Elmet and the Elmetstockholders, the Houlihan engagement letter contains such a waiver fromHoulihan, and we have obtained such waivers from each of the other vendors orparties whom we have engaged and whose respective billings to us during theperiod from the completion of our initial public offering on May 1, 2006to December 31, 2006 exceeded $50,000. However, there is no assurance thatwe will be successful in obtaining waivers from all creditors who might makeclaims against the trust account in the future if we were forced to liquidateprior to completion of a business combination. If we liquidate before thecompletion of a business combination and distribute the proceeds held in trustto our public stockholders, John Carson, our chairman of the board, Robert J.Hanks, our chief executive officer, and David A.R. Dullum, our president, haveagreed to indemnify us against any claims by any vendor, prospective targetbusiness or other entities that are owed money from us for services rendered orproducts sold to us that would reduce the amount of the funds in the trust.However, we cannot assure you that Messrs. Carson, Hanks and Dullum wouldbe able to satisfy those obligations in all instances. In the event that any ofMessrs. Carson, Hanks and Dullum were not to honor their indemnificationobligations described above, we would be obligated to bring suit against themto enforce such obligations.

If we fail to consummate a business combination byOctober 31, 2007, or April 30, 2008, if we enter into a letter ofintent, an agreement in principle or a definitive agreement to complete abusiness combination prior to October 31, 2007, upon notice from us, thetrustee will commence liquidating the investments held by the trust account andwill turn over the proceeds to the transfer agent for distribution to ourpublic stockholders.

Each of our publicstockholders will be entitled to receive funds from the trust account only inthe event of our liquidation or if such stockholder elects to convert hisrespective shares into cash upon a business combination which that stockholdervoted against and which is actually completed by us. In no other circumstanceswill a public stockholder have any right or interest of any kind to or in thetrust account.

*Harbor’s strategyif the acquisition is completed*

If we are able to complete the acquisition of Elmet,we plan to pursue a balanced but aggressive strategy of internal growth andcomplementary acquisitions. We believe that Elmet has excellent management andproducts, and that Elmet is well positioned to continue to expand its currentbusiness. We plan for Elmet to accelerate this growth by finding and acquiringbusinesses with complementary products and customer relationships. In this way,we believe we will be able to improve our revenue growth and achieve economiesof scale that will further enhance our profitability. Although we are oftenengaged in preliminary discussions with other acquisition candidates, as of thedate of this report neither we nor Elmet is a party to any letter of intent ordefinitive agreement with respect to any acquisition other than the acquisitioncontemplated in this report.

Upon the closing of theElmet acquisition, we will apply all of the trust fund, net of payment of theunderwriters’ deferred non-accountable expense allowance, any conversionpayment to our public stockholders and our expenses in connection with theacquisition, as a portion of the closing consideration to be used to pay offall of Elmet’s then outstanding debt and make required payments to the Elmetstockholders. We anticipate obtaining $70 million of term and revolvingloan facilities to be consummated 

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at theclosing of the acquisition, which we will utilize to fund the remaining portionof the cash consideration for the acquisition and our future working capitalneeds.

*Proxy Statement*

A more complete discussionof our proposed acquisition will be contained in a definitive proxy statementto be filed with the Securities and Exchange Commission. A preliminary proxystatement with respect to the acquisition was filed with the Commission on December 12,2006 and amended on February 22, 2007.

**Employees**

We currently have noemployees. Our directors and officers are not obligated to devote any specificnumber of hours to our matters and intend to devote only as much time as theydeem necessary to our affairs. We intend to have no full-time employees priorto the consummation of a business combination. We have agreed to employmentarrangements with certain of the current Elmet executive officers who willserve as executive officers of Elmet and Harbor following the closing of theacquisition.

**Periodic Reportingand Audited Financial Statements**

We have registered oursecurities under the Securities Exchange Act of 1934, as amended, and havereporting obligations, including the requirement to file annual and quarterlyreports with the Securities and Exchange Commission. In accordance with therequirements of the Exchange Act, our annual reports contain financialstatements audited by our independent registered public accounting firm. Todate, we have filed quarterly reports on Form 10-Q covering thequarterly periods ended June 30, 2006 and September 30, 2006.

**Legal Proceedings**

We are not involved in anylegal proceeding which have had or may have a significant effect on ourbusiness, financial positions, results of operations or liquidity, nor are weaware of any proceedings that are pending or threatened to which any of ourdirectors or officers are party or which may have a significant effect on ourbusiness, financial position, results of operations or liquidity.

**ITEM 1A.**        RISKFACTORS

In addition to the otherinformation included in this report, you should also consider the followingrisk factors in evaluating our prospects.

**Risks Related toOur Business**

***We are adevelopment stage company with no operating history and, accordingly, you willnot have any basis on which to evaluate our ability to achieve our businessobjective.***

We are a recentlyincorporated development stage company with no operating results to date. Sincewe do not have any operating history, you will have no basis upon which toevaluate our ability to achieve our business objective, which is to acquire anoperating business. We will not generate any revenues until, at the earliest,after the consummation of a business combination. We cannot assure you as towhen or if a business combination will occur. Although we have entered into anagreement to acquire Elmet, we cannot assure you that we will be able to closethe acquisition or, in the event we do not complete such acquisition, that wewill find and close a suitable alternative business combination in the timepermitted by our certificate of incorporation.

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***Wehave a limited operating history and may not be able to continue as a goingconcern.***

We have not commenced any operations, but have enteredinto an agreement to acquire Elmet. This acquisition would fulfill theconditions of a business combination required to release the funds held in thetrust account to us. If this acquisition is not completed, we intend toimmediately resume the search for another suitable business combination;however, there is no assurance that such a suitable business combination wouldbe identified and consummated within the requisite time periods. If we do notconsummate such an acquisition within the requisite time periods, we would berequired to distribute the funds held in the trust account to the holders ofour common stock issued in our initial public offering (our “public stockholders”).We believe that our existing cash resources will be sufficient to coveroperating costs and expenses until the acquisition of Elmet is consummated.However, if we do not consummate the acquisition of Elmet, we would be requiredto obtain additional financing to continue our search for another suitablebusiness combination and continue as a going concern.

***If we are unable to complete a business combinationand are forced to liquidate and distribute the trust account, our publicstockholders will receive less than $6.00 per share upon distribution of thetrust account and our warrants will expire worthless.***

If we are unable to complete a business combinationand are forced to liquidate our assets, the per share liquidation distributionwill be less than $6.00 because of the expenses of our initial public offering,our general and administrative expenses and the anticipated costs of seeking abusiness combination. Furthermore, there will be no distribution with respectto our outstanding warrants, which will expire worthless if we liquidate beforethe completion of a business combination.

***Under Delaware law, the requirements and restrictionsrelating to our public offering contained in our certificate of incorporationmay be amended, which could reduce or eliminate the protection afforded to ourpublic stockholders by such requirements and restrictions.***

Our certificate of incorporation sets forth certainrequirements and restrictions relating to our public offering that shall applyto us until the consummation of a business combination. Specifically, ourcertificate of incorporation provides, among other things, that:

·       prior to the consummationof our initial business combination, we shall submit such business combinationto our stockholders for approval;

·       we may consummate ourinitial business combination if: (i) approved by a majority of the sharesof common stock voted by the public stockholders, and (ii) publicstockholders owning less than 20% of the shares purchased by the publicstockholders in our initial public offering exercise their conversion rights;

·       if our initial businesscombination is approved and consummated, public stockholders who voted againstthe business combination and exercised their conversion rights will receivetheir *pro rata* share of the trust account;

·       if a business combinationis not consummated or a letter of intent, an agreement in principle or adefinitive agreement is not signed within the time periods specified in ourcertificate of incorporation, then we will be dissolved and distribute to allof our public stockholders their *pro rata* shareof the trust account; and

·       we may not consummate anyother merger, capital stock exchange, stock purchase, asset acquisition orsimilar transaction other than a business combination that meets the conditionsspecified in this report, including the requirement that our initial businesscombination be with one or more operating businesses whose fair market value,either individually or collectively, is equal to at least 80% of our net assetsat the time of such business combination.

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Our certificate of incorporation prohibits theamendment of the above-described provisions. However, the validity ofprovisions prohibiting amendment of the certificate of incorporation underDelaware law has not been settled. A court could conclude that the prohibitionon amendment violates the stockholders’ implicit rights to amend the corporatecharter. In that case, the above-described provisions would be amendable andany such amendment could reduce or eliminate the protection afforded to ourstockholders. However, we view the foregoing provisions as obligations to ourstockholders, and we will not take any actions to waive or amend any of theseprovisions.

***Our officers anddirectors will allocate their time to other businesses thereby causingconflicts of interest in their determination as to how much time to devote toour affairs, which could have a negative impact on our ability to consummate abusiness combination.***

Our officers and directorsare not required to commit their full time to our affairs, which may result ina conflict of interest in allocating their time between our operations andother businesses. This could have a negative effect on our ability toconsummate a business combination. We do not intend to have any full timeemployees prior to the consummation of a business combination. Although ourexecutive officers expect to devote substantial time to our business, they areengaged in other business endeavors and are not obligated to contribute anyspecific number of hours to our affairs. If our executive officers’ ordirectors’ other business affairs require them to devote more substantialamounts of time to such affairs, it could limit their ability to devote time toour affairs and could have a negative impact on our ability to consummate abusiness combination. We cannot assure you that these conflicts will beresolved in our favor.

***We may not be ableto consummate a business combination within the required time frame, in whichcase we would be forced to liquidate.***

We must complete a businesscombination with a fair market value as determined in the reasonable discretionof our board of directors of at least 80% of our net assets, not including theunderwriters’ deferred non-accountable expense allowance, at the time ofacquisition within 18 months after the consummation of our initial publicoffering (or within 24 months after the consummation of the offering if aletter of intent, agreement in principle or a definitive agreement has beenexecuted within 18 months after the consummation of the offering and thebusiness combination relating thereto has not yet been consummated within such18-month period). If we fail to consummate a business combination withinthe required time frame, we will be forced to liquidate our assets. We may notbe able to find a suitable target business within the required time frame. Inaddition, our negotiating position and our ability to conduct adequate duediligence on any potential target may be reduced as we approach the deadlinefor the consummation of a business combination.

***You will not be entitled to protections normallyafforded to investors of blank check companies.***

We may be deemed to be a “blankcheck” company under the U. S. securities laws. However, because we have nettangible assets in excess of $5,000,000, we believe that we are exempt from rules promulgatedby the Securities and Exchange Commission to protect investors of blank checkcompanies, such as Rule 419 under the Securities Act of 1933, as amended.Accordingly, stockholders will not be afforded the benefits or protections ofthose rules. Because we do not believe we are subject to Rule 419, ourunits became immediately tradable and we have a longer period of time tocomplete a business combination in certain circumstances.

***Our board of directors may not accurately determinethe fair market value of a targeted acquisition.***

Fair market value of thetarget company will be determined in the reasonable discretion of our board ofdirectors. Our board of directors may, but will not be required to, obtain anopinion from an investment 

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bankingfirm or other valuation expert to confirm its determination of fair marketvalue. If our board of directors, or any investment banking firm or otherexpert upon whose opinion our board may rely, overestimates the fair marketvalue of a company that we acquire, then the value of our securities could beadversely affected.

***If third partiesbring claims against us, the proceeds held in trust could be reduced and theper share liquidation price received by stockholders would be less than $5.76per share.***

Our placing of funds intrust may not protect those funds from third party claims against us. Althoughwe will seek to have all vendors, prospective target businesses or otherentities we engage execute agreements with us waiving any right, title,interest or claim of any kind in or to any monies held in the trust account forthe benefit of our public stockholders, there is no guarantee that they willexecute such agreements. Nor is there any guarantee that even if such thirdparties execute such agreements that they would be prevented from bringingclaims against the trust fund. If any third party refused to execute anagreement waiving such claims to the monies held in the trust account, we wouldperform an analysis of the alternatives available to us if we chose not toengage such third party and evaluate if such engagement would be in the bestinterest of our stockholders if such third party refused to waive such claims.Examples of possible instances where we may engage a third party that refusedto execute a waiver include the engagement of a third party consultant whoseparticular expertise or skills are believed by management to be significantlysuperior to those of other consultants that would agree to execute a waiver orin cases where management is unable to find a provider of required serviceswilling to provide the waiver. In any event, our management would perform ananalysis of the alternatives available to it and would only enter into anagreement with a third party that did not execute a waiver if managementbelieved that such third party’s engagement would be significantly morebeneficial to us than any alternative. If we engage any vendor that refuses toexecute such a waiver, or if a claim were nonetheless initiated by a party thatexecuted a waiver, the proceeds held in trust could be subject to claims whichcould take priority over the claims of our public stockholders and the pershare liquidation price could be less than $5.76, plus interest, due to claimsof such creditors. If we liquidate before the completion of a businesscombination and distribute the proceeds held in trust to our publicstockholders, John Carson, our Chairman of the Board, Robert J. Hanks, ourChief Executive Officer, and David A.R. Dullum, our President, have agreed toindemnify us against any claims by any vendor, prospective target business orother entities that are owed money from us for services rendered or productssold to us that would reduce the amount of the funds in the trust. However, wecannot assure you that Messrs. Carson, Hanks and Dullum will be able tosatisfy those obligations in all instances.

***We may issue sharesof our capital stock to complete a business combination which would reduce theequity interest of our stockholders and could likely cause a change in controlof our ownership.***

Our certificate ofincorporation authorizes the issuance of up to 70,000,000 shares of commonstock, par value $.0001 per share, and 1,000,000 shares of preferred stock, parvalue $.0001 per share. There are 21,800,000 authorized but unissued shares ofour common stock available for issuance (after appropriate reservation for theissuance of shares upon full exercise of our outstanding warrants) and all ofthe 1,000,000 shares of preferred stock available for issuance. Under the stockpurchase agreement, we have agreed to issue up to 2,191,000 shares of ourcommon stock to Elmet stockholders, and may be obligated in the future to issueadditional shares worth up to $11.2 million at the time of issuance, as acontingent payment to the Elmet stockholders. In addition, our board ofdirectors has authorized, subject to stockholder approval and the consummationof the Elmet acquisition, an incentive compensation plan under which we wouldreserve 1,000,000 shares of our common stock for future issuance to employees,directors and consultants. We have no other commitments to issue our securities.However, we may issue a substantial number of additional shares of our commonstock or preferred stock, a combination of 

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commonand preferred stock, or debt securities, to complete a business combination.The issuance of additional shares of our common stock or any number of sharesof our preferred stock:

·       maysignificantly reduce the equity interest of investors in our public offering;

·       maysubordinate the rights of holders of common stock if the preferred stock isissued with rights senior to those afforded to our common stock;

·       couldlikely cause a change in control if a substantial number of our shares ofcommon stock are issued, which may affect, among other things, our ability touse our net operating loss carryforwards, if any, and most likely also resultin the resignation or removal of our present officers and directors; and

·       may adversely affectprevailing market prices for our common stock.

***We intend to securebank financing in connection with the Elmet acquisition and we may issue otherdebt securities to effect a business combination, which could subject us torisks associated with debtors.***

We may issue debtsecurities in connection with a business combination. We intend to secure bank financingin connection with the Elmet acquisition. Such bank financing or the issuanceof other debt securities could result in:

·       defaultand foreclosure on our assets if our operating revenues after a businesscombination were insufficient to service our debt obligations;

·       accelerationof our obligations to repay the indebtedness even if we have made all principaland interest payments when due if the debt security contains covenants thatrequire the maintenance of certain financial ratios or reserves and any suchcovenant is breached without a waiver or renegotiation of that covenant;

·       ourimmediate payment of all principal and accrued interest, if any, if the debtsecurity is payable on demand; and

·       our inability to obtainadditional financing, if necessary, if the debt security contains covenantsrestricting our ability to obtain additional financing while such security isoutstanding.

***The ability of ourstockholders to exercise their conversion rights may not allow us to effectuatethe most desirable business combination or optimize our capital structure.***

At the time we seekstockholder approval of any business combination, we will offer each publicstockholder the right to have such stockholder’s shares of common stockconverted to cash if the stockholder votes against the business combination andthe business combination is approved and completed. Accordingly, if a businesscombination requires us to use substantially all of our cash to pay thepurchase price, because we will not know how many stockholders may exercisesuch conversion rights, we may either need to reserve part of the trust fundfor possible payment upon such conversion, or we may need to arrange thirdparty financing to help fund the business combination in case a largerpercentage of stockholders exercise their conversion rights than we expected.Therefore, we may not be able to consummate a business combination thatrequires us to use all of the funds held in the trust account as part of thepurchase price, or the business combination may be more highly leveraged thandesirable. As a result, we may not be able to effectuate the most attractivebusiness combination available to us.

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***Our currentofficers and directors may resign upon consummation of a business combinationand we will have only limited ability to evaluate the management of any targetbusiness.***

Our ability tosuccessfully effect a business combination will be totally dependent upon theefforts of our key personnel. Upon consummation of a business combination, therole of our key personnel in the target business cannot presently beascertained. Although it is possible that some of our key personnel will remainassociated in various capacities with the target business following a businesscombination, they are not currently obligated to do so. We anticipate thatmembers of our current management will not serve as executive officersfollowing a business combination but may continue to serve as directors orconsultants, which may result in a conflict of interest. We will attempt toretain the management of the target business or we will recruit new managementteam members to join the target business. Although we intend to closelyscrutinize the management of a prospective target business in connection withevaluating the desirability of effecting a business combination, we cannotassure you that our assessment of management will prove to be correct.

***Some of ourofficers and directors are currently, and may in the future become, affiliatedwith entities engaged in business activities similar to those intended to beconducted by us and, accordingly, may have conflicts of interest in determiningto which entity a particular business opportunity should be presented.***

Some of our officers anddirectors are currently affiliated with private equity firms that seek toinvest in or acquire middle market companies. In addition, although none of ourofficers or directors are currently affiliated with other publicly traded blankcheck companies, they may in the future become so affiliated. Furthermore, ourofficers and directors may become aware of business opportunities which may beappropriate for presentation to us as well as the other entities to which theyhave fiduciary obligations. Accordingly, they may have conflicts of interest indetermining to which entity a particular business opportunity should bepresented. We cannot assure you that these conflicts will be resolved in ourfavor.

***All of our officersand directors directly or indirectly own shares of our common stock that willnot participate in liquidation distributions and therefore they may have aconflict of interest in determining whether a particular target business isappropriate for a business combination.***

All of our officers anddirectors directly or indirectly own stock in our company, but do not have aright with respect to those shares of common stock acquired by them prior toour initial public offering to receive distributions upon our liquidation. Inaddition, certain of our initial stockholders have purchased 2,000,000 warrantsin the private placement for an aggregate purchase price of $1,300,000. Theshares of common stock acquired by our officers and directors prior to ourinitial public offering, as well as any warrants owned by our officers anddirectors will be worthless if we do not consummate a business combination. Thepersonal and financial interests of our officers and directors may influencetheir motivation in identifying and selecting a target business and completinga business combination within the required time frame. Consequently, ourofficers’ and directors’ discretion in identifying and selecting a suitabletarget business may result in a conflict of interest when determining whetherthe terms, conditions and timing of a particular business combination areappropriate and in our stockholders’ best interest.

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***It is probable thatwe will only be able to complete one business combination, which will cause usto be solely dependent on a single business and a limited number of products orservices.***

Our initialbusiness combination must be with a business with a fair market value (asdetermined in the reasonable discretion of our board of directors) of at least80% of our net assets at the time of such acquisition (not including theunderwriters’ deferred non-accountable expense allowance). Consequently, it isprobable that we will have the ability to complete only a single business combination.Accordingly, the prospects for our success may be:

·       solelydependent upon the performance of a single business; or

·       dependentupon the development or market acceptance of a single or limited number ofproducts, processes or services.

In this case, we will notbe able to diversify our operations or benefit from the possible spreading ofrisks or offsetting of losses, unlike other entities which may have theresources to complete several business combinations in different industries ordifferent areas of a single industry.

***None of ourofficers or directors have ever been a principal of, or have ever beenaffiliated with, a publicly traded company formed with a business purposesimilar to ours.***

Our officers and directorshave never served as officers or directors of a development stage publiccompany with the business purpose of raising funds to acquire an operatingbusiness. Accordingly, you may not be able to adequately evaluate their abilityto successfully consummate a business combination for a publicly traded companyorganized for such a purpose.

***Because of ourlimited resources and the significant competition for business combinationopportunities, we may not be able to consummate an attractive businesscombination.***

We expect to encounter intensecompetition from other entities having a business objective similar to ours,including venture capital funds, leveraged buyout funds, operating businessesand financial buyers competing for acquisitions. Many of these entities arewell established and have extensive experience in identifying and effectingbusiness combinations directly or through affiliates. Many of these competitorspossess greater technical, human and other resources than we do and ourfinancial resources will be relatively limited when contrasted with those ofmany of these competitors. While we believe that there are numerous potentialtarget businesses that we could acquire with the net proceeds of our initialpublic offering, our ability to compete in acquiring certain sizable targetbusinesses will be limited by our available financial resources. This inherentcompetitive limitation gives others an advantage in pursuing the acquisition ofcertain target businesses. Further, the obligation that we have to seekstockholder approval of a business combination may delay the consummation of atransaction, and our obligation to convert into cash the shares of common stockheld by public stockholders in certain instances may reduce the resourcesavailable for a business combination. Furthermore, our outstanding warrants,and the future dilution they potentially represent, may not be viewed favorablyby certain target businesses. Any of these obligations may place us at acompetitive disadvantage in successfully negotiating a business combination.

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***We may have to use a portion of the funds not held intrust to pay a “no-shop” fee to an acquisition target.***

We may use a portion ofthe funds not held in the trust account to make a deposit or pay a “no-shop”fee provision with respect to a prospective business combination. Depending onthe size of such payment and the amount of funds already expended for duediligence and related expenses, our forfeiture of such payments, whether as aresult of our breach or otherwise, may result in our not having sufficientfunds to continue searching for or conducting due diligence with respect toanother target business or complete a business combination. If we expend theproceeds not held in trust from our initial public offering, management is notobligated to advance us any additional funds. Without additional financingafter such an event, we may be unable to complete a business combination.Furthermore, the limited amount of funds raised in our initial public offeringand not held in trust may limit our ability to fund a deposit or no-shop fee,which could make us less competitive in attracting an acquisition target.

***If additionalfinancing is required, we may be unable to complete a business combination orto fund the operations and growth of the target business, which could compel usto restructure the transaction or abandon a particular business combination.***

Although we believe thatthe net proceeds of our initial public offering will be sufficient to allow usto consummate a business combination, we cannot ascertain the capitalrequirements for any particular transaction. If the net proceeds of our initialpublic offering prove to be insufficient, either because of the size of thebusiness combination or the depletion of the available net proceeds in searchof a target business, or because we become obligated to convert into cash asignificant number of shares from dissenting stockholders, we will be requiredto seek additional financing. We cannot assure you that such financing would beavailable on favorable terms, if at all. To the extent that additionalfinancing proves to be unavailable when needed to consummate a particularbusiness combination, we would be compelled to restructure the transaction orabandon that particular business combination and seek an alternative targetbusiness candidate. In addition, if we consummate a business combination, wemay require additional financing to fund the operations or growth of the targetbusiness. The failure to secure additional financing could have a materialadverse effect on the continued development or growth of the target business.None of our officers, directors or stockholders are required to provide anyfinancing to us in connection with or after a business combination.

***The American StockExchange may in the future delist our securities from quotation on its exchangewhich could limit investors’ ability to make transactions in our securities andsubject us to additional trading restrictions.***

We cannot assurethat our securities will continue to be listed on the American Stock Exchange (“AMEX”)in the future prior to a business combination. Additionally, in connection withour business combination, it is likely that the American Stock Exchange mayrequire us to file a new initial listing application and meet its initiallisting requirements as opposed to its more lenient continued listingrequirements. We cannot assure you that we will be able to meet those initiallisting requirements at that time. If the American Stock Exchange delists oursecurities from trading on its exchange, we could face significant materialadverse consequences including:

·       reducedliquidity with respect to our securities;

·       adetermination that our common stock is a “penny stock” which will requirebrokers trading in our common stock to adhere to more stringent rules and couldpossibly result in a reduced level of trading activity in the secondary tradingmarket for our common stock;

·       limitedamount of news and analyst coverage for our company; and

·       adecreased ability to issue additional securities or obtain additional financingin the future.

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In the event that oursecurities are not listed on the American Stock Exchange, we anticipate thatour units, common stock and warrants will be quoted on the OTC BulletinBoard, but we cannot assure that our securities will be so quoted, or, ifquoted, will continue to be quoted.

***Our initialstockholders, including our officers and directors, control a substantialinterest in us and this may influence certain actions requiring a stockholdervote.***

Our initial stockholders(including all of our officers and directors) collectively own 17.9% of ourissued and outstanding shares of common stock. In connection with the voterequired for our initial business combination, all of our initial stockholders,including all of our officers and directors, have agreed to vote the shares ofcommon stock owned by them immediately before our initial public offering, aswell as any shares of common stock acquired following the offering, inaccordance with the majority of the shares of common stock voted by the publicstockholders. However, our initial stockholders will have substantial influenceover other matters that may be voted upon by the stockholders, such as theelection of directors.

***Target business may be affiliated with one or more ofour initial stockholders.***

We may complete a businesscombination with a target company with which one or more of the initialstockholders is affiliated or has been affiliated, which may give rise to aconflict of interest. For example, each of Mr. Hanks and Mr. Dullumare managers of venture capital firms that have invested in middle marketcompanies across the United States. We may complete a business combination witha target company in which such venture capital firms has invested, which maygive rise to a conflict of interest because Mr. Hanks and Mr. Dullumwould be affiliated with an investor in such a target company. In the event wepropose to acquire a target company that is affiliated with one of our initialstockholders, we will obtain an opinion from an independent investment bankingfirm that the business combination is fair from a financial point of view andwill file such opinion with the Securities and Exchange Commission.

**Risks Related toOur Acquisition of Elmet**

***As a result of the acquisition, our stockholders willbe solely dependent on a single business.***

As a result of theacquisition, our stockholders will be solely dependent upon the performance ofElmet and its business. Elmet will remain subject to a number of risks thatrelate primarily to the specialty materials industry in which Elmet is engaged.See “Risks Related to Elmet’s Business and Operations Following the Acquisition”below.

***In connection withthe acquisition, we anticipate borrowing $50 million under senior securedcredit facilities to be established upon the closing. That borrowing andsubsequent borrowings under those facilities will require us to pay significantinterest in the future, and the credit agreement for such facilities willimpose restrictions on our and Elmet’s future operations.***

Upon the closing of the acquisition, we anticipatethat we and Elmet will enter into a credit agreement pursuant to which we willestablish $70 million of senior secured credit facilities, consisting of asix-year $50 million term loan facility and a five-year $20 millionrevolving loan facility. The commitment letter for such facilities providesthat we will borrow all of the $50 million term loan at the closing of theacquisition. Depending on the extent, if any, to which our public stockholdersvote against the acquisition and exercise their conversion rights, weanticipate that we will use between $35 million and $50 million of the$50 million term loan to pay off all of Elmet’s then outstanding debt andpay the closing consideration we will then owe to the Elmet stockholders.Although we do not currently anticipate borrowing any funds under our$20 million revolving loan facility at the time of the closing, we nowanticipate we will borrow under such facility in the future for capitalexpenditures and working capital purposes.

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To the extent we borrow funds under our new seniorcredit facilities either at or subsequent to the closing, we will thereafter berequired to pay significant interest on such borrowings. Borrowings under ournew credit facilities will bear interest at LIBOR plus an applicable marginranging from 1.5% to 2.5% per annum, depending upon the leverage ratio of ourtotal debt to EBITDA as calculated in accordance with the credit agreement.Assuming that the average interest rate on the $50 million term loan wewill borrow at the closing (and will amortize on a quarterly basis to$45 million over the first year following the closing) is 8% perannum, we estimate that we will pay approximately $2.6 million of intereston our borrowings during the first year following the closing.

Furthermore, the creditagreement under which the facilities will be established will restrict our andElmet’s ability to sell assets, incur more indebtedness, pay dividends on ourcommon stock, make certain investments or business acquisitions, repurchase orredeem our stock, engage in business mergers or consolidations, and engage incertain transactions with affiliated parties. The credit agreement will alsocontain financial covenants with which we and Elmet must comply in order toavoid a default under the agreement. If we were to default under the agreement,the administrative agent for the lenders could proceed against the collateralthereunder, which will include substantially all of our and Elmet’s assets. Weanticipate that the credit agreement will expire upon the fifth anniversary ofthe closing (for purposes of the revolving loan facility) and the sixthanniversary of the closing (for purposes of the term loan facility), but thatany new or amended credit agreement which we may then enter into with the sameor different lenders will likely contain similar restrictions.

***To the extent, ifany, that our public stockholders vote against the acquisition and exercisetheir conversion rights, we will be required to use an increased portion of theborrowing under our senior credit facilities to pay the closing considerationfor Elmet.***

Pursuant to ourcertificate of incorporation, our public stockholders will have the right tovote against the acquisition and, if the acquisition is completed, converttheir shares of common stock into a *pro rata* shareof the cash held in the trust account we established upon the completion of ourpublic offering. We will proceed with the acquisition only if publicstockholders owning 20% or more of the shares sold in our initial publicoffering (2,760,000 or more of such shares) do not vote against the acquisitionand exercise their conversion rights. However, to the extent, if any, ourpublic stockholders vote against the acquisition and exercise their conversionrights, we will be able to proceed with the acquisition but will be unable toapply up to approximately $15.6 million of the funds held in the trustaccount to the cash consideration and expenses we will pay upon the closing. Insuch event, we will be required to use an increased portion of the$50 million term loan borrowed under our senior secured credit facilitiesfor such purpose, and this will reduce the aggregate amount of the proceedsfrom such term loan and the funds available under our $20 million revolvingfacility which we will be able to use for other purposes such as future capitalexpenditures and working capital.

***If the acquisition’sbenefits do not meet the expectations of financial or industry analysts, themarket price of our common stock may decline.***

The market price ofour common stock may decline as a result of the acquisition if:

·       wedo not achieve the perceived benefits of the acquisition as rapidly as, or tothe extent, anticipated by financial or industry analysts; or

·       theeffect of the acquisition on our financial results is not consistent with theexpectations of financial or industry analysts.

Accordingly, investors mayexperience a loss as a result of a decreasing stock price.

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***Our directors mayhave conflicts in determining to recommend the acquisition of Elmet sincecertain of their interests, and certain interests of their affiliates andassociates, are different from, or in addition to, your interests as a stockholder.***

Members of ourboard of directors have interests in and arising from the acquisition of Elmetthat are different from, or in addition to, your interests as a stockholderwhich could result in real or perceived conflicts of interest. These interestsinclude:

·       RobertJ. Hanks, our chief executive officer and a member of our board of directors,served as a member of the Elmet board of directors from January 2004 to September 2006,and three investment funds (New England Partners Capital, L.P., HarborPartners II, L.P., and Latona Associates Fund I, LLC) with whichcertain of our directors and officers are affiliated are the holders ofapproximately 7.4% of Elmet’s issued and outstanding shares (8.3% on afully-diluted basis including the outstanding Elmet warrants). If theacquisition is completed, those three funds will receive at the time of theclosing a total of $7.26 million dollars (including repayment of $912,500principal amount of Elmet’s subordinated notes they now hold and $6.35 millionfor the shares of Elmet common stock and warrants they now hold), and Harborwill issue to those three funds (or reserve for future issuance upon exerciseof their “Put Right”) a total of 113,433 shares of Harbor common stock. To theextent (if any) that Harbor becomes obligated to pay in the future to the Elmetstockholders the contingent payment under the stock purchase agreement, thosethree funds could potentially receive up to an additional $1.38 million incash and additional Harbor shares worth up to $922,022 at the time thoseadditional shares are issued.

·       TheHarbor directors and officers who are affiliated with those three investmentfunds described in the previous paragraph now collectively have approximately a1% indirect interest in the cash payments and Harbor shares which those fundswill receive. However, those Harbor directors and officers could in the futurecollectively receive up to an approximately 13% indirect “profits” interest insuch cash payments and Harbor shares if certain performance criteria set forthin the organizational documents of those funds are satisfied.

·       TheElmet subordinated notes and shares of Elmet common stock and warrants whichthe three investment funds described above now hold were derived from an investmentof $3 million which those funds made (along with aggregate investments of$10.5 million by other institutional investors) to provide a portion ofthe financing for the buyout by Elmet of the Elmet division of Philips LightingCompany effective as of January 1, 2004, at which time Mr. Hanksbecame an Elmet director. As a result of a recapitalization which Elmetcompleted on September 1, 2005, those three funds then received a total of$5 million in cash (out of the total of $24.6 million which Elmet’sinvestors then received), retained $912,500 principal amount of the Elmetsubordinated notes and warrants for 167,900 shares of Elmet common stock, andconverted all of their remaining 1.175 million shares of preferred stockinto an equivalent number of shares of Elmet common stock. The three investmentfunds did not make any additional investments in Elmet following their initialinvestment in Elmet in 2004.

·       Ifthe acquisition is not approved and we fail to consummate an alternativetransaction within the time permitted under our certificate of incorporationand we are therefore required to liquidate, the shares of common stockbeneficially owned by our executive officers and directors and their affiliatesand associates that were acquired prior to our initial public offering willbecome worthless because no portion of the net proceeds of our initial publicoffering to be distributed upon our liquidation would be allocated to suchshares. These shares collectively have a market value of $16.5 million basedon the closing sale price of our common stock on March 26, 2007. However,the 3 million shares acquired prior to our initial public offering bythese individuals cannot be sold until at least six months after ourconsummation of a business combination, during which time the value 

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of the shares may increaseor decrease. Similarly, the warrants to purchase our common stock held by ourexecutive officers and directors and their affiliates and associates, with anaggregate market value of $640,000 based on the closing sale price of ourwarrants on March 26, 2007 (and which, if then exercisable, would havepermitted them to purchase an aggregate of 2 million common shares thenhaving a market value of $11 million for an exercise price of$10 million), will become worthless if the acquisition is not approved andwe fail to consummate an alternative transaction within the time permittedunder our certificate of incorporation.

·       After the completion of theacquisition, we expect that four of our current directors, namely John Carson,David A.R. Dullum, Robert J. Hanks and William E. Mahoney, will continue toserve on our board of directors. Each of these directors will, following theacquisition, be compensated in such manner, and in such amounts, as our boardof directors may determine to be appropriate.

***We plan to issueshares of our common stock to complete the acquisition of Elmet, which willdilute the equity interest of our stockholders.***

Our certificate of incorporation, as previouslyamended, authorizes the issuance of up to 70 million shares of commonstock and 1 million shares of preferred stock. We currently have16.8 million outstanding shares of common stock and 31.4 millionauthorized but unissued shares of our common stock reserved for issuance uponfull exercise of our outstanding warrants and an option to acquire additionalwarrants. The remaining 21.8 million shares of our authorized common stockand all of the 1 million authorized shares of preferred stock are nowavailable for issuance.

As set forth in the stockpurchase agreement, we will at the closing of the acquisition issue (or reservefor issuance upon future exercise by certain of the Elmet stockholders of their“Put Right”) a total of 2.191 million shares of our common stock.Furthermore, we may issue following the closing, pursuant to the contingentpayment provisions of the stock purchase agreement, additional shares of ourcommon stock valued at up to $11.2 million, based on the average closingprice of our common stock during the 20 consecutive trading day period endingon the day preceding each date on which an installment of the contingentpayment will be payable, if earned. The issuance of such shares at the closingand thereafter, if there are any shares issued pursuant to the contingentpayment provisions, will dilute the equity interest of our stockholders on a *pro rata* basis.

***If our initialstockholders and certain Elmet stockholders exercise their registration rights,such exercise may have an adverse effect on the market price of our commonstock.***

Our initial stockholders are entitled to demand, undercertain circumstances, that we register the resale of their 3 millionshares of common stock and the 2 million shares of common stock issuableupon exercise of the warrants they now hold so that they may resell such sharesin the public market. In addition, we have agreed to register, under certaincircumstances, 600,000 shares of common stock and an additional1.2 million shares of common stock issuable upon exercise of warrantswhich are now subject to a purchase option held by Ferris, Baker Watts,Incorporated, the managing underwriter for our initial public offering. If ourinitial stockholders and Ferris, Baker Watts, Incorporated exercise theirregistration rights with respect to all of their shares of common stock(including the warrant shares), those additional 6.8 million shares ofcommon stock will be eligible for trading in the public market. If we completethe acquisition of Elmet, we will at the closing enter into a registrationrights and lock-up agreement with the Elmet stockholders who each own at least1% of Elmet’s outstanding shares immediately prior to the closing. Under thatagreement, we will grant registration rights to those stockholders with respectto the 2.191 million Harbor shares which we will then issue or reserve forfuture issuance to them, plus any such additional shares as we may issue tothem in the future pursuant to the contingent payment provisions of the stockpurchase agreement.

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As described in theprevious paragraph, there are a total of 8.991 million shares (whichinclude 3 million primary shares that are now outstanding and5.991 million shares that may be issued in the future) that are or will,upon the closing of Elmet acquisition, be subject to registration rights whichare now held by or are issuable to our initial stockholders, Ferris, BakerWatts, Incorporated and the Elmet stockholders. These 8.991 million shares(including the 3 million shares that are now outstanding and the5.991 million shares which may be issued in the future) represent 53.5% ofthe 16.8 million primary shares of common stock which we had outstandingon the record date for the special meeting. The presence of these additionalnumbers of outstanding or issuable shares of common stock eligible for tradingin the public market may have an adverse effect on the market price of ourcommon stock.

**Risks Related toElmet’s Business and Operations Following the Acquisition**

***Elmet’s operationsare dependent on production levels at its Lewiston facility and any disruptionof production at this facility could lead to decreased sales, increased costsand lost opportunities.***

Elmet’s principal assets,which include its executive offices and various types of coiling and drawingmachines, furnaces, milling centers and grinding machines, are located at itsproduction facility in Lewiston, Maine, and all of its products aremanufactured at this facility. Any serious disruption to this facilityresulting from fire, acts of terrorism, weather-related events or any othercause could materially impair Elmet’s ability to manufacture and distribute itsproducts. In such event, Elmet could incur significantly higher costs andlonger lead times associated with manufacturing and distributing its productsduring the time that it would take to reopen or replace the damaged facility.Although Elmet maintains insurance to provide for reconstruction of damagedplant and equipment, as well as business interruption insurance to mitigate lossesresulting from any prolonged production shutdown caused by an insured loss,such insurance may not be adequate to cover all such losses. In addition, Elmethas certain equipment that it builds and maintains for the production of customproducts designed by its customers. This type of equipment is not generallyavailable from third-party equipment suppliers and may take longer to replacein the event of damage or destruction.

***Elmet’sprofitability could be adversely affected by fluctuations in the cost ordisruptions in the availability of raw materials.***

The primary raw materials used in the manufacturing ofthe metal rod, plate and sheet that Elmet uses as the base for the advancedenabling materials that it produces for its customers are ammonia paratungstate,or APT, and molybdenum trioxide powder. The prices for these raw materials havefluctuated significantly in the past and significant future increases couldadversely affect Elmet’s results of operations and profit margins. While Elmetgenerally attempts to pass along increases in the prices of these raw materialsto its customers, there may be a time delay between any increases in suchprices and Elmet’s ability to increase the prices of its products. In addition,Elmet generally passes along decreases in the prices of its raw materials toits customers, which could result in a decrease in its profitability and profitmargins.

Elmet relies primarily on two sole source suppliersfor its raw materials. In the event that either of its suppliers ceases tosupply sufficient quantities of these raw materials in a timely manner, Elmetwould be forced to locate an alternate supplier. Elmet may be unable to locatesuitable alternate suppliers, particularly because Elmet relies on the qualityof the raw materials supplied by its current suppliers.

In addition, in order forElmet to successfully expand its existing business, its two sole sourcesuppliers must be able to provide it with substantial quantities of the rawmaterials necessary for its manufacturing process, consistent with the highquality that such suppliers currently provide, at an acceptable cost and on atimely basis. Elmet’s anticipated growth may strain the ability of itssuppliers to deliver an increasingly larger supply of raw materials in sufficientquantities. If Elmet is unable to obtain sufficient quantities of 

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the rawmaterials required for manufacturing high-quality products to meet customerdemand, Elmet could lose customers, its growth may be limited and its businesscould be harmed.

***Elmet anticipates the need for increased capitalexpenditures in order to upgrade its facility and grow its business.***

Although Elmet believesthat its Lewiston facility is generally in good operating condition, Elmetanticipates making significant upgrades to its equipment and technology. Elmetanticipates investing approximately $14 million in the aggregate during2007, 2008 and 2009 on these upgrades and believes such capital expendituresare needed to maintain and improve Elmet’s ability to manufacture its productsand grow its business. We now anticipate that we and Elmet will be able tofinance such capital expenditures through future reinvestment of cash flowderived from Elmet’s business and borrowings under our proposed senior securedcredit facilities which will become effective on the closing of theacquisition. However, the making of such future capital expenditures funded byborrowing will increase our future interest costs and require us to use fundswhich might otherwise be available for other purposes such as potentialacquisition of other companies.

***The development of new applications and new productsis important for Elmet’s business.***

We believe Elmet’s manufacturing expertise provides itwith a competitive advantage over other refractory metals manufacturers in theindustry. However, Elmet’s ability to maintain this competitive advantagedepends on its ability to continue to offer custom-designed refractory metalsproducts that meet its customers’ specifications that have equal or betterperformance characteristics than those types of products that its competitorsmay offer. Elmet’s future growth will depend, in part, on its ability toaddress the increasingly demanding needs of its customers by enhancing theproperties of its existing products, by timely developing new applications forits products, and by timely developing and introducing new products that itscustomers require for use in their end products.

Elmet may not besuccessful in these efforts or it may experience difficulties that could delayor prevent the successful development, introduction and sale of these products.In addition, Elmet’s new products may not adequately meet the requirements andspecifications of its customers. If Elmet is not able to achieve theanticipated results from the implementation of any of its existing or newprojects, if new applications for Elmet’s products develop more slowly thancurrently projected, or if Elmet incurs unanticipated implementation costs,Elmet’s results of operations and financial position may be materiallyadversely affected.

***Elmet’s financialresults and the demand for its products are dependent upon its ability tosuccessfully develop and implement new technology initiatives in a timelymanner.***

Elmet’s success depends onthe development of new technological processes and the successful manufacturingof new products. Elmet’s ability to transform refractory metals into highquality custom-designed components for use by its customers in the productionof a variety of end products, including medical devices, such as CT scannersand radiation therapy equipment, and flat panel displays, is dependent upon itsmanufacturing and technological processes. Elmet has invested in, and plans tofurther invest in, a number of new technology and process initiatives,including the full automation of the future production of its medical devicecomponents. Several technical aspects of these initiatives are still unprovenand the eventual outcomes cannot be assessed with any certainty. Even if Elmetis successful with these initiatives, it may not be able to effectively deploythem in a timely fashion. Accordingly, the costs and benefits from Elmet’sinitiatives and investments in new technologies, and the resulting effects onits financial results, may vary from present expectations.

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***Failure to develop new products could have an adverseeffect on Elmet’s business prospects.***

Although Elmet has beendiversifying its products and sales outside of the lighting business since themanagement buyout effective January 1, 2004, a substantial portion ofElmet’s current revenues are derived from selling lighting components andfilaments to Philips Lighting, which owned Elmet’s assets and business throughthe end of 2003. Sales to Philips Lighting accounted for approximately 21% ofElmet’s net sales during the year ended December 31, 2006. Elmet’s futurebusiness and financial success will depend, in part, on its ability to continueto supply these components to Philips while at the same time introducing newproducts and upgraded products to new customers in the metals marketplace.Developing new products that utilize the refractory metals that Elmetspecializes in and upgrades to such existing and future products imposesburdens on Elmet’s research and development department and its management. Thisprocess is costly, and Elmet may not be able to successfully develop such newproducts or enhance its existing products. In addition, as Elmet develops theseproducts and seeks to enhance existing products in order to diversify itscustomer base, its competitors may also develop similar products earlier thanElmet, which could make its competitors’ products less expensive or moreeffective than Elmet’s products and could render Elmet’s products in developmentobsolete or unmarketable. If Elmet’s product and new customer developmentefforts are unsuccessful, Elmet will have incurred significant costs withoutrecognizing the expected benefits, its revenues may be impacted, its operatingresults may decline and its business prospects may suffer.

***Failure to deployElmet’s skills with tungsten and molybdenum to other refractory metals wouldlimit the potential products that Elmet may manufacture in the future andadversely impact Elmet’s business prospects and revenue.***

One of Elmet’s strategiesfor growth is to apply the skills, experience and technology that it hasdeveloped in manufacturing specified product applications with tungsten andmolybdenum to other refractory metals. Elmet intends to explore the developmentand potential uses of new products that utilize other refractory metals.However, this strategy may not be successful, and Elmet may incur significantcosts attempting to expand its lines of products using other refractory metalswithout recognizing any significant benefits. If Elmet fails to deploy itsskills with tungsten and molybdenum to other refractory metals, such failurewould limit the potential products that Elmet may manufacture in the future andadversely impact Elmet’s business prospects and revenue.

***Elmet relies on asmall number of customers for a significant portion of its sales, and the lossof any of those customers would adversely affect its revenues and results ofoperations.***

Elmet’s ten largest customers accounted forapproximately 53.5% of its net sales for the year ended December 31, 2006.Consequently, Elmet’s sales may be sensitive to deterioration in the financialcondition of, or other adverse developments with, one or more of its topcustomers. In addition, given the relatively small number of Elmet’s customersthat account for such a large percentage of net sales, these customers may alsobe able to exert pricing and other influence on Elmet, requiring it to market,deliver and promote its products in a manner that may be more costly. Elmet isactively pursuing a broader customer base, but in the event that it fails tosucceed, a loss or significant decrease in business from any of its topcustomers could have a material adverse effect on its business and reduce itssales, profitability and cash flows. Except for its business with Philips,Elmet generally does not have long-term contracts with its customers, whichElmet believes is typical in the specialty materials industry. As a result,although Elmet’s customers periodically provide indications of their productneeds and purchases, they generally purchase products on an order-by-orderbasis, and the relationship, as well as particular orders, may be terminated atany time.

In particular, Philips Lighting,Elmet’s largest customer, accounted for approximately 20% of Elmet’s net salesduring the year ended December 31, 2006. Elmet currently sells more than90% of its filaments to 

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Philips,which accounted for $11.4 million in sales for the same period. The loss of, orsignificant reduction in, the purchase of filaments by Philips Lighting couldadversely effect Elmet’s business.

***Elmet’s business may be subject to significantenvironmental investigation, remediation and compliance costs.***

Elmet’s business and facilities are subject tofederal, state and local environmental laws and regulations that govern, amongother things, the discharge of pollutants into the air and water as well as theuse, generation, handling, storage, transport and disposal of hazardous wastesand materials. Permits are required for operation of Elmet’s business(particularly air emission and wastewater discharge permits), and these permitsare subject to renewal, modification and, in certain circumstances, revocation.Environmental laws and regulations may also impose restrictions on the mannerin which property may be used or businesses may be operated. A property owneror operator of a business that violates environmental laws or regulations may besubject to sanctions which may be enforced by governmental agencies or, incertain circumstances, private parties. The cost of defending againstenvironmental claims, of compliance with environmental regulatory requirements,of environmental penalties or of remediating contaminated property, couldmaterially adversely affect Elmet’s business, assets or results of operations.

Elmet owns, and operates its business primarily in,its facility in Lewiston, Maine. Elmet and its predecessors have conductedindustrial activities for many years in the facility, and Elmet and itsprecedessors have also arranged for many years for disposal of hazardousmaterials at various off-site disposal sites owned by third parties. Elmet mayincur costs for investigation and remediation, as well as capital costs,associated with compliance with environmental laws and regulations which areapplicable both to its own facility and such third party sites. More stringentenvironmental laws and regulations, as well as more vigorous enforcementpolicies or discovery of previously unknown conditions requiring remediation,could impose material costs and liabilities on Elmet that could have a materialadverse effect on its business, financial condition and results of operations.

In particular,there are risks that:

·       Elmetmay be liable to investigate and remediate historic contamination at itsfacility in Lewiston, Maine;

·       cleanupstandards for containments present in soil and groundwater at the Lewistonfacility may become more stringent;

·       Elmetmay be liable to other property owners to the extent that groundwatercontamination from Elmet’s Lewiston facility may migrate off Elmet’s property;

·       remediationof historic subsurface contamination beneath the Lewiston facility may berequired and such remediation may be disruptive of facility operations;

·       changesin environmental laws and regulations applicable to the Lewiston facility mayrequire new controls on air and wastewater discharges from the facility; and

·       theremay be future noncompliance with environmental laws and regulations, exposingElmet to potential fines and penalties.

In connection withElmet’s purchase of the Lewiston facility effective January 1, 2004,Philips, as the prior owner, agreed to assume responsibility for the investigationand remediation of identified historical releases on or from the facilityexisting as of the purchase date. However:

·       Philips’environmental investigations may not identify all historical environmentalcontamination;

·       Philipsmay not completely fulfill its agreement and responsibilities to investigateand remediate historic contamination and to indemnify  Elmet for related costs, and disputes andpotential litigation might arise between Elmet and Philips; and

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·       Elmet’s operations of thefacility since January 1, 2004 (for which Philips has no responsibility)and changes in applicable environmental laws and regulations may result in theimposition of environmental liability with respect to the facility.

***Elmet’s business is dependent upon key personnel whoseloss would adversely impact its business.***

Elmet depends on theexpertise, experience and continued services of its senior management,especially John S. Jensen, its president and chief executive officer. Mr. Jensenhas acquired specialized knowledge and skills with respect to Elmet’s businessand its operations and most decisions concerning the business will be made orsignificantly influenced by him. Although Elmet maintains keyman life insurancewith respect to Mr. Jensen, the proceeds of such insurance may not beadequate to compensate Elmet in the event of Mr. Jensen’s death ordisability. The loss of Mr. Jensen or other members of senior management,or an inability to attract or retain other key individuals, could materiallyadversely affect Elmet’s business. Elmet seeks to compensate and incentivizeits senior management, as well as other employees, through competitive salariesand benefits, but these programs may not be adequate to allow Elmet to retainkey employees or hire new key employees. As a result, if Mr. Jensen orother members of Elmet’s senior management were to leave Elmet, Elmet couldface substantial difficulty in hiring qualified successors and could experiencea loss in productivity while any such successors obtain the necessary trainingand experience.

***Potential product liability may arise from theproducts that Elmet manufactures and sells.***

Elmet’s business exposesit to potential product liability risks that are inherent in the design,manufacture and sale of its metals products and the use of these products ascomponents in the products of end users that are also subject to potentialproduct liability risks. While Elmet currently maintains what its managementbelieves to be suitable and adequate product liability insurance, Elmet may notbe able to maintain its insurance on acceptable terms and its insurance may notprovide adequate protection against all potential liabilities. In the event ofany significant products liability claim against Elmet, a lack of sufficient insurancecoverage could have a material adverse effect on its financial condition andresults of operations.

***Most of Elmet’semployees are unionized, and disputes and other employee relations issues couldmaterially adversely affect its financial results.***

Elmet currently hasapproximately 235 full-time employees, of whom approximately 90% are members ofThe International Brotherhood of Teamsters Local 340 and are subject to acollective bargaining agreement with Elmet that was recently renegotiated andis now scheduled to expire on April 14, 2013. Although Elmet believes thatit has a good working relationship with its employees, Elmet might not be ableto renew its collective bargaining agreement on the same or similar terms, orat all, which could affect its business, results of operations or financialcondition. Moreover, any new labor agreement which is negotiated may providefor less favorable terms than the current agreement with regard to wages andbenefits and the efficiency and productivity of the work force. Furthermore,Elmet might be subject to work stoppages that could have a materialadverse effect on its business, results of operations and cash flows.

***Elmet facescompetition from two large existing companies and may face increasingcompetition from other companies.***

The market for the typesof advanced enabling materials consisting of refractory metals that Elmetmanufactures is competitive worldwide. Elmet faces competition from two largeEuropean competitors that each hold a major share of the current worldwidemarket for molybdenum and tungsten forms and fabricated products, as well asseveral other smaller domestic and foreign competitors. These two large 

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existingcompetitors have, and future competitors may have, greater financial resourcesthan Elmet. Elmet may also face additional competition in the future to theextent new materials are developed that may be substituted for Elmet’s existingproducts. Elmet may not be able to compete effectively in the future, andcompetition might significantly reduce Elmet’s sales or depress the price ofElmet’s products, either of which events could adversely affect Elmet’srevenues and profitability.

***Competition fromrefractory metals manufacturers located outside of the United States may forceElmet to reduce the costs of its products or current or potential business maybe lost.***

Elmet’s business issubject to direct competition from foreign refractory metals manufacturers. Inparticular, the supply and production costs of these competitors may be lowerbecause of such factors as access to large molybdenum deposits located in Chinaand lower labor costs in China. This may in turn create competitive pricingpressures and force Elmet to reduce the prices of its products or current orpotential business may be lost. In addition, significant changes in U.S. andforeign currency relationships may result in pricing pressures that couldadversely affect Elmet’s profit margins.

**Risks Related toOur Future Combined Operations With Elmet**

***We have not hadoperations, and Elmet has never operated as a public company. Fulfilling ourobligations incident to being a public company after acquiring Elmet will beexpensive and time consuming.***

Both we, as a company without business operations, andElmet, as a private company, have maintained relatively small finance andaccounting staffs. Upon the completion of the acquisition, our current chiefexecutive officer and treasurer, Robert J. Hanks, and our current president,David A. R. Dullum, will resign from those offices but will remain members ofour board of directors. John S. Jensen, Elmet’s chief executive officer, willbecome our president and chief executive officer, and Carl Miller, Elmet’streasurer and chief financial officer, will become our treasurer and chieffinancial officer. Neither Mr. Jensen nor Mr. Miller has significantpublic company experience. Helping them become familiar with the requirementsof operating a public company under U.S. securities laws could be expensive andtime-consuming and lead to various regulatory issues that may adversely affectour operations, including significantly increasing our costs and reducing ournet income, if any.

Neither we nor Elmetcurrently has an internal audit group. Although we have maintained disclosurecontrols and procedures and internal control over financial reporting asrequired under the federal securities laws with respect to our very limitedactivities, we have not been required to maintain and establish such disclosurecontrols and procedures and internal control as will be required with respectto a business such as Elmet with substantial operations. As a private company,Elmet is not subject to the public company reporting requirements of theSarbanes-Oxley Act of 2002, nor the reporting requirements of the SecuritiesExchange Act of 1934, and therefore Elmet’s internal controls and procedureshave not been established according to the standards established by the PublicCompany Accounting Oversight Board, or the PCAOB. Under the Sarbanes-Oxley Actof 2002 and the related rules and regulations of the SEC, as well as the rules ofthe American Stock Exchange, we will need to implement additional corporategovernance practices and adhere to a variety of reporting requirements andcomplex accounting rules, including the standards established by the PCAOB.Compliance with these obligations will require significant management time,place significant additional demands on our finance and accounting staff and onour financial, accounting and information systems, and increase our insurance,legal and financial compliance costs. We may also need to hire additionalaccounting and financial staff with appropriate public company experience andtechnical accounting knowledge.

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***Section 404 ofthe Sarbanes-Oxley Act of 2002 will require us to document and test ourinternal control over financial reporting for fiscal 2007 and beyond and willrequire an independent registered public accounting firm to report on ourassessment as to the effectiveness of this control. Any delays or difficulty insatisfying these requirements could adversely affect our future results ofoperations and our stock price.***

Section 404 of the Sarbanes-Oxley Act of 2002will require our management to document and test the effectiveness of ourinternal control over financial reporting in accordance with an establishedinternal control framework and to report on our conclusion as to theeffectiveness of our internal control commencing with our fiscal year ending December 31,2007. It will also require an independent registered public accounting firm totest our internal control over financial reporting and report on theeffectiveness of such control, and attest the accuracy of our management’sassessment of the effectiveness of our internal control, commencing with our fiscalyear ending December 31, 2008. It may cost us more than we expect tocomply with these control- and procedure-related requirements.

We may in the futurediscover areas of our internal control over financial reporting that needimprovement, particularly with respect to Elmet or other businesses that we mayacquire in the future. We cannot be certain that any remedial measures we takewill ensure that we implement and maintain adequate internal control overfinancial reporting in the future. Any failure to implement required new orimproved controls, or difficulties encountered in implementation, could harmour operating results or cause us to fail to meet our reporting obligations. Ifwe are unable to conclude that we have effective internal control overfinancial reporting, or if our independent auditors are unable to provide uswith an unqualified report regarding the effectiveness of our internal controlover financial reporting as of December 31, 2008 and in future periods asrequired by Section 404, investors could lose confidence in thereliability of our financial statements, which could result in a decrease inthe value of our common stock. Failure to comply with Section 404 couldalso potentially subject us to sanctions or investigations by the Securitiesand Exchange Commission, the American Stock Exchange or other regulatoryauthorities.

**Risks Related toOur Possible Failure to Complete the Elmet Acquisition**

***We may not be ableto consummate the acquisition of Elmet, or another business combination, withinthe required time frame, in which case we would be forced to liquidate.***

We must complete abusiness combination with a fair market value of at least 80% of our net assetsat the time of acquisition by October 31, 2007 (or by April 30, 2008if a letter of intent, agreement in principle or a definitive agreement hasbeen executed by October 31, 2007 and the business combination relativethereto has not been consummated by October 31, 2007). If we fail toconsummate the acquisition of Elmet or another acquisition satisfying the netasset test within the required time frame, we will be forced to liquidate ourassets.

***If we are forced toliquidate before a business combination, our public stockholders will receiveless than $6.00 per share upon distribution of the trust account, and ourwarrants will expire worthless.***

If we are unable tocomplete the acquisition of Elmet or another business combination and areforced to liquidate our assets, the per share liquidation value will be lessthan $6.00 because of the expenses related to our initial public offering, ouroperating expenses and the costs of performing due diligence for theacquisition, negotiating the stock purchase agreement and otherwise seeking abusiness combination. Furthermore, our warrants will expire worthless if weliquidate before the completion of a business combination.

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***We have incurredand will continue to incur significant costs associated with our operations andthe proposed acquisition of Elmet, whether or not the acquisition is completed,which costs will significantly reduce the amount of cash we will have availableto consummate another business combination if we fail to complete the Elmetacquisition.***

We have incurred and willcontinue to incur significant costs associated with our operations and theproposed acquisition of Elmet, whether or not the acquisition is completed.Between the completion of our initial public offering on May 1, 2006 and December 31,2006, we incurred a total of $1,132,067 of expenses relating to our operationsand the proposed acquisition of Elmet. By incurring these costs, we havereduced and will significantly reduce the amount of cash available to be usedfor consummating another business combination if we fail to complete the Elmetacquisition.

**ITEM 1B.**       UNRESOLVEDSTAFF COMMENTS

Not applicable.

**ITEM 2.**                PROPERTIES

We maintain our executiveoffices at One Boston Place, Suite 3630, Boston, Massachusetts 02108. GrandCru Management, LLC, an affiliate of Robert J. Hanks, our Chief ExecutiveOfficer, Treasurer and a director, and David A.R. Dullum, our President,Secretary and a director, has agreed to make available to us certain limitedadministrative, technology, and secretarial services, as well as the use ofcertain limited office space, including a conference room, at that location. Wehave agreed to pay Grand Cru Management, LLC $7,500 per month for theseservices. These arrangements are solely for our benefit and are not intended toprovide Messrs. Hanks or Dullum compensation in lieu of salary. We believe,based upon rents and fees for similar services in the Boston area, that the feecharged by Grand Cru Management, LLC is at least as favorable as that we couldhave obtained from an unaffiliated person.

**ITEM 3.**                LEGALPROCEEDINGS

None.

**ITEM 4.**                SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of ourshareholders during the quarter ended December 31, 2006.

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**PART II**

**ITEM5.**                MARKET FORREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES

**Market PriceInformation**

The shares of our common stock, warrants and units aretraded on the American Stock Exchange, or AMEX, under the symbols “HAC,” “HAC.WS”and “HAC.U,” respectively. On October 16, 2006, the last day for whichinformation was available prior to the date of the public announcement of thesigning of the stock purchase agreement, the closing sale prices of HAC, HAC.WSand HAC.U were $5.40, $0.31 and $5.91, respectively. Each of our units consistsof one share of our common stock and two warrants. Our common stock andwarrants commenced to trade separately from our units on May 30, 2006.However, transactions in our units continue to occur on the AMEX.

Thefollowing table sets forth, for the calendar quarters indicated, the quarterlyhigh and low closing sale prices for our common stock, warrants and units asreported on the AMEX.

| ** **                                         | ** ** | **Common Stock  (HAC)** | ** ** | **Warrants  (HAC.WS)** | ** ** | **Units  (HAC.U)** | ** ** |
|----------------------------------------------------|------------|------------------------------|------------|------------------------|------------|--------------------|------------|
| **Quarter Ended**                             | ** ** | ** **                   | ** ** | **High**               | ** ** | **Low**            | ** ** | **High** | ** ** | **Low** | ** ** | **High** | ** ** | **Low** | ** ** |
| June 30,  2006                                |       | $                            | 5.45       |                   | $          | 5.27               |       | $ | 0.37 |   | $ | 0.32 |   | $ | 6.28 |   | $ | 5.93 |   |
| September 30,  2006                           |       | 5.48                         |       | 5.34                   |       | 0.34               |       | 0.28 |   | 6.10 |   | 5.90 |   |
| December 31,  2006                            |       | 5.49                         |       | 5.35                   |       | 0.34               |       | 0.20 |   | 6.10 |   | 5.78 |   |
| March 31, 2007  (through March 26, 2007) |       | 5.61                         |       | 5.39                   |       | 0.38               |       | 0.23 |   | 6.26 |   | 5.80 |   |
|                                                    |            |                              |            |                        |            |                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The closing prices of ourcommon stock, warrants and units as of March 26, 2007 were $5.49, $0.32 and$5.98, respectively.

**Number of Holdersof Common Stock**

The number of holders ofrecord of our common stock on March 26, 2007 was 14, which amount does notinclude beneficial owners of securities.

**Dividend Policy**

We have not paid anydividends on our common stock to date and do not intend to pay dividends priorto the completion of a business combination. The payment of dividends in thefuture will be contingent upon our revenues and earnings, if any, capitalrequirements and general financial condition subsequent to completion of abusiness combination. The payment of any dividends subsequent to a businesscombination will be within the discretion of our board of directors. It is thepresent intention of our board of directors to retain all earnings, if any, foruse in our business operations and, accordingly, our board does not anticipatedeclaring any dividends in the foreseeable future.

**Equity CompensationPlan**

We have not establishedany compensation plans (including individualized compensation arrangements)under which any of our equity securities are authorized for issuance.

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**Recent Sales ofUnregistered Securities**

As of June 22,2005, we issued 3,000,000 shares (as adjusted for the subsequent stock split inconnection with our initial public offering) of our common stock to the partiesset forth below for $25,000 in cash, at an average purchase price of $0.01 pershare, as follows:

| **Name**                   | ** ** | ** ** | ** ** | **Number  of Shares**                                            | ** ** | **Relationship to us** |
|----------------------------|------------|------------|------------|-----------------------------------------------------------------------|------------|----------------------------------|
| Robert J. Hanks            |       | 900,000    |       | Chief Executive Officer,  Treasurer and Director                      |
| David A.R. Dullum          |       | 900,000    |       | President, Secretary and  Director                                    |
| Grand Cru Management,  LLC |       | 1,170,000  |       | Principal stockholder  and affiliate of Messrs. Hanks and Dullum |
| Timothy J. Durkin          |       | 30,000     |       | Director                                                              |

 

In July andAugust 2005, Grand Cru Management, LLC subsequently sold 750,000 of itsshares of common stock to certain officers, directors, special advisors andother accredited investors in private sales as follows:

| Todd A.  Fitzpatrick              |   | 240,000 |   |
|-----------------------------------|--------|---------|--------|
| Christopher R.  Young             |   | 240,000 |   |
| Timothy J. Durkin                 |   | 30,000  |   |
| John Carson                       |   | 60,000  |   |
| William E.  Mahoney               |   | 60,000  |   |
| John I. Jellinek                  |   | 30,000  |   |
| Stephen Gray                      |   | 30,000  |   |
| Thomas Bullock                    |   | 30,000  |   |
| Latona Associates  Fund I, L.L.C. |   | 120,000 |   |
| Frank H.  Jellinek, Jr.      |   | 60,000  |   |

 

In February 2006, Grand Cru Management, LLC sold240,000 shares to John Carson, our chairman of the board. In addition, Mr. Hanksand Mr. Dullum each sold 75,000 shares to Mr. Carson in privatesales. Following the death of Frank H. Jellinek, Jr., the shares held byhis estate were assigned to a limited liability company controlled by hiswidow, Judith A. Jellinek, in April 2006.

In April 2006, certain of our initialstockholders purchased 2,000,000 warrants in a private placement at $0.65 perwarrant. The warrants will become exercisable, at a price of $5.00 per share ofcommon stock, on the later of April 25, 2007 or the date of ourconsummation of a business combination.

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Thefollowing table sets forth the name and respective number of warrants for eachof such initial stockholders:

| Robert J. Hanks                              |   | 230,769 |   |
|----------------------------------------------|--------|---------|--------|
| David A. R.  Dullum                          |   | 384,616 |   |
| John Carson                                  |   | 153,846 |   |
| Todd A.  Fitzpatrick                         |   | 38,462  |   |
| Christopher R.  Young                        |   | 76,923  |   |
| William E.  Mahoney                          |   | 153,846 |   |
| Latona Associates  Fund I, LLC (1)           |   | 384,615 |   |
| Grand Cru  Management, LLC (2)               |   | 250,000 |   |
| Thomas Bullock                               |   | 76,923  |   |
| September Morning  Investments, LLC (3) |   | 250,000 |   |

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(1)          Latona Associates FundI, LLC is an investment fund of which Timothy J. Durkin, one of our directors,serves as an officer of the manager.

(2)          Grand Cru Management,LLC is one of our initial stockholders and an affiliate of Robert J. Hanks andDavid A. R. Dullum.

(3)          September MorningInvestments, LLC is an affiliate of Frank H. Jellinek, Jr., one ofour initial stockholders, who is now deceased.

All of such shares and warrants were issued or soldpursuant to the exemption from registration contained in Section 4(2) ofthe Securities Act of 1933.

All shares of common stock outstanding prior to ourinitial public offering were placed into an escrow account with ContinentalStock Transfer & Trust Company and with certain limited exceptionswill not be tradeable until six months after our consummation of a businesscombination.

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**ITEM 6.**                SELECTEDFINANCIAL DATA

**Results ofOperations**

The following table setsforth selected historical financial information derived from our auditedconsolidated financial statements included elsewhere in this report for theyear ended December 31, 2006 and for the periods from June 20, 2005(inception) to December 31, 2006 and December 31, 2005 and as of December 31,2006 and 2005. The following data should be read in conjunction with “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” andour consolidated financial statements including the notes thereto, includedelsewhere in this report.

**Statement of Operations Information:**

| ** **                             | ** ** | **Year Ended  December 31, 2006** | ** ** | **June 20, 2005  (inception) to  December 31, 2005** | ** ** | **June 20, 2005  (inception) to  December 31, 2006** | ** ** |
|----------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| Interest income                        |       |                                             | $          | 2,599,821                                                                     |       |                                                                          |       | $ | 163 |   |   |   | $ | 2,599,984 |   |   |
| General and  administrative expenses   |       |                                             | 488,475    |                                                                          |       |                                                                          | 5,000      |   |   |   | 493,475 |   |   |
| Net income (loss)  before income taxes |       |                                             | 2,111,346  |                                                                          |       |                                                                          | (4,837     | ) |   |   | 2,106,509 |   |   |
| Income tax  expense                    |       |                                             | 744,681    |                                                                          |       |                                                                          | —     |   |   |   | 744,681 |   |   |
| Net income (loss)                      |       |                                             | $          | 1,366,665                                                                     |       |                                                                          |       | $ | (4,837 | ) |   |   | $ | 1,361,828 |   |   |
| Net income (loss) per  share:          |       |                                             |       |                                                                          |       |                                                                          |       |   |   |   |   |   |   |
| Basic and diluted                      |       |                                             | $          | 0.11                                                                          |       |                                                                          |       | $ | (0.00 | ) |   |   | $ | 0.15 |   |   |
| Weighted average shares  outstanding:  |       |                                             |       |                                                                          |       |                                                                          |       |   |   |   |   |   |   |
| Basic and diluted                      |       |                                             | 12,489,863 |                                                                          |       |                                                                          | 3,000,000  |   |   |   | 9,207,527 |   |   |

 

**Balance Sheet Information:**

| ** **                                   | ** ** | **December 31 ,  2006** | ** ** | **December 31,  2005** | ** ** |
|----------------------------------------------|------------|-----------------------------------|------------|-----------------------------|------------|
| Cash                                         |       | $                                 | 534,970    |                        |       | $ | 6,654 |   |   |
| Investments held  in trust                   |       | 79,460,000                        |       |                        | —     |   |   |
| Total assets                                 |       | 81,064,288                        |       |                        | 310,163    |   |   |
| Deferred  underwriting fees                  |       | 1,620,000                         |       |                        | —     |   |   |
| Total liabilities                            |       | 2,036,477                         |       |                        | 290,000    |   |   |
| Common stock  subject to possible conversion |       | 15,560,216                        |       |                        | —     |   |   |
| Stockholders’ equity                    |       | $                                 | 63,467,595 |                        |       | $ | 20,163 |   |   |

 

**Quarterly Resultsof Operations**

Thefollowing table sets forth unaudited operating data for each of the quarters ofthe year ended December 31, 2006. This quarterly information has beenprepared on the same basis as our annual consolidated financial statements and,in the opinion of management, reflects all significant adjustments (consistingprimarily of normal recurring adjustments) necessary for a fair presentation ofresults of operations for the periods presented.

| ** **                                 | ** ** | **First Quarter** | ** ** | **Second Quarter** | ** ** | **Third Quarter** | ** ** | **Fourth Quarter** | ** ** |
|--------------------------------------------|------------|------------------------|------------|-------------------------|------------|------------------------|------------|-------------------------|------------|
| Net income (loss)                          |       |                   | $          | (1,491                  | )          |                   |       | $                       | 340,093    |   |   |   | $ | 436,611 |   |   |   | $ | 591,452 |   |   |
| Basic and diluted income  (loss) per share |       |                   | $          | (.00                    | )          |                   |       | $                       | .03        |   |   |   | $ | .03 |   |   |   | $ | .04 |   |   |

 

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**ITEM 7.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

*You should read thefollowing discussion and analysis of our financial condition and results ofoperations together with Item 6, “Selected Financial Data,” and ourconsolidated financial statements and notes thereto that appear elsewhere inthis report. This discussion and analysis contains forward-looking statementsthat involve risks, uncertainties, and assumptions. Actual results may differmaterially from those anticipated in these forward-looking statements as aresult of various factors, including, but not limited to, those presented under“Risk Factors” included in Item 1A and elsewhere in this report.*

We are a “blank check” company organized under thelaws of the State of Delaware on June 20, 2005 for the purpose ofacquiring, through a merger, capital stock exchange, asset acquisition, stockpurchase or other similar business combination with an operating business inthe consumer and industrial products sectors. Our initial business combinationmust be with a target business whose fair market value is at least equal to 80%of our net assets (excluding the deferred non-accountable expense allowance ofthe underwriters held in trust) at the time of such acquisition. We intend touse cash derived from the net proceeds of our public offering which wascompleted on May 1, 2006 and our concurrent private placement of warrants,together with borrowings under our proposed senior secured credit facilities,to effect such business combination.

On May 1, 2006, weconsummated our initial public offering of 13,800,000 units, including1,800,000 units attributable to the full exercise of the underwriters’over-allotment option (see “Liquidity and Capital Resources” below). Since ourinitial public offering, we have been actively searching for a suitablebusiness combination candidate. We have met with target companies, serviceprofessionals and other intermediaries to discuss our company, the backgroundof our management and our combination preferences. In the course of thesediscussions, we have also spent time explaining the capital structure of theinitial public offering, the combination approval process and the timelinewithin which we must either enter into a letter of intent or definitiveagreement for a business combination or return the net proceeds of the offeringheld in trust to investors. On October 17, 2006, we entered into adefinitive stock purchase agreement to acquire Elmet, and we currentlyanticipate we will close such acquisition during the second quarter of 2007.  The transaction is further described in ourcurrent report filed with the Securities and Exchange Commission on Form 8-Kon October 17, 2006. However, we cannot assure investors that we will beable to close the Elmet acquisition or, in the event we do not complete suchacquisition, find and close a suitable alternative business combination in thetime permitted by our certificate of incorporation.

**Results ofOperations**

*Net Income and Loss*

We have neither engaged in any business operations norgenerated any operating revenues to date. Our only activities since inceptionhave been organizational activities and those necessary to prepare for ourpublic offering, and thereafter, pursuing potential acquisitions of targetbusinesses. We will not generate any operating revenues until after completionof a business combination. We have generated non-operating income in the formof interest income on our cash and cash equivalents and short-term investmentswhich are held in the trust account we established upon completion of ourinitial public offering.

Net income of $1,366,665 for the year ended December 31,2006 consists of interest income primarily on the trust fund investment of$2,592,864 along with $6,957 of other interest income reduced by $488,475 ofgeneral and administrative expenses and an income tax expense of $744,681.

Net income of $1,361,828for the period from June 20, 2005 (inception) to December 31, 2006(cumulative) consists of interest income primarily on the trust fund investmentof $2,592,864 along with 

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$7,120of other interest income reduced by $493,475 of general and administrativeexpenses and an income tax expense of $744,681.

**Liquidity andCapital Resources**

On April 25, 2006, we entered into an agreementwith certain of our initial stockholders for the sale of 2,000,000 warrants ina private placement. Each warrant entitles the holder to purchase from us oneshare of our common stock at an exercise price of $5.00. The warrants were soldat a price of $0.65 per warrant, generating net proceeds of $1,300,000.

On May 1, 2006, we consummated our initial publicoffering of 13,800,000 units, including 1,800,000 units attributable to thefull exercise of the underwriters’ over-allotment option. Each unit consists ofone share of common stock and two warrants. Each warrant entitles the holder topurchase from us one share of our common stock at an exercise price of $5.00.

The net proceeds from the private placement ofwarrants and the public offering of our units, including the exercise of theunderwriters’ over-allotment option, after deducting certain offering expensesof approximately $690,000, underwriting discounts of $4,140,000 and anunderwriters’ non-accountable expense allowance of $1,620,000, wereapproximately $77,650,000. The net proceeds (including an additional $40,000,representing the difference between estimated offering expenses of $650,000 andactual offering expenses of $690,000) are being held in a trust account atJPMorgan Chase Bank, N.A. maintained by Continental Stock Transfer &Trust Company, as trustee. In addition, we deposited into the trust account theproceeds from a $150,000 loan to us from an affiliate of two of our directors(which we repaid on July 5, 2006, with interest at an annual rate of 4%,from interest earned on the trust account), and the underwriters’non-accountable expense allowance of $1,620,000. In total, we deposited$79,460,000 into the trust account. The underwriters have agreed to deferpayment of the allowance until the consummation of a business combination andto forfeit the allowance if we do not consummate a business combination. Uponthe consummation of a business combination, we will pay the deferrednon-accountable expense allowance to the underwriters, provided that to theextent fewer than 20% of our public stockholders elect to convert their sharesto cash upon such consummation, a *pro rata*portion of such allowance will be paid to such stockholders rather than to theunderwriters. We will have no right to the deferred non-accountable expenseallowance.

On October 17, 2006, we entered into a commitmentletter for proposed new senior secured credit facilities consisting of a$50 million term loan facility and a $20 million revolving loan facility.Subject to negotiation of a credit agreement satisfactory to us and ourprospective lenders, we anticipate such facilities will become effective uponthe closing of our acquisition of Elmet. In addition to the funds now in thetrust account and certain of the interest earned thereon, we anticipate that wewill use between $35 and $50 million of the $50 million term loan wewill borrow under our proposed new senior secured credit facilities to completethe acquisition (depending upon the extent to which public stockholders voteagainst the business combination and elect to exercise their conversionrights).

We will use up to$1,850,000 of the interest earned on the trust account to repay the $150,000loan described above (which we repaid in full, with interest at an annual rateof 4%, on July 5, 2006) and to finance our expenses prior to consummatinga business combination. During the period from the completion of our initialpublic offering on May 1, 2006 through December 31, 2006, we incurreda total of $1,132,067 of such expenses. We currently anticipate that, by theclosing of the Elmet acquisition (assuming the acquisition is closed in thesecond quarter of 2007), we will have incurred approximately $1,500,000 ofexpenses for the following purposes:

·       costsincurred to identify the Elmet acquisition and other potential target companiesfor which negotiations were abandoned;

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·       duediligence and investigation of Elmet and other prospective target businesses;

·       legaland accounting fees relating to our SEC reporting obligations and generalcorporate matters;

·       structuringand preparing documentation for the Elmet acquisition (including, among otherdocuments, the stock purchase agreement and the proxy statement);

·       paymentof $105,000 in administrative fees due to an affiliate of two of our directors;

·       repaymentof the $150,000 loan (with interest at an annual rate of 4%) as described abovefrom an affiliate of two of our directors; and

·       miscellaneousexpenses.

Beginning on May 1, 2006 and ending upon theacquisition of a target business, we began incurring a fee of $7,500 per monthfor office space and certain administrative, technical and secretarial servicesfrom Grand Cru Management, LLC, an affiliate of Robert J. Hanks, our chiefexecutive officer and treasurer, and David A. R. Dullum, our president andsecretary. In addition, in 2005, Messrs. Hanks and Dullum advanced anaggregate of $75,000 to us for payment of offering expenses on our behalf.These advances were repaid from the proceeds of the initial public offeringthat were allocated to pay offering expenses.

If we are unable to close the Elmet acquisition andthereafter fail to find and acquire another suitable  target business by October 31, 2007 (or April 30,2008 if a letter of intent, agreement in principle or a definitive agreementhas been executed by October 31, 2007), we will be forced to liquidate. Ifwe are forced to liquidate, the per share liquidation amount will be less thanthe initial per unit public offering price because of the underwritingcommissions and expenses related to our initial public offering and because ofthe value of the warrants in the per unit offering price. Additionally, if thirdparties make claims against us, the offering proceeds held in the trust accountcould be subject to those claims, resulting in a further reduction to the pershare liquidation price. Under Delaware law, our stockholders who have receiveddistributions from us may be held liable for claims by third parties to theextent such claims have not been paid by us. Furthermore, our warrants willexpire worthless if we liquidate before the completion of a businesscombination.

It is possible that, if weare unable to close the Elmet acquisition, we could use a portion of theinterest on the funds in the trust account which we have received to make adeposit, down payment or fund a “no-shop” provision with respect to aparticular other proposed business combination. In the event we were ultimatelyrequired to forfeit such funds (whether as a result of our breach of agreementrelating to such payment or otherwise), we may not have a sufficient amount ofworking capital available to pay expenses related to finding another suitablebusiness combination without securing additional financing. If we were unableto secure additional financing, we would most likely fail to consummate abusiness combination in the permitted time and would be forced to liquidate.

*Off-Balance SheetArrangements*

Other than contractualobligations incurred in the normal course of business, we do not have anyoff-balance sheet financing arrangements or liabilities, guarantee contracts,retained or contingent interests in transferred assets or any obligationarising out of a material variable interest in an unconsolidated entity. Thesecurities held in the trust account are in the name of our wholly-ownedsubsidiary, Harbor Acquisition Security Corporation, which was formed on May 1,2006 specifically for such purpose.

*ContractualObligations*

In connection with ourinitial public offering, we agreed to pay the underwriters a deferrednon-accountable expense allowance of $1,620,000 upon the consummation of ourinitial business combination (which amount is subject to reduction inproportion to the percentage of our public stockholders who vote 

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againstthe combination and exercise their conversion rights). We expect that suchallowance will be paid out of the funds in the trust account. Other than contractualobligations incurred in the ordinary course of business, we do not have anyother long-term contractual obligations.

**ITEM 7A.**        QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is thesensitivity of income to changes in interest rates, foreign exchanges,commodity prices, equity prices, and other market-driven rates or prices. Weare not presently engaged in and, if we do not consummate a suitable businesscombination prior to the prescribed liquidation date of the trust fund, we maynot engage in, any substantive commercial business. Accordingly, we are notand, 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 ourinitial public offering held in the trust fund may be invested by the trusteeonly in U.S. “government securities” within the meaning of Section 2(a)(16)of the Investment Company Act of 1940 having a maturity of 180 days or less, orin money market funds meeting certain conditions under Rule 2a-7promulgated under the Investment Company Act of 1940. Given our limited risk inour exposure to government securities and money market funds, we do not view theinterest rate risk to be significant.

**ITEM8.**                FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

Financial statements areattached hereto beginning with page F-1

**ITEM 9.**                CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

**ITEM 9A.**        CONTROLSAND PROCEDURES

**Evaluation ofDisclosure Controls and Procedures**

Robert J. Hanks (our principal executive officer) andTodd A. Fitzpatrick (our principal financial and accounting officer) carriedout an evaluation of the effectiveness of our disclosure controls andprocedures as of December 31, 2006. Based upon that evaluation, theyconcluded that our disclosure controls and procedures were effective to ensurethat information required to be disclosed by us in reports that we file orsubmit under the Securities Exchange Act of 1934 (the “Exchange Act”) isrecorded, processed, summarized and reported, within the time periods specifiedunder the rules and forms of the Securities and Exchange Commission.Disclosure controls and procedures, no matter how well designed andimplemented, can provide only reasonable assurance of achieving an entity’sdisclosure objectives. The likelihood of achieving such objectives is affectedby limitations inherent in disclosure controls and procedures. These includethe fact that human judgment in decision-making can be faulty and thatbreakdowns in internal control can occur because of human failures such assimple errors or mistakes or intentional circumvention of the establishedprocess.

There has not been any changein our internal control over financial reporting in connection with theevaluation required by Rule 13a-15(d) under the Exchange Actthat occurred during the quarter ended December 31, 2006 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

**Compliance with Section 404of the Sarbanes-Oxley Act of 2002**

Pursuant to Section 404 of the Sarbanes-Oxley Actof 2002 (the “Act”), beginning with our annual report on Form 10-Kfor the year ended December 31, 2007, we will be required to furnish areport by our 

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management on internalcontrol over financial reporting. This report will contain, among other things,an assessment of the effectiveness of our internal control over financialreporting as of the end of that year, including a statement as to whether ornot our internal control over financial reporting is effective. This assessmentmust include disclosure of any material weakness in our internal control overfinancial reporting identified by management. If we identify one or morematerial weaknesses in our internal control over financial reporting, we may beunable to assert that our internal control over financial reporting iseffective.

Management acknowledgesits responsibility for establishing and maintaining adequate internal controlsover financial reporting. In order to comply with Section 404 of the Actwithin the prescribed period, we have begun the system and processdocumentation and evaluation needed to comply with Section 404, which isboth costly and challenging. We believe that our process, which will beperformed primarily in 2007, as our first acquisition is not yet complete, willbe consistent with the objectives of Section 404 of the Act.

**ITEM 9B.**       OTHERINFORMATION

Not applicable.

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**PART III**

**ITEM 10.**         DIRECTORS,EXECUTIVE AND CORPORATE GOVERNANCE

Our current directors andexecutive officers are as follows:

| **Name**             | ** ** | ** ** | ** ** | **Age** | ** ** | **Position**                                    | ** ** |
|----------------------|------------|------------|------------|---------|------------|-------------------------------------------------|------------|
| John Carson          |       |       | 60         |    |       | Chairman of the Board                           |       |
| Robert J. Hanks      |       |       | 64         |    |       | Chief Executive Officer, Treasurer and Director |       |
| David A.R. Dullum    |       |       | 59         |    |       | President, Secretary and Director               |       |
| Todd A. Fitzpatrick  |       |       | 36         |    |       | Vice President and Principal Financial Officer  |       |
| Christopher R. Young |       |       | 39         |    |       | Vice President                                  |       |
| Timothy J. Durkin    |       |       | 49         |    |       | Director                                        |       |
| William E. Mahoney   |       |       | 75         |    |       | Director                                        |       |
| Edward Cady          |       |       | 62         |    |       | Director                                        |       |

 

***John Carson***became a director of our Company on August 12, 2005 and the Chairman ofthe Board on March 15, 2006. From March 2000 to March 2005,Mr. Carson served as Chairman and Chief Executive Officer of Marbo Inc., aprivately held beverage company marketing the Tampico brand of fruit drinks.From 1993-1997 he served as President and Chief Executive Officer of The RoyalCrown Cola Company and from 1997-1999 as Chairman of Triarc Beverages, bothsubsidiaries of Triarc Companies, that marketed brand name beverages includingRoyal Crown Cola, Snapple, Mistic and Stewarts. From 1964-1993 Mr. Carsonserved in various positions with Cadbury Schweppes, initially in the UnitedKingdom, and as the President of Schweppes North America from 1983-1989 andthen as President of Cadbury Schweppes Beverages North America. CadburySchweppes markets such beverage brands as Canada Dry, Crush, Hires, Sunkist andSchweppes. From 1989-1993, Mr. Carson attended The College of Commerce,Birmingham, and The London Business School.

***Robert J. Hanks***has been our Chief Executive Officer and a director since our inception. Mr. Hankshas over 30 years experience in private equity, mergers and acquisitionsand in general and financial management. He has operating experience in theUnited States, Latin America and Asia. Mr. Hanks is a principal andmanaging general partner of New England Partners, a private equity firm he co-foundedin 1992 that is based in Boston, Massachusetts. As a principal and managinggeneral partner at New England Partners, Mr. Hanks has been responsiblewith other managing general partners for raising of pools of capital and foridentifying and structuring investments in and acquisitions of operatingcompanies. Since January 2004, he has served as a director of ElmetTechnologies, Inc. a privately held specialty industrial productsmanufacturer, and since October 1997, of Solar Cosmetic Labs, Inc., aprivately held health and beauty products manufacturer. From 1987-1991,he was President of Vista Investment Company, a private equity investment firmestablished by the Vista Group that specialized in middle market transactions.Prior to that, Mr. Hanks served in various senior management positions inNYSE-listed public companies. He was Vice President and Group Officer of ConracCorporation and Chief Financial Officer of GTE Brasil, Vice President of GTECommunications Products and President of GTE Asia Pacific. Mr. Hanks holdsa B.S. in Economics from the Maxwell School at Syracuse University and anM.B.A. in International Finance from Whitman School of Management at SyracuseUniversity.

***David A.R. Dullum***has been our President, Secretary and a director since our inception. Mr. Dullumhas more than 30 years of professional investment experience and is aprincipal and general partner of New England Partners, a private equity firmbased in Boston. As a principal and managing general partner at New England Partners,Mr. Dullum has been responsible with other managing general partners foroverseeing the raising of pools of capital and for identifying and structuringinvestments in and acquisitions of operating companies. From 1976-1990,he was a Managing General Partner of the Chicago-based private equity firmFrontenac Company. During his 14 year tenure at Frontenac, he wasinstrumental in 

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increasing funds undermanagement from $3 million to over $250 million. As a managinggeneral partner at Frontenac, Mr. Dullum was also responsible with othermanaging general partners for overseeing the raising of pools of capital andidentifying and structuring investments in and acquisitions of operatingcompanies. Mr. Dullum serves as a director of Simkar Corporation, a manufacturerof industrial and consumer lighting products and Fetco Home Decor, Inc., adesigner and manufacturer of home decor products. He also serves as a directorof three publicly traded companies: Gladstone Capital Corp. (NASDAQ:GLAD);Gladstone Commercial Corp. (NASDAQ:GOOD); and Gladstone Investment Corp.(NASDAQ:GAIN) and is the Audit Committee Chair for GLAD and GAIN. He haslectured on venture capital at the J. L. Kellogg Graduate School of Management,Northwestern University, and was a member of the Board of Trustees of theStanford Graduate School of Business Trust and former Chairman of the NationalAssociation of Small Business Investment Companies. Mr. Dullum holds aB.M.E. from Georgia Institute of Technology and an M.B.A. from Stanford GraduateBusiness School.

***Todd A. Fitzpatrick***has been our Vice President and Principal Financial Officer since August 10,2005. Mr. Fitzpatrick is a partner of New England Partners, a privateequity firm based in Boston, where he has been a principal since 1998. Asa partner at New England Partners, Mr. Fitzpatrick has been responsiblewith other partners in identifying and structuring investments in andacquisitions of operating companies. Mr. Fitzpatrick focuses on investingin middle market buyouts within the consumer and industrial sectors. From 1993-1998,Mr. Fitzpatrick was a senior auditor with Coopers & Lybrandperforming audits and mergers and acquisition assignments for corporateclients. He has broad based experience in a variety of industries includingconsumer and industrial products, high-tech manufacturing, and medicaltechnology. Mr. Fitzpatrick graduated from Bowdoin College with a B.A. andhas M.B.A. and M.S.A. degrees from Northeastern University.

***Christopher R.Young*** has been our Vice President since August 10,2005. Mr. Young is a partner of New England Partners, a private equityfirm based in Boston, where he has been a principal since 1997. As apartner at New England Partners, Mr. Young has been responsible with otherpartners in identifying and structuring investments in and acquisitions ofoperating companies. Mr. Young also serves as a director of SourceIQ, Inc.,a privately held software company. From 1992 - 1995, Mr. Youngwas an investment banker in the mergers and acquisition group with NationsBancCapital Markets, Inc. (now Banc of America Securities, Inc.). He has13 years of experience in evaluating investments in, and mergers andacquisitions of, middle market companies. Mr. Young graduated from BabsonCollege with a B.S. degree.

***Timothy J. Durkin***has been a director of our company since inception. Since 1998, Mr. Durkinhas been a Managing Director of Latona Associates, a private merchant bankwhere he is responsible for Latona’s private equity investment activities. From1991-1997, he served as General Partner of Marlborough Capital Advisors,a private mezzanine and equity investment firm. Mr. Durkin’s experience atMarlborough Capital Advisors included shared oversight responsibility forraising pools of capital and at Latona Associates and Marlborough CapitalAdvisors he has had shared oversight responsibility for identifying andevaluating investments in and acquisitions of operating companies. From 1986 to1990, Mr. Durkin was an Associate of the Merchant Banking Division ofSignal Capital Corporation, a subsidiary of The Henley Group. Mr. Durkinbegan his career at Manufacturers Hanover Trust Company, where he spent threeyears at the bank’s International Division in Latin America. Mr. Durkingraduated with a Bachelor of Arts from St. Lawrence University in 1979 andearned a M.B.A. from the Amos Tuck School of Business Administration atDartmouth College in 1986. Mr. Durkin is a director of ZenithAdministrators, Inc. and Progressive Moulded Products Corp.

***William E. Mahoney***became a director of the Company on August 12, 2005. Mr. Mahoneyretired in 1997 as vice chairman and chief operating officer of WitcoCorporation (now Chemturo Corporation), a $2.4 billion in sales globalmanufacturer of specialty chemical and petroleum products. He served aschairman of Witco’s executive committee of the board of directors. A member ofthe board of directors since 1989, he also sat on the board’s pension committeeand audit committee (as a non-voting member). 

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During his 20 yearswith Witco, Mr. Mahoney was involved in over 15 acquisitions. He is anadjunct professor at the University of Massachusetts, Amherst, and serves onthe advisory council in the College of Natural Sciences and Mathematics. Mr. Mahoneygraduated from the University of Massachusetts, Amherst, with B.S. degree inchemistry and completed the advanced marketing management program at HarvardUniversity Business School. He was awarded the Chancellor’s Medal at theUniversity of Massachusetts in 1996. It is the highest honor bestowed on anindividual for extraordinary service to industry and the university.

***Edward Cady*********has been a director since August 4,2006. Mr. Cady is the President and Chief Executive Officer of LindapterNorth America, a design and distribution engineering firm he founded in 1995. Heis also a partner in Preferred Capital Source, a private equity firm focusingon angel and later stage investments he co-founded in 2005. Previously, he wasa principal partner in the leverage buyout of Unistrut Corporation from GTE in1986, which was subsequently acquired by Tyco Corporation, and was an owner,officer and director of Fall Arrest Systems, Inc., and ZSI, Inc., amanufacturer of cushioned clamping products. Mr. Cady holds a BS inBusiness from the Maxwell School at Syracuse University.

There is no family relationship between any of ourdirectors or executive officers.

Our board of directors hassix directors, who will each serve until the next annual meeting ofstockholders and until their successor is elected and qualified. Theseindividuals will play a key role in identifying and evaluating prospectiveacquisition candidates, selecting the target business, and structuring,negotiating and consummating its acquisition.

**Special Advisors**

The following individuals have agreed to serve asspecial advisors:

***Thomas Bullock***has over 25 years experience in the packaged goods and food and beverageindustry. From 1997-2000 Mr. Bullock served as President and ChiefExecutive Officer of Ocean Spray Cranberries, Inc. During Mr. Bullock’stenure at Ocean Spray, sales grew to $1.4 billion and he oversaw theacquisition of Nantucket Nectars. Mr. Bullock serves as a director ofClearSource, Inc., a private-label bottled water company and the Mac-GrayCompany, a publicly traded company listed on the New York Stock Exchange. Mr. Bullockis a graduate of Saint Joseph’s University.

***Stephen Gray*** founded TheRecovery Group (“TRG”), where he serves as the Managing General Partner. TRG isa leading professional services firm specializing in workouts, turnaroundconsulting and crisis management. Mr. Gray has over 30 yearsexperience in this field and has worked with publicly traded and privately heldcompanies, where he often serves as Chief Executive Officer or ChiefRestructuring Officer. Mr. Gray is currently on the board of SolarCosmetic Labs, Inc. Mr. Gray has a B.S. in Engineering from GeorgeWashington University and an M.S. in Mechanical Engineering from TuftsUniversity.

**DirectorIndependence**

Our board of directors hasdetermined that John Carson, Edward Cady, Timothy J. Durkin and William E.Mahoney, who are four of our current six directors, are “independent directors”as defined in the American Stock Exchange listing standards and Rule 10A-3under the Securities Exchange Act. We anticipate that upon the closing of theElmet acquisition, our board of directors will increase the size of our boardfrom six to eight, two of our current independent directors (Edward Cady andTimothy Durkin) will resign, and three additional independent directors  will be appointed to our board of directors.Upon the closing of the acquisition, we therefore anticipate that our boardwill consist of eight directors and that five of such directors  will be “independent directors” as defined inthe American Stock Exchange listing standards and Rule 10A-3 underthe Securities Exchange Act.

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**Board Committees**

Our board of directors hasan audit committee and has adopted a charter for this committee. As describedbelow, our board plans to establish a compensation committee and a nominatingand corporate governance committee upon the closing of the Elmet acquisition.

*Audit Committee*

Our audit committee now consists of Mr. Carson(chair), Mr. Cady and Mr. Mahoney. Upon the closing of the Elmetacquisition, we anticipate that Mr. Cady and Mr. Mahoney will resignfrom our audit committee and the two new non-management directors will beappointed to serve on our audit committee. Each of the independent directors wehave appointed to our audit committee is, and each of the independent directorswe will appoint to the audit committee in the future will be, an “independentdirector” as defined by the rules of the American Stock Exchange and theSecurities and Exchange Commission. Each member of our audit committee now isand will be financially literate under the current listing standards of the AmericanStock Exchange. Our board of directors has determined that Mr. Cady andMr. Durkin, who are two of the three current members of our auditcommittee, each qualify as an “audit committee financial expert” as such termis defined by SEC regulations.

The audit committeereviews the professional services and independence of our independentregistered public accounting firm and our accounts, procedures and internalcontrols. The audit committee also selects our independent registered publicaccounting firm, reviews and approves the scope of the annual audit, reviewsand evaluates with the independent registered public accounting firm our annualaudit and annual consolidated financial statements, reviews with management thestatus of internal accounting controls, evaluates problem areas having apotential financial impact on us that may be brought to the committee’sattention by management, the independent registered public accounting firm orthe board of directors, and evaluates all of our public financial reportingdocuments.

*CompensationCommittee*

Upon closing of the Elmetacquisition, our board of directors plans to establish a compensation committeecomposed entirely of independent directors. The compensation committee’spurpose will be to review and approve compensation paid to our executiveofficers and directors and to administer our incentive compensation plan, ifsuch plan is approved by our stockholders.

*Nominating andCorporate Governance Committee*

We do not have any formal process for stockholders tonominate a director for election to our board of directors. Currently, ourentire board of directors decides on nominees, on the recommendation of one ormore members of the board of directors. Any stockholder wishing to recommend anindividual to be considered by the board of directors as a nominee for electionat our next annual meeting as a director should send a signed letter ofrecommendation to the following address: Harbor Acquisition Corporation, Attn:Corporate Secretary, One Boston Place, Suite 3630, Boston, Massachusetts02108. Recommendation letters must state the reasons for the recommendation andcontain the full name and address of each proposed nominee as well as a briefbiographical history setting forth past and present directorships, employments,occupations and civic activities. Any such recommendation should be accompaniedby a written statement from the proposed nominee consenting to be named as acandidate and, if nominated and elected, consenting to serve as a director. Wemay also require a candidate to furnish additional information regarding his orher eligibility and qualifications. The board of directors does not intend toevaluate candidates proposed by stockholders differently than it evaluatescandidates that are suggested by our board members, executive officers or othersources.

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Upon closing of the Elmetacquisition, our board of directors plans to establish a nominating andcorporate governance committee. The primary purpose of the nominating andcorporate governance committee will be to identify individuals qualified tobecome directors, recommend to the board of directors the candidates forelection by stockholders or appointment by the board of directors to fill avacancy, recommend to the board of directors the composition and chairs ofboard of directors committees, develop and recommend to the board of directorsguidelines for effective corporate governance, and lead an annual review of theperformance of the board of directors and each of its committees.

*Code of Ethics*

We have adopted a Code ofEthics applicable to our directors, officers and employees in accordance withapplicable federal securities laws and the rules of the American StockExchange. A copy of the code of ethics applicable to our principal executiveofficer, principal financial officer, principal accounting officer orcontroller, and persons performing similar functions, is attached as an exhibitto this report.

**Section 16(a) BeneficialOwnership Reporting Compliance**

Section 16(a) of the Securities Exchange Actrequires our directors, executive officers and persons who own more than 10% ofour common stock to file reports of ownership and changes in ownership of ourcommon stock with the Securities and Exchange Commission. Directors, executiveofficers and persons who own more than 10% of our common stock are required bySecurities and Exchange Commission regulations to furnish us copies of all Section 16(a) formsthey file.

Based solely upon a reviewof such forms furnished to us and written representations from certainreporting persons, we believe that all filing requirements applicable to ourdirectors, executive officers and greater than 10% beneficial owners werecomplied with during 2006.

**Promoters**

Robert J. Hanks and DavidA.R. Dullum may be deemed to be our “promoters,” as such term is defined underthe federal securities laws.

**ITEM 11.**         EXECUTIVECOMPENSATION

None of our executive officers or directors has todate received any cash compensation for services rendered. From April 25,2006 (the effective date of the registration statement for our initial publicoffering) through the acquisition of a target business, we have paid and willpay Grand Cru Management, LLC, an affiliate of Robert J. Hanks and David A.R.Dullum, a fee of $7,500 per month for providing us with certain limitedadministrative, technical and secretarial services, as well as the use ofcertain limited office space, including a conference room, in Boston,Massachusetts. This arrangement is solely for our benefit and is not intendedto provide Mr. Hanks and Mr. Dullum compensation in lieu of a salary.No other executive officer or director has a relationship with or interest inGrand Cru Management, LLC.

Other than this $7,500 per month fee, no compensationof any kind, including finder’s and consulting fees, has been or will be paidto any of our initial stockholders, our officers or directors, or any of theirrespective affiliates, for services rendered prior to or in connection with abusiness combination. However, our initial stockholders and their affiliateshave been and will be reimbursed for out-of-pocket expenses incurred inconnection with activities on our behalf such as identifying potential targetbusinesses and performing due diligence on suitable business combinations.There is no limit on the amount of these out-of-pocket expenses and there willbe no review of the reasonableness of the expenses by anyone other than ourboard of directors, which includes persons who may seek reimbursement, or acourt of competent jurisdiction if such reimbursement is challenged.

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Upon the closing of theElmet acquisition, John S. Jensen, Elmet’s current president and chiefexecutive officer, will continue in those capacities and will also become ourchief executive officer. It is a condition to the closing of the acquisitionthat the current employment agreement between Elmet and Mr. Jensen beextended until December 31, 2008. Upon the completion of the Elmetacquisition, we anticipate that Elmet will not enter into employment agreementswith any of its officers other than Mr. Jensen and possibly Carl Miller,Elmet’s treasurer and chief financial officer.

**ITEM 12.**         SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

The following tablesets forth information regarding the beneficial ownership of our common stockas of March 26, 2007 by:

·       eachperson known by us to be the beneficial owner of more than 5% of ouroutstanding shares of common stock;

·       eachof our officers and directors; and

·       allour officers and directors as a group.

Unlessotherwise indicated, we believe that all persons named in the table have solevoting and investment power with respect to all shares of common stockbeneficially owned by them.

| **Name and Address of Beneficial Owner(1)** | ** ** | ** ** | ** ** | **Shares  Beneficially  Owned(2)** | ** ** | **% of  Outstanding  Common Stock** | ** ** |
|----------------------------------------------------------------------|------------|------------|------------|------------------------------------|------------|-----------------------------------------------|------------|
| Azimuth  Opportunity, Ltd.(3)                                        |       |       | 1,506,100  |                               |       |                                          | 9.0%       |   |   |
| The Baupost  Group, LLC(3)                                           |       |       | 1,497,300  |                               |       |                                          | 8.9%       |   |   |
| Sapling, LLC and  Fir Tree Recovery Master Fund, L.P.(3)             |       |       | 1,644,800  |                               |       |                                          | 9.8%       |   |   |
| Wellington  Management Company LLP(3)                                |       |       | 1,146,000  |                               |       |                                          | 6.8%       |   |   |
| Robert J. Hanks(4)                                                   |       |       | 855,000    |                               |       |                                          | 5.1%       |   |   |
| David A.R. Dullum(5)                                                 |       |       | 855,000    |                               |       |                                          | 5.1%       |   |   |
| John Carson                                                          |       |       | 450,000    |                               |       |                                          | 2.6%       |   |   |
| Todd A.  Fitzpatrick                                                 |       |       | 240,000    |                               |       |                                          | 1.4%       |   |   |
| Christopher R.  Young                                                |       |       | 240,000    |                               |       |                                          | 1.4%       |   |   |
| Timothy J.  Durkin(6)                                                |       |       | 60,000     |                               |       |                                          | *          |   |   |
| William E.  Mahoney                                                  |       |       | 60,000     |                               |       |                                          | *          |   |   |
| Edward Cady                                                          |       |       | —     |                               |       |                                          | *          |   |   |
| All directors and  officers as a group (8 individuals)(4)(5)(6) |       |       | 2,730,000  |                               |       |                                          | 16.3%      |   |   |

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*                    less than onepercent.

(1)          Except as set forthbelow, the business address of each person is One Boston Place, Suite 3630,Boston, Massachusetts 02108. The address of Azimuth Opportunity, Ltd. isc/o W Smiths Finance, Nemours Chambers, P.O. Box 3170, Road Town, Tortola,British West Indies. The address of The Baupost Group, LLC is 10 St. JamesAvenue, Boston, Massachusetts 02116. The address of Sapling, LLC and Fir TreeMaster Fund, L.P. is 535 Fifth Avenue, 31st Floor, New York,New York 10017. The address of Wellington Management Company, LLC is75 State Street, Boston, Massachusetts 02109.

(2)          Does not reflect theownership of warrants purchased by certain of the initial stockholders or theiraffiliates in a private placement in April 2006 as described below, whichare not exercisable until the later of April 25, 2007 or the date of ourconsummation of a business combination.

(3)          Based solely upon (i) AmendmentNo. 1 to the report on Schedule 13G filed by AzimuthOpportunity, Ltd. with the Securities and Exchange Commission (the “SEC”)on or about 

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February 14, 2007, (ii) theForm 13F filed by The Baupost Group, LLC with the SEC for the quarterended December 31, 2006, (iii) the report on Schedule 13G filedby Sapling, LLC and Fir Tree Recovery Master Fund, L.P. with the SEC on orabout February 14, 2007, and (iv) the report on Schedule 13Gfiled by Wellington Management Co., LLP with the SEC on or about February 14,2007. Such reports as filed with the SEC state that, as of the dates those reportswere signed, (i) Paul C. Gannon was the chief financial officer of TheBaupost Group, LLC, and (ii) Jeffery Tannenbaum was the president of FirTree, Inc., which was the manager of each of Sapling, LLC and Fir TreeRecovery Master Fund, L.P. 

(4)          Includes 825,000 sharesheld individually by Mr. Hanks and 30,000 shares held by Grand CruManagement, LLC, with respect to which Mr. Hanks possesses sharedvoting and dispositive power.

(5)          Includes 825,000 sharesheld individually by Mr. Dullum and 30,000 shares held by Grand CruManagement, LLC, with respect to which Mr. Dullum possesses sharedvoting and dispositive power.

(6)          Includes 60,000 sharesheld individually by Mr. Durkin. Does not include 120,000 shares held ofrecord by Latona Associates Fund I, LLC, an investment fund of which Mr. Durkinserves as an officer of the manager.

All of the shares of our common stock outstandingprior to our initial public offering were placed in escrow with ContinentalStock Transfer & Trust Company, as escrow agent, until, subject tocertain limited exceptions (each of which requires that the shares remain inescrow for the required period) six months after the consummation of aliquidation, merger, stock exchange or other similar transaction which resultsin our public stockholders having the right to exchange their shares of commonstock for cash, securities or other property subsequent to our consummating abusiness combination with a target business. During the escrow period, theholders of these shares will not be able to sell or transfer their securitiesexcept to their spouses and children, trusts established for their benefit, orto affiliated companies, but will retain all other rights as our stockholders,including, without limitation, the right to vote their shares of common stock(but subject, in the case of voting on a proposed business combination, to theagreement described below) and the right to receive cash dividends, ifdeclared. If dividends are declared and payable in shares of common stock, suchdividends will also be placed in escrow. If we are unable to effect a businesscombination and liquidate, none of our initial stockholders will receive anyportion of the liquidation proceeds with respect to common stock owned by themprior to our initial public offering.

In connection with any vote required to approve anybusiness combination, our directors, officers and those stockholders who ownedshares of our common stock prior to our initial public offering have agreed tovote all of their shares, including shares that they purchased in our publicoffering or in the aftermarket, in accordance with the vote of the majority ofthe shares of common stockholders voted by the public stockholders. Asdescribed in the table above, our directors, officers and initial stockholderscollectively owned as of March 26, 2007, an aggregate of 3 millionshares of common stock, or 17.9% of our then total outstanding shares. All ofthese shares were purchased prior to our public offering and will therefore bevoted on the acquisition proposal in accordance with the vote of the majorityof the shares of common stock voted by the public stockholders. If theacquisition proposal is approved at the special meeting, our directors,officers and initial stockholders intend to vote all of these shares in favorof the amendment proposal and the incentive compensation plan proposal.

Certain of our initial stockholders (or theiraffiliates) purchased an aggregate of 2 million warrants at a price of$0.65 per warrant in a private placement in April 2006. These warrants maynot be sold, assigned or transferred until after the date we consummate abusiness combination and may not be exercised until the later of April 25,2007 or such date of consummation.

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Thefollowing table sets forth the name and respective number of warrants for eachof such initial stockholders:

| Robert J. Hanks                              |   | 230,769 |   |
|----------------------------------------------|--------|---------|--------|
| David A. R.  Dullum                          |   | 384,616 |   |
| John Carson                                  |   | 153,846 |   |
| Todd A.  Fitzpatrick                         |   | 38,462  |   |
| Christopher R.  Young                        |   | 76,923  |   |
| William E.  Mahoney                          |   | 153,846 |   |
| Latona Associates  Fund I, LLC (1)           |   | 384,615 |   |
| Grand Cru  Management, LLC (2)               |   | 250,000 |   |
| Thomas Bullock                               |   | 76,923  |   |
| September Morning  Investments, LLC (3) |   | 250,000 |   |

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(1)          Latona Associates FundI, LLC is an investment fund of which Timothy J. Durkin, one of our directors,serves as an officer of the manager.

(2)          Grand Cru Management,LLC is one of our initial stockholders and an affiliate of Robert J. Hanks andDavid A. R. Dullum.

(3)          September MorningInvestments, LLC is an affiliate of Frank H. Jellinek, Jr., one of ourinitial stockholders, who is now deceased.

**ITEM 13.**         CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

**Relationships Priorto the Acquisition**

As of June 22,2005, we issued 3,000,000 shares (as adjusted for the subsequent stock split inconnection with our initial public offering) of our common stock to the partiesset forth below for $25,000 in cash, at an average purchase price of $0.01 pershare, as follows:

| **Name**                   | ** ** | ** ** | ** ** | **Number  of Shares**                                                 | ** ** | **Relationship to us** |
|----------------------------|------------|------------|------------|-----------------------------------------------------------------------|------------|------------------------|
| Robert J. Hanks            |       | 900,000    |       | Chief Executive Officer,  Treasurer and Director                      |
| David A.R. Dullum          |       | 900,000    |       | President, Secretary and  Director                                    |
| Grand Cru Management,  LLC |       | 1,170,000  |       | Principal stockholder  and affiliate of Messrs. Hanks and Dullum |
| Timothy J. Durkin          |       | 30,000     |       | Director                                                              |

 

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In July andAugust 2005, Grand Cru Management, LLC subsequently sold 750,000 of itsshares of common stock to certain officers, directors, special advisors andother accredited investors in private sales as follows:

| Todd A.  Fitzpatrick           |   | 240,000 |   |
|--------------------------------|--------|---------|--------|
| Christopher R.  Young          |   | 240,000 |   |
| Timothy J. Durkin              |   | 30,000  |   |
| John Carson                    |   | 60,000  |   |
| William E.  Mahoney            |   | 60,000  |   |
| John I. Jellinek               |   | 30,000  |   |
| Stephen Gray                   |   | 30,000  |   |
| Thomas Bullock                 |   | 30,000  |   |
| Latona Associates  Fund I, LLC |   | 120,000 |   |
| Frank H.  Jellinek, Jr.   |   | 60,000  |   |

 

In February 2006, Grand Cru Management, LLC sold240,000 shares to John Carson, our chairman of the board. In addition, Mr. Hanksand Mr. Dullum each sold 75,000 shares to Mr. Carson in privatesales. Following the death of Frank H. Jellinek, Jr., the shares held byhis estate were assigned to a limited liability company controlled by hiswidow, Judith A. Jellinek, in April 2006.

In April 2006, certain of our initialstockholders purchased 2,000,000 warrants in a private placement at $0.65 perwarrant. The warrants will become exercisable, at a price of $5.00 per share ofcommon stock, on the later of April 25, 2007 or the date of ourconsummation of a business combination.

Thefollowing table sets forth the name and respective number of warrants for eachof such initial stockholders:

| Robert J. Hanks                             |   | 230,769 |   |
|---------------------------------------------|--------|---------|--------|
| David A. R.  Dullum                         |   | 384,616 |   |
| John Carson                                 |   | 153,846 |   |
| Todd A.  Fitzpatrick                        |   | 38,462  |   |
| Christopher R.  Young                       |   | 76,923  |   |
| William E.  Mahoney                         |   | 153,846 |   |
| Latona Associates  Fund I, LLC(1)           |   | 384,615 |   |
| Grand Cru  Management, LLC(2)               |   | 250,000 |   |
| Thomas Bullock                              |   | 76,923  |   |
| September Morning  Investments, LLC(3) |   | 250,000 |   |

----

(1)          Latona Associates FundI, LLC is an investment fund of which Timothy J. Durkin, one of our directors,serves as an officer of the manager.

(2)          Grand Cru Management,LLC is one of our initial stockholders and an affiliate of Robert J. Hanks andDavid A. R. Dullum.

(3)          September MorningInvestments, LLC is an affiliate of Frank H. Jellinek, Jr., one of ourinitial stockholders, who is now deceased.

All shares of common stock outstanding prior to ourinitial public offering were placed into an escrow account with ContinentalStock Transfer & Trust Company and with certain limited exceptionswill not be tradeable until six months after our consummation of a businesscombination.

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The holders of the majority of the shares outstandingprior to our initial public offering will be entitled to make up to two demandsthat we register these shares and the shares which they may receive uponexercise of the warrants described above. The holders of the majority of theseshares may elect to exercise these registration rights at any time after thedate on which these shares of common stock are released from escrow. Inaddition, these stockholders have certain “piggy-back” registration rights onregistration statements filed subsequent to the date on which these shares ofcommon stock are released from escrow. We will bear the expenses incurred inconnection with the filing of any such registration statements.

Grand Cru Management, LLC, an affiliate of Robert J.Hanks and David A.R. Dullum, has agreed that, commencing on April 25, 2006and through the acquisition of a target business, it will make available to uscertain limited administrative, technical and secretarial services, as well asthe use of certain limited office space, including a conference room, inBoston, Massachusetts, as we may require from time to time. We have paid andwill pay Grand Cru Management, LLC $7,500 per month for these services. RobertJ. Hanks and David A.R. Dullum each own 50% of Grand Cru Management, LLC and,as a result, benefit from the transaction to the extent of their interest in orposition with Grand Cru Management, LLC. Grand Cru Management, LLC issubleasing space from NEGF Advisory Company, Inc., of which Mr. Hanksand Mr. Dullum are principals. These arrangements are solely for ourbenefit and are not intended to provide Mr. Hanks and Mr. Dullumcompensation in lieu of a salary. We believe, based on rents and fees forsimilar services in the Boston, Massachusetts area, that the fee charged byGrand Cru Management, LLC (and paid by Grand Cru Management, LLC to NEGFAdvisory Company, Inc.) is at least as favorable as we could have obtainedfrom an unaffiliated person.

In April 2006, Robert J. Hanks and David A.R.Dullum advanced a total of $75,000, on a non-interest bearing basis, to us tocover expenses related to our initial public offering. We repaid advances onMay 1, 2006 from the proceeds of our initial public offering which werenot placed in trust. On May 1, 2006, Grand Cru Management, LLC, anaffiliate of Mr. Hanks and Mr. Dullum, loaned an additional $150,000to us which was deposited in the trust account. That loan bore interest at arate of 4% per year and was repaid in full (including accrued interest) onJuly 5, 2006 out of the interest earned on the trust account.

We will reimburse our officers and directors for anyreasonable out-of-pocket business expenses incurred by them in connection withcertain activities on our behalf such as identifying and investigating possibletarget businesses and business combinations. We have reimbursed our officersand directors for an aggregate of $16,003 of expenses which they had incurredon our behalf between the completion of our initial public offering on May 1,2006 through December 31, 2006. There is no limit on the amount ofaccountable out-of-pocket expenses reimbursable by us, which will be reviewedonly by our board of directors or a court of competent jurisdiction if suchreimbursement is challenged.

Other than the $7,500per-month administrative fee and reimbursable out-of-pocket expenses payable toour officers and directors, no compensation or fees of any kind, includingfinder’s and consulting fees, has been or will be paid to any of our initialstockholders, officers or directors who owned our common stock prior to ourinitial public offering, or to any of their respective affiliates for servicesrendered to us prior to or with respect to the business combination.

**RelationshipsRelating to the Acquisition**

Certain of ourexecutive officers and members of our board of directors, and certain of theiraffiliates and associates, have interests in the acquisition that are differentfrom, or in addition to, your interest as a stockholder. These interests include:

·       RobertJ. Hanks, our chief executive officer and a member of our board of directors,served as a member of the Elmet board of directors from January 2004 toSeptember 2006, and three investment funds (New England Partners Capital,L.P., Harbor Partners II, L.P., and Latona 

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Associates Fund I, LLC)with which certain of our directors and officers are affiliated are the holdersof approximately 7.4% of Elmet’s issued and outstanding shares (8.3% on afully-diluted basis including the outstanding Elmet warrants). If theacquisition is completed, those three funds will receive at the time of theclosing a total of $7.26 million in cash (including repayment of $912,500principal amount of Elmet’s subordinated notes they now hold and$6.35 million for the shares of Elmet common stock and warrants they nowhold), and Harbor will issue to those funds (or reserve for future issuanceupon exercise of their “Put Right”) a total of 113,433 shares of Harbor commonstock. To the extent (if any) that Harbor becomes obligated in the future topay to the Elmet stockholders the contingent payment under the stock purchaseagreement, those three funds could potentially receive up to an additional$1.38 million in cash and additional Harbor shares worth up to $922,022 atthe time those additional shares are issued.

·       TheHarbor directors and officers who are affiliated with the three investmentfunds described in the preceding paragraph now collectively have approximatelya 1% indirect interest in the cash payments and Harbor shares which those fundswill receive. However, those Harbor directors and officers could in the futurecollectively receive up to an approximately 13% indirect “profits” interest insuch cash payments and Harbor shares if certain performance criteria set forthin the organizational documents of those funds are satisfied.

·       Ifthe acquisition is not approved and we fail to consummate an alternativetransaction within the time permitted under our Certificate of Incorporationand we are therefore required to liquidate, the shares of common stockbeneficially owned by our executive officers and directors and their affiliatesand associates that were acquired prior to our initial public offering willbecome worthless because no portion of the net proceeds of our initial publicoffering to be distributed upon our liquidation would be allocated to suchshares. These shares collectively have a market value of $16.5 millionbased on the closing sale price of our common stock on March 26, 2007. However,the 3.0 million shares acquired prior to our initial public offering bythese individuals cannot be sold until at least six months after ourconsummation of a business combination, during which time the value of theshares may increase or decrease. Similarly, the warrants to purchase our commonstock held by our executive officers and directors and their affiliates andassociates, with an aggregate market value of $640,000 based on the closingsale price of our warrants on March 26, 2007 (and which, if then exercisable,would have permitted them to purchase an aggregate of 2.0 million commonshares then having a market value of $11.0 million for an exercise price of$10.0 million), will become worthless if the acquisition is not approvedand we fail to consummate an alternative transaction within the time permittedunder our Certificate of Incorporation.

·       After the completion of theacquisition, we expect that four of our directors, namely John Carson, DavidA.R. Dullum, Robert J. Hanks and William E. Mahoney, will continue to serve onour board of directors. Each of our directors will, following the acquisition,be compensated in such manner, and in such amounts, as our board of directorsmay determine to be appropriate..

**ITEM 14.**         PRINCIPALACCOUNTANT FEES AND SERVICES

Goldstein Golub KesslerLLP audited our financial statements for the year ended December 31, 2006.Through September 30, 2005, Goldstein Golub Kessler LLP had a continuingrelationship with American Express Tax and Business Services, Inc. (TBS),from which it leased auditing staff who were full time, permanent employees ofTBS and through which its partners provide non-audit services. Subsequent toSeptember 30, 2005, this relationship ceased and Goldstein Golub Kessler LLPestablished a similar relationship with RSM McGladrey, Inc. GoldsteinGolub Kessler LLP has no full time employees and therefore, none of the auditservices performed were provided by permanent full-time employees of GoldsteinGolub Kessler LLP. Goldstein Golub Kessler LLP manages and supervises the auditand audit staff, and is exclusively responsible for the opinion rendered inconnection with its examination.

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**Audit Fees**

Fees for audit services provided by Goldstein GolubKessler LLP totaled $51,250 in 2006, including fees associated with the auditof our annual financial statements for the fiscal year ended December 31,2006, the reviews of our quarterly reports on Form 10-Q,  the audit of our balance sheet at May 1,2006 included in our current report on Form 8-K, for audit servicesperformed in connection with our registration statement on Form S-1initially filed in 2005, and for audit services performed in connection withthe Company’s filing of a preliminary proxy statement relating to the Elmetacquisition in December 2006.

Fees for audit services provided by Goldstein GolubKessler LLP totaled $22,000 in 2005, including fees associated with the auditof the annual financial statements for the fiscal year ended December 31,2005, and for services performed in connection with the Company’s registrationstatement on Form S-1 initially filed in 2005.

Other than the feesdescribed above, Goldstein Golub Kessler LLP did not bill any fees for servicesrendered to us during fiscal years 2005 or 2006 for assurance and relatedservices in connection with the audit or review of our financial statements.

**Tax Fees**

We incurred approximately$2,000 in fees to Goldstein Golub Kessler LLP in 2006 in connection with thepreparation of our 2005 income tax returns.

**All Other Fees**

There were no fees billed by Goldstein Golub KesslerLLP for other professional services rendered during the fiscal years endedDecember 31, 2006 or 2005.

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**PART IV**

**ITEM 15.**         EXHIBITSAND FINANCIAL STATEMENT SCHEDULES

**(1)****          FinancialStatements**

See Index to Consolidated Financial Statementscommencing on Page F-1.

**(2)****          FinancialStatement Schedules**

All supplemental schedules have been omitted since therequired information is not present in amounts sufficient to require submissionof the schedule, or because the required information is included in theconsolidated financial statements or notes thereto.

**(3)****          Exhibits**

The following exhibits arefiled as part of this report:
| EXHIBIT NO. | ** **       | **DESCRIPTION** |
|-------------|------------------|-----------------|
|        | 3.1    |            |   | Certificate of Incorporation(1) |
|        | 3.2    |            |   | Bylaws(1) |
|        | 3.3    |            |   | Amendment to Certificate of Incorporation(1) |
|        | 4.1    |            |   | Specimen Unit Certificate(1) |
|        | 4.2    |            |   | Specimen Common Stock Certificate(1) |
|        | 4.3    |            |   | Specimen Warrant Certificate(1) |
|        | 4.4    |            |   | Form of Warrant Agreement between Continental  Stock Transfer & Trust Company and the Registrant(1) |
|        | 4.5    |            |   | Warrant Clarification Agreement(3) |
|        | 4.6    |            |   | Form of Unit Purchase Option with Ferris, Baker  Watts, Incorporated(1) |
|        | 4.7    |            |   | Amendment to Unit Purchase Option(3) |
|        | 10.1   |            |   | Form of Letter Agreement among the Registrant,  Ferris Baker Watts, Incorporated and Robert J. Hanks(1) |
|        | 10.2   |            |   | Form of Letter Agreement among the Registrant,  Ferris Baker Watts, Incorporated and David A.R. Dullum(1) |
|        | 10.3   |            |   | Form of Investment Management Trust Agreement  between Continental Stock Transfer & Trust Company and the  Registrant(1) |
|        | 10.4   |            |   | Form of Stock Escrow Agreement between the  Registrant, Continental Stock Transfer & Trust Company and the  Initial Stockholders(1) |
|        | 10.5   |            |   | Form of Letter Agreement between Grand Cru  Management, LLC and the Registrant regarding administrative support(1) |
|        | 10.6   |            |   | Form of Registration Rights Agreement among the  Registrant and the Initial Stockholders(1) |
|        | 10.7   |            |   | Form of Letter Agreement among the Registrant,  Ferris, Baker Watts, Incorporated and officers and directors of the  Registrant other than Messrs. Hanks and Dullum(1) |
|        | 10.8   |            |   | Form of Letter Agreement among the Registrant,  Ferris, Baker Watts, Incorporated and other Initial Stockholders(1) |
|        | 10.9   |            |   | Form of Warrant Placement Agreement(1) |
|        | 10.10            |            |   | Stock Purchase Agreement dated October 17, 2006  among the Registrant, Elmet Technologies, Inc. and the holders of all of  the outstanding shares and warrants of Elmet Technologies, Inc.(2) |
|        | 10.11            |            |   | Amendment No. 1 to Stock Purchase Agreement,  dated as of February 9, 2007(4) |
|        | 21.1   |            |   | List of Subsidiaries |
|        | 31.1   |            |   | Certification of Principal Executive Officer  pursuant to Rule 13a-14a of the Securities Exchange Act of 1934, as  amended |

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|        | 31.2 |   |   | Certification of Principal Financial Officer  pursuant to Rule 13a-14a of the Securities Exchange Act of 1934,  as amended |
|--------|------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|
|   | 32.1 |   |   | Certification pursuant to Section 908 of the  Sarbanes-Oxley Act of 2002                                                   |
|   | 99.1 |   |   | Audit Committee Charter(1)                                                                                                      |
|   | 99.2 |   |   | Code of Ethics(1)                                                                                                               |
|   | 99.3 |   |   | Code of Ethics for Senior Financial Officers(1)                                                                                 |

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(1)          Incorporated byreference to the exhibits filed with the Registrant’s Registration Statement onForm S-1, File No. 333-1263000.

(2)          Incorporated byreference to the exhibit filed with the Registrant’s Current Report on Form 8-K,File No. 001-32688, dated October 17, 2006.

(3)          Incorporated byreference to the exhibit filed with the Registrant’s Current Report on Form 8-K,File No. 001-32688, dated November 14, 2006.

(4)          Incorporated byreference to the exhibit filed with the Registrant’s Amendment No. 1 toits Current Report on Form 8-K, File No. 001-32688, datedFebruary 9, 2007.

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
|                       | ** ** | **HARBOR ACQUISITION CORPORATION** |
|----------------------------|------------|------------------------------------|
| Date: March 27,  2007 |       | By:                                |   | /s/ ROBERT J. HANKS |
|                       |       |                               |   | Robert J. Hanks |
|                       |       |                               | * * | *Chief Executive Officer and Treasurer* |
|                       |       |                               | * * | *(Principal Executive Officer)* |
| Date: March 27,  2007 |       | By:                                |   | /s/ TODD A. FITZPATRICK |
|                       |       |                               |   | Todd A. Fitzpatrick |
|                       |       |                               | * * | *Vice President* |
|                       |       |                               | * * | *(Principal Financial and Accounting Officer)* |

 

Pursuantto the requirements of Securities Exchange Act of 1933, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.
|                         | **Name** | ** **                                      | ** ** | ** **           | **Position** | ** ** | ** ** | ** ** | **Date** | ** ** |
|-------------------------|----------|-------------------------------------------------|------------|----------------------|--------------|------------|------------|------------|----------|------------|
| /s/ ROBERT J. HANKS     |     | Chief Executive Officer, Treasurer and Director |       | March 27,  2007 |
| Robert J. Hanks         |     | (Principal Executive Officer)                   |       |                 |
| /s/ DAVID A.R. DULLUM   |     | President,  Secretary and Director              |       | March 27,  2007 |
| David A.R. Dullum       |     |                                            |       |                 |
| /s/ TIMOTHY J. DURKIN   |     | Director                                        |       | March 29,  2007 |
| Timothy J. Durkin       |     |                                            |       |                 |
| /s/ JOHN CARSON         |     | Chairman of the  Board of Directors             |       | March 29,  2007 |
| John Carson             |     |                                            |       |                 |
| /s/ WILLIAM E. MAHONEY  |     | Director                                        |       | March 29,  2007 |
| William E. Mahoney      |     |                                            |       |                 |
| /s/ TODD A. FITZPATRICK |     | Vice President and Principal Financial and      |       | March 27,  2007 |
| Todd A. Fitzpatrick     |     | Accounting Officer                              |       |                 |
| /s/ EDWARD CADY         |     | Director                                        |       | March 29,  2007 |
| Edward Cady             |     |                                            |       |                 |

 

48

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**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**
| Report of Independent  Registered Public Accounting Firm |   | F-2 |   |
|----------------------------------------------------------|--------|-----|--------|
| Balance  Sheets                                          |   | F-3 |   |
| Statements  of Operations                                |   | F-4 |   |
| Statement of Stockholders’ Equity                   |   | F-5 |   |
| Condensed  Statements of Cash Flows                      |   | F-6 |   |
| Notes to Consolidated Financial Statements               |   | F-7 |   |

 

F-1

----

**Report of Independent Registered PublicAccounting Firm**

To the Board of DirectorsHarbor Acquisition Corporation

We have audited the accompanying balance sheet ofHarbor Acquisition Corporation (a development stage corporation) (the“Company”) as of December 31, 2006 and 2005, and the related statements ofoperations, stockholders’ equity and cash flows for the year endedDecember 31, 2006, the period from June 10, 2005 (inception) toDecember 31, 2005, and the cumulative period from June 10, 2005(inception) to December 31, 2006. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion of these financial statements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred toabove present fairly, in all material respects, the financial position ofHarbor Acquisition Corporation as of December 31, 2006 and 2005, and theresults of its operations and its cash flows for the year endedDecember 31, 2006, the period from June 10, 2005 (inception) toDecember 31, 2005, and the cumulative period from June 10, 2005 (inception)to December 31, 2006 in conformity with United States generally acceptedaccounting principles.

Theaccompanying financial statements have been prepared assuming that the Companywill continue as a going concern. As discussed in Note 15 to the financialstatements, the Company may face a mandatory liquidation by November 1,2007 if a business combination is not consummated, unless certain extensioncriteria are met, which raises substantial doubt about its ability to continueas a going concern. The financial statements do not include any adjustmentsthat might result from the outcome of this uncertainty.

| /s/ GOLDSTEIN GOLUB KESSLER LLP |
|---------------------------------|
| New York, New  York             |
| March 6, 2007                   |

 

F-2

----

**Harbor AcquisitionCorporation and Subsidiary(A Development Stage Company)**

**Balance Sheets**

| ** **                                                                                                                                                                                                                                                  | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Assets**                                                                                                                                                                                                                                                  |       |                            |       |                            |       |   |   |   |   |
| ***Current:***                                                                                                                                                                                                                                              |       |                            |       |                            |       |   |   |   |   |
| Cash                                                                                                                                                                                                                                                        |       |                            | $          | 534,970                         |       |   |   | $ | 6,654 |   |   |
| Investments held  in trust                                                                                                                                                                                                                                  |       |                            | 77,840,000 |                            |       |   | — |   |   |
| Investments held  in trust from Underwriter                                                                                                                                                                                                                 |       |                            | 1,620,000  |                            |       |   | — |   |   |
| Investment income  not subject to trust                                                                                                                                                                                                                     |       |                            | 213,364    |                            |       |   | — |   |   |
| Prepaid Expense                                                                                                                                                                                                                                             |       |                            | 66,000     |                            |       |   | — |   |   |
| ***Total  current assets***                                                                                                                                                                                                                                 |       |                            | 80,274,334 |                            |       |   | 6,654 |   |   |
| Deferred offering  costs                                                                                                                                                                                                                                    |       |                            | —     |                            |       |   | 303,509 |   |   |
| Deferred  acquisition costs                                                                                                                                                                                                                                 |       |                            | 643,592    |                            |       |   | — |   |   |
| Deferred tax  asset                                                                                                                                                                                                                                         |       |                            | 146,362    |                            |       |   | — |   |   |
| **Total  Assets**                                                                                                                                                                                                                                           |       |                            | $          | 81,064,288                      |       |   |   | $ | 310,163 |   |   |
| **Liabilities  And Stockholders’ Equity**                                                                                                                                                                                                              |       |                            |       |                            |       |   |   |   |   |
| **Current  Liabilities**                                                                                                                                                                                                                                    |       |                            |       |                            |       |   |   |   |   |
| Accrued Offering  Expenses                                                                                                                                                                                                                                  |       |                            | $          | —                          |       |   |   | $ | 210,000 |   |   |
| Accrued Expenses                                                                                                                                                                                                                                            |       |                            | 305,434    |                            |       |   | 5,000 |   |   |
| Notes Payable,  Stockholders                                                                                                                                                                                                                                |       |                            | —     |                            |       |   | 75,000 |   |   |
| Due to  Underwriter                                                                                                                                                                                                                                         |       |                            | 1,620,000  |                            |       |   | — |   |   |
| Income Taxes  Payable                                                                                                                                                                                                                                       |       |                            | 111,043    |                            |       |   | — |   |   |
| **Total  Liabilities**                                                                                                                                                                                                                                      |       |                            | 2,036,477  |                            |       |   | 290,000 |   |   |
| Common stock subject to possible conversion,  2,758,620 shares at conversion value                                                                                                                                                                          |       |                            | 15,560,216 |                            |       |   | — |   |   |
| Commitments                                                                                                                                                                                                                                                 |       |                            |       |                            |       |   |   |   |   |
| **Stockholders’  Equity**                                                                                                                                                                                                                              |       |                            |       |                            |       |   |   |   |   |
| Preferred Stock,  $.0001 par value, 1,000,000 shares authorized; none issued or  outstanding                                                                                                                                                           |       |                            | —     |                            |       |   | — |   |   |
| Common Stock,  $.0001 par value, 70,000,000 shares authorized; 16,800,000 shares (which  includes 2,758,620 subject to possible conversion) and 3,000,000 shares  issued and outstanding at December 31, 2006 and December 31, 2005  respectively |       |                            | 1,680      |                            |       |   | 300 |   |   |
| Additional Paid  in Capital                                                                                                                                                                                                                                 |       |                            | 62,104,087 |                            |       |   | 24,700 |   |   |
| Earnings  (Deficit) Accumulated during the development stage                                                                                                                                                                                                |       |                            | 1,361,828  |                            |       |   | (4,837 | ) |   |
| **Total  Stockholders’ Equity**                                                                                                                                                                                                                        |       |                            | 63,467,595 |                            |       |   | 20,163 |   |   |
| **Total Liabilities and  Stockholders’ Equity**                                                                                                                                                                                                        |       |                            | $          | 81,064,288                      |       |   |   | $ | 310,163 |   |   |

 

The accompanying notes should be read in conjunction with the financial statements.

F-3

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**Harbor AcquisitionCorporation and Subsidiary(A Development Stage Company)**

**Statement of Operations**

| ** **                                                                   | ** ** | ** **                            | ** ** | ** **                             | ** ** | **For the period from**       | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------|------------|----------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                   | ** ** | ** **                            | ** ** | **For the period from** | ** ** | **June 20, 2005 (inception)** | ** ** |
| ** **                                                                   | ** ** | **For the year ended** | ** ** | **June 20, 2005 to**    | ** ** | **to December 31, 2006**      | ** ** |
| ** **                                                                   | ** ** | **December 31, 2006**       | ** ** | **December 31, 2005**        | ** ** | **(cumulative)**                             | ** ** |
| Interest income                                                              |       |                                  | $          | 2,599,821                              |       |                                         |       | $ | 163 |   |   |   | $ | 2,599,984 |   |   |
| **Operating Expenses**                                                       |       |                                  |       |                                   |       |                                         |       |   |   |   |   |   |   |
| General &  Administrative                                                |       |                                  | 488,475    |                                   |       |                                         | 5,000      |   |   |   | 493,475 |   |   |
| Net Income (Loss)  before income taxes                                       |       |                                  | 2,111,346  |                                   |       |                                         | (4,837     | ) |   |   | 2,106,509 |   |   |
| Income tax  expense                                                          |       |                                  | 744,681    |                                   |       |                                         | —     |   |   |   | 744,681 |   |   |
| **Net  Income (Loss)**                                                       |       |                                  | $          | 1,366,665                              |       |                                         |       | ($4,837 | ) |   |   | $ | 1,361,828 |   |   |
| Weighted Average  number of common shares outstanding—basic and diluted |       |                                  | 12,489,863 |                                   |       |                                         | 3,000,000  |   |   |   | 9,207,527 |   |   |
| **Income (Loss) per Share**—**basic and diluted**                       |       |                                  | $          | 0.11                                   |       |                                         |       | ($0.00 | ) |   |   | $ | 0.15 |   |   |

 

The accompanying notes should be read in conjunction with the financial statements.

F-4

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**Harbor AcquisitionCorporation and Subsidiary(A Development Stage Company)**

**Statement of Stockholders’ Equity**

| ** **                                                                                                                                | ** ** | ** **            | ** ** | ** **     | ** ** | ** **                           | ** ** | **Earnings (Deficit)** | ** ** | ** ** | ** **  |
|-------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|----------------|------------|--------------------------------------|------------|-----------------------------|------------|------------|-------------|
| ** **                                                                                                                                | ** ** | **Common Stock** | ** ** | **Additional** | ** ** | **Accumulated During the** | ** ** | ** **                  | ** ** |
| ** **                                                                                                                                | ** ** | **Shares**            | ** ** | **Amount**     | ** ** | **Paid-in-Capital**                  | ** ** | **Development Stage**  | ** ** | **Total**  | ** **  |
| Stock issued June  22, 2005 at $.008 per share                                                                                            |       | 3,000,000             |       | $              | 300        |                                 | $          | 24,700                      |       |       | $           | — |   |   | $ | 25,000 |   |
| Net Loss                                                                                                                                  |       |                  |       |           |       |                                 |       |                        | (4,837     | )          |        | (4,837 | ) |
| **Balance  at December 31, 2005**                                                                                                         | ** ** | **3,000,000**         | ** ** | **$**          | **300**    | ** **                           | **$**      | **24,700**                  | ** ** | ** ** | **($4,837** | **)** | ** ** | **$** | **20,163** | ** ** |
| **Unaudited:**                                                                                                                            |       |                  |       |           |       |                                 |       |                        |       |       |        |   |   |
| Sale of Private  Placement Warrants                                                                                                       |       | —                |       | —         |       | 1,300,000                            |       |                        | —     |       |        | 1,300,000 |   |
| Sale of  13,800,000 Units net of underwriter's discount and offering expenses  (includes 2,758,620 shares subject to possible conversion) |       | 13,800,000            |       | 1,380          |       | 76,339,503                           |       |                        | —     |       |        | 76,340,883 |   |
| Proceeds subject  to possible conversion of 2,758,620 shares                                                                              |       | —                |       | —         |       | (15,560,216                          | )          |                        | —     |       |        | (15,560,216 | ) |
| Sale of  underwriter option                                                                                                               |       | —                |       | —         |       | 100                                  |       |                        | —     |       |        | 100 |   |
| Net Income                                                                                                                                |       | —                |       | —         |       | —                               |       |                        | 1,366,665  |       |        | 1,366,665 |   |
| **Balance at December 31, 2006**                                                                                                          | ** ** | **16,800,000**        | ** ** | **$**          | **1,680**  | ** **                           | **$**      | **62,104,087**              | ** ** | ** ** | **$**       | **1,361,828** | ** ** | ** ** | **$** | **63,467,595** | ** ** |

 

The accompanying notes should be read in conjunction with the financial statements.

F-5

----

**Harbor AcquisitionCorporation and Subsidiary(A Development Stage Company)**

**Statement of Cash Flows**

| ** **                                               | ** ** | ** **                                 | ** **  | ** **                                   | ** ** | **For the period from**       | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------|-------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                               | ** ** | ** **                                 | ** **  | ** **                                   | ** ** | **June 22, 2005 (inception)** | ** ** |
| ** **                                               | ** ** | **For the year**                 | ** **  | **June 22, 2005 (inception)** | ** ** | **to December 31, 2006**      | ** ** |
| ** **                                               | ** ** | **ended December 31, 2006** | ** **  | **to December 31, 2005**      | ** ** | **(cumulative)**                             | ** ** |
| ***Cash  Flows From Operating Activities***              |       |                                       |        |                                         |       |                                         |       |   |   |   |   |   |   |
| Net Income (Loss)                                        |       |                                       | $           | 1,366,665                                    |       |                                         |       | ($4,837 | ) |   |   | $ | 1,361,828 |   |   |
| Adjustment to reconcile  net income to net cash provided |       |                                       |        |                                         |       |                                         |       |   |   |   |   |   |   |
| by operating activities:                                 |       |                                       |        |                                         |       |                                         |       |   |   |   |   |   |   |
| Income taxes payable                                     |       |                                       | 111,043     |                                         |       |                                         | —     |   |   |   | 111,043 |   |   |
| Changes in operating  assets and liabilities:            |       |                                       |        |                                         |       |                                         |       |   |   |   |   |   |   |
| Increase in prepaid expenses                             |       |                                       | (66,000     | )                                            |       |                                         | —     |   |   |   | (66,000 | ) |   |
| Increase in value of investments held in   trust         |       |                                       | (2,592,864  | )                                            |       |                                         | —     |   |   |   | (2,592,864 | ) |   |
| Increase in Deferred tax asset                           |       |                                       | (146,362    | )                                            |       |                                         | —     |   |   |   | (146,362 | ) |   |
| Increase in Accrued expenses                             |       |                                       | 95,860      |                                         |       |                                         | 5,000      |   |   |   | 100,860 |   |   |
| **Net Cash provided by Operating Activities**            |       |                                       | (1,231,658  | )                                            |       |                                         | 163        |   |   |   | (1,231,495 | ) |   |
| ***Cash  Flows From Investing Activites***               |       |                                       |        |                                         |       |                                         |       |   |   |   |   |   |   |
| Payment of deferred acquisition costs                    |       |                                       | $           | (439,018                                     | )          |                                         |       | — |   |   |   | $ | (439,018 | ) |   |
| Cash held in Trust Account                               |       |                                       | (79,460,000 | )                                            |       |                                         | —     |   |   |   | (79,460,000 | ) |   |
| Disbursements from trust                                 |       |                                       | 2,379,500   |                                         |       |                                         | —     |   |   |   | 2,379,500 |   |   |
| **Net Cash used in Investing Activities**                |       |                                       | (77,519,518 | )                                            |       |                                         | —     |   |   |   | (77,519,518 | ) |   |
| ***Cash  Flows From Financing Activities***              |       |                                       |        |                                         |       |                                         |       |   |   |   |   |   |   |
| Proceeds from public offering                            |       |                                       | 82,800,000  |                                         |       |                                         | —     |   |   |   | 82,800,000 |   |   |
| Proceeds from private placement  of warrants             |       |                                       | 1,300,000   |                                         |       |                                         | —     |   |   |   | 1,300,000 |   |   |
| Proceeds from issuance of underwriting option            |       |                                       | 100         |                                         |       |                                         | —     |   |   |   | 100 |   |   |
| Proceeds from sale of stock                              |       |                                       | —      |                                         |       |                                         | 25,000     |   |   |   | 25,000 |   |   |
| Proceeds from notes payable, Stockholders                |       |                                       | 150,000     |                                         |       |                                         | 75,000     |   |   |   | 225,000 |   |   |
| Payments of notes payable, Stockholders                  |       |                                       | (225,000    | )                                            |       |                                         | —     |   |   |   | (225,000 | ) |   |
| Payment of advances due to Stockholders                  |       |                                       | (5,000      | )                                            |       |                                         | —     |   |   |   | (5,000 | ) |   |
| Payment of offering costs                                |       |                                       | (4,740,608  | )                                            |       |                                         | (93,509    | ) |   |   | (4,834,117 | ) |   |
| **Net Cash provided by Financing Activities**            |       |                                       | 79,279,492  |                                         |       |                                         | 6,491      |   |   |   | 79,285,983 |   |   |
| Net increase in Cash                                     |       |                                       | 528,316     |                                         |       |                                         | 6,654      |   |   |   | 534,970 |   |   |
| Cash at beginning of period                              |       |                                       | 6,654       |                                         |       |                                         | —     |   |   |   | — |   |   |
| **Cash at end of period**                                | ** ** | ** **                                 | **$**       | **534,970**                                  |       | ** **                                   | ** ** | **$** | **6,654** |   | ** ** | ** ** | **$** | **534,970** |   |   |
| Supplemental  schedule of non-cash financing activities: |       |                                       |        |                                         |       |                                         |       |   |   |   |   |   |   |
| Advance due to Stockholder for Public Offering costs     |       |                                       | $           | 5,000                                        |       |                                         |       | — |   |   |   | $ | 5,000 |   |   |
| Accrual of deferred underwriting fees                    |       |                                       | $           | 1,620,000                                    |       |                                         |       | — |   |   |   | $ | 1,620,000 |   |   |
| Supplemental  schedule of non-cash investing activities: |       |                                       |        |                                         |       |                                         |       |   |   |   |   |   |   |
| Accrual of  deferred acquisition costs                   |       |                                       | $           | 204,574                                      |       |                                         |       | — |   |   |   | $ | 204,574 |   |   |
|                                                          |            |                                            |             |                                              |            |                                              |            |  |  |  |  |  |  |  |  |  |

 

The accompanying notes should be read in conjunction with the financial statements.

F-6

----

**Harbor AcquisitionCorporation and Subsidiary(A Development Stage Company)**

**Notes to Consolidated Financial Statements**

**1.   Basis ofPresentation**

The consolidated financialstatements include the accounts of Harbor Acquisition Corporation and itswholly owned subsidiary Harbor Acquisition Security Corporation (collectivelyreferred to as the “Company”). All significant intercompany transactions andbalances have been eliminated. The statements and related notes have beenprepared on the accrual basis of accounting in accordance with accountingprincipals generally accepted in the United States.

**2.   Organizationand Business Operations**

The Company was incorporated in Delaware on June 20,2005 as a blank check company whose objective is to acquire an operatingbusiness. At December 31, 2006, the Company had neither engaged in anyoperations nor generated significant operating revenue to date. The Company isconsidered to be in the development stage and is subject to the risksassociated with activities of development stage companies.

All activity through December 31, 2006, relatesto the Company’s formation, its initial public offering described below, andthereafter, pursuing potential acquisitions of target businesses.

The registration statement for the Company’s initialpublic offering (the “Public Offering”) (as described in Note 4) was declaredeffective April 25, 2006. The Company consummated the Public Offering on May 1,2006, and preceding the consummation of the Public Offering on May 1, 2006certain officers, directors, and initial shareholders of the Company purchasedan aggregate of 2,000,000 warrants at $.65 per warrant from the Company in aprivate placement (the “Private Placement”). The warrants sold in the PrivatePlacement were identical to the warrants sold in the offering. The Companyreceived net proceeds from the Private Placement and the Offering ofapproximately $77,640,883 (Note 4).

The Company’s management has broad discretion withrespect to the specific application of the net proceeds of this PublicOffering, although substantially all of the net proceeds of this PublicOffering are intended to be generally applied toward consummating a businesscombination with an operating business (“Business Combination”), which may notconstitute a business combination for accounting purposes.

Furthermore, there is no assurance that the Companywill be able to successfully effect a Business Combination. Upon the closing ofthe Offering, $79,460,000 including $1,620,000 of deferred underwriters’ nonaccountableexpense allowance described in Note 4, is being held in a trust account (“TrustFund”) and, commencing May 2, 2006, is invested in government securitiesuntil the earlier of (i) the consummation of its first BusinessCombination and (ii) the distribution of the Trust Fund as described below.The placing of funds in the Trust Fund may not protect those funds from thirdparty claims against the Company. Although the Company will seek to have allvendors, prospective target businesses or other persons it engages, executeagreements with the Company waiving any right, title, interest or claim of anykind in or to any monies held in the Trust Fund, there is no guarantee thatthey will execute such agreements. Certain of the Company’s directors haveseverally agreed that they will be personally liable under certaincircumstances to ensure that the proceeds in the Trust Fund are not reduced bythe claims of target businesses or vendors or other persons that are owed moneyby the Company for services rendered, contracted for or products sold to theCompany. However, there can be no assurance that the directors will be able tosatisfy those obligations. The remaining proceeds (not held in the Trust Fund),along with interest earned on the Trust Fund, may be used to pay for business,legal and accounting due diligence on prospective acquisitions and continuinggeneral and administrative expenses. The Company, after signing a definitiveagreement for the acquisition of a target business, will submit suchtransaction for stockholder 

F-7

----

approval. In the eventthat stockholders owning 20% or more of the shares issued in the Offering voteagainst the Business Combination and exercise their conversion rights describedbelow, the Business Combination will not be consummated. All of the Company’sstockholders prior to the Offering, including all of the officers and directorsof the Company (“Initial Stockholders”), have agreed to vote their 3,000,000founding shares of common stock, as well as any shares of common stock acquiredin connection with or following the Offering, in accordance with the vote ofthe majority in interest of all other stockholders of the Company (“PublicStockholders”) with respect to any Business Combination. After consummation ofa Business Combination, these voting safeguards will no longer be applicable.

With respect to a Business Combination which isapproved and consummated, any Public Stockholder who voted against the BusinessCombination may demand that the Company convert his or her shares. The pershare conversion price will equal the amount in the Trust Account, calculatedas of two business days prior to the consummation of the proposed BusinessCombination, divided by the number of shares of common stock sold in theOffering. Accordingly, Public Stockholders holding 19.99% of the aggregatenumber of shares owned by all Public Stockholders may seek conversion of theirshares in the event of a Business Combination. Such Public Stockholders areentitled to receive their per share interest in the Trust Fund computed withoutregard to the shares held by Initial Stockholders. Accordingly, a portion ofthe net proceeds from the Public Offering (19.99% of the amount held in theTrust Fund, excluding the deferred portion of the underwriters’ non-accountableexpense allowance) has been classified as common stock subject to possibleconversion on the accompanying December 31, 2006 balance sheet. In addition,such stockholders would also be entitled to a portion of the deferred portionof the underwriters’ non-accountable expense allowance held in trust (seeNote 4). As of December 31, 2006, the estimated per share conversionprice is $5.76.

The Company’s Certificate of Incorporation providesfor mandatory liquidation of the Company in the event that the Company does notconsummate a Business Combination within 18 months from the date of theconsummation of the Offering, or 24 months from the consummation of theOffering if certain extension criteria have been satisfied. In the event ofliquidation, it is likely that the per share value of the residual assetsremaining available for distribution (including Trust Fund assets) will be lessthan the initial public offering price per share in the Offering (assuming novalue is attributed to the Warrants contained in the Units sold in the Offeringdiscussed in Note 4).

On May 1, 2006, the Company formed a wholly ownedsubsidiary, Harbor Acquisition Security Corporation, for tax planning purposes.The Company assigned the rights to the investments in the Trust Fund to thissubsidiary.

On October 17, 2006,the Company entered into a Stock Purchase Agreement with Elmet Technologies,Inc (“Elmet”) and the holders of all of the outstanding shares and warrants ofElmet. Subject to the terms and conditions of the Stock Purchase Agreement, theCompany has agreed to acquire all of the outstanding Elmet shares and all ofits outstanding warrants. The acquisition is expected to be consummated duringthe second quarter of 2007, after the required approval by the Company’sstockholders and the fulfillment of certain other conditions. The pendingtransaction is further described in the Company’s current report filed with theU.S. Securities and Exchange Commission on Form 8-K on October 17,2006.

**3.   Summary ofSignificant Accounting Policies**

***A.   Income taxes:***

Deferred income tax assetsand liabilities are computed for differences between the financial statementand tax basis of assets and liabilities that will result in future taxable ordeductible amounts and are based on enacted tax laws and rates applicable tothe periods in which the differences are expected to 

F-8

----

affecttaxable income. Valuation allowances are established when necessary to reducedeferred income tax assets to the amount expected to be realized.

***B.   Earnings (Loss) per common share:***

Basic earnings per shareis computed by dividing net loss by the weighted average number of shares ofcommon stock outstanding during the period. Diluted earnings per share giveseffect to dilutive options, warrants, and other potential common stockoutstanding during the period. The effect of the 27,600,000 outstandingwarrants issued in connection with the initial public offering described inNote 4 has not been considered in the diluted net income per share sincethe warrants are contingently exercisable. The effect of the 600,000 unitsincluded in the underwriters’ purchase option, as described in Note 2,along with the warrants underlying such units, has not been considered in thediluted earnings per share calculation since they are contingently exercisableand since the market price of the option was less than the exercise priceduring the period.

***C.   Use of estimates:***

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities atthe date of the financial statements and the reported amounts of revenue andexpenses during the reporting period. Actual results could differ from thoseestimates.

***D.   Cash and Cash Equivalents:***

For financial statementpurposes, the Company considers all highly liquid debt instruments with amaturity of three months or less when purchased to be cash equivalents. TheCompany maintains its cash in bank deposit accounts in the United States ofAmerica which, at times, may exceed applicable insurance limits. The Companybelieves it is not exposed to any significant credit risk on cash and cashequivalents.

***E.   Recent Accounting Pronouncements:***

In July 2006, the Financial Accounting StandardsBoard (“FASB”) issued FASB Interpretation No. 48, “Accounting forUncertainty in Income Taxes,” an interpretation of FASB Statement No. 109(“FIN 48”), which provides criteria for the recognition, measurement,presentation and disclosure of uncertain tax position. A tax benefit from anuncertain position may be recognized only if it is “more than likely not” thatthe position is sustainable based on its technical merits. The provisions ofFIN 48 are effective for fiscal years beginning after December 15, 2006.The Company does not expect FIN 48 will have a material effect on its financialcondition or results of operations.

Management does notbelieve that any recently issued, but not yet effective, accounting standardsif currently adopted would have a material effect on the accompanying financialstatements.

**4.   InitialPublic Offering**

On May 1, 2006, the Company sold 13,800,000 units(“Units”), including 1,800,000 in connection with the Underwriter’sover-allotment, in the Public Offering at a price of $6.00 per Unit. Each Unitconsists of one share of the Company’s common stock, $.0001 par value, and twoRedeemable Common Stock Purchase Warrants (“Warrants”). Each Warrant entitlesthe holder to purchase from the Company one share of common stock at anexercise price of $5.00 commencing the later of the completion of a BusinessCombination or one year from the effective date of the Public Offering andexpiring five years from the effective date of the Public Offering. The Companymay redeem the Warrants at a price of $.01 per Warrant upon 30 days’ noticeafter the Warrants become exercisable, only in the event that the last saleprice of the common stock is at least $8.50 per share for any 20 trading dayswithin a 30 trading day period 

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ending on the third dayprior to the date on which notice of redemption is given. If the Company callsthe Warrants, the holder will either have to redeem the Warrants by purchasingthe common stock from the Company for $5.00 per share or allow the Company toredeem the Warrants at a price of $.01 per warrant.

In connection with the Offering, the Company paid theunderwriters of the Public Offering (collectively, the “Underwriter”) anunderwriting discount of 5.0% of the gross proceeds of the Public Offering($4,140,000). In addition, a non-accountable expense allowance of 2.25% of thegross proceeds of the Public Offering, excluding the over-allotment option, isdue to the Underwriter, who has agreed to deposit the non-accountable expenseallowance ($1,620,000) into the Trust Fund until the earlier of the completionof a business combination or the liquidation of the Trust Fund. The Underwriterhas further agreed to forfeit any rights to or claims against such proceedsunless the Company successfully completes a business combination. If a BusinessCombination is approved and completed, public stockholders who voted againstthe combination and have exercised their conversion rights will be entitled totheir pro rata share of the deferred non-accountable expense allowance.

Preceding the consummation of the Public Offering on May 1,2006, certain of the initial stockholders purchased 2,000,000 warrants at apurchase price of $.65 per warrant in a private placement. The proceeds of$1,300,000 were deposited into the Trust Fund, and the initial stockholderswill not have any claim on this amount if the Trust Fund is liquidated.

The Initial Stockholders are entitled to registrationrights with respect to their founding shares and private placement warrantspursuant to agreements dated April 25, 2006. The holders of the majorityof these shares and warrants are entitled to make up to two demands that theCompany register these shares. In addition, the Initial Stockholders have “piggy-back”registration rights on certain registration statements filed subsequent to theconsummation of a Business Combination.

In connection with thisOffering, the Company issued an option, for $100, to the Underwriter topurchase 600,000 Units at an exercise price of $7.50 per Unit, exercisable onthe later of April 25, 2007 or the consummation of a Business Combination.The option has a life of five years from the effective date. The Units thatwould be issued upon exercise of this option are identical to those offered inthe Public Offering, except that each of the warrants underlying the optionentitles the holder to purchase one share of the Company’s common stock at aprice of $6.25 and will have a cashless exercise provision. The Company hasaccounted for the fair value of the option, inclusive of the receipt of the$100 cash payment, as an expense of the Public Offering resulting in a chargedirectly to stockholder’s equity. The Company estimated, using theBlack-Scholes method, the fair value of the option granted to the underwriteras of the date of grant was approximately $1,516,000 using the followingassumptions: (1) expected volatility of 49.3%, (2) risk-free interestrate of 4.635% and (3) expected life of five years. In order to estimatethe volatility, the Company considered the historic volatilities of 22 publiclytraded companies that operate within the consumer and industrial productssectors.

**5.   LimitedDistributions of Income from Trust Account**

Upon written request from the Company, which may begiven not more than once in any calendar month, the Trustee shall distribute tothe Company by wire transfer an amount computed and certified by the Company tobe equal to the collected and undistributed income earned on the originalamount deposited in the Trust Account for the preceding month. The maximumamount of distributions, net of taxes, that the Company may request and theTrustee shall distribute is $1,850,000. The Company has received distributions,net of taxes, of $1,599,500 through December 31, 2006. These funds will beused for working capital purposes associated with identifying and consummatinga Business Combination.

If there is any income taxobligation relating to the income of the property in the Trust Account, then,at the written instruction of the Company, the Trustee shall disburse to theCompany by wire transfer, out 

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of theproperty in the Trust Account, the amount indicated by the Company as requiredto pay income taxes. Such disbursements amounted to $780,000 throughDecember 31, 2006.

**6.   DeferredOffering Costs**

Deferred offering costsconsisted of legal, accounting, printing, and other fees incurred prior to theOffering which were directly related the Offering. These costs were charged toStockholders’ equity upon completion of the Offering.

**7.   DeferredAcquisition Costs**

Deferred acquisition costsconsist principally of legal fees directly associated with the negotiation andexecution of the Stock Purchase Agreement with Elmet Technologies Inc. Thesecosts will be treated as part of the purchase price upon the closing of thetransaction.

**8.   IncomeTaxes**

The components of the provision for income taxes areas follows:

| ** **                        | ** ** | **Year ended  December 31, 2006** | ** ** | **Year ended  December 31, 2005** | ** ** |
|-----------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Current:                          |       |                                             |       |                                             |       |   |   |   |   |
| Federal                           |       |                                             | $          | 850,400                                          |       |   |   | — |   |   |
| State and local                   |       |                                             | 40,643     |                                             |       |   | — |   |   |
| Deferred:                         |       |                                             |       |                                             |       |   |   |   |   |
| Federal                           |       |                                             | (146,362   | )                                                |       |   | — |   |   |
| State and local                   |       |                                             | —     |                                             |       |   | — |   |   |
| Total provision for  income taxes |       |                                             | $          | 744,681                                          |       |   |   | — |   |   |

 

TheCompany’s effective tax rate differs from the effective federal tax rate of 34%principally due to the following:

| ** **                     | ** ** | **Year ended  December 31, 2006** | ** ** |
|--------------------------------|------------|--------------------------------------------------|------------|
| Federal statutory  rate        |       |                                             | 34.0%      |   |   |
| State and local  tax           |       |                                             | 0.1%       |   |   |
| Change in  valuation allowance |       |                                             | 1.2%       |   |   |
|                           |       |                                             | 35.3%      |   |   |

 

| ** **                       | ** ** | **Year ended  December 31, 2005** | ** ** |
|----------------------------------|------------|--------------------------------------------------|------------|
| Federal statutory  rate          |       |                                             | 34.0%      |   |   |
| Increase in valuation  allowance |       |                                             | (34.0%     | ) |   |
|                             |       |                                             | —     |   |   |

 

Thetax effect of temporary differences that give rise to the deferred tax asset isas follows:

| ** **                                 | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|--------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| Expenses deferred  for income tax purposes |       |                            | $          | 172,508                         |       |   |   | $ | 2,000 |   |   |
| Less valuation  allowance                  |       |                            | (26,146    | )                               |       |   | ($2,000 | ) |   |
| Total                                      |       |                            | $          | 146,362                         |       |   |   | $ | 0 |   |   |

 

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**9.   Note Payable,Stockholders**

The Company issued an aggregate of $75,000 unsecuredpromissory notes to two of its Initial Stockholders on June 22, 2005. Thenotes were non-interest bearing and were payable on the earlier of June 15,2006 or the consummation of the Public Offering. Accordingly, the Company paidoff the notes on May 1, 2006. Separately, upon the consummation of theOffering, a shareholder loaned the Company $150,000. The loan with relatedinterest was paid in full on July 5, 2006. The loan bore interest at 4%per annum and was paid from the interest earned on the amounts in the TrustFund. Due to the short term nature of the notes, the fair value of the notesapproximated their carrying amount.

**10.   Commitments andRelated Party Transactions**

TheCompany presently occupies office space provided by an affiliate of several ofthe Initial Stockholders. Such affiliate has agreed that, until the Companyconsummates a Business Combination, it will make such office space, as well ascertain office and secretarial services, available to the Company, as may berequired by the Company from time to time. The Company has agreed to pay suchaffiliate $7,500 per month for such services commencing on the effective dateof the Public Offering. The statement of operations includes $61,700 for theyear ended December 31, 2006.

Pursuant to letter agreements dated June 22, 2005with the Company and the representative of the underwriters, the InitialStockholders have waived their right to receive distributions with respect totheir founding shares upon the Company’s liquidation.

**11.   Common Stock**

On April 14,2006, the Company’s majority stockholders approved an amendment to the Company’sCertificate of Incorporation to increase the number of authorized shares ofcommon stock to 70,000,000. All references in the accompanying financialstatements to the number of shares of stock have been retroactively restated toreflect this transaction.

On April 20, 2006, the Board of Directorsapproved a stock split to be effected as a stock dividend immediately prior tothe closing of the Public Offering. The stock split was executed, and a stockdividend of one share for every 5 shares was issued to the initialstockholders.

**12.   Preferred Stock**

The Company is authorized to issue 1,000,000 shares ofpreferred stock with such designations, voting and other rights and preferencesas may be determined from time to time by the Board of Directors.

**13.   Reserved CommonStock**

At December 31, 2006, 31,400,000 shares of commonstock were reserved for issuance upon exercise of redeemable warrants and theunderwriter’s purchase option.

**14.   Trust Fund**

For tax planning purposes, the Company assigned itsrights to the cash in the Trust Fund to Harbor Acquisition SecurityCorporation, a wholly-owned Massachusetts subsidiary qualifying as a “securitycorporation” entitled to a reduced state corporate tax rate.

**15.   Going Concern**

TheCompany has not commenced any operations as of December 31, 2006, but hasentered into a Stock Purchase Agreement with Elmet Technologies, Inc (“Elmet”)and the holders of all the outstanding shares and warrants of Elmet (see Note2). This proposed acquisition would fulfill the conditions of a BusinessCombination required to release the funds held in the Trust Account to theCompany (see Note 

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4). If this Business Combination is not completed, theCompany intends to immediately resume the search for another suitable BusinessCombination; however, there is no assurance that such a suitable BusinessCombination would be identified and consummated within the requisite timeperiods. In the event one is not, the Company would be required to distributethe funds held in the Trust Account to the Public Stockholders.

Managementbelieves that the Company’s existing cash resources, including cash on hand,will be sufficient to cover operating costs and expenses until the proposed acquisitionis consummated. However, the Company would be required to obtain additionalfinancing to continue its search for another suitable Business Combination andcontinue as a going concern if the proposed acquisition is not consummated.

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