**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

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**FORM 10-K**

 
| **x** | **ANNUAL REPORT PURSUANT TO SECTION  13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-------------------------------------------------------------------------------------------|

**For The Fiscal Year EndedDecember 31, 2006**

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

 

**For the transition periodfrom                                          to                                          **

**Commission file number: 001-32890**

**HD PARTNERS ACQUISITION CORPORATION**

(Exact name of registrantas specified in its charter)

 
| **Delaware**                     | **20-3893077**                        |
|----------------------------------|---------------------------------------|
| (State or other  jurisdiction of | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)  |                                  |

 
| **2601 Ocean Park Blvd. Suite 320**       |       |
|-------------------------------------------|------------|
| **Santa  Monica, California**             | **90405**  |
| (Address of  principal executive offices) | (Zip Code) |

**(310)209-8308**Registrant’s telephone number, including area code

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

 

**Common Stock, $.001 par value pershare**

**Warrants to purchase shares of Common Stock**

(Title Of Class)

Securitiesregistered pursuant to Section 12(g) of the Act:

** **

**None**

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act.    Yes  o    No  x.

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 orSection 15(d) of the Exchange Act.    Yes  o    No  x.

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days.    Yes  x    No  o.

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to thisForm 10-K.  o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer” and “largeaccelerated filer” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer  o | Accelerated filer  o | Non-accelerated filer  x |
|--------------------------------------|--------------------------------|------------------------------------|

 

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

The aggregate market valueof the outstanding common stock, other than shares held by persons who may bedeemed affiliates of the registrant, computed by reference to the closing salesprice for the Registrant’s Common Stock on March 28, 2007, as reported on theAmerican Stock Exchange, was approximately $140,812,500. As of March 28, 2007,there were 23,437,500 shares of common stock, par value $.001 per share, of theregistrant outstanding.

DOCUMENTSINCORPORATED BY REFERENCE

None

 

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**TABLE OFCONTENTS**
| **PART I**    | ** ** | ** **                                                                                                              |
|---------------|------------|-------------------------------------------------------------------------------------------------------------------------|
| **Item  1.**  | ** ** | **Business**                                                                                                            | **5** |
| **Item  1A.** | ** ** | **Risk  Factors**                                                                                                       | **17** |
| **Item 1B.**  | ** ** | **Unresolved Staff  Comments**                                                                                          | **35** |
| **Item  2.**  | ** ** | **Properties**                                                                                                          | **36** |
| **Item 3.**   | ** ** | **Legal Proceedings**                                                                                                   | **36** |
| **Item 4.**   | ** ** | **Submission of  Matters to a Vote of Security Holders**                                                                | **36** |
| ** **    | ** ** | ** **                                                                                                              |
| **PART II**   | ** ** | ** **                                                                                                              |
| **Item 5.**   | ** ** | **Market For  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities** | **37** |
| **Item 6.**   | ** ** | **Selected Financial  Data**                                                                                            | **40** |
| **Item 7.**   | ** ** | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                         | **41** |
| **Item 7A.**  | ** ** | **Quantitative  and Qualitative Disclosures About Market Risk**                                                         | **46** |
| **Item 8.**   | ** ** | **Financial  Statements and Supplementary Data**                                                                        | **46** |
| **Item 9.**   | ** ** | **Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure**                               | **46** |
| **Item 9A.**  | ** ** | **Controls and  Procedures**                                                                                            | **47** |
| **Item 9B.**  | ** ** | **Other Information**                                                                                                   | **47** |
| ** **    | ** ** | ** **                                                                                                              |
| **PART III**  | ** ** | ** **                                                                                                              |
| **Item 10.**  | ** ** | **Directors and  Executive Officers of the Registrant**                                                                 | **48** |
| **Item 11.**  | ** ** | **Executive  Compensation**                                                                                             | **54** |
| **Item 12.**  | ** ** | **Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters**                    | **56** |
| **Item 13.**  | ** ** | **Certain  Relationships and Related Transactions**                                                                     | **59** |
| **Item 14.**  | ** ** | **Principal  Accounting Fees and Services**                                                                             | **62** |
| ** **    | ** ** | ** **                                                                                                              |
| **PART IV**   | ** ** | ** **                                                                                                              |
| **Item 15.**  | ** ** | **Exhibits and  Financial Statement Schedules**                                                                         | **63** |

 

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**CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS**

*This Annual Report on Form 10-Kincludes forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.These forward-looking statements can be identified by the use offorward-looking terminology, including the words “believes,” “estimates,” “anticipates,”“expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,”“continue,” or “should,” or, in each case, their negative or other variationsor comparable terminology. Such statements include, but are not limited to, anystatements relating to our ability to consummate any acquisition or otherbusiness combination and any other statements that are not statements ofcurrent or historical facts. These statements are based on management’s currentexpectations, but actual results may differ materially due to various factors,including, but not limited to, our:*

·                  *being a development stage company with no operating history;*

·                  *dependence on key personnel, some of whom may join us following aninitial transaction;*

·                  *personnel allocating their time to other businesses and potentiallyhaving conflicts of interest with our business;*

·                  *potentially being unable to obtain additional financing to complete aninitial transaction;*

·                  *limited pool of prospective target businesses;*

·                  *securities’ ownership being concentrated;*

·                  *potential change in control if we acquire one or more target businessesfor stock;*

·                  *risk associated  with operatingin the media, entertainment or telecommunications industries;*

·                  *delisting of our securities from the American Stock Exchange or ourinability to have our securities listed on the American Stock Exchangefollowing a business combination;*

·                  *financial performance following an initial transaction; or*

·                  *those other risks and uncertainties detailed in the Registrant’sfilings with the Securities and Exchange Commission.*

*By their nature, forward-lookingstatements involve risks and uncertainties because they relate to events anddepend on circumstances that may or may not occur in the future. We caution youthat forward-looking statements are not guarantees of future performance andthat our actual results of operations, financial condition and liquidity, anddevelopments in the industry in which we operate may differ materially fromthose made in or suggested by the forward-looking statements contained in thisAnnual Report on Form 10-K. In addition, even if our results or operations,financial condition and liquidity, and developments in the industry in which weoperate are consistent with the forward-looking statements contained in thisAnnual Report on Form 10-K, those results or developments may not be indicativeof results or developments in subsequent periods.*

*These forward-looking statementsare subject to numerous risks, uncertainties and assumptions about us describedin our filings with the Securities and Exchange Commission. The forward-lookingevents we discuss in this Annual Report on Form 10-K speak only as of the dateof such statement and might not occur in light of these risks, uncertaintiesand assumptions. Except as required by applicable law, we undertake noobligation and disclaim any obligation to publicly update or revise any forward-lookingstatements, whether as a result of new information, future events or otherwise.*

*Unless otherwise provided in thisAnnual Report on Form 10-K., references to “the Company,” “the Registrant,” “we,”“us” and “our” refer to HD Partners Acquisition Corporation.*

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**PART I**

**Item1.     Business.**

**Introduction**

HDPartners Acquisition Corporation (the “Company”, “we”, or “us”) is a blankcheck company organized under the laws of the State of Delaware on December 6,2005. We were formed to acquire, through a merger, capital stock exchange,asset acquisition or other similar business combination, one or more domesticor international assets or an operating business in the media, entertainment ortelecommunications industries. To date, our efforts have been limited toorganizational activities, our initial public offering and the search for asuitable business combination.  As of thedate of this filing, we have not acquired any business operations nor enteredinto by definitive agreement with any target company.

Ourexecutive offices are located 2601 Ocean Park Boulevard, Suite 320, SantaMonica, CA 90405 and our telephone number at that location is (310) 209-8308.We currently have a website at www.hdpartnersacquisition.com and consequentlywe  make available on the internetmaterials that we file with or furnish to the Securities and ExchangeCommission.  We will provide electronicor paper copies of such materials free of charge upon request.

**Recent Developments**

Aregistration statement for our initial public offering was declared effectiveon June 1, 2006.  On June 7, 2006, theCompany sold 18,750,000 units (“Units”) in our initial public offering at aprice of $8.00 per Unit. Each Unit consists of one share of the Company’scommon stock, $.001 par value, and one redeemable common stock purchase warrant(“Warrants”). Each Warrant entitles the holder to purchase from the Company oneshare of common stock at an exercise price of $5.50 commencing the later of thecompletion of a Business Combination or one year from June 1, 2006, theeffective date of the Offering and expiring June 1, 2010, four years from theeffective date of the Offering. The Company may redeem the Warrants at a priceof $.01 per Warrant upon 30 days’ notice after the Warrants become exercisable,only in the event that the last sale price of the common stock is at least11.50 per share for any 20 trading days within a 30 trading day period endingon the third day prior to the date on which notice of redemption is given.  We received gross proceeds of approximately$150,000,000 from our initial public offering, of which $142,575,000 was placedin trust.

OnJune 2, 2006, our units commenced trading on the American Stock Exchange underthe symbol “HDP-U”.  Holders of HDPartners’ units were able to separately trade the common stock and warrantsincluded in such units commencing August 1, 2006 and the trading in the unitshas continued under the symbol HDP-U. The common stock and warrants are quotedon the American Stock Exchange under the symbols HDP and HDP-WT, respectively.

Sincethe completion of our initial public offering, we have contacted andcontinue to contact those industry professionals who we believe can be ofstrategic assistance in sourcing potential deals for us, including, investmentbankers, business consultants, accountants andlawyers.   Through the relationships of our board ofdirectors, officers and directors and senior advisors, we havealso made contact with certain large national and internationalconcerns to determine if they have any interest in divesting any of theirexisting interests.  We have also sought out owners and institutionalowners of media, entertainment and telecommunications industry businesses andinvestment bankers or business brokerage companies that are active in themedia, entertainment and telecommunications industry.

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**Overview**

Themedia, entertainment and telecommunications industries include those companieswhich are involved in or support the creation, management, distribution orpresentation of any form of content to individual consumers and businesses.Although we may consider a target business in any segment of the media,entertainment or telecommunications industries, we are concentrating our searchfor an acquisition candidate in the following sectors, among others:

·                Content distribution systems, networks andservices (satellite, wireless and terrestrial);

·                Media portability products and services;

·                Services related to motion pictureexhibition;

·                Live event entertainment and venuemanagement;

·                Interactive television products and services;

·                Customer-premise equipment manufacturers;

·                Advertising products and services;

·                Content production and aggregation services;

·                Internet service providers;

·                Broadband network operators;

·                Internet related equipment, software andservices;

·                In-home equipment installation and repairservices; and

·                Directmarketing and call center services.

Weintend to leverage the industry experience of our executive officers anddirectors by focusing our efforts on identifying a prospective target businessin the media, entertainment or telecommunications industries.

**Our Management Team**

Ourmanagement team has extensive experience as senior executives in the media,entertainment and telecommunications industries. Eddy Hartenstein, LawrenceChapman, Steven Cox and Robert Meyers have all held long-term senior executivepositions at DIRECTV, Inc. Eddy Hartenstein, our Chairman, President andChief Executive Officer, headed DIRECTV from its inception in 1990 untilDecember 2003, during which time he led DIRECTV’s evolution from conceptto the nation’s leading provider of digital television, with approximately 12.2million customers and $7.7 billion in revenue through a combination of organicgrowth and acquisitions. Lawrence Chapman, our Executive Vice President, heldmultiple executive leadership positions within DIRECTV from its inception,including oversight of product development, programming, marketing and businessaffairs. Steven Cox, our Executive Vice President and Director, joined DIRECTVas its first general counsel shortly after commercial launch of service andheld multiple executive leadership positions including oversight of strategicpartnerships, business development and sales and distribution. Robert Meyers,our Chief Financial Officer, Treasurer and Director, joined DIRECTV as itsChief Financial Officer and later assumed executive oversight of customersatisfaction, which included the company’s installation and service network,customer service, marketing and customer retention activities. Bruce Lederman,our Executive Vice President and Secretary, was a senior partner at the lawfirm of Latham & Watkins LLP specializing in telecommunicationstransactions, and was extensively involved in all major negotiations involvingthe structuring and launch of the DIRECTV business on behalf of Hughes AircraftCompany (a predecessor to Hughes Electronics Corporation). In the course oftheir careers, management completed numerous strategic transactions and acquisitionsand developed extensive contacts and relationships in these industries.

**Effecting a Business Combination**

**General**

Weare not presently engaged in any substantive commercial business. We intend toutilize cash derived from the proceeds of the initial public offering, ourcapital stock, debt or a combination of these in effecting a 

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business combination. A business combination may involve theacquisition of, or merger with, a company that does not need substantialadditional capital but desires to establish a public trading market for itsshares, while avoiding what it may deem to be adverse consequences ofundertaking a public offering itself. These include time delays, significantexpense, loss of voting control and compliance with various Federal and statesecurities laws. In the alternative, we may seek to consummate a businesscombination with a company that may be financially unstable or in its earlystages of development or growth. While we may seek to effect businesscombinations with more than one target business, we will probably have theability, as a result of our limited resources, to initially effect only asingle business combination.

**We have notentered into any definitive agreement with a target business**

Todate, although we continue to search for a potential candidate for a businesscombination, we have not entered into any definitive agreements with any targetbusiness for a business combination.

Subjectto the limitations that a target business or businesses have a collective fairmarket value of at least 80% of our net assets at the time of the acquisition,as described below in more detail, we have virtually unrestricted flexibilityin identifying and selecting a prospective business combination candidate. Wehave not established any other specific attributes or criteria (financial orotherwise) for prospective target businesses. We do not intend to specificallytarget financially unstable, early stage or un-established companies; however,to the extent we effect a business combination with a financially unstablecompany or an entity in its early stage of development or growth, includingentities without established records of sales or earnings, we may be affectedby numerous risks inherent in the business and operations of financially unstableand early stage or potential emerging growth companies. Although our managementwill endeavor to evaluate the risks inherent in a particular target business,we cannot assure you that we will properly ascertain or assess all significantrisk factors.

** Sources of targetbusinesses**

Targetbusiness candidates have been brought to our attention from variousunaffiliated sources, including investment bankers, venture capital funds,private equity funds, leveraged buyout funds, management buyout funds and othermembers  of the  financial community,  who  present solicited  or  unsolicited proposals. Our officers anddirectors as well as their affiliates may also bring to our attention targetbusiness candidates.  Each member of ourmanagement team has been involved in the media, entertainment andtelecommunications industries for a majority of, if not their entire,professional careers. In connection therewith, members of our management, asthey have done in the past, frequently review newspaper articles and tradepublications, and attend conferences and trade shows, which relate to themedia, entertainment and telecommunications industries. We intend to engage theservices of professional firms or other individuals that specialize in businessacquisitions on any formal basis, in which event we may pay a finder’s fee orother compensation. The terms of any such arrangements will be negotiated withsuch persons on an arm’s length basis and disclosed to our stockholders in theproxy materials we provide in connection with any proposed businesscombination. In no event, however, will we pay any of our existing officers,directors or stockholders or any entity with which they are affiliated anyfinder’s fee or other compensation prior to or in connection with theconsummation of a business combination.

 **Selection ofa target business and structuring of a business combination**

Subject to the requirementthat our initial business combination must be with a target business orbusinesses with a collective fair market value that is at least 80% of our netassets at the time of such transaction, our management has virtuallyunrestricted flexibility in identifying and selecting a prospective targetbusiness in the media, entertainment or telecommunications industries. We havenot established any other specific 

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attributes (financial orotherwise) for prospective target businesses. In evaluating a prospectivetarget business, our management will consider, among other factors, thefollowing:

·                financial condition and results of operation;

·                growth potential;

·                experience and skill of management andavailability of additional personnel;

·                capital requirements;

·                competitive position;

·                barriers to entry;

·                stage of development of the products,processes or services;

·                degree of current or potential marketacceptance of the products, processes or services;

·                proprietary features and degree ofintellectual property or other protection of the products, processes orservices;

·                regulatory environment;

·                costs associated with effecting the businesscombination; and

·                relative valuation multiples of similarpublicly traded companies.

These criteria are notintended to be exhaustive. Any evaluation relating to the merits of aparticular business combination will be based, to the extent relevant, on theabove factors as well as other considerations deemed relevant by our managementin effecting a business combination consistent with our business objective. Inevaluating a prospective target business, we will conduct an extensive due diligencereview which will encompass, among other things, meetings with incumbentmanagement and inspection of facilities, as well as review of financial andother information which will be made available to us. We will engage independentthird party consultants or experts to assist us in the due diligenceprocess.  For additional information onsuch engagements, see below under the section entitled “Item 13 CertainRelationships and Related Transactions.”

The time and costs requiredto select and evaluate a target business and to structure and complete thebusiness combination cannot presently be ascertained with any degree ofcertainty. Any costs incurred with respect to the identification and evaluationof a prospective target business with which a business combination is notultimately completed will result in a loss to us and reduce the amount ofcapital available to otherwise complete a business combination. While we maypay fees or compensation to third parties for their efforts in introducing usto a potential target business, in no event, however, will we pay any of ourexisting officers, directors or stockholders or any entity with which they areaffiliated any finder’s fee or other compensation for services rendered to usor in connection with the consummation of the initial business combination.

** Fair market value oftarget business**

Theinitial target business or businesses with which we engage in a businesscombination must have a collective fair market value equal to at least 80% ofour net assets at the time of such acquisition, including any amount held inthe trust account subject to the conversion rights described below. There is nolimitation on our ability to raise funds privately or through loans that wouldallow us to acquire a target business or businesses with a fair market value inan amount considerably greater than 80% of our net assets at the time ofacquisition. The fair market value of any such business or businesses will bedetermined by our board of directors based upon standards generally accepted bythe financial community, such as actual and potential sales, earnings and cashflow and book value. If our board is not able to independently determine thatthe target business has a sufficient fair market value, we will obtain anopinion from an unaffiliated independent investment banking firm which is amember of the National Association of Securities Dealers, Inc. withrespect to the satisfaction of such criteria. Since any opinion, if obtained,would merely state that fair market value meets the 80% of net assetsthreshold, it is not anticipated that copies of such opinion would bedistributed to our stockholders, although copies will be provided tostockholders who request it. If we do 

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obtainsuch an opinion, we will provide details with respect to how such opinion maybe obtained from us in the Current Report on Form 8-K which we file todisclose our entering into the acquisition agreement. We will not be requiredto obtain an opinion from an investment banking firm as to the fair marketvalue if our board of directors independently determines that the targetbusiness has sufficient fair market value.

 **Probablelack of business diversification**

Whilewe may seek to effect business combinations with more than one target business,our initial business combination must be with one or more target businesseswhose fair market value, collectively, is at least equal to 80% of our netassets at the time of such acquisition, as discussed above. Consequently, it isprobable that we will have the ability to effect only a single businesscombination although this may entail the acquisition of several operatingbusinesses. We may not be able to engage in a business combination with morethan one target business because of various factors, including possible complexaccounting issues, which would include generating pro forma financialstatements reflecting the operations of several target businesses as if theyhad been combined, and numerous logistical issues, which could include attemptingto coordinate the timing of negotiations, proxy statement disclosure and otherlegal issues and closings with multiple target businesses. In addition, wewould also be exposed to the risks that conditions to closings with respect tothe transaction with one or more of the target businesses would not besatisfied, bringing the fair market value of the initial business combinationbelow the required fair market value of 80% of net assets threshold. Therefore,at least initially, the prospects for our success may be entirely dependentupon the future performance of a single business. Unlike entities that have theresources to complete several business combinations of entities operating inmultiple industries or multiple areas of a single industry, it is probable thatwe will not have the resources to diversify our operations or benefit from thepossible spreading of risks or offsetting of losses. By consummating a businesscombination with only a single entity, our lack of diversification may:

·                subjectus to numerous economic, competitive and regulatory developments, any or all ofwhich may have a substantial adverse impact upon the particular industry inwhich we may operate subsequent to a business combination; and

·                resultin our dependency upon the development or market acceptance of a single orlimited number of products, processes or services.

**Limited ability to evaluate the target business’ management**

Although we intend toclosely scrutinize the management of a prospective target business whenevaluating the desirability of effecting a business combination, we cannotassure you that our assessment will prove to be correct. In addition, we cannotassure you that new members that join our management following a businesscombination will have the necessary skills, qualifications or abilities tomanage a public company. Furthermore, the future role of our officers anddirectors, if any, in the target business following a business combinationcannot presently be stated with any certainty. While certain of our currentofficers and directors may remain associated in senior management or advisorypositions with us following a business combination, they may not devote theirfull time and efforts to our affairs subsequent to a business combination.Moreover, they would only be able to remain with the company after theconsummation of a business combination if they are able to negotiate employmentor consulting agreements in connection with such business combination, whichwould be negotiated at the same time as the business combination negotiationsare being conducted and which may be a term of the business combination. Suchnegotiations would take place simultaneously with the negotiation of thebusiness combination and could provide for such individuals to receive compensationin the form of cash payments and/or our securities for services they wouldrender to the company after the consummation of the business combination. Whilethe personal and financial interests of such individuals may influence theirmotivation in identifying and selecting a target business, the ability of suchindividuals to remain with the company after the consummation of a businesscombination will not be 

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the determining factor inour decision as to whether or not we will proceed with any potential businesscombination. Additionally, we cannot assure you that our officers and directorswill have significant experience or knowledge relating to the operations of theparticular target business.

Following a businesscombination, we may seek to recruit additional managers to supplement theincumbent management of the target business. We cannot assure you that we willhave the ability to recruit additional managers, or that any such additionalmanagers we do recruit will have the requisite skills, knowledge or experiencenecessary to enhance the incumbent management.

 **Opportunityfor stockholder approval of business combination**

Prior to the completion ofour initial business combination, we will submit the transaction to ourstockholders for approval, even if the nature of the business combination issuch as would not ordinarily require stockholder approval under applicablestate law. In connection with seeking stockholder approval of a businesscombination, we will furnish our stockholders with proxy solicitation materialsprepared in accordance with the Securities Exchange Act of 1934, which, amongother matters, will include a description of the operations of the targetbusiness and audited historical financial statements of the business.

In connection with thestockholder vote required to approve any business combination, all of ourfounding stockholders have agreed to vote the shares of common stock owned bythem prior to the initial public offering in the same manner as a majority ofthe public stockholders who vote at the special or annual meeting called forthe purpose of approving a business combination. Our founding stockholders havealso agreed that if they acquire shares of common stock in or following theinitial public offering, they will vote such acquired shares in favor of abusiness combination. As a result, any of our founding stockholders thatacquire shares during or after the initial public offering may not exerciseconversion rights with respect to those shares in the event that the businesscombination transaction is approved. We will proceed with the businesscombination only if a majority of the shares of common stock voted by thepublic stockholders are voted in favor of the business combination and publicstockholders owning less than 20% of the shares sold in the initial publicoffering exercise their conversion rights. We will only structure or consummatea business combination in which all stockholders exercising their conversionrights, up to 19.99%, will be entitled to receive their pro rata portion of thetrust account (net of taxes payable). Additionally, we will not propose abusiness combination to our stockholders which includes a provision that suchbusiness combination will not be consummated if stockholders owning less than19.99% vote against such business combination and exercise their conversionrights as described herein. Voting against the business combination alone willnot result in conversion of a stockholder’s shares into a pro rata share of thetrust account. Such stockholder must have also exercised its conversion rightsdescribed below.

**Conversion rights**

At the time we seekstockholder approval of any business combination, we will offer each publicstockholder, other than our founding stockholders, the right to have suchstockholder’s shares of common stock converted to cash if the stockholder votesagainst the business combination and the business combination is approved andcompleted. The conversion rights do not apply to shares outstanding prior tothe initial public offering. The actual per-share conversion price will beequal to the amount in the trust account, prior to deduction of any deferredcosts and inclusive of any interest (net of any taxes due on such interest,which taxes, if any, shall be paid from the trust account, and calculated as oftwo business days prior to the consummation of the proposed businesscombination), divided by the number of shares sold in the initial publicoffering. Without taking into any account interest earned on the trust accountor taxes payable on such interest, the initial per-share conversion price wouldbe $7.604 or $0.396 less than the per unit offering price of $8.00. Because theinitial per share conversion price is $7.604 per share (plus any interest netof taxes payable), which may be lower than the market price of the common stockon the date of the conversion, there may be a disincentive on the part ofpublic stockholders to exercise their conversion rights.

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If a business combination isapproved, stockholders that vote against the business combination and elect toconvert their shares of common stock to cash will be entitled to receive theirpro-rata portion of the $3.0 million ($0.16 per share) of deferredunderwriting discount held in the trust account.

An eligible stockholder mayrequest conversion at any time after the mailing to our stockholders of theproxy statement and prior to the vote taken with respect to a proposed businesscombination at a meeting held for that purpose, but the request will not be grantedunless the stockholder votes against the business combination and the businesscombination is approved and completed. Any request for conversion, once made,may be withdrawn at any time up to the date of the meeting. It is anticipatedthat the funds to be distributed to stockholders entitled to convert theirshares who elect conversion will be distributed promptly after completion of abusiness combination. Public stockholders who convert their stock into theirshare of the trust account still have the right to exercise the warrants thatthey received as part of the units. We will not complete any businesscombination if public stockholders, owning 20% or more of the shares sold inthe initial public offering, both exercise their conversion rights and voteagainst the business combination. We will only structure or consummate abusiness combination in which all stockholders exercising their conversionrights, up to 19.99%, will be entitled to receive their pro rata portion of thetrust account (net of taxes payable).

**Liquidation if no business combination**

Pursuant to the terms of thetrust agreement between us and American Stock Transfer and Trust Company, andonly as part of any plan of dissolution and distribution in accordance with theapplicable provisions of the Delaware General Corporate Law if we do notcomplete a business combination within 18 months after the consummation of theinitial public offering, or within 24 months if the extension criteriadescribed below have been satisfied, we will dissolve and promptly liquidateand distribute only to our public stockholders, in proportion to theirrespective equity interests, an aggregate sum equal to the amount in the trustaccount, inclusive of any interest (net of taxes payable). In the event we seekstockholder approval for a plan of dissolution and distribution and do notobtain such approval, we will nonetheless continue to pursue stockholderapproval for our dissolution. Pursuant to the terms of our amended and restatedcertificate of incorporation, our board has agreed to dissolve after the expiryof those time periods (assuming that there has been no business combinationconsummated), and furthermore, our powers following the expiration of thepermitted time periods for consummating a business combination willautomatically thereafter be limited to acts and activities relating todissolving and winding up our affairs, including liquidation. The fundsheld in our trust account may not be distributed except upon our dissolutionand, unless and until such approval is obtained from our stockholders, thefunds held in our trust account will not be released.  Consequently,holders of a majority of our outstanding stock must approve our dissolution inorder to receive the funds held in our trust account and the funds will not beavailable for any other corporate purpose. Immediately upon the approval by ourstockholders of our plan of dissolution and distribution, we will liquidate ourtrust account to our public stockholders. Our founding stockholders have waivedtheir rights to participate in any liquidation of our trust account inconnection with our dissolution with respect to shares of common stock owned bythem immediately prior to the initial public offering and to vote their sharesof common stock in favor of any plan of dissolution and distribution which wewill submit to a vote of our stockholders. Upon the liquidation of our trustaccount as part of our dissolution, the underwriters have agreed to waive anyright they may have to the $3.0 million of deferred underwriting discountcurrently being held in the trust account. There will be no distribution fromthe trust account with respect to our warrants, which will expire worthless. Wewill pay the costs of dissolution, which we currently estimate to beapproximately $50,000 to $75,000, from our remaining assets outside of thetrust account or, if necessary, from funds available from our limited recourseline of credit. In addition, our Chairman and certain of our officers haveagreed to indemnify us for all claims of creditors to the extent that we failto obtain valid and enforceable waivers from such entities in order to protectthe amounts held in trust.

 

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If we were to expend all ofthe net proceeds of the initial public offering, other than the proceedsdeposited in the trust account, and without taking into account interest, ifany, earned on the trust account, the initial per-share liquidation price wouldbe $7.604 or $0.396 less than the per unit offering price of $8.00. Theproceeds deposited in the trust account could, however, become subject to theclaims of our creditors which could be prior to the claims of our publicstockholders. We cannot assure you that the actual per-share liquidation pricewill not be less than $7.604, plus interest (net of taxes payable, which taxes,if any, shall be paid from the trust account), due to claims of creditors.Although we 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 will executesuch agreements or even if they execute such agreements that they would beprevented from bringing claims against the trust account including but notlimited to fraudulent inducement, breach of fiduciary responsibility or othersimilar claims, as well as claims challenging the enforceability of the waiver,in each case in order to gain an advantage with a claim against our assets,including the funds held in the trust account. If any third party refused toexecute an agreement waiving such claims to the monies held in the trustaccount, we would perform an analysis of the alternatives available to us if wechose not to engage such third party and evaluate if such engagement would bein the best interest of our stockholders if such third party refused to waivesuch claims. Examples of possible instances where we may engage a third partythat refused to execute a waiver include the engagement of a third partyconsultant whose particular expertise or skills are believed by management tobe significantly superior to those of other consultants that would agree toexecute a waiver or in cases where management is unable to find a provider ofrequired services willing to provide the waiver. In any event, our managementwould perform an analysis of the alternatives available to it and would onlyenter into an agreement with a third party that did not execute a waiver ifmanagement believed that such third party’s engagement would be significantlymore beneficial to us than any alternative. In addition, there is no guaranteethat such entities will agree to waive any claims they may have in the futureas a result of, or arising out of, any negotiations, contracts or agreementswith us and will not seek recourse against the trust account for any reason.Our Chairman and all of our executive officers have agreed pursuant toagreements with us and Morgan Joseph & Co. Inc. that, if we distributethe proceeds held in trust to our public stockholders, they will be personallyliable only if a vendor or a prospective target business does not provide avalid and enforceable waiver to any rights or claims to the trust account topay debts and obligations to vendors, prospective target businesses or otherentities that are owed money by us for services rendered or products sold to usin excess of the net proceeds of the initial public offering not held in thetrust account, to the extent necessary to ensure that such claims do not reducethe amount in the trust account.  Based on information we have obtainedfrom such individuals, we currently believe that such persons are ofsubstantial means and capable of funding a shortfall in our trust account eventhough we have not asked them to reserve for such an eventuality. We cannotassure you, however, that they would be able to satisfy those obligations.

We believe the likelihood ofour Chairman and executive officers having to indemnify the trust account islimited because we endeavor to have all vendors and prospective targetbusinesses as well as other entities execute agreements with us waiving anyright, title, interest or claim of any kind in or to monies held in the trustaccount. We also have access to $1.2 million in funds available outside thetrust account and a subordinated revolving line of credit of $750,000 madeavailable to us by our Chairman and executive officers with which to pay anysuch potential claims (including costs and expenses incurred in connection withour plan of dissolution and distribution currently estimated at approximately$50,000 to $75,000). The indemnification provisions are set forth in theamended and restated insider letters, dated as of May 26, 2006, executedby each of our officers. The insider letters were amended to specifically setforth that in the event we obtain a valid and enforceable waiver of any right,title, interest or claim of any kind in or to any monies held in the trustaccount for the benefit of our stockholders from a vendor, prospective targetbusiness or other entity, the indemnification will not be available. Theamended and restated insider letters executed by each of our officers, dated asof May 26, 2006, are exhibits to Amendment no. 8 to the RegistrationStatement on Form S-1, filed with the Securities and Exchange Commission on May30, 2006. In the event that the board recommends and our stockholders approve aplan of dissolution and distribution where it is subsequently determined thatthe reserve for claims and liabilities is insufficient, stockholders whoreceived a return of 

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funds from the liquidationof our trust account could be liable for claims made by creditors.

Additionally, if we areforced to file a bankruptcy case or an involuntary bankruptcy case is filedagainst us which is not dismissed, the funds held in our trust account will besubject to applicable bankruptcy law, and may be included in our bankruptcyestate and subject to the claims of third parties with priority over the claimsof our stockholders. To the extent any bankruptcy claims deplete the trustaccount we cannot assure you we will be able to return to our publicstockholders the liquidation amounts due them.

We will dissolve andliquidate our trust account to our public stockholders if we do not complete abusiness combination within 18 months after the consummation of the initialpublic offering (or within 24 months after the consummation of the initialpublic offering if the extension criteria described below have been satisfied).Under Sections 280 through 282 of the Delaware General Corporation Law,stockholders may be held liable for claims by third parties against acorporation to the extent of distributions received by them in a dissolution.If the corporation complies with certain procedures intended to ensure that itmakes reasonable provision for all claims against it, including a 60-day noticeperiod during which any third-party claims can be brought against thecorporation, a 90-day period during which the corporation may reject any claimsbrought, and an additional 150-day waiting period before any liquidatingdistributions are made to stockholders, any liability of stockholders withrespect to a liquidating distribution is limited to the lesser of suchstockholder’s pro rata share of the claim or the amount distributed to thestockholder, and any liability of the stockholder would be barred after thethird anniversary of the dissolution. However, we will seek stockholderapproval to liquidate our trust account to our public stockholders as soon asreasonably possible as part of our plan of dissolution and distribution and,therefore, we do not intend to comply with those procedures. As such, ourstockholders could potentially be liable for any claims to the extent ofdistributions received by them in a dissolution and any such liability of ourstockholders will likely extend beyond the third anniversary of suchdissolution. Accordingly, we cannot assure you that third parties will not seekto recover from our stockholders amounts owed to them by us.

Pursuant to, among otherdocuments, our amended and restated certificate of incorporation, if we do notcomplete a business combination within 18 months after the consummation of theinitial public offering, or within 24 months after the consummation of theinitial public offering if the extension criteria described below have beensatisfied, our purpose and powers will be limited to dissolving, liquidatingand winding up. We view this obligation to dissolve and liquidate as anobligation to our stockholders and neither we nor our board of directors willtake any action to amend or waive any provision of our certificate ofincorporation to allow us to survive for a longer period of time if it does notappear we will be able to consummate a business combination within theforegoing time periods. Upon dissolution, we will distribute to all of our publicstockholders, in proportion to their respective equity interest, an aggregatesum equal to the amount in the trust account, inclusive of any interest andinclusive of the $3,000,000 deferred underwriter’s fee. Our foundingstockholders have waived their rights to participate in any liquidationdistribution with respect to their initial shares and have also agreed to votein favor of any plan of dissolution and distribution which we will present toour stockholders for vote. There will be no distribution from the trust accountwith respect to our warrants which will expire worthless. We will pay the costsof dissolution and liquidation, which we currently estimate to be approximately$50,000 to $75,000, from our remaining assets outside of the trust account or,if necessary, from funds available under our limited recourse line of credit.In addition, our Chairman and certain of our officers have agreed to indemnifyus for all claims of creditors to the extent that we fail to obtain valid andenforceable waivers from such entities in order to protect the amounts held intrust.

If we enter into either aletter of intent, an agreement in principle or a definitive agreement tocomplete a business combination prior to the expiration of 18 months after theconsummation of the initial public offering, but are unable to complete thebusiness combination within the 18-month period, then we will have anadditional six months in which to complete the business combinationcontemplated by the letter of intent, agreement in principle or definitiveagreement. If we are unable to consummate a transaction within 24 monthsfollowing the consummation of the initial public offering our purpose andpowers will be limited to 

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dissolving, liquidating andwinding up. Upon notice from us, the trustee of the trust account willliquidate the investments constituting the trust account and will turn over theproceeds to our transfer agent for distribution to our public stockholders aspart of our plan of dissolution and distribution. Concurrently, we shall pay,or reserve for payment, from funds not held in trust, our liabilities andobligations, although we cannot assure you that there will be sufficient fundsfor such purpose. If there are insufficient funds held outside the trust accountfor such purpose, we will have the ability to draw upon our limited recourseline of credit made available from certain of our executive officers anddirectors. In addition, our Chairman and certain of our officers have agreed toindemnify us for all claims of creditors to the extent that we fail to obtainvalid and enforceable waivers from such entities in order to protect theamounts held in trust.

Under the Delaware GeneralCorporation Law, stockholders may be held liable for claims by third partiesagainst a corporation to the extent of distributions received by them in adissolution. If the corporation complies with certain procedures set forth inSection 280 of the Delaware General Corporation Law intended to ensure that itmakes reasonable provision for all claims against it, including a 60-day noticeperiod during which any third-party claims can be brought against thecorporation, a 90-day period during which the corporation may reject any claimsbrought, and an additional 150-day waiting period before any liquidatingdistributions are made to stockholders, any liability of stockholders withrespect to a liquidating distribution is limited to the lesser of suchstockholder’s pro rata share of the claim or the amount distributed to thestockholder, and any liability of the stockholder would be barred after thethird anniversary of the dissolution. Although we will make liquidatingdistributions to our stockholders as soon as reasonably possible as part of ourplan of dissolution and distribution, we do not intend to comply with thoseprocedures. As such, our stockholders could potentially be liable for anyclaims to the extent of distributions received by them in a dissolution and anysuch liability of our stockholders will likely extend beyond the thirdanniversary of such dissolution. Because we will not be complying with Section280, we will seek stockholder approval to comply with Section 281(b) of theDelaware General Corporation Law, requiring us to adopt a plan of dissolutionthat will provide for our payment, based on facts known to us at such time, of(i) all existing claims, (ii) all pending claims and (iii) all claims that maybe potentially brought against us within the subsequent 10 years. However,because we are a blank check company, rather than an operating company, and ouroperations are limited to searching for prospective target businesses toacquire, the only likely claims to arise would be from our vendors (such asaccountants, lawyers, investment bankers, etc.) or potential target businesses.As described above, we intend to have all vendors and prospective targetbusinesses execute agreements with us waiving any right, title, interest orclaim of any kind in or to any monies held in the trust account. As a result ofthis, the claims that could be made against us are significantly limited andthe likelihood that any claim that would result in any liability extending tothe trust account is minimal.

We expect that all costsassociated with the implementation and completion of our plan of dissolutionand distribution, which we currently estimate to be approximately $50,000 to$75,000, will be funded by any funds not held in our trust account or, ifnecessary, from funds available under our limited resource line of credit,although we cannot assure you that there will be sufficient funds for suchpurpose

We currently believe thatany plan of dissolution and distribution subsequent to the expiration of the 18and 24 month deadlines would proceed in the following manner:

·                ourboard of directors will, consistent with its obligations described in ouramended and restated certificate of incorporation to dissolve, prior to thepassing of such deadline, convene and adopt a specific plan of dissolution anddistribution, which it will then vote to recommend to our stockholders; at suchtime it will also cause to be prepared a preliminary proxy statement settingout such plan of dissolution and distribution and the board’s recommendation ofsuch plan;

·                uponsuch deadline, we would file the preliminary proxy statement with theSecurities and Exchange Commission;

·                ifthe Securities and Exchange Commission does not review the preliminary proxystatement, then 10 

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days following the passingof such deadline, we will mail the proxy statements to our stockholders, and 30days following the passing of such deadline we will convene a meeting of ourstockholders at which they will either approve or reject our plan ofdissolution and distribution; and

·                ifthe Securities and Exchange Commission does review the preliminary proxystatement, we currently estimate that we will receive their comments 30 daysfollowing the passing of such deadline. We will mail the proxy statements toour stockholders following the conclusion of the comment and review process (thelength of which we cannot predict with any certainty), and we will convene ameeting of our stockholders at which they will either approve or reject ourplan of dissolution and distribution.

In the event we seekstockholder approval for a plan of dissolution and distribution and do notobtain such approval, we will nonetheless continue to pursue stockholderapproval for our dissolution. Pursuant to the terms of our amended and restatedcertificate of incorporation, our powers following the expiration of thepermitted time periods for consummating a business combination willautomatically thereafter be limited to acts and activities relating todissolving and winding up our affairs, including  liquidation. The fundsheld in our trust account may not be distributed except upon our dissolutionand, unless and until such approval is obtained from our stockholders, thefunds held in our trust account will not be released.  Consequently,holders of a majority of our outstanding stock must approve our dissolution inorder to receive the funds held in our trust account and the funds will not beavailable for any other corporate purpose. In addition, if we seek approvalfrom our stockholders to consummate a business combination within 90 days ofthe expiration of 24 months (assuming that the period in which we need toconsummate a business combination has been extended, as provided in our amendedand restated certificate of incorporation) from the date of the initial publicoffering, the proxy statement related to such a business combination will alsoseek stockholder approval for our board’s recommended plan of distribution anddissolution, in the event our stockholders do not approve such a businesscombination. If no proxy statement seeking the approval of our stockholders fora business combination has been filed 30 days prior to the date which is 24months from the date of the initial public offering, our board will, prior tosuch date, convene, adopt and recommend to our stockholders a plan ofdissolution and distribution, and on such date file a proxy statement with theSecurities and Exchange Commission seeking stockholder approval for such plan.Immediately upon the approval by our stockholders of our plan of dissolutionand distribution, we will liquidate our trust account to our publicstockholders.

**Competitionfor target businesses**

In identifying, evaluatingand selecting a target business, we encounter intense competition from otherentities having a business objective similar to ours. Many of these entities arewell established and have extensive experience 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 there are potential targetbusinesses that we could acquire with the net proceeds of the initial publicoffering, our ability to compete in acquiring certain sizable target businessesis limited by our available financial resources. This inherent competitivelimitation gives others an advantage in pursuing the acquisition of a targetbusiness. Further:

·                ourobligation to seek stockholder approval of a business combination or obtain thenecessary financial information to be included in the proxy statement to besent to stockholders in connection with such business combination may delay orprevent the completion of a transaction;

·                ourobligation to convert into cash shares of common stock held by our publicstockholders in certain instances may reduce the resources available to us fora business combination;

·                therequirement to acquire assets or an operating business that has a fair marketvalue equal to at least 80% of our net assets at the time of the acquisitioncould require us to acquire several assets or closely 

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related operating businessesat the same time, all of which sales would be contingent on the closings of theother sales, which could make it more difficult to consummate the businesscombination; and

·                ouroutstanding warrants and unit purchase option, and the potential futuredilution they represent, may not be viewed favorably by certain targetbusinesses.

Additionally, we facecompetition from other blank check companies that have formed recently, anumber of which may consummate a business combination in any industry theychoose. We may therefore be subject to competition from these companies, whichare seeking to consummate a business plan similar to ours and which will, as aresult, increase demand for privately-held companies to combine with companiesstructured similarly to ours.

Any of these factors mayplace us at a competitive disadvantage in negotiating a business combination.Our management believes, however, that our status as a public entity and ourpotential access to the United States public equity markets may give us acompetitive advantage over privately-held entities having a similar businessobjective to us in acquiring a target business with significant growthpotential on favorable terms.

If we effect a businesscombination, there will be, in all likelihood, intense competition fromcompetitors of the target business. We cannot assure you that, subsequent to abusiness combination, we will have the resources or ability to competeeffectively.

**FinancialInformation**

We will not acquire anoperating business in the media, entertainment or telecommunications industriesif audited financial statements based on United States generally acceptedaccounting principles cannot be obtained for such target business.Additionally, our management will provide stockholders with audited financialstatements, prepared in accordance with United States generally acceptedaccounting principles, of the prospective target business as part of the proxysolicitation materials sent to stockholders to assist them in assessing eachspecific target business or assets we seek to acquire. We cannot assure youthat any particular target business identified by us as a potential businesscombination candidate will have financial statements prepared in accordancewith United States generally accepted accounting principles or that thepotential target business will be able to prepare its financial statements inaccordance with United States generally accepted accounting principles. Thefinancial statements of a potential target business will be required to beaudited in accordance with United States generally accepted accountingstandards. To the extent that this requirement cannot be met, we will not beable to effect a business combination with the proposed target business. Ourmanagement believes that although the requirement of having available financialinformation for the target business or assets may limit the pool of potentialtarget businesses or assets available for acquisition, the narrowing of thepool is not expected to be material.

**AvailableInformation**

Weare subject to the information requirements of the Exchange Act. Therefore, wefile periodic reports, proxy statements and other information with the SEC.Such reports, proxy statements and other information may be obtained byvisiting the Public Reference Room of the SEC at 100 F Street, NW, Washington,DC 20549. You may obtain information on the operation of the Public ReferenceRoom by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains anInternet site (http://www.sec.gov) that contains reports, proxy and informationstatements and other information regarding issuers that file electronically.

**Employees**

HDPartners has five directors and five officers. These individuals are notobligated to contribute any specific number of hours to HD Partners’ businessper week, and they intend to devote only as 

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much time as they deem necessary to HD Partners’ affairs. HD Partnershas no paid employees. The amount of time they will devote in any time periodwill vary based on the availability of suitable target businesses toinvestigate, although we expect such individuals to devote an average ofapproximately ten hours per week to our business. We do not intend to have anyfull time employees prior to the consummation of a business combination.

**Item1A.  Risk Factors**

Aninvestment in our securities involves a high degree of risk. You shouldconsider carefully all of the material risks described below, together with theother information contained elsewhere in this Annual Report before making adecision to invest in our securities.

**RISKS ASSOCIATED WITH OUR 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.*

Weare a development stage company with no operating results to date. Since we donot have any operations or an operating history, you will have no basis uponwhich to evaluate our ability to achieve our business objective, which is toacquire one or more operating businesses in the media, entertainment ortelecommunications industries. To date, although we continue to search for apotential candidate for a business combination, we have not entered into anydefinitive agreements with any target business for a business combination. Wewill not generate any revenues or income, other than interest on the trustaccount funds, until, at the earliest, after the consummation of a businesscombination. The financial statements do not include any adjustments that mightresult from our ability to consummate the initial public offering or ourability to operate as a going concern.

*IF WE ARE FORCEDTO DISSOLVE BEFORE THE COMPLETION OF A BUSINESS COMBINATION, OUR PUBLICSTOCKHOLDERS WILL RECEIVE LESS THAN $8.00 PER SHARE UPON DISTRIBUTION OF THETRUST ACCOUNT AND OUR WARRANTS WILL EXPIRE WORTHLESS.*

Ifwe are unable to complete a business combination, and are forced to liquidatethe trust account as part of our plan of dissolution and distribution, theper-share liquidation price received by our public stockholders from the trustaccount will be less than $8.00 because of the expenses of the initial publicoffering, our general and administrative expenses and the anticipated costs ofseeking a business combination after the initial public offering. Following ourdissolution, and upon the liquidation of the trust account, public stockholderswill be entitled to receive (unless there are claims not otherwise satisfied bythe amounts not held in the trust account, the funds made available under theline of credit or the indemnification provided by certain of our officers anddirectors) approximately $7.604 per share plus interest earned on their prorata portion of the trust account (net of taxes payable thereon), whichincludes $3.0 million ($0.16 per unit) of deferred underwritingdiscounts and commissions and the $2,250,000 ($0.12 per unit) purchase price ofthe founding director warrants; provided, however that our Chairman and certainof our executive officers have agreed to indemnify us for all creditor claims,only to the extent we do not obtain valid and enforceable waivers from vendors,prospective target businesses or other entities, in order to protect theamounts held in the trust account. In the event that our board recommends andour stockholders approve a plan of dissolution and distribution where it issubsequently determined that the reserve for claims and liabilities isinsufficient, stockholders who received a return of funds from the liquidationof our trust account could be liable for claims made by our creditors.Furthermore, there will be no distribution with respect to our outstandingwarrants and, accordingly, the warrants will expire worthless if we liquidatethe trust account as part of our 

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plan of dissolution and distribution in the event we do not complete abusiness combination within the required time periods. For a more completediscussion of the effects on our stockholders if we are unable to complete abusiness combination, see the section below entitled “ProposedBusiness—Effecting a Business Combination—Plan of Dissolution and Liquidationif no Business Combination.”

*IF THECASH NOT HELD IN TRUST IS INSUFFICIENT TO ALLOW US TO OPERATE FOR AT LEAST 24MONTHS FROM THE CONSUMMATION OF OUR INITIAL PUBLIC OFFERING, WE MAY BE UNABLETO COMPLETE A BUSINESS COMBINATION.*

Webelieve that the funds held by us outside the trust account (including $750,000available to us from a limited recourse line of credit) are sufficient to allowus to operate until at least June 7, 2008 (which is a minimum of 24 months fromour initial public offering), assuming that a business combination is notconsummated during that time. However, we cannot assure you that our estimatesare accurate. We could use a portion of these funds to engage consultants toassist us with our search for a target business. We could also use a portion ofthese funds as a down payment or to fund a “no-shop” provision (a provision inletters of intent designed to prevent a target businesses from “shopping”around for transactions with other companies on terms more favorable to suchtarget businesses) with respect to a particular proposed business combination,although we do not have any current intention to do so. If we entered into sucha letter of intent where we paid for the right to receive exclusivity from atarget business and were subsequently required to forfeit such funds (whetheras a result of our breach or otherwise), we may not have sufficient funds tocontinue searching for, or conduct due diligence with respect to, a targetbusiness.

*BECAUSE OF OUR LIMITED RESOURCES AND THESIGNIFICANT COMPETITION FOR BUSINESS COMBINATION OPPORTUNITIES, INCLUDINGNUMEROUS COMPANIES WITH A BUSINESS PLAN SIMILAR TO OURS, IT MAY BE MOREDIFFICULT FOR US TO COMPLETE A BUSINESS COMBINATION.*

     Basedon publicly available information, approximately 80 similarly structured blankcheck companies have completed initial public offerings since August 2003, andnumerous others have filed registration statements.  Of these companies, only 19 companies haveconsummated a business combination, while 20 other companies have announcedthat they have entered into definitive agreements or letters of intent withrespect to potential business combinations, but have not yet consummated suchbusiness combinations and another four will be liquidating.  Accordingly, there are approximately 37 blankcheck companies with more than $3.1 billion in trust that have filedregistration statements and are or will be seeking to enter into a businesscombination.  While some of thesecompanies have specific industries in which they must identify a potentialtarget business, a number of these companies may consummate a businesscombination in any industry and/or geographic location they choose. As aresult, we may be subject to competition from these and other companies seekingto consummate a business combination within any of our target sectors, which,in turn, will result in an increased demand for privately-held companies inthese industries. Because of this competition, we cannot assure you that wewill be able to effectuate a business combination within the required timeperiod. Further, the fact that only 39 of such companies have eitherconsummated a business combination or entered into a definitive agreement for abusiness combination may indicate that there are fewer attractive targetbusinesses available to such entities or that many privately-held targetbusinesses are not inclined to enter into these types of transactions withpublicly-held blank check companies like ours.

     We expect to encounter intensecompetition from other entities having a business objective similar to ours,including private investors (which may be individuals or investmentpartnerships), other blank check companies, and other entities, domestic andinternational, competing for the type of businesses that we may intend toacquire. Many of these individuals and entities are well established and haveextensive experience in identifying and effecting, directly or indirectly,acquisitions of media, entertainment or telecommunications assets and entities.Many of these competitors possess greater technical, human and other resources,or more 

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localindustry knowledge, than we do and our financial resources are relativelylimited when contrasted with those of many of these competitors. While webelieve that there are numerous target acquisitions that we could potentiallyacquire with the net proceeds of this offering, our ability to compete withrespect to the acquisition of certain target acquisitions that are sizable islimited by our available financial resources. This inherent competitivelimitation gives others an advantage in pursuing the acquisition of certaintarget acquisitions. Furthermore, the obligation we have to seek stockholderapproval of a business combination may delay the consummation of a transaction.Additionally, our outstanding warrants and the future dilution they potentiallyrepresent may not be viewed favorably by certain target acquisitions. Also, ourobligation to convert into cash the shares of common stock in certain instancesmay reduce the resources available for a business combination. Any of theseobligations may place us at a competitive disadvantage in successfullynegotiating a business combination.

     Wecannot assure you we will be able to successfully compete for an attractivebusiness combination. Additionally, because of this competition, we cannotassure you we will be able to effectuate a business combination within theprescribed time period. If we are unable to consummate a business combinationwithin the prescribed time period, we will be forced to liquidate.

*IF THIRDPARTIES BRING CLAIMS AGAINST US, THE PROCEEDS HELD IN TRUST COULD BE REDUCEDAND THE PER-SHARE LIQUIDATION PRICE RECEIVED BY STOCKHOLDERS FROM THE TRUSTACCOUNT AS PART OF OUR PLAN OF DISSOLUTION AND DISTRIBUTION WILL BE LESS THAN$7.604 PER SHARE.*

Ourplacing of funds in trust may not protect those funds from third party claimsagainst us. Although we will seek to have all vendors, prospective targetbusinesses or other entities with which we execute agreements waive any right,title, interest or claim of any kind in or to any monies held in the trustaccount for the benefit of our public stockholders, there is no guarantee thatthey will execute such agreements, or even if they execute such agreements thatthey would be prevented from bringing claims against the trust accountincluding but not limited to fraudulent inducement, breach of fiduciaryresponsibility or other similar claims, as well as claims challenging theenforceability of the waiver, in each case in order to gain an advantage with aclaim against our assets, including the funds held in the trust account. If anythird party refused to execute an agreement waiving such claims to the moniesheld in the trust account, we would perform an analysis of the alternativesavailable to us if we chose not to engage such third party and evaluate if suchengagement would be in the best interest of our stockholders if such thirdparty refused to waive such claims.

Examplesof possible instances where we may engage a third party that refused to executea waiver include the engagement of a third party consultant whose particularexpertise or skills are believed by management to be significantly superior tothose of other consultants that would agree to execute a waiver or in caseswhere management is unable to find a provider of required services willing toprovide the waiver. In any event, our management would perform an analysis ofthe alternatives available to it and would only enter into an agreement with athird party that did not execute a waiver if management believed that suchthird party’s engagement would be significantly more beneficial to us than anyalternative. In addition, there is no guarantee that such entities will agreeto waive any claims they may have in the future as a result of, or arising outof, any negotiations, contracts or agreements with us and not seek recourseagainst the trust account for any reason. Accordingly, the proceeds held intrust could be subject to claims that could take priority over the claims of ourpublic stockholders and the per-share liquidation price could be less than the$7.604 per share held in the trust account, plus interest (net of any taxes dueon such interest, which taxes, if any, shall be paid from the trust account),due to claims of such creditors. If we are unable to complete a businesscombination and dissolve the company, our Chairman and executive officers willbe personally liable, if we did not obtain a valid and enforceable waiver fromany vendor, prospective target business or other entity of any rights or claimsto the trust account, to ensure that the proceeds in the trust account are notreduced by the claims of various vendors, prospective target businesses orother entities that are owed money by us for services rendered or products soldto us, to the extent necessary to ensure that such claims do not reduce theamount in 

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the trust account. Based on information we have obtained from suchindividuals, we currently believe that such persons are of substantial meansand capable of funding a shortfall in our trust account, even though we havenot asked them to reserve for such an eventuality. However, we cannot assureyou that our Chairman and executive officers will be able to satisfy thoseobligations. We believe the likelihood of our Chairman and executive officershaving to indemnify the trust account is limited because we will endeavor tohave all vendors and prospective target businesses as well as other entitiesexecute agreements with us waiving any right, title, interest or claim of anykind in or to monies held in the trust account. We also will have access to$1.2 million in funds available outside the trust account and asubordinated revolving line of credit of $750,000 made available to us by ourChairman and executive officers with which to pay any such potential claims(including costs and expenses incurred in connection with our plan ofdissolution and distribution currently estimated at approximately $50,000 to$75,000). The indemnification provisions are set forth in the amended andrestated insider letters, dated as of May 26, 2006, executed by each ofour officers. The insider letters were amended to specifically set forth thatin the event we obtain a valid and enforceable waiver of any right, title, interestor claim of any kind in or to any monies held in the trust account for thebenefit of our stockholders from a vendor, prospective target business or otherentity, the indemnification will not be available. The amended and restatedinsider letters executed by each of our officers, dated as of May 26,2006, are exhibits to Amendment no. 8 to the Registration Statement onForm S-1, filed with the Securities and Exchange Commission on May 30, 2006. Inthe event that our board recommends and our stockholders approve a plan ofdissolution and distribution where it is subsequently determined that thereserve for claims and liabilities is insufficient, stockholders who received areturn of funds from our trust account as part of its liquidation could beliable for claims made by creditors.

Additionally,if we are forced to file a bankruptcy case or an involuntary bankruptcy case isfiled against us which is not dismissed, the funds held in our trust accountwill be subject to applicable bankruptcy law, and may be included in ourbankruptcy estate and subject to the claims of third parties with priority overthe claims of our stockholders. To the extent any bankruptcy claims deplete thetrust account we cannot assure you we will be able to return to our publicstockholders the liquidation amounts due them.

*OURSTOCKHOLDERS MAY BE HELD LIABLE FOR CLAIMS BY THIRD PARTIES AGAINST US TO THEEXTENT OF DISTRIBUTIONS RECEIVED BY THEM.*

Wewill dissolve and liquidate our trust account to our public stockholders if wedo not complete a business combination within 18 months after the consummationof the initial public offering (or within 24 months after the consummation ofthe initial public offering if the extension criteria described below have beensatisfied). Under Sections 280 through 282 of the Delaware General CorporationLaw, stockholders may be held liable for claims by third parties against acorporation to the extent of distributions received by them in a dissolution.If the corporation complies with certain procedures intended to ensure that itmakes reasonable provision for all claims against it, including a 60-day noticeperiod during which any third-party claims can be brought against thecorporation, a 90-day period during which the corporation may reject any claimsbrought, and an additional 150-day waiting period before any liquidatingdistributions are made to stockholders, any liability of stockholders withrespect to a liquidating distribution is limited to the lesser of suchstockholder’s pro rata share of the claim or the amount distributed to thestockholder, and any liability of the stockholder would be barred after thethird anniversary of the dissolution. Although we will seek stockholderapproval to liquidate the trust account to our public stockholders as part ofour plan of dissolution and distribution, we do not intend to comply with thoseprocedures. In the event that the Board recommends and the stockholders approvea plan of dissolution and distribution where it is subsequently determined thatthe reserve for claims and liabilities was insufficient, stockholders whoreceived a return of funds could be liable for claims made by creditors. Assuch, our stockholders could potentially be liable for any claims to the extentof distributions received by them in a dissolution and any such liability ofour stockholders will likely extend beyond the third anniversary of suchdissolution. Accordingly, we cannot assure you that third parties will not seekto recover from our stockholders amounts owed to them by us.

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*WE WILL DISSOLVE AND LIQUIDATE IF WE DO NOT CONSUMMATE ABUSINESS COMBINATION*

Pursuant to, among other documents, ouramended and restated certificate of incorporation, if we do not complete abusiness combination within 18 months after the consummation of the initialpublic offering, or within 24 months after the consummation of the initialpublic offering if the extension criteria described below have been satisfiedour purpose and powers will be limited to dissolving, liquidating and windingup. We view this obligation to dissolve and liquidate as an obligation to ourpublic stockholders and neither we nor our board of directors will take anyaction to amend or waive any provision of our certificate of incorporation toallow us to survive for a longer period of time if it does not appear we willbe able to consummate a business combination within the foregoing time periods.Upon dissolution, we will distribute to all of our public stockholders, inproportion to their respective equity interest, an aggregate sum equal to theamount in the trust account, inclusive of any interest. Our foundingstockholders have waived their rights to participate in any liquidationdistribution with respect to their initial shares and have agreed to vote infavor of any plan of dissolution and distribution which we will present to ourstockholders for vote. There will be no distribution from the trust accountwith respect to our warrants which will expire worthless. We will pay the costsof our dissolution and liquidation, which we currently estimate to beapproximately $50,000 to $75,000, of the trust account from our remainingassets outside of the trust fund or, if necessary, from funds available underour limited recourse line of credit. In addition, our Chairman and certain ofour officers have agreed to indemnify us for all claims of creditors to theextent that we fail to obtain valid and enforceable waivers from such entitiesin order to protect the amounts held in trust.

Ifwe enter into either a letter of intent, an agreement in principle or adefinitive agreement to complete a business combination prior to the expirationof 18 months after the consummation of the initial public offering, but areunable to complete the business combination within the 18-month period, then wewill have an additional six months in which to complete the businesscombination contemplated by the letter of intent, agreement in principle ordefinitive agreement. If we are unable to consummate a transaction within 24months following the consummation of the initial public offering our purposeand powers will be limited to dissolving, liquidating and winding up. Uponnotice from us, the trustee of the trust account will liquidate the investmentsconstituting the trust account and will turn over the proceeds to our transferagent for distribution to our public stockholders as part of our plan ofdissolution and distribution. Concurrently, we shall pay, or reserve forpayment, from funds not held in trust, our liabilities and obligations,although we cannot assure you that there will be sufficient funds for suchpurpose. If there are insufficient funds held outside the trust account forsuch purpose, we will have the ability to draw upon our limited recourse lineof credit made available from certain of our executive officers and directors.In addition, our Chairman and certain of our officers have agreed to indemnifyus for all claims of creditors to the extent that we fail to obtain valid andenforceable waivers from such entities in order to protect the amounts held intrust.

Underthe Delaware General Corporation Law, stockholders may be held liable forclaims by third parties against a corporation to the extent of distributionsreceived by them in a dissolution. If the corporation complies with certainprocedures set forth in Section 280 of the Delaware General Corporation Lawintended to ensure that it makes reasonable provision for all claims againstit, including a 60-day notice period during which any third-party claims can bebrought against the corporation, a 90-day period during which the corporationmay reject any claims brought, and an additional 150-day waiting period beforeany liquidating distributions are made to stockholders, any liability ofstockholders with respect to a liquidating distribution is limited to thelesser of such stockholder’s pro rata share of the claim or the amountdistributed to the stockholder, and any liability of the stockholder would bebarred after the third anniversary of the dissolution. However, as stated above,we will make liquidating distributions to our public stockholders as soon asreasonably possible as part of our plan of dissolution and distribution and,therefore, we do not intend to comply with those procedures. As such, ourstockholders could potentially be liable for any claims to the extent ofdistributions received by them in a dissolution and any such liability of ourstockholders will likely extend beyond the third anniversary of suchdissolution. Because we will not be complying with Section 280, we will seekstockholder approval to comply with Section 281(b) of the Delaware GeneralCorporation Law, requiring us to adopt a plan of dissolution that will providefor our payment, based on facts known to us at such time, of (i) all existingclaims, (ii) all pending claims and (iii) all claims that may be potentiallybrought 

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against us within the subsequent 10 years. However, because we are ablank check company, rather than an operating company, and our operations willbe limited to searching for prospective target businesses to acquire, the onlylikely claims to arise would be from our vendors (such as accountants, lawyers,investment bankers, etc.) or potential target businesses. As described above,we intend to have all vendors and prospective target businesses executeagreements with us waiving any right, title, interest or claim of any kind inor to any monies held in the trust account. Our Chairman and certain of ourexecutive officers have agreed to indemnify us, to the extent we do not obtainvalid and enforceable waivers from vendors, prospective target businesses orother entities,  for all creditor claims in order to protect the amountsheld in the trust account. In the event that the board recommends and ourstockholders approve a plan of dissolution and distribution where it issubsequently determined that the reserve for claims and liabilities isinsufficient, stockholders who received a return of funds from the liquidationof our trust account could be liable for claims made by creditors.

Ourpublic stockholders will be entitled to receive funds from the trust accountonly in the event of our dissolution and liquidation or if they seek to converttheir respective shares into cash upon a business combination which thestockholder voted against and which is completed by us. In no othercircumstances will a stockholder have any right or interest of any kind to orin the trust account.

*IF WE DONOT CONSUMMATE A BUSINESS COMBINATION AND DISSOLVE, PAYMENTS FROM THE TRUSTACCOUNT TO OUR PUBLIC STOCKHOLDERS MAY BE DELAYED.*

Wecurrently believe that any plan of dissolution and distribution subsequent tothe expiration of the 18 and 24 month deadlines would proceed in approximatelythe following manner:

·                ourboard of directors will, consistent with its obligations described in ouramended and restated certificate of incorporation to dissolve, prior to thepassing of such deadline, convene and adopt a specific plan of dissolution anddistribution, which it will then vote to recommend to our stockholders; at suchtime it will also cause to be prepared a preliminary proxy statement settingout such plan of dissolution and distribution as well as the board’srecommendation of such plan;

·                uponsuch deadline, we would file our preliminary proxy statement with theSecurities and Exchange Commission;

·                ifthe Securities and Exchange Commission does not review the preliminary proxystatement, then, 10 days following the passing of such deadline, we willmail the proxy statements to our stockholders, and 30 days following thepassing of such deadline we will convene a meeting of our stockholders, atwhich they will either approve or reject our plan of dissolution anddistribution; and

·                ifthe Securities and Exchange Commission does review the preliminary proxystatement, we currently estimate that we will receive their comments 30 daysfollowing the passing of such deadline. We will mail the proxy statements toour stockholders following the conclusion of the comment and review process(the length of which we cannot predict with any certainty, and which may besubstantial) and we will convene a meeting of our stockholders at which theywill either approve or reject our plan of dissolution and distribution.

Inthe event we seek stockholder approval for a plan of dissolution anddistribution and do not obtain such approval, we will nonetheless continue topursue stockholder approval for our dissolution. Pursuant to the terms of ouramended and restated certificate of incorporation, our powers following theexpiration of the permitted time periods for consummating a businesscombination will automatically thereafter be limited to acts and activitiesrelating to dissolving and winding up our affairs, including  liquidation.The funds held in our trust account may not be distributed except upon ourdissolution and, unless and until such approval is obtained from ourstockholders, the funds held in our trust account will not be released. Consequently, holders of a majority of our outstanding stock must approve ourdissolution in order to receive the funds held

 

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in our trust account and the funds will not be available for any othercorporate purpose.

Theseprocedures, or a vote to reject any plan of dissolution and distribution by ourstockholders, may result in substantial delays in the liquidation of our trustaccount to our public stockholders as part of our plan of dissolution anddistribution.

*WE MAYISSUE SHARES OF OUR CAPITAL STOCK TO COMPLETE A BUSINESS COMBINATION, WHICHWOULD REDUCE THE EQUITY INTEREST OF OUR STOCKHOLDERS AND LIKELY CAUSE A CHANGEIN CONTROL OF OUR OWNERSHIP.*

Ouramended and restated certificate of incorporation authorizes the issuance of upto 60,000,000 shares of common stock, par value $.001 per share, and 1,000,000shares of preferred stock, par value $.001 per share. Immediately afterthe initial public offering, there were 11,812,500 authorized but unissuedshares of our common stock available for issuance (after appropriatereservation for the issuance of shares upon full exercise of our outstandingwarrants) and all of the 1,000,000 shares of preferred stock available forissuance. Although we have no commitments to issue our securities, we may issuea substantial number of additional shares of our common stock or preferredstock, or a combination of common and preferred stock, to complete a businesscombination. The issuance of additional shares of our common stock or anynumber of shares of our preferred stock:

·                may significantly reduce the equity interestof investors in the initial public offering;

·                may subordinate the rights of holders ofcommon stock if preferred stock is issued with rights senior to those affordedto our common stock;

·                will likely cause a change in control if asubstantial number of our shares of common stock are issued, which may affect,among other things, our ability to use our net operating loss carry forwards,if any, and most likely also result in the resignation or removal of ourpresent officers and directors; and

·                mayadversely affect prevailing market prices for our common stock.

*THEABILITY OF OUR STOCKHOLDERS TO EXERCISE THEIR CONVERSION RIGHTS MAY NOT ALLOWUS TO EFFECTUATE THE MOST DESIRABLE BUSINESS COMBINATION OR OPTIMIZE OURCAPITAL STRUCTURE.*

Whenwe seek stockholder approval of any business combination, we will offer eachpublic stockholder the right to have his, her or its shares of common stockconverted to cash if the stockholder votes against the business combination andthe business combination is approved and completed. Accordingly, if ourbusiness combination requires us to use substantially all of our cash to paythe purchase price, because we will not know how many stockholders may exercisesuch conversion rights, we may either need to reserve part of the trust accountfor possible payment upon such conversion, or we may need to arrange thirdparty financing to help fund our business combination in case a largerpercentage of stockholders exercise their conversion rights than we expect.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 we may end up having a leverage ratio that is not optimalfor our business combination. This may limit our ability to effectuate the mostattractive business combination available to us.

*WE MAYISSUE NOTES OR OTHER DEBT SECURITIES, OR OTHERWISE INCUR SUBSTANTIAL DEBT, TOCOMPLETE A BUSINESS COMBINATION, WHICH MAY ADVERSELY AFFECT OUR LEVERAGE ANDFINANCIAL CONDITION.*

Althoughwe have no commitments as of the date of this Annual Report to issue any notesor other debt securities, or to otherwise incur outstanding debt, we may chooseto incur substantial debt to complete a 

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business combination. The incurrence of debt could result in:

·                default and foreclosure on our assets if ouroperating cash flow after a business combination were insufficient to pay ourdebt obligations;

·                acceleration of our obligations to repay theindebtedness even if we have made all principal and interest payments when dueif the debt security contained covenants that required the maintenance ofcertain financial ratios or reserves and any such covenant were breachedwithout a waiver or renegotiation of that covenant;

·                our immediate payment of all principal andaccrued interest, if any, if the debt security was payable on demand;

·                covenants that limit our ability to acquirecapital assets or make additional acquisitions; and

·                ourinability to obtain additional financing, if necessary, if the debt securitycontained covenants restricting our ability to obtain additional financingwhile such security was outstanding.

*OURABILITY TO EFFECT A BUSINESS COMBINATION AND TO EXECUTE ANY POTENTIAL BUSINESSPLAN AFTERWARDS WILL BE TOTALLY DEPENDENT UPON THE EFFORTS OF OUR KEYPERSONNEL, SOME OF WHOM MAY BE EXISTING PERSONNEL OF A TARGET BUSINESS FOR WHOMWE WOULD HAVE ONLY A LIMITED ABILITY TO EVALUATE.*

Ourability to effect a business combination will be totally dependent upon theefforts of our key personnel. The future role of our key personnel following abusiness combination, however, cannot presently be fully ascertained. Althoughsome of our key personnel may become associated with the target businessfollowing a business combination, some or all of the management of the targetbusiness may remain in place. While we intend to closely scrutinize anyadditional individuals we engage after a business combination, we cannot assureyou that our assessment of these individuals will prove to be correct. Theseindividuals may be unfamiliar with the requirements of operating a publiccompany as well as with United States securities laws, which could cause us tohave to expend time and resources helping them become familiar with such laws.This could be expensive and time-consuming and could lead to various regulatoryissues which may adversely affect our operations. Moreover, our currentmanagement will only be able to remain with the combined company after theconsummation of a business combination if they are able to negotiate and agreeto mutually acceptable employment terms, which would be determined at such timebetween the respective parties and which may be a term of the businesscombination, as part of any such combination, which terms would be disclosed tostockholders in any proxy statement relating to a business combination. If weacquired a target business in an all-cash transaction, it would be more likelythat current members of management would remain with us if they chose to do so.If a business combination were structured as a merger whereby the stockholdersof the target company were to control the combined company following a businesscombination, it may be less likely that management would remain with thecombined company unless it was negotiated as part of the transaction via theacquisition agreement, an employment agreement or other arrangement. In makingthe determination as to whether current management should remain with usfollowing the business combination, management will analyze the experience andskill set of the target business’s management and negotiate as part of thebusiness combination that certain members of current management remain if it isbelieved that it is in the best interests of the combined company post-businesscombination.

*IFMANAGEMENT WERE TO NEGOTIATE TO BE RETAINED BY THE COMPANY POST-BUSINESSCOMBINATION AS A CONDITION TO ANY POTENTIAL BUSINESS COMBINATION, SUCHNEGOTIATIONS MAY RESULT IN A CONFLICT OF INTEREST.*

Ourcurrent management will only be able to remain with the combined company afterthe consummation of a business combination if they are able to negotiatemutually agreeable employment terms as part of any such combination, whichterms would be disclosed to stockholders in any proxy statement relating tosuch 

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transaction. The financial interest of our officers and directors,including any compensation arrangements, could influence their motivation inselecting, negotiating and structuring a transaction with a target business,and thus, there may be a conflict of interest when determining whether aparticular business combination is in the stockholders’ best interest.

*OUROFFICERS AND DIRECTORS MAY ALLOCATE THEIR TIME TO OTHER BUSINESSES THEREBYCAUSING CONFLICTS OF INTEREST IN THEIR DETERMINATION AS TO HOW MUCH TIME TO DEVOTETO OUR AFFAIRS. THIS CONFLICT OF INTEREST COULD HAVE A NEGATIVE IMPACT ON OURABILITY TO CONSUMMATE A BUSINESS COMBINATION.*

Ourofficers and directors are not required to commit their full time to ouraffairs, which may result in a conflict of interest in allocating their timebetween our operations and other businesses. We do not intend to have any fulltime employees prior to the consummation of a business combination. Each of ourofficers is engaged in several other business endeavors and is not obligated tocontribute any specific number of hours per week to our affairs. If ourofficers’ 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.

*OUROFFICERS AND DIRECTORS ARE CURRENTLY AFFILIATED WITH ENTITIES ENGAGED INBUSINESS ACTIVITIES SIMILAR TO THOSE INTENDED TO BE CONDUCTED BY US ANDACCORDINGLY, MAY HAVE CONFLICTING FIDUCIARY DUTIES IN DETERMINING TO WHICHENTITY A PARTICULAR BUSINESS OPPORTUNITY SHOULD BE PRESENTED. WE MAY SEEK ABUSINESS COMBINATION WITH A TARGET BUSINESS WITH WHICH ONE OR MORE OF OURFOUNDING STOCKHOLDERS MAY BE AFFILIATED.*

Certainof our officers and directors are currently involved in other businesses thatare similar to the business activities that we intend to conduct following abusiness combination. Due to these existing affiliations, they may haveconflicting fiduciary obligations with regard to presenting certain potentialbusiness opportunities to those entities that may be of interest to us. Ourofficers and directors may in the future become affiliated with other entities,including other “blank check” companies, engaged in business activities similarto those we intend to conduct. Certain members of our management, identifiedbelow, are affiliated with the following entities: Mr. Hartenstein, ourchairman, president and chief executive officer, with Thomson Multimedia S.A.,SanDisk Corp., and XM Satellite Radio Holdings Inc; and Mr. Lederman, ourexecutive vice president and secretary, with Industrial Equity Capital, LLC. Inthe event any of these companies determine to sell assets, spin-off a businessdivision or otherwise divest themselves of business interests in the media,entertainment or telecommunications industries, we may pursue suchopportunities as our management becomes aware of them. Our existing officers,directors and stockholders are not currently aware of any specific opportunitiesto consummate a business combination with any entities with which they areaffiliated, whether by virtue of the sale of assets, spin-off, divestiture orotherwise, and there have been no preliminary discussions or indications ofinterest with any such entity or entities. Although we are not specificallyfocusing on, or targeting any, transaction with any affiliated entities, wewould consider such a transaction if any such opportunity were presented to us,without first seeking to consummate a business combination with anon-affiliated entity, although we are unaware of any such actual or potentialtransaction as of the date of this Annual Report. If we became aware of andpursued an opportunity to seek a business combination with a target businesswith which one or more of our founding stockholders may be affiliated,conflicts of interest could arise in connection with negotiating the terms ofand completing the business combination. Accordingly, such officers anddirectors may become subject to conflicts of interest regarding us and otherbusiness ventures in which they may be involved, which conflicts may have anadverse effect on our ability to consummate a business combination. Each ofMessrs. Hartenstein, Chapman and Cox have 

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entered into agreements with their former employer pursuant to whichthey have agreed to forbear from certain activities, including the disclosureor use of any proprietary information obtained while working for the formeremployer. Mr. Hartenstein’s agreement expired on December 31, 2006 and Mr.Chapman’s agreement expired on August 31, 2006. Mr. Cox’s agreement expired on March 30, 2007. Mr. Cox’s agreement alsorestricts him from any activity which is competitive with his former employerwhere it is reasonably likely that he would disclose or utilize any suchconfidential or proprietary information in the conduct of such activities. Mr.Cox does not intend to disclose or use any such confidential or proprietaryinformation in connection with our business. We do not believe that any ofthese restrictions will prevent us from identifying an acquisition candidate orcompleting a business combination.

*NONE OFOUR OFFICERS OR DIRECTORS, OR ANY OF THEIR AFFILIATES, HAS EVER BEEN ASSOCIATEDWITH A BLANK CHECK COMPANY WHICH COULD ADVERSELY AFFECT OUR ABILITY TOCONSUMMATE A BUSINESS COMBINATION.*

Noneof our officers or directors, or any of their affiliates, has ever beenassociated with a blank check company. Accordingly, you may not have sufficientinformation with which to evaluate the ability of our management team toidentify and complete a business combination using the proceeds of the initialpublic offering. Our management’s lack of experience in operating a blank checkcompany could adversely affect our ability to consummate a business combinationand could result in our having to liquidate our trust account as part of ourplan of dissolution and distribution. If we dissolve the company and liquidate,our public stockholders could receive less than the amount they paid for oursecurities, causing them to incur significant financial losses.

*ALL OF OUROFFICERS AND DIRECTORS OWN SHARES OF OUR SECURITIES THAT WILL NOT PARTICIPATEIN THE LIQUIDATION OF THE TRUST ACCOUNT AND THEREFORE THEY MAY HAVE A CONFLICTOF INTEREST IN DETERMINING WHETHER A PARTICULAR TARGET BUSINESS IS APPROPRIATEFOR A BUSINESS COMBINATION.*

Allof our officers and directors, directly or indirectly, own shares of commonstock in our company that were issued prior to the initial public offering buthave waived their right to receive distributions with respect to these sharesupon the liquidation of the trust account if we are unable to complete abusiness combination. Additionally, certain of our officers and directors, ortheir designees, have purchased $2,250,000 of warrants directly from us in aprivate placement transaction concurrently with the closing of the initialpublic offering at a purchase price of $1.00 per warrant. The purchase offounding director warrants, together with any other acquisitions of our shares(or warrants which are subsequently exercised), could allow the foundingstockholders to influence the outcome of matters requiring stockholderapproval, including the election of directors and approval of significantcorporate transactions after completion of our initial business combination.The shares and warrants owned by our officers and directors will be worthlessif we do not consummate a business combination. The personal and financialinterests of these individuals may influence their motivation in identifyingand selecting a target business and completing a business combination in atimely manner. Consequently, our officers and directors’ discretion inidentifying and selecting a suitable target business may result in a conflictof interest when determining whether the terms, conditions and timing of aparticular business combination are appropriate and in our stockholders’ bestinterest.

*PERSONSWHO WERE STOCKHOLDERS PRIOR TO OUR INITIAL PUBLIC OFFERING WILL NOT RECEIVEREIMBURSEMENT FOR ANY OUT-OF-POCKET EXPENSES INCURRED BY THEM TO THE EXTENTTHAT SUCH EXPENSES EXCEED THE PORTION OF NET PROCEEDS OF THE OFFERING THAT ISNOT PLACED IN THE TRUST ACCOUNT, UNLESS THE BUSINESS COMBINATION ISCONSUMMATED, AND THEREFORE THEY MAY HAVE A CONFLICT OF INTEREST.*

Personswho were stockholders prior to our initial public offering will not receivereimbursement for any out-of-pocket expenses incurred by them to the extentthat such expenses exceed the portion of net proceeds 

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of the offering that was not placed in the trust account, unless abusiness combination is consummated. The financial interest of such personscould influence their motivation in selecting a target business and thus, theremay be a conflict of interest when determining whether a particular businesscombination is in the stockholders’ best interest.

*IF OURCOMMON STOCK BECOMES SUBJECT TO THE SEC’S PENNY STOCK RULES, BROKER-DEALERS MAYEXPERIENCE DIFFICULTY IN COMPLETING CUSTOMER TRANSACTIONS AND TRADING ACTIVITYIN OUR SECURITIES MAY BE ADVERSELY AFFECTED.*

Ifat any time we have net tangible assets of $5,000,000 or less and our commonstock has a market price per share of less than $5.00, transactions in ourcommon stock may be subject to the “penny stock” rules promulgated underthe Securities Exchange Act of 1934. Under these rules, broker-dealers whorecommend such securities to persons other than institutional accreditedinvestors must:

·                make a special written suitabilitydetermination for the purchaser;

·                receive the purchaser’s written agreement toa transaction prior to sale;

·                provide the purchaser with risk disclosuredocuments that identify certain risks associated with investing in “pennystocks” and that describe the market for these “penny stocks” as well as apurchaser’s legal remedies; and

·                obtaina signed and dated acknowledgment from the purchaser demonstrating that thepurchaser has actually received the required risk disclosure document before atransaction in a “penny stock” can be completed.

Ifour common stock becomes subject to these rules, broker-dealers may find itdifficult to effectuate customer transactions and trading activity in oursecurities may be adversely affected. As a result, the market price of oursecurities may be depressed, and you may find it more difficult to sell oursecurities.

*IT ISPROBABLE THAT WE WILL ONLY BE ABLE TO COMPLETE ONE BUSINESS COMBINATION, WHICHWILL CAUSE US TO BE SOLELY DEPENDENT ON A SINGLE BUSINESS.*

The net proceeds from the initial public offering and the sale of thefounding director warrants provided us with approximately $139,575,000(excluding approximately $3,000,000 being held in the trust account whichrepresent deferred underwriting discounts and commissions and including the$2,250,000 purchase price of the founding director warrants), which we may useto complete a business combination, including expenses in connection therewith.Our initial business combination must be with a business or businesses with afair market value of at least 80% of our net assets at the time of suchtransaction. We currently have no restrictions on our ability to seekadditional funds through the sale of securities or through loans. As aconsequence, we could seek to acquire a target business that has a fair marketvalue significantly in excess of 80% of our net assets. Although as of the dateof this Annual Report we have not engaged or retained, had any discussionswith, or entered into any agreements with, any third party regarding any suchpotential financing transactions, we could seek to fund such a businesscombination by raising additional funds through the sale of our securities orthrough loan arrangements. However, if we were to seek such additional funds,any such arrangement would only be consummated simultaneously with our consummationof a business combination. Consequently, it is probable that we will have theability to complete only a single business combination, although this mayentail the simultaneous acquisitions of several assets or closely relatedoperating businesses at the same time. However, should our management elect topursue more than one acquisition of target businesses simultaneously, ourmanagement could encounter difficulties in consummating all or a portion ofsuch acquisitions due to a lack of adequate resources, including the inability 

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of management to devote sufficient time to the due diligence,negotiation and documentation of each acquisition. Furthermore, even if wecomplete the acquisition of more than one target business at substantially thesame time, there can be no assurance that we will be able to integrate theoperations of such target businesses.

Accordingly,the prospects for our ability to effect our business strategy may be:

·                  solely dependent upon the performance of a singlebusiness; or

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

Inthis case, we will not be able to diversify our operations or benefit from thepossible spreading of risks or offsetting of losses, unlike other entitieswhich may have the resources to complete several business combinations indifferent industries or different areas of a single industry. Furthermore,since our business combination may entail the simultaneous acquisitions ofseveral assets or operating businesses at the same time and may be withdifferent sellers, we will need to convince such sellers to agree that thepurchase of their assets or businesses is contingent upon the simultaneousclosings of the other acquisitions.

*WE MAY BEUNABLE TO OBTAIN ADDITIONAL FINANCING, IF REQUIRED, TO COMPLETE A BUSINESSCOMBINATION OR TO FUND THE OPERATIONS AND GROWTH OF THE TARGET BUSINESS, WHICHCOULD COMPEL US TO RESTRUCTURE THE TRANSACTION OR ABANDON A PARTICULAR BUSINESSCOMBINATION.*

Althoughwe believe that the net proceeds of the initial public offering is sufficientto allow us to consummate a business combination, in as much as we have not yetentered into a definite agreement with any prospective target business, wecannot ascertain the capital requirements for any particular transaction. Ifthe net proceeds of the initial public offering prove to be insufficient,either because of the size of the business combination or the depletion of theavailable net proceeds in search of a target business, or because we becomeobligated to convert into cash a significant number of shares from dissentingstockholders, we will be required to seek additional financing. We cannotassure you that such financing would be available on acceptable terms, if atall. To the extent that additional financing proves to be unavailable whenneeded to consummate a particular business combination, we would be compelledto restructure the transaction or abandon that particular business combinationand seek an alternative target business candidate. In addition, it is possiblethat we could use a portion of the funds not in the trust account to make adeposit, down payment or fund a “no-shop” provision with respect to a proposedbusiness combination, although we do not have any current intention to do so.In the event that we were ultimately required to forfeit such funds (whether asa result of our breach of the agreement relating to such payment or otherwise)and if we have exhausted the limited recourse line of credit totaling $750,000and made available to us by certain of our officers and directors, we may nothave a sufficient amount of working capital available outside of the trustaccount to conduct due diligence and pay other expenses related to finding asuitable business combination without securing additional financing. If we areunable to secure additional financing, we would most likely fail to consummatea business combination in the allotted time and would dissolve and liquidatethe trust account as part of our plan of dissolution and distribution,resulting in a loss of a portion of your investment. In addition, if weconsummate a business combination, we may require additional financing to fundthe operations or growth of the target business. The failure to secureadditional financing could have a material adverse effect on the continueddevelopment or growth of the target business. Except for the limited recourseline of credit in the aggregate amount of $750,000, none of our officers,directors or stockholders is required to provide any financing to us inconnection with or after a business combination.

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*PERSONSWHO WERE STOCKHOLDERS PRIOR TO OUR INITIAL PUBLIC OFFERING, INCLUDING OUROFFICERS AND DIRECTORS, CONTROL A SUBSTANTIAL INTEREST IN US AND THUS MAY INFLUENCECERTAIN ACTIONS REQUIRING STOCKHOLDER VOTE.*

Personswho were stockholders prior to our initial public offering (including all ofour officers and directors) collectively owned 20% of our issued andoutstanding shares of common stock. Our officers and directors, or theirdesignees, also purchased $2.25 million of warrants directly from usconcurrently with the closing of the initial public offering at a price perwarrant of $1.00. The purchase of the founding director warrants, together withany other acquisitions of our shares (or warrants which are subsequentlyexercised), could allow the persons who were stockholders prior to our initialpublic offering to influence the outcome of matters requiring stockholderapproval, including the election of directors and approval of significantcorporate transactions after completion of our initial business combination.These warrants cannot be sold until after consummation of a businesscombination; however, they may be able to transfer such warrants in certainlimited circumstances such as by will in the event of their death, but thetransferees receiving such warrants will be subject to the same salerestrictions imposed on our officers and directors and their designees.

Ourboard of directors is divided into two classes, each of which will generallyserve for a term of two years with only one class of directors being elected ineach year. It is unlikely that there will be an annual meeting of stockholdersto elect new directors prior to the consummation of a business combination, inwhich case all of the current directors will continue in office at least untilthe consummation of the business combination. If there is an annual meeting, asa consequence of our “staggered” board of directors, initially only a minorityof the board of directors will be considered for election and the persons whowere stockholders prior to our initial public offering, because of theirownership position, have considerable influence regarding the outcome.Accordingly, the persons who were stockholders prior to our initial publicoffering will continue to exert control at least until the consummation of abusiness combination. In addition, the persons who were stockholders prior toour initial public offering and their affiliates and relatives are notprohibited from purchasing units, shares of common stock or warrants in theopen market. If they do, we cannot assure you that the persons who werestockholders prior to our initial public offering will not have considerableinfluence upon the vote in connection with a business combination.

*OURFOUNDING DIRECTOR WARRANTS ARE NON-REDEEMABLE PROVIDED THEY ARE HELD BY THEINITIAL PURCHASERS OR THEIR PERMITTED TRANSFEREES, WHICH COULD PROVIDE SUCHPURCHASERS THE ABILITY TO REALIZE A LARGER GAIN THAN OUR PUBLIC WARRANTSHOLDERS.*

Thewarrants held by our public warrant holders may be called for redemption at anytime after the warrants become exercisable:

·                  in whole and not in part;

·                  at a price of $.01 per warrant;

·                  upon not less than 30 days’ prior writtennotice of redemption to each warrant holder; and

·                  if,and only if, the last sale price of the common stock equals or exceeds $11.50per share, for any 20 trading days within a 30 trading day period ending on thethird business day prior to the notice of redemption to warrant holders.

Asa result of the founding director warrants not being subject to the redemptionfeatures that our publicly-held warrants are subject to, holders of thefounding director warrants, or their permitted transferees, could realize alarger gain than our public warrant holders.

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*OUROUTSTANDING WARRANTS AND UNIT PURCHASE OPTION MAY HAVE AN ADVERSE EFFECT ON THEMARKET PRICE OF COMMON STOCK AND MAKE IT MORE DIFFICULT TO EFFECT A BUSINESSCOMBINATION.*

Inconnection with the initial public offering, as part of the units and inconnection with the sale of 2,250,000 founding director warrants, we issuedwarrants to purchase 21,000,000 shares of common stock. We also issued anoption to purchase 1,875,000 units to Morgan Joseph & Co. Inc. which,if exercised, will result in the issuance of an additional 1,875,000 shares ofcommon stock and 1,875,000 warrants. To the extent we issue shares of commonstock to effect a business combination, the potential for the issuance of substantialnumbers of additional shares upon exercise of these warrants and option couldmake us a less attractive acquisition vehicle in the eyes of a target businessas such securities, when exercised, will increase the number of issued andoutstanding shares of our common stock and reduce the value of the sharesissued to complete the business combination. Accordingly, our warrants andMorgan Joseph & Co. Inc.’s unit purchase option may make it moredifficult to effectuate a business combination or increase the cost of thetarget business. Additionally, the sale, or even the possibility of sale, ofthe shares underlying the warrants and unit purchase option could have anadverse effect on the market price for our securities or on our ability toobtain future public financing. If and to the extent these warrants and unitpurchase option are exercised, you may experience dilution to your holdings.

*IF PERSONSWHO WERE STOCKHOLDERS PRIOR TO OUR INITIAL PUBLIC OFFERING AND HOLDERS OF THEFOUNDING DIRECTOR WARRANTS EXERCISE THEIR REGISTRATION RIGHTS, IT MAY HAVE ANADVERSE EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK AND THE EXISTENCE OFTHESE RIGHTS MAY MAKE IT MORE DIFFICULT TO EFFECT A BUSINESS COMBINATION.*

Personswho were stockholders prior to our initial public offering are entitled torequire us to register the resale of their shares of common stock at any timeafter the date on which their shares are released from escrow, which, except inlimited circumstances, will not be before June 2, 2009. In addition, theholders of the founding director warrants can demand that we register thosewarrants and the underlying shares of common stock at anytime after thefounding director warrants become exercisable by their terms.  If the persons who were stockholders prior toour initial public offering and the holders of the founding director warrantsexercise their registration rights with respect to all of their shares ofcommon stock and warrants, then there will be an additional 4,687,500 shares ofcommon stock and 2,250,000 warrants and/or up to 2,250,000 shares of commonstock issued upon exercise of the founding director warrants that will beeligible for trading in the public market. The presence of this additionalnumber of securities eligible for trading in the public market may have anadverse effect on the market price of our common stock. In addition, theexistence of these rights may make it more difficult to effectuate a businesscombination or increase the cost of the target business, as the stockholders ofthe target business may be discouraged from entering into a businesscombination with us or will request a higher price for their securities as aresult of these registration rights and the potential future effect theirexercise may have on the trading market for our common stock.

*THEAMERICAN STOCK EXCHANGE MAY DELIST OUR SECURITIES FROM TRADING ON ITS EXCHANGEIN THE FUTURE, WHICH COULD LIMIT OUR INVESTORS’ ABILITY TO EFFECT TRANSACTIONSIN OUR SECURITIES AND SUBJECT US TO ADDITIONAL TRADING RESTRICTIONS.*

Oursecurities are listed on the American Stock Exchange, a national securitiesexchange.  We cannot assure you that oursecurities will continue to be listed on the American Stock Exchange in thefuture. In addition, in connection with our initial business combination, ifany, it is likely that the American Stock Exchange may require us to file a newlisting application and meet its initial listing requirements, as opposed toits more lenient continued listing requirements. We cannot assure you that we willbe able to meet those initial listing requirements at that time.

Ifthe American Stock Exchange delists our securities from trading on its exchangein the future, we could face significant material adverse consequences,including:

·                  alimited availability of market quotations for our securities;

·                  a determination that our common stock is a “pennystock,” which would require brokers trading in our common stock to adhere tomore stringent rules and possibly resulting in a reduced level of trading 

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activityin the secondary trading market for our common stock;

·                  alimited amount of news and analyst coverage for our company;

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

·                  adecreased ability of our stockholders to sell their securities in certainstates.

*IF WE AREDEEMED TO BE AN INVESTMENT COMPANY, WE MAY BE REQUIRED TO INSTITUTE BURDENSOMECOMPLIANCE REQUIREMENTS AND OUR ACTIVITIES MAY BE RESTRICTED, WHICH MAY MAKE ITMORE DIFFICULT FOR US TO COMPLETE A BUSINESS COMBINATION.*

Ifwe are deemed to be an investment company under the Investment Company Act of1940, we may be subject to certain restrictions that may make it more difficultfor us to complete a business combination, including:

·                restrictions on the nature of ourinvestments; and

·                restrictionson the issuance of securities.

Inaddition, we may have imposed upon us certain burdensome requirements,including:

·                registration as an investment company;

·                adoption of a specific form of corporate structure;and

·                reporting,record keeping, voting, proxy compliance policies and procedures and disclosurerequirements and other rules and regulations.

Wedo not believe that our principal activities will subject us to the InvestmentCompany Act of 1940, as amended. To this end, the proceeds held in trust mayonly be invested by the trust agent in “government securities” within themeaning of Section 2(a)(16) of the Investment Company Act of 1940 having amaturity of 180 days or less or in money market funds meeting certainconditions under Rule 2a-7 promulgated under the Investment Company Act of1940. By restricting the investment of the proceeds to these instruments, weintend to avoid being deemed an investment company within the meaning of theInvestment Company Act of 1940. The trust account and the purchase ofgovernment securities for the trust account is intended as a holding place forfunds pending the earlier to occur of either: (i) the consummation of ourprimary business objective, which is a business combination, or(ii) absent a business combination, our dissolution and return of thefunds held in this trust account to our public stockholders as part of our planof dissolution and distribution. Notwithstanding our belief that we are not requiredto comply with the requirements of such act, in the event that the stockholdersdo not approve a plan of dissolution and distribution and the funds remain inthe trust account for an indeterminable amount of time, we may be considered tobe an investment company and thus required to comply with such act. If we weredeemed to be subject to that act, compliance with these additional regulatoryburdens would require additional expense for which we have not budgeted.

*OURDIRECTORS MAY NOT BE CONSIDERED “INDEPENDENT” UNDER THE POLICIES OF THE NORTHAMERICAN SECURITIES ADMINISTRATORS ASSOCIATION, INC. AND WE THUS MAY NOT HAVETHE BENEFIT OF INDEPENDENT DIRECTORS EXAMINING OUR FINANCIAL STATEMENTS AND THEPRIORITY OF EXPENSES INCURRED ON OUR BEHALF SUBJECT TO REIMBURSEMENT.*

Allof our officers and directors own shares of our common stock, and no salary orother compensation has been or will be paid to our officers or directors forservices rendered by them on our behalf prior to or in connection with abusiness combination. Although we believe that two of the members of our boardof directors are “independent” as that term is commonly used, under thepolicies of the North American Securities Administrators Association, Inc.,because our directors may receive reimbursement for out-of-pocket expensesincurred by them in connection with activities on our behalf such asidentifying potential 

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target businesses and performing due diligence on suitable businesscombinations, it is likely that state securities administrators would take theposition that we do not have the benefit of independent directors examining thepropriety of expenses incurred on our behalf and subject to reimbursement.Additionally, there is no limit on the amount of out-of-pocket expenses thatcould be incurred and there is no review of the reasonableness of the expensesby anyone other than our board of directors, which would include persons whomay seek reimbursement, or a court of competent jurisdiction if suchreimbursement is challenged. Although we believe that all actions taken by ourdirectors on our behalf have been and will be in our best interests, whether ornot any directors are deemed to be “independent,” we cannot assure you thatthis will actually be the case. If actions are taken or expenses are incurredthat are actually not in our best interests, it could have a material adverseeffect on our business and operations and the price of our stock held by thepublic stockholders.

*SINCE WEHAVE NOT YET PUBLICLY IDENTIFIED A PROSPECTIVE TARGET BUSINESS WITH WHICH TOCOMPLETE A BUSINESS COMBINATION, INVESTORS IN OUR SECURITIES ARE UNABLE TOCURRENTLY ASCERTAIN THE MERITS OR RISKS OF THE TARGET BUSINESS’S OPERATIONS.*

Sincewe have not yet publicly identified a prospective target, investors have nocurrent basis to evaluate the possible merits or risks of the target business’soperations. To the extent we complete a business combination with a financiallyunstable company, an entity in its development stage and an entity subject tounknown or unmanageable liabilities, we may be affected by numerous risksinherent in the business operations of those entities. Although our managementwill endeavor to evaluate the risks inherent in a particular target business,we cannot assure you that we will properly ascertain or assess all of thesignificant risk factors. We also cannot assure you that an investment in oursecurities will not ultimately prove to be less favorable to investors than adirect investment, if an opportunity were available, in a target business.

*ACQUISITIONSTHAT WE MAY UNDERTAKE WOULD INVOLVE A NUMBER OF INHERENT RISKS, ANY OF WHICHCOULD CAUSE US NOT TO REALIZE THE BENEFITS ANTICIPATED TO RESULT.*

Itis possible that, following our initial acquisition, our strategy will includeexpanding our operations and other capabilities through acquisitions ofbusinesses and assets. Acquisition transactions involve various inherent risks,such as:

·                uncertainties in assessing the value,strengths and potential profitability of, and identifying the extent of allweaknesses, risks, contingent and other liabilities (including environmentalliabilities) of, acquisition or other transaction candidates;

·                the potential loss of key customers,management and employees of an acquired business;

·                the ability to achieve identified operatingand financial synergies anticipated to result from an acquisition or othertransaction;

·                problems that could arise from theintegration of the acquired business; and

·                unanticipated changes in business, industryor general economic conditions that affect the assumptions underlying theacquisition or other transaction rationale.

Anyone or more of these factors could cause us not to realize the benefitsanticipated to result from the acquisition of businesses or assets or couldresult in unexpected liabilities associated with these acquisition candidates.

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**RISKSASSOCIATED WITH THE MEDIA, ENTERTAINMENT**

**AND TELECOMMUNICATIONS INDUSTRIES**

*THE MEDIA,ENTERTAINMENT AND TELECOMMUNICATIONS INDUSTRIES ARE HIGHLY CYCLICAL, WHICH MAYAFFECT OUR FUTURE PERFORMANCE AND ABILITY TO SELL OUR PRODUCTS AND, IN TURN,HURT OUR PROFITABILITY.*

Media,entertainment and telecommunications products and services tend to berelatively expensive and buyers tend to defer purchases during periods ofeconomic weakness. Conversely, during periods of economic strength, media,entertainment and telecommunications sales frequently exceed expectations. As aconsequence, revenues and earnings for media, entertainment andtelecommunications companies may fluctuate more than those of less economicallysensitive companies. Due to the cyclical nature of these media, entertainmentand telecommunications industries, inventories may not always be properlybalanced, resulting in lost sales when there are shortages or write-offs whenthere are excess inventories. This may adversely affect the business, financialcondition, and results of operations of any target businesses that we mayacquire.

*THESPECULATIVE NATURE OF THE MEDIA, ENTERTAINMENT AND TELECOMMUNICATIONSINDUSTRIES MAY NEGATIVELY IMPACT OUR RESULTS OF OPERATIONS.*

Certainsegments of the media, entertainment and telecommunications industries arehighly speculative and historically have involved a substantial degree of risk.For example, the success of a particular service or entertainment offeringdepends upon unpredictable and changing factors, including the success ofpromotional efforts, the availability of alternative forms of entertainment andleisure time activities, general economic conditions, public acceptance andother tangible and intangible factors, many of which are beyond our control. Ifwe complete a business combination with a target business in such a segment,our operations may be adversely affected.

*CHANGES INTECHNOLOGY MAY REDUCE THE DEMAND FOR THE PRODUCTS OR SERVICES WE MAY OFFERFOLLOWING A BUSINESS COMBINATION.*

Themedia, entertainment and telecommunications industries are substantiallyaffected by rapid and significant changes in technology. These changes mayreduce the demand for certain existing services and technologies used in theseindustries or render them obsolete. We cannot assure you that the technologiesused by or relied upon or produced by a target business with which we effect abusiness combination will not be subject to such occurrence. While we mayattempt to adapt and apply the services provided by the target business tonewer technologies, we cannot assure you that we will have sufficient resourcesto fund these changes or that these changes will ultimately prove successful.

*IF,FOLLOWING A BUSINESS COMBINATION, THE PRODUCTS OR SERVICES THAT WE MARKET ORSELL ARE NOT ACCEPTED BY THE PUBLIC, OUR RESULTS OF OPERATIONS WILL BEADVERSELY AFFECTED.*

Certainsegments of the media, entertainment and telecommunications industries are dependenton developing and marketing new products and services that respond totechnological and competitive developments and changing customer needs andtastes. We cannot assure you that the products and services of a targetbusiness with which we effect a business combination will gain marketacceptance. Any significant delay or failure in developing new or enhancedtechnology, including new product and service offerings, could result in a lossof actual or potential market share and a decrease in revenues.

*THE MEDIA,ENTERTAINMENT AND TELECOMMUNICATIONS INDUSTRIES ARE HIGHLY COMPETITIVE AND WEMAY NOT BE ABLE TO COMPETE EFFECTIVELY WHICH COULD ADVERSELY AFFECT OURREVENUES AND PROFITABILITY UPON CONSUMMATION OF A BUSINESS COMBINATION.*

Themedia, entertainment and telecommunications industries are rapidly evolving andintensely competitive. We expect competition to intensify in the future. Manyof the competitors we will face upon consummation of 

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abusiness combination may have significantly greater financial, technical,marketing and other resources than we do. In addition, the management of ourcompetitors may have greater operating resources and experience in theirrespective industries. Some of these competitors may also offer a wider rangeof services than we can and have greater name recognition and a larger clientbase. These competitors may be able to respond more quickly and effectively tonew or changing opportunities, technologies and client requirements. They mayalso be able to undertake more extensive promotional activities, offer moreattractive terms to clients, and adopt more aggressive pricing policies. If weare unable to compete effectively following a business combination, ourbusiness, financial condition, results of operations and prospects could bematerially adversely affected.

*WE MAY NOTBE ABLE TO COMPLY WITH GOVERNMENT REGULATIONS THAT MAY BE ADOPTED WITH RESPECTTO THE MEDIA, ENTERTAINMENT OR TELECOMMUNICATIONS INDUSTRIES.*

Certainsegments of the media, entertainment and telecommunications industries,including wireline and wireless telecommunications networks, broadcast networksand radio stations, have historically been subject to substantial governmentregulation. In the past, the regulatory environment, particularly with respectto the telecommunications industry and the television and radio industry, hasbeen fairly rigid. In addition to regulations we may be subject to following abusiness combination, we may also be required to seek Federal CommunicationsCommission or other regulatory approvals in order to consummate our initialbusiness combination. Obtaining such approvals may cause delays which mayhinder our ability to consummate our initial business combination within therequired time frame. We cannot assure you that regulations currently in effector adopted in the future will not have a material adverse affect on our abilityto acquire a particular media, entertainment or telecommunications target or onany target business acquired by us.

*WE MAY BEUNABLE TO PROTECT OR ENFORCE THE INTELLECTUAL PROPERTY RIGHTS OF ANY TARGETBUSINESSES THAT WE ACQUIRE.*

Aftercompleting a business combination, the procurement and protection oftrademarks, copyrights, patents, domain names, trade dress, and trade secretswill be critical to our success. We will likely rely on a combination ofcopyright, trademark, trade secret laws and contractual restrictions to protectany proprietary technology and rights that we may acquire. Despite our effortsto protect those proprietary technology and rights, we may not be able toprevent misappropriation of those proprietary rights or deter independentdevelopment of technologies that compete with the business we acquire. Ourcompetitors may file patent applications or obtain patents and proprietary rightsthat block or compete with our patents. Litigation may be necessary in thefuture to enforce our intellectual property rights, to protect our tradesecrets, or to determine the validity and scope of the proprietary rights ofothers. It is also possible that third parties may claim we have infringedtheir patent, trademark, copyright or other proprietary rights. Claims orlitigation, with or without merit, could result in substantial costs anddiversions of resources, either of which could have a material adverse effecton our competitive position and business. Depending on the target business orbusinesses that we acquire, it is likely that we will have to protectcopyrights, trademarks, patents, and domain names in an increasing number ofjurisdictions, a process that is expensive and may not be successful in everylocation. With respect to certain proprietary rights, such as trademarks andcopyrighted materials, of the target business or businesses that we willacquire, we expect that the target business or businesses will have enteredinto license agreements in the past and will continue to enter into suchagreements in the future. These licensees may take actions that diminish thevalue of such target business or businesses’ proprietary rights or cause harmto such target business or businesses’ reputation.

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*IF WE AREALLEGED TO HAVE INFRINGED ON THE INTELLECTUAL PROPERTY OR OTHER RIGHTS OF THIRDPARTIES, IT COULD SUBJECT US TO SIGNIFICANT LIABILITY FOR DAMAGES ANDINVALIDATION OF OUR PROPRIETARY RIGHTS.*

If,following a business combination, third parties allege that we have infringedon their intellectual property rights, privacy rights or publicity rights orhave defamed them, we could become a party to litigation. These claims and anyresulting lawsuits could subject us to significant liability for damages andinvalidation of our proprietary rights and restrict our ability to publish anddistribute the infringing or defaming content.

*SINCE WEMAY ACQUIRE A TARGET BUSINESS IN THE MEDIA, ENTERTAINMENT OR TELECOMMUNICATIONSINDUSTRIES THAT IS LOCATED OUTSIDE THE UNITED STATES, WE MAY ENCOUNTER RISKSSPECIFIC TO ONE OR MORE COUNTRIES IN WHICH WE ULTIMATELY OPERATE.*

Ifwe acquire a company that has operations outside the United States, we will beexposed to risks that could negatively impact our future results of operationsfollowing a business combination. Additionally, if the acquired company is in adeveloping country our operations may not develop in the same way or at thesame rate as might be expected in the United States. The additional risks wemay be exposed to in these cases include but are not limited to:

·                tariffs and trade barriers;

·                regulations related to customs andimport/export matters;

·                tax issues, such as tax law changes andvariations in tax laws as compared to the United States;

·                cultural and language differences;

·                an inadequate banking system;

·                foreign exchange controls;

·                restrictions on the repatriation of profitsor payment of dividends;

·                crime, strikes, riots, civil disturbances, terroristattacks and wars;

·                nationalization or expropriation of property;

·                law enforcement authorities and courts thatare inexperienced in commercial matters; and

·                deteriorationof political relations with the United States.

*FOREIGNCURRENCY FLUCTUATIONS COULD ADVERSELY AFFECT OUR BUSINESS AND FINANCIALRESULTS.*

Atarget business with which we combine may do business and generate sales withinother countries. Foreign currency fluctuations may affect the costs that weincur in such international operations. It is also possible that some or all ofour operating expenses may be incurred in non-U.S. dollar currencies. Theappreciation of non-U.S. dollar currencies in those countries where we haveoperations against the U.S. dollar would increase our costs and could harm ourresults of operations and financial condition.

*EXCHANGECONTROLS AND WITHHOLDING TAXES MAY RESTRICT OUR ABILITY TO UTILIZE OUR CASHFLOW.*

Ifwe combine with a target business that has operations outside the UnitedStates, we may be subject to existing or future rules and regulations oncurrency conversion or corporate withholding taxes on dividends that may affectour ability to utilize our cash flow effectively, repatriate profits or paydividends.

**Item1B.  Unresolved Staff Comments**

Notapplicable.

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**Item 2.   Properties.**

HD Partners maintainsexecutive offices at 2601 Ocean Park Boulevard, Suite 320 Santa Monica, CA90405. The cost for this space is included in a $1,000 per-month fee that HDPartners pays for general and administrative services to Value Investments LLC,an entity of which Mr. Bruce Lederman, our Executive Vice President andSecretary, is the managing member.  TheCompany may pay up to $7,500 per month for general and administrative servicesin the future if there is a need for an increase in the amount of servicesrequired.  HD Partners believes, based onrents and fees for similar services in the Santa Monica, California area, thatthe fees charged by Value Investments are at least as favorable as HD Partnerscould have obtained from an unaffiliated person. HD Partners considers itscurrent office space adequate for current operations.

Weconsider our office space adequate for our current operations.

**Item3.   Legal Proceedings.**

To the knowledge ofmanagement, there is no litigation currently pending or contemplated against usor any of our officers or directors in their capacity as such.

**Item4.   Submission of Matters to a Vote of Security Holders.**

No matters were submitted toa vote of security holders during the fourth quarter of the fiscal period endedDecember 31, 2006.

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**PART II**

**Item5.   Market For Registrant’s Common Equity, Related StockholderMatters and Issuer Purchases of Equity Securities.**

HD Partners’ common stock,warrants and units are each traded on the American Stock Exchange under thesymbols HDP, HDP-W and HDP-U, respectively. HD Partners’ units commenced publictrading on June 2, 2006 and its common stock and warrants commenced publictrading on August 1, 2006.

The table below sets forth,for the calendar quarters indicated, the high and low bid prices of the HDPartners common stock, warrants and units as reported on the American StockExchange. The quotations merely reflect the prices at which transactions wereproposed, and do not necessarily represent actual transactions.
| ** **           | ** ** | **American Stock Exchange**   | ** ** |
|----------------------|------------|-----------------------------------------|------------|
| ** **           | ** ** | **HD Partners  Common Stock** | ** ** | **HD Partners  Warrants** | ** ** | **HD Partners  Units** | ** ** |
| ** **           | ** ** | **High**                                | ** ** | **Low** | ** ** | **High** | ** ** | **Low** | ** ** | **High** | ** ** | **Low** | ** ** |
| 2006 Second  Quarter |       | $                                       | n/a        |   | $ | n/a |   | $ | n/a |   | $ | n/a |   | $ | 8.02 |   | $ | 7.85 |   |
| 2006 Third  Quarter  |       | $                                       | 7.30       |   | $ | 7.10 |   | $ | 0.69 |   | $ | 0.54 |   | $ | 8.00 |   | $ | 7.71 |   |
| 2006 Fourth Quarter  |       | $                                       | 7.36       |   | $ | 7.06 |   | $ | 0.68 |   | $ | 0.45 |   | $ | 7.95 |   | $ | 7.45 |   |

 

On March 28, 2007, theclosing prices of the common stock, units and warrants of HD Partners were$7.51, $8.05 and $0.59, respectively.

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 then board of directors. It isthe present intention of our board of directors to retain all earnings, if any,for use in our business operations and, accordingly, our board does notanticipate declaring any dividends in the foreseeable future.

**Recent Sales of Unregistered Securities**

During the period covered bythis Annual Report, we sold the following shares of common stock withoutregistration under the Securities Act:
| **Stockholders**                                                     | ** ** | **Number of Shares** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------|------------|
| Eddy W.  Hartenstein                                                 |       | 922,500                        |       |
| Robert L.  Meyers(1)                                                 |       | 922,500                        |       |
| Bruce R.  Lederman(2)                                                |       | 922,500                        |       |
| Lawrence N.  Chapman(3)                                              |       | 922,500                        |       |
| Steven J. Cox(4)                                                     |       | 922,500                        |       |
| Henry  Goldberg(5)                                                   |       | 37,500                         |       |
| Martin E.  Gottlieb(6)                                               |       | 37,500                         |       |
| All directors and  executive officers as a group (seven individuals) |       | 4,687,500                      |       |

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(1)             Mr. Meyersis the chief financial officer, treasurer and a director of our company.Includes 922,500 shares of common stock owned by the Robert Lewis Meyersand Karen L. Meyers Family Trust dated December 11, 1996. Mr. Meyersand his spouse serve as the trustees of the trust. The beneficiary of the trustis Mr. and Mrs. Meyers’ son.

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(2)             Mr. Ledermanis an executive vice president and the secretary of our company. Includes922,500 shares of common stock owned by the Lederman Family Trust datedJanuary 17, 2000. Mr. Lederman and his spouse serve as trustees ofthe trust. The Lederman Family Trust dated January 17, 2000 has beenestablished for the benefit of Mr. Lederman and his spouse.

(3)             Mr. Chapmanis an executive vice president of our company. Includes 922,500 shares ofcommon stock owned by the Chapman Revocable Family Trust DatedFebruary 27, 2001. Mr. Chapman and his spouse are the trustees of thetrust. The Chapman Revocable Family Trust Dated February 27, 2001 has beenestablished for the benefit of Mr. and Mrs. Chapman’s children.

(4)             Mr. Coxis an executive vice president and a director of our company. Includes 922,500shares of common stock owned by the Cox-King Family Living Trust, establishedfor the benefit of Mr. Cox and his spouse. Mr. Cox and his spouseserve as trustees of the trust.

(5)             InApril 2006, each of Mr. Hartenstein, the Robert Lewis Meyers and Karen L.Meyers Family Trust dated December 11, 1996, the Lederman Family Trustdated January 17, 2000, the Chapman Revocable Family Trust DatedFebruary 27, 2001 and the Cox-King Family Living Trust, sold 5,000 shares ofcommon stock at a price of $.008 per share to Mr. Goldberg.

(6)             InApril 2006, each of Mr. Hartenstein, the Robert Lewis Meyers and Karen L.Meyers Family Trust dated December 11, 1996, the Lederman Family Trustdated January 17, 2000, the Chapman Revocable Family Trust DatedFebruary 27, 2001 and the Cox-King Family Living Trust, sold 5,000 sharesof common stock at a price of $.008 per share to Mr. Gottlieb.

InDecember 2005, we issued 2,500,000 shares of our common stock toMr. Hartenstein, the Robert Lewis Meyers and Karen L. Meyers Family Trustdated December 11, 1996, the Lederman Family Trust dated January 17,2000, the Chapman Revocable Family Trust Dated February 27, 2001 and theCox-King Family Living Trust, for an aggregate amount of $25,000 in cash, at anaverage purchase price of approximately $0.01 per share, in  connection with  our organization  pursuant to the exemption from  registration contained in Section 4(2)  of  the Securities  Act as  they were  sold  to sophisticated,  wealthypersons.  No underwriting  discounts or commissions were paid withrespect to such sales. In April 2006, each of Mr. Hartenstein, the RobertLewis Meyers and Karen L. Meyers Family Trust dated December 11, 1996, theLederman Family Trust dated January 17, 2000, the Chapman Revocable FamilyTrust Dated February 27, 2001 and the Cox-King Family Living Trust, sold5,000 shares of common stock at a price of $.008 per share to each of Messrs.Goldberg and Gottlieb, two of our directors.

InApril 2006, we effected a .25-for-1 stock split in the form of a dividendlowering the purchase price of our common stock to $.008 per share. InMay 2006, we effected a .5 for 1 stock split in the form of a dividendfurther lowering the purchase price of our common stock to $.005 per share.

**Use of Proceeds from our Initial Public Offering**

Theeffective date of our registration statement, which was filed on Form S-1 underthe Securities Act of 1933 (File No. 333-130531), and which related to theinitial public offering of our units, was June 2, 2006. Each unit consisted ofone share of common stock, $.001 par value per share, and one warrant topurchase one share of common stock. A total of 18,750,000 units were registeredat a proposed maximum aggregate offering price of $150,000,000.

Theoffering was consummated on June 7, 2006. The underwriters of the offering were Morgan Joseph & Co. Inc.,GunnAllen Financial, Inc., Southwest Securities Corp. and Legend MerchantCapital Group.  A total of 18,750,000units were sold in the offering for an aggregate offering price of$150,000,000. Each of our units commenced trading its component share of commonstock and warrant separately on August 1, 2006.

Thenet proceeds to us from the sale of our Units, after deducting offeringexpenses of approximately $660,000 and underwriting discounts of approximately$10,500,000 (including $3,000,000 placed in the Trust Account representing adeferred underwriters’ discount) was $141,090,000.  $145,536,328 is currently being held in trustand the remaining funds of $1,228,722 are being held outside of the trust. Theremaining proceeds are available to be used by us to provide for business,legal and accounting due diligence on prospective acquisitions and continuinggeneral and administrative expenses. We will use substantially all of the netproceeds of the initial public offering to acquire a target business, includingidentifying and evaluating 

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prospective acquisitioncandidates, selecting the target business, and structuring, negotiating andconsummating the business combination. To the extent that our capital stock isused in whole or in part as consideration to effect a business combination, theproceeds held in the trust fund as well as any other net proceeds not expendedwill be used to finance the operations of the target business. We believe wewill have sufficient available funds outside of the trust fund to operatethrough June 2008, assuming that a business combination is not consummatedduring that time.  We do not believe wewill need to raise additional funds in order to meet the expenditures requiredfor operating our business. However, we may need to raise additional fundsthrough a private or public offering of debt or equity securities if such fundsare required to consummate a business combination that is presented to us. Wewould only consummate such a financing simultaneously with the consummation ofa business combination.

No expenses of the offering were paid to anyof our officers and directors or any of their respective affiliates. We did,however, repay certain of our officers and directors for loans they made to usprior to the consummation of the initial public offering. The aggregate amountof principal on such loans that we repaid was $225,000. These loans werenon-interest bearing.  All the funds heldin the trust account have been invested in either Treasury Bills or MoneyMarket Accounts.

**Repurchasesof Equity Securities.**

None

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**Item 6.   Selected Financial Data.**

Thefollowing tables should be read in conjunction with our financial statementsand the notes thereto appearing elsewhere in this Annual Report onForm 10-K. The selected financial data has been derived from our financialstatements, which have been audited by Goldstein Golub Kessler LLP, independentregistered public accounting firm, as indicated in their report includedelsewhere herein.

**SELECTED FINANCIAL DATA**
| ** **                                                    | ** ** | **Year Ended**             | ** ** | **Year Ended**             | ** ** |
|---------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                                    | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
| **Income  statement data**                                    |       |                            |       |                            |       |
| ** **                                                    |       |                            |       |                            |       |
| Interest income                                               |       | $                               | 3,592,913  |                            | —     |   |
| Total expenses                                                |       | 217,526                         |       | 2,013                           |       |
|                                                          |       |                            |       |                            |       |
| Net income before provision for income taxes                  |       | 3,375,387                       |       | (2,013                          | )          |
| Provision for income taxes                                    |       | 1,346,449                       |       | —                          |       |
|                                                          |       |                            |       |                            |       |
| Net income                                                    |       | $                               | 2,028,938  |                            | (2,013     | ) |
|                                                          |       |                            |       |                            |       |
| Basic earnings per share                                      |       | $                               | 0.13       |                            | —     |   |
|                                                          |       |                            |       |                            |       |
| Diluted earnings per share                                    |       | $                               | 0.13       |                            | —     |   |
|                                                          |       |                            |       |                            |       |
| Weighted average  shares outstanding – basic and diluted |       | 15,680,651                      |       | 4,687,500                       |       |

 
| ** **                                   | ** ** | **December 31, 2006** | ** **  | **December 31, 2005** | ** ** |
|----------------------------------------------|------------|---------------------------------|-------------|---------------------------------|------------|
| **Balance sheet data**                       |       |                            |        |                            |       |
|                                         | ** ** | ** **                      | ** **  | ** **                      | ** ** |
| Cash                                         |       | $                               | 1,228,722   |                            | 154,239    |   |
| Investments held in trust                    |       | 145,536,328                     |        | —                          |       |
| Other current assets                         |       | 63,996                          |        | —                          |       |
| Other Assets                                 |       | 453,194                         |        | 139,652                         |       |
|                                         |       |                            |        |                            |       |
| Total assets                                 |       | $                               | 147,282,240 |                            | 293,891    |   |
|                                         |       |                            |        |                            |       |
| Total liabilities                            |       | 4,140,215                       |        | 270,904                         |       |
| Common stock, subject to possible redemption |       | 27,901,042                      |        | —                          |       |
| Total stockholders' equity                   |       | 115,240,983                     |        | 22,987                          |       |
|                                         |       |                            |        |                            |       |
| Total  liabilities and stockholders' equity  |       | $                               | 147,282,240 |                            | 293,891    |   |

 

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**Item 7.   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

The following Management’s Discussion and Analysisof Financial Condition and Results of Operations should be read in conjunctionwith our financial statements and the related notes and schedules theretocontained in this Quarterly Report on Form 10-Q and the Company’s auditedfinancial statements and notes thereto included in our Final Prospectus filedwith the SEC on June 2, 2006 and our Form 8-K filed with the SEC on June 7,2006.

We were formed on December 6, 2005, for the purposeof acquiring, through a merger, capital stock exchange, asset acquisition orother similar Business Combination, an operating business in the media,entertainment or telecommunications industries. Our initial BusinessCombination must be with a target business whose fair market value is at leastequal to 80% of our net assets (excluding the deferred non-accountable expenseallowance of the underwriters held in the Trust Account) at the time of suchacquisition. We intend to use cash derived from the proceeds of our Offeringand concurrent Private Placement, our capital stock, debt or a combination ofcash, capital stock and debt, to effect such Business Combination.

Since our Offering, we have been actively searchingfor a suitable Business Combination candidate. We currently have not enteredinto any definitive agreement with any potential target businesses. We have metwith service professionals and other intermediaries to discuss our company, thebackground of our management and our combination preferences. In the course ofthese discussions, we have also spent time explaining the capital structure ofthe Offering, the combination approval process and the timeline within which wemust either enter into a letter of intent or definitive agreement for aBusiness Combination, or return the proceeds of the Offering held in the TrustAccount to investors.  Consistent with thedisclosures in our prospectus, we have focused our search on companies in themedia/ entertainment and telecommunications industries, which include but arenot limited content distribution (satellite, wireless and terrestrial), mediaportability products and services, services related to motion pictureexhibition, live event entertainment and venue management, interactivetelevision products and services, customer-premise equipment manufacturers,advertising products and services, content production and aggregation services,internet service providers, broadband network operators, internet relatedequipment, software and services, in-home equipment installation and repairservices and direct marketing and call centers services.  We cannot assure investors that we will finda suitable Business Combination in the allotted time.

We are currently in the process of evaluatingand identifying targets for an initial transaction. We are not presentlyengaged in, and will not engage in, any substantive commercial business untilwe consummate an initial transaction. We intend to utilize cash derived fromthe proceeds of our Offering, the Private Placement, our capital stock, debt ora combination of cash, capital stock and debt, in effecting an initialtransaction. The issuance of additional shares of our capital stock:

·               maysignificantly reduce the equity interest of our current stockholders;

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

·               willlikely cause a change in control if a substantial number of our shares ofcommon stock or preferred stock are issued, which may affect, among otherthings, our ability to use our net operating loss carry forwards, if any, andmost likely also result in the resignation or removal of one or more of ourpresent officers and directors; and

·               mayadversely affect prevailing market prices for our securities.

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Similarly, if we issued debt securities, itcould result in:

·               defaultand foreclosure on our assets, if our operating revenues after an initialtransaction were insufficient to pay our debt obligations;

·               accelerationof our obligations to repay the indebtedness, even if we have made allprincipal and interest payments when due, if the debt security containedcovenants that required the maintenance of certain financial ratios or reservesand any such covenant were breached without a waiver or renegotiation of thatcovenant;

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

·               ourinability to obtain additional financing, if necessary, if the debt securitycontained covenants restricting our ability to obtain additional financingwhile such security was outstanding.

We anticipate that we would only consummatesuch a financing simultaneously with the consummation of a BusinessCombination, although nothing would preclude us from raising more capital inanticipation of a possible Business Combination.

**RESULTS OF OPERATIONS**

Through December 31, 2006, our efforts havebeen primarily organizational activities, activities relating to our Offeringand active searching for a target company to do a business combination. We haveneither engaged in any operations nor generated any revenues to date. Wecurrently have no operating business and have not entered into a definitiveagreement with any potential target businesses. Beginning June 7, 2006(the date of the consummation of our Offering) until our consummation of aBusiness Combination, we expect interest earned on the Offering proceeds heldin our Trust Account to be our primary source of income.

Net income for the twelve months endedDecember 31, 2006 was $2,028,938 which consisted of $3,592,913 in interestincome partially offset by $1,346,449 in income taxes and $217,526 in expensesconsisting of $41,004 for D&O and other insurance, $14,333 for AMEXrecurring listing fees, $42,187 for legal fees, $9,325 for travel expenditures,$62,314 for Delaware franchise taxes, $7,000 paid to Value Investments LLC, anaffiliate of Bruce Lederman, our Executive Vice President and Secretary, forour office space and other general and administrative services, $7,000 forTrust Account administration, $12,558 for audit, $8,060 for accounting support,$5,630 for printing and SEC filings, $3,616 for telephone and $4,499 for otherexpenses.  Funds from the Trust Accountare used to pay any taxes resulting from interest accrued on the funds held inthe Trust Account.  $1,090,000 ofestimated federal and state taxes were paid from Trust Account funds during2006.

Net loss for the period from December 6, 2005(Inception) to December 31, 2005 was $(2,013) which consisted of $0 in interestincome offset by $(2,013) in expenses which consisted of $1,000 of organizationcosts and $1,013 of Franchise Tax.

Net income for the cumulative period frominception (December 6, 2005) to December 31, 2006 was $2,026,925 whichconsisted of $3,592,913 in interest income partially offset by $1,346,449 inincome taxes and $219,539 in expenses consisting of $41,004 for D&Oand other insurance, $1,000 for organization expenses, $14,333 for AMEXrecurring listing fees, $42,187 for legal fees, $9,325 for travel expenditures,$62,527 for Delaware franchise taxes, $7,000 paid to Value Investments LLC, anaffiliate of  Bruce Lederman, ourExecutive Vice President and Secretary, for our office space and other generaland administrative services, $7,000 for Trust Account administration, $12,558 foraudit, $8,060 for accounting 

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support, $5,630 for printing and SEC filings,$3,616 for telephone and $5,299 for other expenses.  Funds from the Trust Account will pay anytaxes resulting from interest accrued on the funds held in the Trust Account.  $1,090,000 of estimated federal and state taxeshave been paid from Trust Account funds from Inception to December 31, 2006.

The net proceeds to us from the sale of ourUnits, after deducting offering expenses of approximately $660,000 andunderwriting discounts of approximately $10,500,000 (including $3,000,000placed in the Trust Account representing a deferred underwriters’ discount) was$141,090,000.  Including the underwriter’sdiscount of $3,000,000 held in the Trust Account, there was a total of$142,575,000 placed in the Trust Account upon closing of the Offering.  The remaining proceeds of approximately$1,515,000 became available to be used to provide for business, legal andaccounting due diligence on prospective transactions and continuing general andadministrative expenses. To the extent that our capital stock is used in wholeor in part as consideration to effect an initial transaction, the proceeds heldin the Trust Account (excluding the amount held in the Trust Accountrepresenting a portion of the underwriters’ discount) as well as any other netproceeds not expended will be used to finance the operations of the target. AtDecember 31, 2006, we had cash outside of the Trust Account of $1,228,722,investments held in the Trust Account of $145,536,328, prepaid expenses of$63,996, long term assets of $453,194 and total liabilities of $4,140,215. Webelieve that the funds available to us outside of the Trust Account issufficient to allow us to operate until June 7, 2008, assuming that an initialtransaction is not consummated during that time. Of the funds held outside ofthe Trust Account totaling $1,228,722 as of December 31, 2006, we anticipateusing these funds to cover legal and accounting fees, other expenses attendantto the due diligence investigations, structuring and negotiating of an initialtransaction, and administrative expenses incurred prior to completing aninitial transaction. We do not believe we will need to raise additional fundsin order to meet the expenditures required for operating our business. However,depending upon the type, size and nature of any possible Business Combination,we may need to do so.  However, inconnection with the Offering, in May 2006 the Company entered into a limitedrecourse revolving line of credit with Messrs. Hartenstein, Meyers, Lederman,Chapman and Cox, under which it may have up to $750,000 outstanding borrowingsat any time. The revolving line of credit will terminate upon the earlier ofthe completion of a Business Combination, or the completion of any plan ofdissolution and distribution of the Company approved by the Company’sstockholders, which would include the liquidation of the Trust Account. Therevolving line of credit will bear no interest and will have no recourseagainst the funds in the Trust Account, which funds will be distributed to thePublic Stockholders if the Company does not consummate a Business Combinationwithin the requisite time periods. It is possible that the Company could use aportion of the borrowings under the limited recourse revolving line of creditto make a deposit, down payment or fund a “no-shop” provision with respect to aparticular proposed Business Combination. In the event the Company wereultimately required to forfeit such funds (whether as a result of our breach ofthe agreement relating to such payment or otherwise), it may not have asufficient amount of working capital available outside of the Trust Account topay expenses related to finding a suitable Business Combination withoutsecuring additional financing. If it were unable to secure additionalfinancing, it would most likely fail to consummate a Business Combination inthe allotted time and would be forced to liquidate the Trust Account as part ofany plan of dissolution and distribution approved by the Company’sstockholders.

In addition, we may need to raise additionalfunds through a private offering of debt or equity securities if such funds arerequired to consummate an initial transaction that is presented to us. Subjectto compliance with applicable securities laws, we would only consummate such afund-raising simultaneously with the consummation of an initial transaction.

We currently pay Value Investments LLC anaggregate fee of $1,000 per month which includes the cost of the office spaceand the cost of other general and administrative services provided to us byValue Investments LLC.  In the future, wemay need to increase that fee, up to an amount not to exceed $7,500 per month

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**CHANGES IN FINANCIAL CONDITION**

*Liquidity and Capital Resources*

On June 1, 2006 we entered into an agreementwith certain of our Initial Stockholders for the sale of 2,250,000 warrants ina Private Placement. Each warrant entitles the holder to purchase from us oneshare of our common stock at an exercise price of $5.50. The warrants were soldat a price of $1.00 per warrant, generating net proceeds of $2,250,000.

On June 7, 2006 we consummated our Offeringof 18,750,000 Units.  Each unit consistsof one share of common stock and one warrant. Each warrant entitles the holderto purchase from us one share of our common stock at an exercise price of $5.50

The net proceeds we received from the PrivatePlacement and the sale of our Units, after deducting certain offering expensesof approximately $660,000 and undeferred underwriting discounts of $7,500,000,were approximately $144,090,000 of which $142,575,000 is being held in a TrustAccount at JP Morgan Chase Bank, N.A. maintained by American StockTransfer & Trust Company, as trustee. Included in the $142,575,000held in trust is $3,000,000 of deferred underwriter discounts, which theunderwriters have agreed to defer until the consummation of a BusinessCombination and to forfeit if we do not consummate a Business Combination.

We had available to the Company, at closing,approximately $1,515,000 of funds not held in trust from the Offering afterpaying certain offering expenses and underwriter discounts. We do not believewe will need to raise additional funds in order to meet the expendituresrequired to consummate a Business Combination before June 7, 2008.

However, in connection with the Offering, inMay 2006 the Company entered into a limited recourse revolving line of creditwith several of the Initial Stockholders, Messrs. Hartenstein, Meyers,Lederman, Chapman and Cox, under which it may have up to $750,000 outstandingborrowings at any time. The revolving line of credit will terminate upon theearlier of the completion of a Business Combination, or the completion of anyplan of dissolution and distribution of the Company approved by the Company’sstockholders, which would include the liquidation of the Trust Account. Therevolving line of credit will bear no interest and will have no recourseagainst the funds in the Trust Account, which funds will be distributed to thePublic Stockholders if the Company does not consummate a Business Combinationwithin the requisite time periods. It is possible that the Company could use aportion of the borrowings under the limited recourse revolving line of creditto make a deposit, down payment or fund a “no-shop” provision with respect to aparticular proposed Business Combination. In the event the Company wereultimately required to forfeit such funds (whether as a result of our breach ofthe agreement relating to such payment or otherwise), it may not have a sufficientamount of working capital available outside of the Trust Account to payexpenses related to finding a suitable Business Combination without securingadditional financing. If it were unable to secure additional financing, itwould most likely fail to consummate a Business Combination in the allottedtime and would be forced to liquidate the Trust Account as part of any plan ofdissolution and distribution approved by the Company’s stockholders.  Even with this line of credit, we cannotassure you that there will be sufficient funds to meet the expendituresrequired to complete a Business Combination by June 7, 2008.

Over this time period, June 1, 2006 to June7, 2008, we currently anticipate incurring expenses for the following purposes:

·               legal, accounting and other expensesattendant to due diligence investigations, structuring and negotiation of aBusiness Combination;

·               due diligence of prospective targetbusinesses;

·               legal and accounting fees relating to our SECreporting obligations and general corporate matters;

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·               administrative fees (up to $7,500 per monthfor 24 months);

·               working capital, director and officerliability insurance premiums and reserves (Including potential deposits, downpayments or funding of a “no-shop” provision in connection with a particularBusiness Combination and dissolution obligations and reserves, if any).

Commencing on June 1, 2006 and ending upon theacquisition of a target business, we began incurring a fee of $1,000 per monthfor office space and certain administrative services from Value Investments,LLC, an affiliate of Bruce Lederman, our Executive Vice President andSecretary.  In the future, we mayincrease the amount up to a total of $7,500 per month based on the amount ofservices we require.  In addition, in2005, Messrs. Hartenstein, Cox, Meyers, Chapman and Lederman advanced tous an aggregate of $225,000 for payment of offering expenses on our behalf.These advances were repaid on June 8, 2006 from the proceeds of the Offeringthat were allocated to pay offering expenses.

We may use all or substantially all of the proceedsheld in trust other than the deferred portion of the underwriter’s fee toacquire one or more target businesses. We may not use all of the proceeds heldin the Trust Account in connection with a Business Combination, either becausethe consideration for the Business Combination is less than the proceeds intrust or because we finance a portion of the consideration with capital stockor debt securities that we can issue. In that event, the proceeds held in theTrust Account as well as any other net proceeds not expended will be used tofinance the operations of the target business or businesses. The operatingbusinesses that we acquire in such Business Combination must have, individuallyor collectively, a fair market value equal to at least 80% of the balance inthe Trust Account (excluding deferred underwriter’s fee of $3,000,000) at thetime of such acquisition. If we consummate multiple Business Combinations thatcollectively have a fair market value of 80% of our net assets, then we wouldrequire that such transactions are consummated simultaneously.

If we are unable to find a suitable target businessby December 7, 2007 or June 7, 2008 if a letter of intent, agreement inprinciple or a definitive agreement has been executed by December 7, 2007, wewill be forced to liquidate. If we are forced to liquidate, the per shareliquidation amount may be less than the initial per unit Offering price becauseof the underwriting commissions and expenses related to our Offering andbecause of the value of the warrants in the per unit offering price.Additionally, if third parties make claims against us, the Offering proceedsheld in the Trust Account could be subject to those claims, resulting in a furtherreduction to the per share liquidation price. Under Delaware law, ourstockholders who have received distributions from us may be held liable  for claims by third parties to the extentsuch claims are not been paid by us. Furthermore, our warrants will expireworthless if we liquidate before the completion of a Business Combination.

*Off-Balance Sheet Arrangements*

Options and warrants issued in conjunctionwith our Offering are equity linked derivatives and accordingly representoff-balance sheet arrangements.  The options and warrants meet the scopeexception in paragraph 11(a) of FAS 133 and are accordingly not accounted foras derivatives for purposes of FAS 133, but instead are accounted for asequity.  For a more complete discussion of the treatment of theunderwriter’s purchase option and the warrants, see footnote 1 to the financialstatements.

In connection with the Offering, in May 2006 theCompany entered into a limited recourse revolving line of credit with Messrs.Hartenstein, Meyers, Lederman, Chapman and Cox, under which it may have up to$750,000 outstanding borrowings at any time. The revolving line of credit willterminate upon the earlier of the completion of a Business Combination, or thecompletion of any plan of dissolution and distribution of the Company approvedby the Company’s stockholders, which would include the liquidation of the TrustAccount. The revolving line of credit will bear no interest and will have norecourse against the funds in the Trust Account, which funds will bedistributed to the Public Stockholders if the Company does not 

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consummate a Business Combination within therequisite time periods. It is possible that the Company could use a portion ofthe borrowings under the limited recourse revolving line of credit to make adeposit, down payment or fund a “no-shop” provision with respect to aparticular proposed Business Combination. In the event the Company wereultimately required to forfeit such funds (whether as a result of our breach ofthe agreement relating to such payment or otherwise), it may not have asufficient amount of working capital available outside of the Trust Account topay expenses related to finding a suitable Business Combination withoutsecuring additional financing. If it were unable to secure additionalfinancing, it would most likely fail to consummate a Business Combination inthe allotted time and would be forced to liquidate the Trust Account as part ofany plan of dissolution and distribution approved by the Company’sstockholders.  At this time, none of theline of credit has been exercised.

Other than the line of credit mentioned above andcontractual obligations incurred in the normal course of business, we do nothave any off-balance sheet financing arrangements or liabilities, guaranteecontracts, retained or contingent interests in transferred assets or anyobligation arising out of a material variable interest in an unconsolidatedentity.  The securities held in the Trust Account are in the name of HDPartners Acquisition Corporation.

*Contractual Obligations*

In connection with our Offering, Morgan Joseph &Co. Inc. has agreed to defer payment of the remaining two percent (2%) of thegross proceeds ($3,000,000) until completion of a Business Combination. Until aBusiness Combination is complete, these funds will remain in the Trust Account.If the Company does not complete a Business Combination then the 2% deferredfee will become part of the funds returned to the Company’s Public Stockholdersfrom the Trust Account upon its liquidation as part of any plan of dissolutionand distribution approved by the Company’s stockholders.

The Company has entered into an engagement agreementwith Morgan Joseph & Co. Inc. whereby Morgan Joseph & Co. Inc. willprovide financial advisory and investment banking services to the Company.  For a more complete discussion of thisengagement, see below under the section entitled “Item 13 Certain Relationshipsand Related Transaction.”

Otherthan contractual obligations incurred in the ordinary course of business, we donot have any other long-term contractual obligations.

**Item 7A.** **Quantitative and QualitativeDisclosures About Market Risk.**

Marketrisk is the sensitivity of income to changes in interest rates, foreignexchanges, commodity prices, equity prices, and other market-driven rates orprices. We are not presently engaged in, and if a suitable business target isnot identified by us prior to the prescribed liquidation of the trust accountwe may not engage in, any substantive commercial business. Accordingly, therisks associated with foreign exchange rates, commodity prices, and equityprices are not significant.

**Item8.   Financial Statements and Supplementary Data.**

Referenceis made to pages F-1 through F-12 comprising a portion of this AnnualReport on Form 10-K.

**Item 9.   Changes in and Disagreements withAccountants on Accounting and Financial Disclosure.**

None.

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**Item 9A.** **Controls and Procedures.**

Ourmanagement carried out an evaluation, with the participation of EddyHartenstein, our principal executive officer, and Robert Meyers, our principalfinancial officer, of the effectiveness of our disclosure controls andprocedures as of December 31, 2006. Based upon that evaluation, Mr. Hartensteinand Mr. Meyers concluded that our disclosure controls and procedures wereeffective to ensure that information required to be disclosed by us in reportsthat we file or submit under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported, within the time periods specified in the rulesand forms of the Securities and Exchange Commission.

Therehas not been any change in our internal control over financial reporting inconnection with the evaluation required by Rule 13a-15(d) under theExchange Act that occurred during the three months ended December 31, 2006 thathas materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

**Item 9B.** **Other Information.**

Not applicable.

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**PART III**

**Item10.   Directors and Executive Officers of the Registrant.**

Our current directors and executive officersare as follows:
| **Name**            | ** ** | **Age** | ** ** | **Position**                                    |
|---------------------|------------|---------|------------|-------------------------------------------------|
| Eddy W. Hartenstein |       | 55      |       | Chairman, President and Chief Executive Officer |
| Robert L. Meyers    |       | 59      |       | Chief Financial Officer, Treasurer and Director |
| Bruce R. Lederman   |       | 64      |       | Executive Vice President  and Secretary    |
| Lawrence Chapman    |       | 51      |       | Executive Vice President                        |
| Steven J. Cox       |       | 44      |       | Executive Vice President and Director           |
| Henry Goldberg      |       | 67      |       | Director                                        |
| Martin E. Gottlieb  |       | 60      |       | Director                                        |

 

**Eddy W.Hartenstein** has beenour Chairman, President and Chief Executive Officer since December 2005.Mr. Hartenstein retired on December 31, 2004 from his position asVice Chairman of The DIRECTV Group, Inc. (formerly Hughes ElectronicsCorporation) and as a member of The DIRECTV Group Board of Directors. Priorthereto, Mr. Hartenstein was Chairman and CEO of DIRECTV, Inc., from2001 to 2003. Mr. Hartenstein was also President of DIRECTV, Inc.from its inception in 1990 to 2001, where he was responsible for assembling theDIRECTV management team and guiding its strategic efforts to develop thebusiness infrastructure necessary to launch the U.S. direct-to-homeentertainment distribution service. From 1987 through 1990, Mr. Hartensteinwas Senior Vice President of Hughes Communications, Inc. Between 1984 and1987, Mr. Hartenstein served as President of Equatorial CommunicationsServices Company, which was subsequently acquired by GTE. Prior to joiningEquatorial, Mr. Hartenstein was Vice President of Hughes Communications,from 1981 to 1984. Mr. Hartenstein joined Hughes Aircraft Company in 1972.Before transferring to Hughes Communications in 1981, he held a succession ofengineering, operations, and program management positions at Hughes AircraftCompany’s Space and Communications Division and NASA’s Jet PropulsionLaboratory. Mr. Hartenstein received Bachelor’s degrees in AerospaceEngineering and Mathematics from California State Polytechnic University,Pomona in 1972. He received an M.S. degree in Applied Mechanics from Cal Techin 1974 while a Hughes Aircraft Company Masters Fellow. Mr. Hartensteincurrently serves on the Board of Directors of Thomson S.A., SanDisk Corp., XMSatellite Radio Holdings Inc. and the Consumer Electronics Association.Mr. Hartenstein was elected as a member of the National Academy ofEngineering in 2001and was inducted into the Broadcasting & Cable Hallof Fame in 2002.

**Robert L.Meyers** has been ourChief Financial Officer, Treasurer and a director since December 2005. From 2004 until December 2005, Mr. Meyers was retired and managinghis personal portfolio. From 2001 to 2004, Mr. Meyers was an ExecutiveVice President of DIRECTV, Inc., a unit of Hughes Electronics Corporation(which changed its name to The DIRECTV Group in 2004). In this position,Mr. Meyers was responsible for customer satisfaction, which included theinstallation and service network, customer service, marketing and customerloyalty and retention. Prior to this position, Mr. Meyers was ExecutiveVice President and Chief Financial Officer of DIRECTV, Inc., from 1996 to2001, where he was responsible for all internal and external financial affairsfor DIRECTV, Inc. Mr. Meyers joined DIRECTV, Inc. in 1996 fromthe corporate headquarters of Hughes Electronics, where he served a dual roleas Director of Investor Relations and Corporate Financial Planning. From 1989to 1993, Mr. Meyers was Controller of Electro-Optical and Data SystemsGroup, a unit of Hughes Aircraft Company. With Hughes since 1972,Mr. Meyers held progressively responsible finance positions within thecompany. Prior to appointments at Space and Communications Group Finance andthe Commercial Satellite Systems Division, he participated in the CorporateBusiness Management Development Rotation program with assignments in RadarSystems Group, Missile Systems Group, Malibu Research Laboratories andElectro-Optical and Data Systems Group. 

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Mr. Meyers earned his Bachelor’s andMaster’s degree in Business Administration from the University of SouthernCalifornia in 1970 and 1972, respectively.

**Bruce R.Lederman** has been ourExecutive Vice President and Secretary since December 2005 and servedas a director from December 2005 through April 2006. Mr. Lederman iscurrently a member of Industrial Equity Capital, LLC, a private investmentfirm, which he joined as a founding member in 2002. Mr. Lederman is currentlymanaging member of Value Investments, LLC, a private investment firm.  From 1999 to 2004, he was Chief OperatingOfficer, Vice Chairman and Co-founder of AssureSat, Inc., a company formedto design, build and operate geo-synchronous satellites. From 1994 to 2000,Mr. Lederman co-founded and served as Vice Chairman of Unisite, Inc.,a company which built and purchased telecommunications towers for the wirelessindustry. Mr. Lederman retired in 1999 as a senior partner from the lawfirm of Latham & Watkins, which he joined in 1968. Mr. Ledermanobtained his LLB, cum laude, from Harvard Law School in 1967 and received aB.S. in Economics, cum laude, from the Wharton School of Finance &Commerce, University of Pennsylvania in 1964. He attended the London School ofEconomics at the University of London where he studied Economics from 1962 to1963.

**Lawrence****Chapman** has been our Executive Vice President sinceDecember 2005 and served as a director from December 2005 through April2006. Mr. Chapman retired from Hughes Electronics Corporation (whichchanged its name to The DIRECTV Group in 2004) in August 2004, with hismost recent assignment as President and Chief Operating Officer of DIRECTV’sLatin American operation, at the time the region’s largest pay televisionservice with offerings in over 28 countries. Mr. Chapman was appointed asPresident of DIRECTV Latin America, LLC (a partnership between DIRECTV LatinAmerica Holdings, a subsidiary of Hughes Electronics Corp., Darlene InvestmentsLLC, an affiliate of the Cisneros Group of Companies, and Grupo Clarin), tolead the reorganization of the company under Chapter 11 of the U.S. BankruptcyCode. DIRECTV Latin America emerged from Chapter 11 in April 2004. FromAugust 2001 through December 2002, Mr. Chapman was ExecutiveVice President in charge of DIRECTV’s Product Development, Marketing andAdvertising organizations. From March 2000 through August 2001,Mr. Chapman was President of DIRECTV Global Digital Media Inc., asubsidiary of Hughes Electronics Corporation). Between 1990 and 2000,Mr. Chapman served in a number of capacities at DIRECTV including SeniorVice President of Programming, Senior Vice President of Special Markets andDistribution, and Vice President of Business Affairs. Before his assignmentswith DIRECTV, a business unit of Hughes Electronics Corporation,Mr. Chapman served in various business development roles at Hughes CommunicationsInc., a satellite services subsidiary of Hughes Electronics Corporation. From1985 to 1989, Mr. Chapman was Deputy General Manager at JCSat, aTokyo-based satellite services joint venture between Hughes Communications,Itochu Corporation and Mitsui and Company, Ltd. Mr. Chapman holds MS andBS degrees in Electrical Engineering from the University of Florida.Mr. Chapman served as a member of the Board of Directors ofTiVo, Inc. from 1999 to 2003 and as a member of the Board of Directors ofPanAmSat Corporation in 2003.

**Steven J. Cox** has been our ExecutiveVice President and a director since December 2005. FromSeptember 2001 to March 2005, he served as Executive Vice Presidentof DIRECTV, Inc., a business unit of Hughes Electronics Corporation (whichchanged its name to The DIRECTV Group, Inc. in 2004). In this position,Mr. Cox was responsible for overseeing all aspects of the company’s salesand distribution strategy, including national sales accounts, distributor andbuying groups, new sales programs, direct sales, commercial sales and programsfor multiple dwelling units, as well as the sales operations functionsupporting these activities. Prior to overseeing sales and distribution,Mr. Cox served as Executive Vice President of DIRECTV Global Digital Mediafrom April 2000 to September 2001 and as Senior Vice President of NewVentures from March 1997 to April 2000, where he was responsible forstructuring and negotiating DIRECTV’s strategic partnerships, acquisitions andinvestments, as well as developing new business opportunities. As Senior VicePresident of New Ventures, Mr. Cox also oversaw DIRECTV’s regulatory andlegislative affairs and DIRECTV’s Signal Integrity unit. Mr. Cox joinedDIRECTV in 1995 as Vice President, Business Affairs and General Counsel. Priorto his involvement with DIRECTV, he was corporate counsel for ScienceApplications International Corporation (SAIC) from July 1992 toJanuary 1995. Mr. Cox’s primary responsibilities at SAIC includedacquisitions and divestitures, strategic alliances and joint ventures. Before 

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joining SAIC, Mr. Coxwas an associate with the law firm of Gray, Cary, Ames and Frye from 1990 to1992 and Latham & Watkins LLP from 1988 to 1990. From July 2005to November 2006, Mr. Cox was a director of MDU Communications, Inc.and acted as a consultant to MDU Communications, Inc. from November 2005through April 2006. Mr. Cox received a Bachelor of Science degree inbusiness administration in May 1983 from the University of Illinois atUrbana-Champaign. He also received his J.D. at Stanford Law School inJune 1987.

**Henry Goldberg** has been a Director since April 2006. He isa founding partner of Goldberg, Godles, Wiener & Wright, atelecommunications and information technology law firm in Washington D.C. formedin 1983. From 1975 to 1983, Mr. Goldberg was a partner with Verner,Liipfert, Berhard & McPherson in Washington D.C. From 1971 through 1975,Mr. Goldberg was Deputy General Counsel & General Counsel in the WhiteHouse Office of Telecommunications Policy. Mr. Goldberg received an A.B.degree from Boston University in 1961 and received his LLB, cum laude, fromColumbia University in 1964. Mr. Goldberg is a member of the American BarAssociation (ABA) Committee on Agency Rule Making and its Special Committee onCommunications. Mr. Goldberg was the past Chairman of the ABA Committee onCommunications. He is also a member of the International Bar Association (IBA)and former Co-Chairman of its Communications Committee. Mr. Goldberg is amember of the Federal Communications Bar Association (FCBA) and has been theCo-Chairman of the FCBA Engineering and Technical Practice Committee from 1996to the present.

**MartinE. Gottlieb** has been a Director since April 2006.Mr. Gottlieb is a founder and Managing Director of Argent Group Ltd., aboutique investment banking firm specializing in asset-based structuredfinancings of capital assets. Serving as Argent’s President and Chief ExecutiveOfficer since its formation in 1982, Mr. Gottlieb has been responsible forthe overall management and direction of the firm. Prior to forming Argent in1982, Mr. Gottlieb was Vice President and Head of the Leveraged LeasingGroup at Bank of America. In this capacity, he was responsible for transactionorigination, placement and implementation and had profit center responsibilityfor the Group. Mr. Gottlieb started his career at the First National Bankof Chicago. Mr. Gottlieb is an honors graduate of Long Island Universitywith a Bachelor of Science degree in Business Administration earned in 1973 andholds an MBA degree from the University of Chicago earned in 1976.

Our board of directors isdivided into two classes with only one class of directors being elected in eachyear and each class serving a two-year term. The term of office of the firstclass of directors, consisting of Robert L. Meyers and Steve Cox, will expireat our first annual meeting of stockholders. The term of office of the secondclass of directors, consisting of Eddy Hartenstein, Martin E. Gottlieb andHenry Goldberg, will expire at the second annual meeting.

These individuals play a keyrole in identifying and evaluating prospective acquisition candidates,selecting the target business, and structuring, negotiating and consummatingits acquisition. None of these individuals has been a principal of oraffiliated with a public company or blank check company that executed abusiness plan similar to our business plan and none of these individuals iscurrently affiliated with such an entity. However, we believe that the skillsand expertise of these individuals, their collective access to acquisitionopportunities and ideas, their contacts, and their transaction expertise shouldenable them to identify and effect an acquisition although we cannot assure youthat they will, in fact, be able to do so.

Each of Messrs. Hartenstein,Chapman and Cox have entered into agreements with their former employerpursuant to which they have agreed to forbear from certain activities,including the disclosure or use of any proprietary information obtained whileworking for the former employer.  Mr. Hartenstein’s agreement expired onDecember 31, 2006 and Mr. Chapman’s agreement expired on August 31, 2006.  Mr. Cox’s agreement expired on March 30,2007. Mr. Cox’s agreement also restricts him from any activity which iscompetitive with his former employer where it is reasonably likely that hewould disclose or utilize any such confidential or proprietary information inthe conduct of such activities. Mr. Cox does not intend to disclose or use any suchconfidential or proprietary information in connection with our business. We donot believe 

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that any of theserestrictions will prevent us from identifying an acquisition candidate orcompleting a business combination.

**Section16(a) Beneficial Ownership Reporting Compliance**

Section 16(a) of theSecurities Exchange Act of 1934, as amended, requires our officers, directorsand persons who beneficially own more than ten percent of our common stock tofile reports of ownership and changes in ownership with the SEC. Thesereporting persons are also required to furnish us with copies of all Section16(a) forms they file.  All of thesereports were filed in a timely manner.

**DirectorIndependence**

Our board of directors hasdetermined that Messrs. Goldberg and Gottlieb are “independent directors”within the meaning of Rule 121(A) of the American Stock Exchange CompanyGuide and Rule 10A-3 promulgated under the Securities and Exchange Act of1934, as amended. We intend to locate and appoint at least two additionalindependent directors to serve on the board of directors and one additionalindependent director to each serve on our audit committee and our nominatingcommittee within one year of the completion of the initial public offering(i.e. by June 7, 2007).

**BoardCommittees**

Our board of directors hasan audit committee and a nominating committee. Our board of directors hasadopted a charter for these committees as well as a code of conduct and ethicsthat governs the conduct of our directors, officers and employees.

*AuditCommittee*

Our audit committee consistsof Henry Goldberg, and Martin Gottlieb. Mr. Gottlieb serves as thechairman of our audit committee. The independent directors we appointed to ouraudit committee are each an independent member of our board of directors, asdefined by the rules of the SEC. Our board of directors has determined thatMr. Gottlieb qualifies as an “audit committee financial expert,” as suchterm is defined by SEC rules. We intend to locate and appoint at least oneadditional independent director on our audit committee within one year of thecompletion of the initial public offering (i.e. by June 7, 2007).

The audit committee reviewsthe professional services and independence of our independent registered publicaccounting firm and our accounts, procedures and internal controls. The auditalso recommends the firm selected to be our independent registered publicaccounting firm, review and approve the scope of the annual audit, review andevaluate with the independent public accounting firm our annual audit andannual consolidated financial statements, review with management the status ofinternal accounting controls, evaluate problem areas having a potentialfinancial impact on us that may be brought to the committee’s attention by management,the independent registered public accounting firm or the board of directors,and evaluates all of our public financial reporting documents.

*AuditCommittee Pre-Approval Policies and Procedures*

In accordance withSection 10A(i) of the Securities Exchange Act of 1934, before thecompany engages its independent accountant to render audit or permittednon-audit services, the engagement will be approved by the board of directorsor audit committee.

*Nominating Committee*

We have established anominating committee of the board of directors, which consists ofMr. Goldberg and 

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Mr. Gottlieb, each of whomis an independent director as defined by the rules of the American StockExchange and the SEC. The nominating committee is responsible for overseeingthe selection of persons to be nominated to serve on our board of directors.The nominating committee considers persons identified by its members,management, stockholders, investment bankers and others. We intend to locateand appoint at least one additional independent director on our nominatingcommittee within one year of the completion of the initial public offering(i.e. by June 7, 2007).

The guidelines for selectingnominees, which are specified in the nominating committee charter, generallyprovide that persons to be nominated should be actively engaged in businessendeavors, have an understanding of financial statements, corporate budgetingand capital structure, be familiar with the requirements of a publicly tradedcompany, be familiar with industries relevant to our business endeavors, bewilling to devote significant time to the oversight duties of the board ofdirectors of a public company, and be able to promote a diversity of viewsbased on the person’s education, experience and professional employment. Thenominating committee evaluates each individual in the context of the board as awhole, with the objective of recommending a group of persons that can bestimplement our business plan, perpetuate our business and represent shareholderinterests. The nominating committee may require certain skills or attributes,such as financial or accounting experience, to meet specific board needs thatarise from time to time. The nominating committee does not distinguish amongnominees recommended by stockholders and other persons.

**Code ofConduct and Ethics**

We have adopted a code ofconduct and ethics applicable to our directors, officers and employees inaccordance with applicable federal securities laws and the rules of theAmerican Stock Exchange.

**Conflictsof Interest**

Potential investors should be aware of thefollowing potential conflicts of interest:

None of our officers or directors arerequired to commit their full time to our affairs and, accordingly, they mayhave conflicts of interest in allocating management time among various businessactivities.

In the course of their other businessactivities, our officers and directors may become aware of investment andbusiness opportunities that may be appropriate for presentation to us as wellas the other entities with which they are affiliated. They may have conflictingfiduciary duties in determining to which entity a particular businessopportunity should be presented. For a complete description of our management’sother affiliations, see the section entitled “Risk Factors—Our officers anddirectors are currently affiliated with entities engaged in business activitiessimilar to those intended to be conducted by us and accordingly, may haveconflicting fiduciary duties in determining to which entity a particularbusiness opportunity should be presented. We may seek a business combinationwith a target business with which one or more of our initial stockholders maybe affiliated.” Accordingly, such officers and directors may become subject toconflicts of interest regarding us and other business ventures in which theymay be involved, which conflicts may have an adverse effect on our ability toconsummate a business combination.

Our officers and directors may in the futurebecome affiliated with entities, including other blank check companies, engagedin business activities similar to those intended to be conducted by us.

Since our officers and directors own sharesof our common stock that will be released from escrow only if a businesscombination is completed and may own warrants that will expire worthless if abusiness combination is not consummated, these persons may have a conflict ofinterest in determining whether a particular target business is appropriate toeffect a business combination. The personal and financial interests of ourdirectors and officers may influence their motivation in identifying andselecting a target business and timely completing a business combination andsecuring release of their stock.

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If we were to make a deposit, down payment orfund a “no shop” provision in connection with a potential business combination,we may have insufficient funds available outside of the trust to pay for duediligence, legal, accounting and other expenses attendant to completing abusiness combination. In such event, our initial stockholders may have to incursuch expenses in order to proceed with the proposed business combination. Aspart of any such combination, such initial stockholders may negotiate therepayment of some or all of any such expenses, without interest or othercompensation, which if not agreed to by the target business’s management, couldcause our management to view such potential business combination unfavorably,thereby resulting in a conflict of interest.

If our management negotiates to be retainedpost business combination as a condition to any potential business combination,their financial interests, including compensation arrangements, could influencetheir motivation in selecting, negotiating and structuring a transaction with atarget business, and such negotiations may result in a conflict of interest.

With respect to potential conflicts relatingto potential business combinations, in general, prior to availing themselvespersonally of a business opportunity, officers and directors of a corporationincorporated under the laws of the State of Delaware are required to presentbusiness opportunities to the subject corporation if:

       thecorporation could financially undertake the opportunity;

       theopportunity is within the corporation’s line of business; and

       it wouldnot be fair to the corporation and its stockholders for the opportunity not tobe brought to the attention of the corporation.

In addition, conflicts of interest may arisewhen our board evaluates a particular business opportunity with respect to theabove-listed criteria. While a director with such a conflict may decide torecuse himself, we cannot assure you that any of the above mentioned conflictswill be resolved in our favor.

Each of our directors has, or may come tohave, conflicting fiduciary obligations relating to presenting businessopportunities meeting the above-listed criteria to multiple entities. Ourofficers and directors have fiduciary obligations to those companies on whoseboard of directors they sit. To the extent that they  identify business opportunities that may besuitable for the entities or other companies on whose board of directors theymay sit, our officers and directors will honor those fiduciary obligations.Accordingly, they may not present opportunities to us that come to theirattention in the performance of their duties as directors of such otherentities unless any other entity to which they owe such a fiduciary obligationand any successors to such entities have declined to accept such opportunities.Additionally, certain of our directors and officers are directors of companies,both public and private, that may perform business activities in the media,entertainment and telecommunications industries similar to those that we mayperform after consummating a business combination.

In connection with the stockholder voterequired to approve any business combination, all of our initial stockholdershave agreed to vote the shares of common stock owned by them prior to theinitial public offering in the same manner as a majority of the publicstockholders who vote at the special or annual meeting called for the purposeof approving a business combination. Our initial stockholders have also agreedthat if they acquire shares of common stock in or following the initial publicoffering, they will vote such acquired shares in favor of a businesscombination. Accordingly, any shares of common stock acquired by initialstockholders in the open market will not have the same right to vote as publicstockholders with respect to a potential business combination (since they arerequired to vote in favor of a business combination). Additionally, our initialstockholders will not have conversion rights with respect to shares acquiredduring or subsequent to the initial public offering (since they may not voteagainst a business combination), except upon our liquidation as part of anyplan of dissolution and distribution. In addition, with respect to shares ofcommon stock owned by them prior to the initial public offering, they haveagreed to waive their respective rights to participate in any liquidationincluding the liquidation of our trust account as part of our plan ofdissolution and distribution to our public stockholders, as well as to vote forany plan of dissolution and 

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distribution submitted to our stockholders,occurring upon our failure to consummate a business combination, but only withrespect to those shares of common stock acquired by them prior to the initialpublic offering and not with respect to any shares acquired in our initialpublic offering or the open market.

To further minimize potential conflicts ofinterest, we have agreed not to consummate a business combination with an entitythat is affiliated with any of our initial stockholders unless we obtain anopinion from an independent investment banking firm that the businesscombination is fair to our stockholders from a financial point of view. Suchopinion will be included in our proxy solicitation materials, furnished tostockholders in connection with their vote on such a business combination andwe expect that such independent banking firm will be a consenting expert.

**Item11.   Executive Compensation.**

**ExecutiveCompensation**

No executive officer has received any cashcompensation for services rendered. Commencing on the effective date of ourinitial public offering through the acquisition of a target business, we haveagreed to pay Value Investments, LLC up to $7,500 per month for use of officespace, utilities, administrative, technology and secretarial services.  We are currently paying to Value Investments,LLC $1,000 per month for such services. Mr. Lederman, our Executive Vice President,and Secretary, is the managing member of Value Investments, LLC. Thisarrangement is being agreed to by Value Investments, LLC for our benefit and isnot intended to provide Mr. Lederman compensation in lieu of salary. Webelieve, based on rents and fees for similar services in the Los Angeles area,that the fee charged by Value Investments, LLC is at least as favorable as wecould have obtained from an unaffiliated third party. Other than up to this$7,500 per month fee, no compensation of any kind, including finder’s andconsulting fees, has been or will be paid to any of our initial stockholders,including our officers and directors, or any of their respective affiliates,for services rendered prior to or in connection with a business combination.However, these individuals will be reimbursed for any out-of-pocket expensesincurred in connection with activities on our behalf such as identifyingpotential target businesses and performing due diligence on suitable businesscombinations. After a business combination, such individuals may be paidconsulting, management or other fees from target businesses, with any and allamounts being fully disclosed to stockholders, to the extent known, in theproxy solicitation materials furnished to the stockholders. There is no limiton the amount of these out-of-pocket expenses, and there will be no review ofthe reasonableness of the expenses by anyone other than our board of directors,which includes persons who may seek reimbursement, or a court of competentjurisdiction if such reimbursement is challenged. If none of our directors aredeemed “independent,” we will not have the benefit of independent directorsexamining the propriety of expenses incurred on our behalf and subject toreimbursement.

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**CompensationDiscussion and Analysis**

**SummaryCompensation Table**

No compensation was paid or accrued duringthe fiscal year ended December 31, 2006 to (1) our President andChief Executive Officer, (2) our Chief Financial Officer or (3) ourthree most highly compensated executive officers, other than our President andChief Executive Officer and our Chief Financial Officer.

**2006 Grantsof Plan-Based Awards**

There were no equity awards during the fiscalyear ended December 31, 2006 to (1) our President and Chief ExecutiveOfficer, (2) our Chief Financial Officer or (3) our three most highlycompensated executive officers, other than our President and Chief ExecutiveOfficer and our Chief Financial Officer.

**Employment Agreement**

The Company is not a party to any formalemployment agreements.

**Fiscal Year 2006 Stock Option Awards**

The Company did not award any stock optionsin 2006.

**Compensation Actions in 2007**

The Company has not made any bonus or salaryawards for performance during 2006, nor has it approved any stock option awardsfor 2006 performance.

**OutstandingEquity Awards at Fiscal 2006 Year-End**

There were no grants of stock optionsoutstanding on December 31, 2006, the last day of the fiscal year, held byeach of (1) our President and Chief Executive Officer, (2) our ChiefFinancial Officer or (3) our three most highly compensated executiveofficers, other than our President and Chief Executive Officer and our ChiefFinancial Officer.

**2006 OptionExercises and Stock Vested**

The were no exercises of options to purchaseour common stock by (1) our President and Chief Executive Officer,(2) our Chief Financial Officer or (3) our three most highlycompensated executive officers, other than our President and Chief ExecutiveOfficer and our Chief Financial Officer during the fiscal year endedDecember 31, 2006.

**Pension Benefits**

The Company does not have any qualified ornon-qualified defined benefit plans.

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**NonqualifiedDeferred Compensation**

The Company does not haveany non-qualified defined contribution plans or other deferred compensationplans.

**PotentialPayments Upon Termination or Change in Control**

The Company is not party to any agreements,employment or otherwise, the terms of which obligate the Company to makepayments and provide benefits to the Company’s executive officers in the eventof a termination of employment.

**2006 DirectorCompensation**

No compensation was earned or paid by or toour non-employee directors in 2006.

**Director Compensation Policy**

The Company does not currently pay any feesto our directors.

**PerformanceGraph**

We have not included theperformance graph index as we became a reporting company on June 2, 2006.  We do not expect that our securities willtrade at prices much different than the amounts paid for such securities in ourinitial public offering until such time that we complete a business combination,if we are able to do so.

**Item12.   Security Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters.**

The following table sets forth informationregarding the beneficial ownership of our common stock as March 28, 2007, basedon information obtained from the persons named below, with respect to thebeneficial ownership of shares of our common stock 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.

Unless otherwise indicated, we believe thatall persons named in the table have sole voting and investment power withrespect to all shares of common stock beneficially owned by them. 
| **Name and Address of Beneficial Owner(1)** | ** ** | **Amount and Nature  of Beneficial Ownership** | ** ** | **Percentage  of Class** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------|------------|
| Eddy W.  Hartenstein                                                 |       | 922,500                                                            |       | 3.94                          | %          |
| Robert L.  Meyers(2)                                                 |       | 922,500                                                            |       | 3.94                          | %          |
| Bruce R.  Lederman(3)                                                |       | 922,500                                                            |       | 3.94                          | %          |
| Lawrence N.  Chapman(4)                                              |       | 922,500                                                            |       | 3.94                          | %          |
| Steven J. Cox(5)                                                     |       | 922,500                                                            |       | 3.94                          | %          |
| Henry  Goldberg(6)                                                   |       | 37,500                                                             |       | *                             |       |
| Martin E.  Gottlieb(7)                                               |       | 37,500                                                             |       | *                             |       |
| All directors and  executive officers as a group (seven individuals) |       | 4,687,500                                                          |       | 20.0                          | %          |

 

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*       Lessthan 1%

(1)         The business address of each of the individuals is 2601 Ocean Park Boulevard,Suite 320, Santa Monica, CA 90405.

(2)         Mr. Meyers is the chief financial officer, treasurer and a director of ourcompany. Includes 922,500 shares of common stock owned by the Robert LewisMeyers and Karen L. Meyers Family Trust dated December 11, 1996.Mr. Meyers and his spouse serve as the trustees of the trust. Thebeneficiary of the trust is Mr. and Mrs. Meyers’ son.

(3)         Mr. Lederman is an executive vice president and the secretary of ourcompany. Includes 922,500 shares of common stock owned by the Lederman FamilyTrust dated January 17, 2000. Mr. Lederman and his spouse serve astrustees of the trust. The Lederman Family Trust dated January 17, 2000 hasbeen established for the benefit of Mr. Lederman and his spouse.

(4)         Mr. Chapman is an executive vice president of our company. Includes922,500 shares of common stock owned by the Chapman Revocable Family TrustDated February 27, 2001. Mr. Chapman and his spouse are the trusteesof the trust. The Chapman Revocable Family Trust Dated February 27, 2001has been established for the benefit of Mr. and Mrs. Chapman’schildren.

(5)         Mr. Cox is an executive vice president and a director of our company.Includes 922,500 shares of common stock owned by the Cox-King Family LivingTrust, established for the benefit of Mr. Cox and his spouse. Mr. Coxand his spouse serve as trustees of the trust.

(6)   Mr. Goldberg is a director ofour company.

(7)   Mr. Gottlieb is a director ofour company.

Certain of our officers and directors, ortheir designees, concurrently with the closing of our initial public offering,such persons purchased in a private placement transaction a combined total of2,250,000 warrants from us at a price of $1.00 per warrant. These warrants,which we collectively refer to as the founding director warrants, will not besold or transferred by the purchasers who initially purchase these warrantsfrom us until the completion of our initial business combination. The$2,250,000 purchase price of the founding director warrants were added to theproceeds of the initial public offering to be held in the trust account pendingour completion of one or more business combinations. If we do not complete oneor more business combinations that meet the criteria described herein, then the$2,250,000 purchase price of the founding director warrants will become part ofthe liquidation amount distributed to our public stockholders from our trustaccount as part of any plan of dissolution and distribution and the foundingdirector warrants will expire worthless.

Our initial stockholders, which include allof our officers and directors, collectively, beneficially own 20% of the issuedand outstanding shares of our common stock. Because of this ownership block,these stockholders may be able to effectively influence the outcome of allmatters requiring approval by our stockholders, including the election ofdirectors and approval of significant corporate transactions other thanapproval of a business combination.

All of the shares of our common stockoutstanding prior to the date of our initial public offering were placed inescrow with American Stock Transfer & Trust Company, as escrow agent,until the earliest of:

·        threeyears following the date of the commencement of our initial public offering;

·        ourliquidation; and

·        theconsummation of a liquidation, merger, stock exchange or other similartransaction that results in all of our stockholders having the right to exchangetheir shares of common stock for cash, securities or other property subsequentto our consummating a business combination with a target business.

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During the escrow period, the holders ofthese shares will not be able to sell or transfer their securities, except totheir spouses and children or trusts established for their benefit, but willretain all other rights as our stockholders, including, without limitation, theright to vote their shares of common stock and the right to receive cashdividends, if declared. If dividends are declared and payable in shares ofcommon stock, such dividends will also be placed in escrow. If we are unable toeffect a business combination and thus we liquidate, none of our initialstockholders will receive any portion of the liquidation proceeds with respectto common stock owned by them prior to the date of our initial public offering.

Each of Messrs. Chapman, Cox,Hartenstein, Lederman and Meyers is deemed to be our “parent” and “promoter,”as these terms are defined under the Federal securities laws.

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**Item 13.   Certain Relationships and RelatedTransactions.**

In December 2005, we issued 2,500,000shares of our common stock to the individuals set forth below for an aggregateamount of $25,000 in cash, at an average purchase price of approximately $0.01 pershare, as follows:

 

|                        | ** ** | **Number**         | ** ** | ** **                                       | ** ** |
|------------------------|------------|--------------------|------------|--------------------------------------------------|------------|
| **Name**               | ** ** | **of Shares** | ** ** | **Relationship to Us**                 | ** ** |
| Eddy W. Hartenstein    |       | 500,000            |       | Chairman, President and  Chief Executive Officer |       |
| Robert L. Meyers(1)    |       | 500,000            |       | Chief Financial  Officer, Treasurer and Director |       |
| Bruce R. Lederman(2)   |       | 500,000            |       | Executive Vice  President and Secretary          |       |
| Lawrence N. Chapman(3) |       | 500,000            |       | Executive Vice  President                        |       |
| Steven J. Cox(4)       |       | 500,000            |       | Executive Vice  President and Director           |       |

----

(1)         Includes 500,000 shares of common stock owned by the Robert Lewis Meyers andKaren L. Meyers Family Trust dated December 11, 1996. Mr. Meyers andhis spouse serve as the trustees of the trust. The beneficiary of the trust isMr. and Mrs. Meyers’ son.

(2)         Includes 500,000 shares of common stock owned by the Lederman Family Trustdated January 17, 2000. Mr. Lederman and his spouse serve as trusteesof the trust. The Lederman Family Trust dated January 17, 2000 has beenestablished for the benefit of Mr. Lederman and his spouse.

(3)         Includes 500,000 shares of common stock owned by the Chapman Revocable FamilyTrust Dated February 27, 2001. Mr. Chapman and his spouse are thetrustees of the trust. The Chapman Revocable Family Trust Dated February 27,2001 has been established for the benefit of Mr. and Mrs. Chapman’schildren.

(4)         Includes 500,000 shares of common stock owned by the Cox-King Family LivingTrust, established for the benefit of Mr. Cox and his spouse. Mr. Coxand his spouse serve as trustees of the trust.

In April 2006, we effected a .25-for-1 stocksplit in the form of a dividend lowering the purchase price of our common stockto $.008 per share. In May 2006, we effected a .5 for 1 stock split in theform of a dividend further lowering the purchase price of our common stock to$.005 per share.

Following the stock splits described above,there were 4,687,500 shares of common stock outstanding as follows:

|                        | ** ** | **Number**         | ** ** |
|------------------------|------------|--------------------|------------|
| **Name**               | ** ** | **of Shares** | ** ** |
| Eddy W. Hartenstein    |       | 922,500            |       |
| Robert L. Meyers(1)    |       | 922,500            |       |
| Bruce R. Lederman(2)   |       | 922,500            |       |
| Lawrence N. Chapman(3) |       | 922,500            |       |
| Steven J. Cox(4)       |       | 922,500            |       |
| Henry Goldberg(5)      |       | 37,500             |       |
| Martin Gottlieb(6)     |       | 37,500             |       |

----

(1)         Includes 922,500 shares of common stock owned by the Robert Lewis Meyers andKaren L. Meyers Family Trust dated December 11, 1996. Mr. Meyers andhis spouse serve as the trustees of the trust. The beneficiary of the trust isMr. and Mrs. Meyers’ son.

(2)         Includes 922,500 shares of common stock owned by the Lederman Family Trustdated January 17, 2000. Mr. Lederman and his spouse serve as trusteesof the trust. The Lederman Family Trust dated January 17, 2000 has beenestablished for the benefit of Mr. Lederman and his spouse.

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(3)         Includes 922,500 shares of common stock owned by the Chapman Revocable FamilyTrust Dated February 27, 2001. Mr. Chapman and his spouse are thetrustees of the trust. The Chapman Revocable Family Trust DatedFebruary 27, 2001 has been established for the benefit of Mr. andMrs. Chapman’s children.

 (4)         Includes 922,500 shares of common stock owned by the Cox-King Family LivingTrust, established for the benefit of Mr. Cox and his spouse. Mr. Coxand his spouse serve as trustees of the trust.

(5)   In April 2006, each ofMr. Hartenstein, the Robert Lewis Meyers and Karen L. Meyers Family Trustdated December 11, 1996, the Lederman Family Trust dated January 17,2000, the Chapman Revocable Family Trust Dated February 27, 2001 and theCox-King Family Living Trust, sold 5,000 shares of common stock at a price of$.008 per share to Mr. Goldberg.

(6)   In April 2006, each ofMr. Hartenstein, the Robert Lewis Meyers and Karen L. Meyers Family Trustdated December 11, 1996, the Lederman Family Trust dated January 17,2000, the Chapman Revocable Family Trust Dated February 27, 2001 and theCox-King Family Living Trust, sold 5,000 shares of common stock at a price of$.008 per share to Mr. Gottlieb.

Certain of our officers and directors, ortheir designees, concurrently with the closing of the initial public offering,collectively purchased a combined total of 2,250,000 of our warrants from us ata price of $1.00 per warrant. These warrants, which we collectively refer to asthe founding director warrants, will not be sold or transferred by the purchaserswho initially purchased these warrants from us until the completion of ourinitial business combination. The $2,250,000 purchase price of the foundingdirector warrants was added to the proceeds of the initial public offering tobe held in the trust account pending our completion of one or more businesscombinations. If we do not complete one or more business combinations that meetthe criteria described herein, then the $2,250,000 purchase price of thefounding director warrants will become part of the liquidation amountdistributed to our public stockholders from our trust account as part of anyplan of dissolution and distribution and the founding director warrants willexpire worthless.

The holders of the majority of the 4,687,500shares, together with the holders of the founding director warrants, areentitled to require us, on up to two occasions, to register these shares andthe 2,250,000 founding director warrants and the 2,250,000  shares ofcommon stock underlying the founding director warrants, pursuant to anagreement signed on the date of our initial public offering. The holders of themajority of these shares may elect to exercise these registration rights at anytime after the date on which these shares of common stock are released from escrow,which, except in limited circumstances, is not before three years from the dateof our initial public offering. In addition, these stockholders and the holdersof the founding director warrants have certain “piggy-back” registration rightson registration statements filed subsequent to the date on which these sharesof common stock are released from escrow or the founding director warrantsbecome exercisable, as the case may be. We will bear the expenses incurred inconnection with the filing of any such registration statements.

Messrs. Hartenstein, Meyers, Lederman,Chapman and Cox have agreed to provide us with a limited recourse revolvingline of credit under which we may have up to $750,000 outstanding borrowings atany time. The revolving line of credit terminates upon the earlier of thecompletion of a business combination, or the completion of our plan ofdissolution and distribution (as such borrowings may be used to pay costs,expenses and claims in connection with any such dissolution and liquidation).The revolving line of credit will bear no interest and has no recourse againstthe funds in the trust account, which funds will be distributed to the publicstockholders if we do not consummate a business combination within therequisite time periods. It is possible that we could use a portion of theborrowings under the limited recourse revolving line of credit to make adeposit, down payment or fund a “no-shop” provision with respect to aparticular proposed business combination. In the event we were ultimatelyrequired to forfeit such funds (whether as a result of our breach of theagreement relating to such payment or otherwise), we may not have a sufficientamount of working capital available to pay expenses related to finding asuitable business combination without securing additional financing. If we wereunable to secure additional financing, we would most likely fail to consummatea business combination in the allotted time and would be forced to dissolve.

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We have agreed to pay Value Investments, LLCup to $7,500 per month for use of office space, utilities, administrative,technology and secretarial services.  Weare currently paying to Value Investments, LLC $1,000 per month for suchservices. Bruce Lederman, our Executive Vice President and Secretary, is themanaging member of Value Investments, LLC.

Each of Messrs. Chapman, Cox,Hartenstein, Lederman and Meyers is deemed to be our “parent” and “promoter,”as these terms are defined under the Federal securities laws.

We will reimburse our officers and directorsfor any reasonable out-of-pocket business expenses incurred by them inconnection with certain activities on our behalf such as identifying andinvestigating possible target businesses and business combinations. There is nolimit on the amount of accountable out-of-pocket expenses reimbursable by us,which will be reviewed only by our board or a court of competent jurisdictionif such reimbursement is challenged. Accountable out-of-pocket expensesincurred by our officers and directors will not be repaid out of proceeds heldin trust until these proceeds are released to us upon the completion of abusiness combination, provided there are sufficient funds available forreimbursement after such consummation.

Other than the reimbursable out-of-pocketexpenses payable to our officers and directors, no compensation or fees of anykind, including finders and consulting fees, will be paid to any of our initialstockholders, officers or directors who owned our common stock prior to the initialpublic offering, or to any of their respective affiliates for services renderedto us prior to or with respect to the business combination.

Our initial stockholders will not receivereimbursement for any out-of-pocket expenses incurred by them to the extentthat such expenses exceed the amount held outside of the trust account unlessthe business combination is consummated and there are sufficient fundsavailable for reimbursement after such consummation. The financial interest ofsuch persons could influence their motivation in selecting a target businessand thus, there may be a conflict of interest when determining whether aparticular business combination is in the stockholders’ best interest.

After the consummation of a businesscombination, if any, to the extent our management remains as officers of theresulting business, some of our officers and directors may enter intoemployment agreements, the terms of which shall be negotiated and which weexpect to be comparable to employment agreements with other similarly-situatedcompanies in the media, entertainment and telecommunications industries.Further, after the consummation of a business combination, if any, to theextent our directors remain as directors of the resulting business, weanticipate that they will receive compensation comparable to directors at othersimilarly-situated companies in the media, entertainment and telecommunicationsindustries.

All ongoing and future transactions betweenus and any of our officers and directors or their respective affiliates,including the provision of the loans by our officers and directors, will be onterms believed by us at that time, based upon other similar arrangements knowto us, to be no less favorable than are available from unaffiliated third partiesand any transactions or loans, including any forgiveness of loans, will requireprior approval in each instance by a majority of our uninterested “independent”directors (to the extent we have any) or the members of our board who do nothave an interest in the transaction, in either case who had access, at ourexpense, to our attorneys or independent legal counsel. We will not enter intoany such transaction unless our disinterested “independent” directors (or, ifthere are no “independent” directors, our disinterested directors) determinethat the terms of such transaction are no less favorable to us than those thatwould be available to us with respect to such a transaction from unaffiliatedthird parties.

In connection with our Offering, Morgan Joseph &Co. Inc. has agreed to defer payment of the remaining two percent (2%) of thegross proceeds ($3,000,000) until completion of a Business Combination. Until aBusiness Combination is complete, these funds will remain in the Trust Account.If the Company does not complete a Business Combination then the 2% deferredfee will become part of the funds returned to the Company’s Public Stockholdersfrom the Trust Account upon its liquidation as part of any plan of dissolutionand distribution approved by the Company’s stockholders.  The Company has also entered into anengagement agreement with Morgan Joseph & Co. Inc. whereby Morgan Joseph& Co. Inc. will provide

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financial advisory and investment banking servicesto the Company.  In the event the Companyconsummates a business combination it will be obligated to pay to Morgan Joseph& Co. Inc. an aggregate fee of $300,000 ($50,000 of which has already beenpaid in the form of a non-refundable deposit) plus reimbursement of MorganJoseph & Co. Inc.’s out of pocket expenses.

**Item14.  Principal Accounting Fees andServices**

**Description of Professional Services**

*Audit Fees.* Goldstein Golub Kessler LLP(“GGK”), our independent accountants, has a continuing relationship with RSMMcGladrey, Inc. (“RSM”), from which it leases auditing staff who are full time,permanent employees of RSM and through which its partners provided non-auditservices. GGK has no full time employees and, therefore, none of the auditservices performed were provided by permanent full-time employees of GGK. GGKmanages and supervises the audit and audit staff, and is exclusivelyresponsible for the opinion rendered in connection with its examination. Theaggregate fees for professional services rendered by GGK for the audit of theCompany’s financial statements for fiscal year 2006, which includes feesrelated to the initial public offering and related audits, review of financialstatements included in our quarterly reports on Form 10-Q were approximately$62,558.  In addition, we expect to bebilled approximately $15,000 -$17,000 in connection with our December 31, 2006year end audit.

*Audit-Related Fees.* Audit-related fees are forassurance and related services including, among others, consultation concerningfinancial accounting and reporting standards. There were no aggregate feesbilled for audit-related services rendered by GGK.

*Tax Fees.* Fees for professionalservices rendered by RSM McGladrey Inc. for tax compliance, tax planning andtax advice for the fiscal year ended December 31, 2006 were approximately$2,810.

*All Other Fees.*There were**no**feespaid to GGK for services other than audit services and audit-related servicesrendered by GGK for the fiscal year ended December 31, 2006.

**Pre-Approval Policies**

The Audit Committee is responsible for appointing, settingcompensation, and overseeing the work of the independent auditor. The AuditCommittee has established a policy regarding pre-approval of all audit andpermissible non-audit services provided by the independent auditor. A centralizedservice request function is used to provide an initial assessment of requestsfor services by the independent auditor. The request must be specific as to theparticular services to be provided. Requests approved during the initialassessment are aggregated and submitted to the Audit committee for finalapproval. The independent auditor may not perform services, whether associatedwith audit or non-audit functions, unless the services have been approved priorto their performance by the Company’s Audit Committee. Each fiscal year, theAudit Committee negotiates and pre-approves the fee for the annual audit of theCompany’s Consolidated Financial Statements. Each fiscal year, the AuditCommittee may also specifically pre-approve certain audit services,audit-related services, tax services and other services. At the present time,the Audit Committee has not delegated any authority for approval of anyservices. All audit and permissible non-audit services provided by theindependent auditor have been approved by the Audit Committee.

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** ****PART IV**

**Item 15.   Exhibits and Financial StatementSchedules**

**HD PARTNERS ACQUISITION CORPORATION**

**(a corporation in the development stage)**

FinancialStatements

Forthe period from January 1, 2006 to December 31, 2006

**Contents**
| Report of Independent  Registered Public Accounting Firm |   |
|----------------------------------------------------------|--------|
|                                                     |   |
| Audited  Financial Statements                            |   |
|                                                     |   |
| Balance Sheet                                            |   |
| Statement of Operations                                  |   |
| Statement of Stockholders’ Equity                   |   |
| Statement of Cash Flows                                  |   |
| Notes to Financial Statements                            |   |

 

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

To the Board of Directorsand Stockholders

HD Partners AcquisitionCorporation

We have auditedthe accompanying balance sheets of HD Partners Acquisition Corporation (adevelopment stage corporation) (the “Company”) as of December 31, 2006 and2005, and the related statements of operations, stockholders’ equity and cashflows for the year ended December 31, 2006, for the period from December 6,2005 (inception) to December 31, 2005, and the cumulative period from December6, 2005 (inception) to December 31, 2006. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audits to obtain reasonable assuranceabout whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

In our opinion,the financial statements referred to above present fairly, in all materialrespects, the financial position of HD Partners Acquisition Corporation as ofDecember 31, 2006 and 2005, and the results of its operations and its cashflows for the year ended December 31, 2006, for the period from December 6,2005 (inception) to December 31, 2005, and the cumulative period from December6, 2005 (inception) to December 31, 2006 in conformity with United Statesgenerally accepted accounting principles.

The accompanyingfinancial statements have been prepared assuming HD Partners AcquisitionCorporation will continue as a going concern. As discussed in Note 1 to thefinancial statements, HD Partners Acquisition Corporation may face mandatoryliquidation by December 7, 2007 if a business combination is not consummated,which raises substantial doubt about its ability to continue as a goingconcern. The financial statements do not include any adjustments that mightresult from the outcome of this uncertainty.

** **

**GOLDSTEINGOLUB KESSLER LLP**

New York,New York

February 26, 2007

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**Item 1.Financial Statements**

**HD Partners Acquisition Corporation (A Development Stage Company)**

**Balance Sheet**
| ** **                                                                                                                                                                                            | ** ** | **December 31, 2006** | ** **  | **December 31, 2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|-------------|---------------------------------|------------|
| **Assets**                                                                                                                                                                                            | ** ** | ** **                      | ** **  | ** **                      | ** ** |
| **Current  assets:**                                                                                                                                                                                  | ** ** | ** **                      | ** **  | ** **                      | ** ** |
| Cash                                                                                                                                                                                                  |       | $                               | 1,228,722   |                            | $          | 154,239 |   |
| Investments Held in Trust                                                                                                                                                                             |       | 145,536,328                     |        | —                          |       |
| Prepaid Expenses                                                                                                                                                                                      |       | 63,996                          |        | —                          |       |
| **Total  Current Assets**                                                                                                                                                                             |       | $                               | 146,829,046 |                            | $          | 154,239 |   |
| Deferred  Offering Costs                                                                                                                                                                              |       | —                          |        | 139,652                         |       |
| Deferred Tax  Asset                                                                                                                                                                                   |       | 256,314                         |        | —                          |       |
| Other Assets                                                                                                                                                                                          |       | 196,880                         |        | —                          |       |
| **Total  Assets**                                                                                                                                                                                     |       | $                               | 147,282,240 |                            | $          | 293,891 |   |
| ** **                                                                                                                                                                                            | ** ** | ** **                      | ** **  | ** **                      | ** ** |
| **Liabilities  And Stockholders’ Equity**                                                                                                                                                        | ** ** | ** **                      | ** **  | ** **                      | ** ** |
| ** **                                                                                                                                                                                            | ** ** | ** **                      | ** **  | ** **                      | ** ** |
| **Current  Liabilities**                                                                                                                                                                              | ** ** | ** **                      | ** **  | ** **                      | ** ** |
| Accrued Offering  Expenses                                                                                                                                                                            |       | —                          |        | 43,891                          |       |
| Accrued Costs                                                                                                                                                                                         |       | 76,978                          |        | —                          |       |
| Income and  Capital Taxes Payable                                                                                                                                                                     |       | 512,763                         |        | —                          |       |
| Accounts Payable  and Accrued Expenses                                                                                                                                                                |       | 64,558                          |        | 2,013                           |       |
| Notes Payable,  Stockholders                                                                                                                                                                          |       | —                          |        | 225,000                         |       |
| Deferred  Interest                                                                                                                                                                                    |       | 485,916                         |        | —                          |       |
| Deferred Underwriter  Fees                                                                                                                                                                            |       | 3,000,000                       |        | —                          |       |
| **Total  Liabilities**                                                                                                                                                                                |       | 4,140,215                       |        | 270,904                         |       |
| ** **                                                                                                                                                                                            | ** ** | ** **                      | ** **  | ** **                      | ** ** |
| Common Stock  Subject to Possible Conversion, 3,748,125 Shares At Conversion Value                                                                                                                    |       | 27,901,042                      |        | —                          |       |
|                                                                                                                                                                                                  |       |                            |        |                            |       |
| Commitments                                                                                                                                                                                           |       |                            |        |                            |       |
|                                                                                                                                                                                                  |       |                            |        |                            |       |
| **Stockholders’  Equity**                                                                                                                                                                        | ** ** | ** **                      | ** **  | ** **                      | ** ** |
| Preferred Stock,  $.001 par value, 1,000,000 shares authorized; None issued or outstanding                                                                                                            |       | —                          |        | —                          |       |
| Common Stock,  $.001 par value, 60,000,000 shares authorized; 23,437,500 Shares (which  Includes 3,748,125 Subject to Possible Conversion) and 4,687,500 Shares  Issued and Outstanding, respectively |       | 23,437                          |        | 4,687                           |       |
| Additional Paid  in Capital                                                                                                                                                                           |       | 113,190,621                     |        | 20,313                          |       |
| Earnings/(Deficit)  Accumulated during the Development Stage                                                                                                                                          |       | 2,026,925                       |        | (2,013                          | )          |
|                                                                                                                                                                                                  |       |                            |        |                            |       |
| **Total  Stockholders’ Equity**                                                                                                                                                                  |       | 115,240,983                     |        | 22,987                          |       |
| ** **                                                                                                                                                                                            | ** ** | ** **                      | ** **  | ** **                      | ** ** |
| **Total Liabilities and Stockholders’  Equity**                                                                                                                                                  |       | $                               | 147,282,240 |                            | $          | 293,891 |   |

 

Theaccompanying notes should be read in conjunction with these FinancialStatements

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**HD PartnersAcquisition Corporation (A Development Stage Company)**

**Statement of Operations**
| ** **                                                                     | ** ** | ** **                      | ** ** | ** **                               | ** ** | **For the period from**  | ** ** |
|--------------------------------------------------------------------------------|------------|---------------------------------|------------|------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                     | ** ** | ** **                      | ** ** | **For the Period**             | ** ** | **December 6, 2005**          | ** ** |
| ** **                                                                     | ** ** | **For**                         | ** ** | **From December 6, 2005** | ** ** | **(inception)**                         | ** ** |
| ** **                                                                     | ** ** | **Year Ended**             | ** ** | **(inception) to**                  | ** ** | **to December 31, 2006** | ** ** |
| ** **                                                                     | ** ** | **December 31, 2006** | ** ** | **December 31, 2005**          | ** ** | **(cumulative)**                        | ** ** |
| Interest Income                                                                |       | $                               | 3,592,913  |                                     | $          | —                                  |       | 3,592,913 |   |
|                                                                           |       |                            |       |                                     |       |                                    |       |
| **Operating  Expenses**                                                        | ** ** | ** **                      | ** ** | ** **                               | ** ** | ** **                              | ** ** |
|                                                                           |       |                            |       |                                     |       |                                    |       |
| General &  Administrative                                             |       | 217,526                         |       | 2,013                                    |       | 219,539                                 |       |
|                                                                           |       |                            |       |                                     |       |                                    |       |
| Net Income (loss)  before Provision for Income Taxes                           |       | $                               | 3,375,387  |                                     | $          | (2,013                                  | )          | $ | 3,373,374 |   |
|                                                                           |       |                            |       |                                     |       |                                    |       |
| Provision for  Income Taxes                                                    |       | 1,346,449                       |       | —                                   |       | 1,346,449                               |       |
|                                                                           |       |                            |       |                                     |       |                                    |       |
| **Net  Income (loss)**                                                         |       | $                               | 2,028,938  |                                     | $          | (2,013                                  | )          | 2,026,925 |   |
| ** **                                                                     |       |                            |       |                                     |       |                                    |       |
| Weighted Average  Number of Common Shares Outstanding — Basic and diluted |       | 15,680,651                      |       | 4,687,500                                |       | 15,136,719                              |       |
|                                                                           |       |                            |       |                                     |       |                                    |       |
| **Net Income (loss) Per Share -  Basic and Diluted**                           |       | $                               | 0.13       |                                     | $          | (0.00                                   | )          | $ | 0.13 |   |

 

The accompanyingnotes should be read in conjunction with these Financial Statements

 

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**HD PartnersAcquisition Corporation (A Development Stage Company)**

**Statement of Stockholders’ Equity**

**Cumulative Amounts from Inception(December 6, 2005) to December 31, 2006**
| ** **                                                                                                                                     | ** ** | ** **            | ** ** | ** **     | ** ** | ** **          | ** ** | **Earnings/(Deficit)**     | ** ** | ** **  | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|----------------|------------|---------------------|------------|----------------------------|------------|-------------|------------|
| ** **                                                                                                                                     | ** ** | ** **            | ** ** | ** **     | ** ** | ** **          | ** ** | **Accumulated**            | ** ** | ** **  | ** ** |
| ** **                                                                                                                                     | ** ** | **Common Stock** | ** ** | **Additional** | ** ** | **During the** | ** ** | ** **                 | ** ** |
| ** **                                                                                                                                     | ** ** | **Shares**            | ** ** | **Amount**     | ** ** | **Paid-in-Capital** | ** ** | **Development Stage** | ** ** | **Total**   | ** ** |
| Contributions from  founding stockholders - December 13, 2005 at $.005 per share                                                               |       | 4,687,500             |       | $              | 4,687      |                | $          | 20,313                     |       | $           | —     |   | $ | 25,000 |   |
| Net Loss                                                                                                                                       |       | —                |       | —         |       | —              |       | (2,013                     | )          | (2,013      | )          |
| **Balance - December 31,  2005**                                                                                                          |       | 4,687,500             |       | $              | 4,687      |                | $          | 20,313                     |       | $           | (2,013     | ) | $ | 22,987 |   |
| **Unaudited:**                                                                                                                                 | ** ** | ** **            | ** ** | ** **     | ** ** | ** **          | ** ** | ** **                 | ** ** | ** **  | ** ** |
| ** **                                                                                                                                     | ** ** | ** **            | ** ** | ** **     | ** ** | ** **          | ** ** | ** **                 | ** ** | ** **  | ** ** |
| Sale of Founding  Director Warrants                                                                                                            |       | —                |       | —         |       | 2,250,000           |       | —                     |       | 2,250,000   |       |
|                                                                                                                                           |       |                  |       |           |       |                |       |                       |       |        |       |
| Sale of 18,750,000  Units Net of Underwriter’s Discount and Offering expenses (Includes 3,748,125  Shares Subject to Possible Conversion) |       | 18,750,000            |       | 18,750         |       | 138,821,250         |       | —                     |       | 138,840,000 |       |
| Proceeds Subject to  Possible Conversion of 3,748,125 Shares                                                                                   |       | —                |       | —         |       | (27,901,042         | )          | —                     |       | (27,901,042 | )          |
| Sale of Underwriter  Option                                                                                                                    |       | —                |       | —         |       | 100                 |       | —                     |       | 100         |       |
|                                                                                                                                           |       |                  |       |           |       |                |       |                       |       |        |       |
| Net Income                                                                                                                                     |       | —                |       | —         |       | —              |       | 2,028,938                  |       | 2,028,938   |       |
| **Balance - December 31, 2006**                                                                                                                |       | 23,437,500            |       | $              | 23,437     |                | $          | 113,190,621                |       | $           | 2,026,925  |   | $ | 115,240,983 |   |

 

The accompanying notesshould be read in conjunction with these Financial Statements

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**HD Partners AcquisitionCorporation (A Development Stage Company)**

**Statement of Cash Flows**
| ** **                                                                     | ** ** | ** **                                   | ** ** | ** **                              | ** ** | **For the period from**  | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                     | ** ** | ** **                                   | ** ** | **For the Period from**  | ** ** | **December 6, 2005**               | ** ** |
| ** **                                                                     | ** ** | **For the period from ** | ** ** | **December 6, 2005 **    | ** ** | **(inception) **                   | ** ** |
| ** **                                                                     | ** ** | **January 1, 2006**                | ** ** | **(inception)**                         | ** ** | **to December 31, 2006** | ** ** |
| ** **                                                                     | ** ** | **to December 31, 2006**      | ** ** | **to December 31, 2005** | ** ** | **(cumulative)**                        | ** ** |
|                                                                           |       |                                         |       |                                    |       |                                    |       |
| **Cash Flows From Operating  Activities:**                                     | ** ** | ** **                                   | ** ** | ** **                              | ** ** | ** **                              | ** ** |
|                                                                           |       |                                         |       |                                    |       |                                    |       |
| Net Income/(Loss)                                                              |       | $                                            | 2,028,938  |                                    | $          | (2,013                                  | )          | $ | 2,026,925 |   |
| Adjustments to  reconcile net income to net cash used in operating activities: |       |                                         |       |                                    |       |                                    |       |
| Increase in Value of  Investments Held in Trust                                |       | (4,051,328                                   | )          | —                                  |       | (4,051,328                              | )          |
| Increase in Deferred  Income Tax Benefit                                       |       | (256,314                                     | )          | —                                  |       | (256,314                                | )          |
| Increase in Deferred  Interest                                                 |       | 485,916                                      |       | —                                  |       | 485,916                                 |       |
| Changes in Operating  Assets and Liabilities:                                  |       |                                         |       |                                    |       |                                    |       |
| Increase in Accounts  Payable and Accrued Expenses                             |       | 62,545                                       |       | 2,013                                   |       | 64,558                                  |       |
| Increase in Income and  Capital Taxes Payable                                  |       | 512,763                                      |       | —                                  |       | 512,763                                 |       |
| Increase in Prepaid  Expenses                                                  |       | (63,996                                      | )          | —                                  |       | (63,996                                 | )          |
| Net Cash Used in  Operating Activities                                         |       | (1,281,476                                   | )          |                                    |       | (1,281,476                              | )          |
| ** **                                                                     | ** ** | ** **                                   | ** ** | ** **                              | ** ** | ** **                              | ** ** |
| **Cash Flow from Investing  Activities**                                       | ** ** | ** **                                   | ** ** | ** **                              | ** ** | ** **                              | ** ** |
| Increase in Other  Assets                                                      |       | (119,902                                     | )          | —                                  |       | (119,902                                | )          |
| Investments Placed in  Trust                                                   |       | (142,575,000                                 | )          | —                                  |       | (142,575,000                            | )          |
| Tax Payment from Trust                                                         |       | 1,090,000                                    |       | —                                  |       | 1,090,000                               |       |
| Net Cash Used in  Investing Activities                                         |       | (141,604,902                                 | )          | —                                  |       | (141,604,902                            | )          |
|                                                                           |       |                                         |       |                                    |       |                                    |       |
| **Cash Flow from Financing  Activities:**                                      | ** ** | ** **                                   | ** ** | ** **                              | ** ** | ** **                              | ** ** |
| Proceeds from Public  Offering                                                 |       | 150,000,000                                  |       | —                                  |       | 150,000,000                             |       |
| Proceeds from Founding  Director Warrant Purchase                              |       | 2,250,000                                    |       | —                                  |       | 2,250,000                               |       |
| Proceeds from Issuance  of Underwriter Option                                  |       | 100                                          |       | —                                  |       | 100                                     |       |
| Proceeds from Sale of  Common Stock                                            |       | —                                       |       | 25,000                                  |       | 25,000                                  |       |
| Proceeds from Notes  Payable, Stockholders                                     |       | —                                       |       | 225,000                                 |       | 225,000                                 |       |
| Payment of Notes  Payable, Stockholders                                        |       | (225,000                                     | )          | —                                  |       | (225,000                                | )          |
| Payment of Offering  Costs                                                     |       | (8,064,239                                   | )          | (95,761                                 | )          | (8,160,000                              | )          |
| Net Cash Provided by  Financing Activities                                     |       | 143,960,861                                  |       | 154,239                                 |       | 144,115,100                             |       |
|                                                                           |       |                                         |       |                                    |       |                                    |       |
| **Net Increase in Cash**                                                       |       | 1,074,483                                    |       | 154,239                                 |       | 1,228,722                               |       |
|                                                                           |       |                                         |       |                                    |       |                                    |       |
| Cash at Beginning of  Period                                                   |       | 154,239                                      |       | —                                  |       | —                                  |       |
|                                                                           |       |                                         |       |                                    |       |                                    |       |
| **Cash at end of period**                                                      |       | $                                            | 1,228,722  |                                    | $          | 154,239                                 |       | $ | 1,228,722 |   |

 
|                                                                       |       |       |       |       |       |       |       |
|----------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **Supplemental schedule of  non-cash investing and financing activities:** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Accrual of Deferred  Underwriting Fees                                     |       | $          | 3,000,000  |       | —     |       | $          | 3,000,000 |   |
| Accrual of Deferred  Offering Costs                                        |       | —     |       | $          | 43,891     |       | —     |   |
| Accrual of Other Assets                                                    |       | $          | 76,978     |       | —     |       | $          | 76,978 |   |
|                                                                            |            |            |            |            |            |            |            |  |  |  |

** **

Theaccompanying notes should be read in conjunction with these FinancialStatements

68

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**HD Partners Acquisition Corporation (A Development Stage Company)**

**Notes toFinancial Statements**

**December 31, 2006**

**1.   Organization, BusinessOperations and Significant Accounting Policies**

HD Partners Acquisition Corporation (the “Company”)was incorporated in Delaware on December 6, 2005 as a blank check company whoseobjective is to acquire through a merger, capital stock exchange, assetacquisition or other similar business combination with one or more operatingbusinesses in the media, entertainment or telecommunications industries.  At December 31, 2006, the Company had neitherengaged in any operations nor generated significant revenue to date. TheCompany is considered to be in the development stage and is subject to therisks associated with activities of development stage companies.

The majority of activity through December 31, 2006relates to the Company’s formation, its initial public offering described belowand searching for a target company with which to do a business combination.

The Company’s ability to commence operations wascontingent upon obtaining adequate financial resources through a proposedpublic offering (“Offering”) which was declared effective June 1, 2006 and isdiscussed in Note 3. The Company consummated the Offering on June 7, 2006, andpreceding the consummation of the Offering on June 1, 2006 certain officers,directors, and Initial Stockholders (as defined below) of the Company purchasedan aggregate of 2,250,000 warrants at $1.00 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, but thepurchasers in the Private Placement have waived their rights to receive anydistribution on liquidation in the event the Company does not complete aBusiness Combination (as described below). The Company received net proceedsfrom the Private Placement and the Offering of approximately $141,090,000 (Note3).

The Company’s management has broad discretion withrespect to the specific application of the net proceeds of the Offering,although substantially all of the net proceeds of the Offering are intended tobe generally applied toward consummating a business combination with anoperating business (“Business Combination”), which may not constitute abusiness combination for accounting purposes.

Upon the closing of the Offering, $142,575,000(including $3,000,000 of deferred underwriter fees) was placed in a trustaccount (“Trust Account”) and commencing June 7, 2006, was invested ingovernment securities until the earlier of: (i) the consummation of itsfirst Business Combination or (ii) the distribution of the Trust Accountas described below. To the extent the trust account earns interest or we aredeemed to have earned income in connection therewith, we are permitted to seekdisbursement from the trust account to pay any federal, state or local taxobligations related thereto. As of December 31, 2006, $1,090,000 has beenwithdrawn from the trust account to pay federal and state income taxobligations. The placing of funds in the Trust Account may not protect thosefunds from third party claims against the Company.  Although the Company will seek to have allvendors, prospective target businesses or other entities it engages, executeagreements with the Company waiving any right, title, interest or claim of anykind in or to any monies held in the Trust Account, there is no guarantee thatthey will execute such agreements. All of the Company’s executive officers haveseverally agreed that they will be personally liable under certaincircumstances to ensure that the proceeds in the Trust Account are not reducedby the claims of target businesses or vendors or other entities that are owedmoney by the Company for services rendered, contracted for or products sold tothe Company. However, there can be no assurance that the executive officers willbe able to satisfy those obligations. The remaining proceeds (not held in theTrust Account) may be used to pay for business, legal and accounting duediligence on prospective acquisitions and continuing general and administrativeexpenses. The Company’s first business combination must be with a business witha fair market value of at least 80% of the Company’s net asset value at thetime of the acquisition. The Company, after signing a definitive agreement forthe acquisition of a target business, will submit such transaction forstockholder approval. In the event that stockholders owning 20% or more of theshares issued in the Offering vote against the Business Combination andexercise their conversion rights described below, the Business Combination willnot be consummated. All of the Company’s stockholders prior to the Offering,including all of the officers and directors of the Company (“InitialStockholders”), have agreed to vote their 4,687,500 founding shares of commonstock, as well as any shares of common stock acquired in connection with orfollowing the Offering, in accordance with the vote of the majority in interestof all other stockholders of the Company (“Public Stockholders”) with respectto any Business Combination. After consummation of a Business Combination,these voting safeguards will no longer be applicable.

69

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**HD Partners Acquisition Corporation (A Development Stage Company)**

**Notes toFinancial Statements**

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 Account computedwithout regard to the shares held by Initial Stockholders.  Accordingly, a portion of the net proceedsfrom the Public Offering (19.99% of the amount held in the Trust Fund,excluding cash held in trust from the underwriter), has been classified ascommon stock subject to possible conversion on the accompanying balance sheetand 19.99% of the investment income on the Trust Account (net of income taxeffect) has been recorded as deferred interest on the accompanying December 31,2006 balance sheet.  In addition, suchstockholders would also be entitled to a portion of the deferred portion of theunderwriter’s discount (see Note 4).

The Company’s Amended and Restated Certificate ofIncorporation provides for liquidation of the Company in the event that theCompany does not consummate a Business Combination within 18 months from thedate of the consummation of the Offering (December 7, 2007), or 24 months fromthe consummation of the Offering if certain extension criteria have beensatisfied.  There is no assurance thatthe Company will be able to effect a Business Combination during thisperiod.  This factor raises substantialdoubt about the Company’s ability to continue as a going concern. Theaccompanying financial statements are prepared assuming the Company willcontinue as a going concern. The financial statements do not include anyadjustments that might result from the outcome of this uncertainty. In theevent of liquidation, it is likely that the per share value of the residualassets remaining available for distribution (including Trust Account assets)will be less than the Offering price per share in the Offering (assuming novalue is attributed to the Warrants contained in the Units sold in the Offeringdiscussed in Note 3).

*IncomeTaxes*Deferred incometaxes are provided for the difference between the bases of assets andliabilities for financial reporting and income tax purposes.  A valuation allowance is established whennecessary to reduce deferred tax assets to the amount expected to be realized.

*Net Income Per Common Share*Basic earnings per share is computed by dividing net incomeby the weighted average number of shares of common stock outstanding during theperiod.  Diluted earnings per share giveseffect to dilutive options, warrants, and other potential common stockoutstanding during the period.  Theeffect of the 21,000,000 outstanding warrants (including 2,250,000 foundingdirector warrants), issued in connection with the Offering described in Note 3has not been considered in the diluted net income per share since the warrantsare contingently exercisable.  The effectof the 1,875,000 Units included in the underwriters purchase option, describedin Note 3, along with the warrants underlying such Units, has not beenconsidered in the diluted earnings per share calculation, since the marketprice of the stock was less than the exercise price during the period in thecomputation as the effect of the outstanding options and warrants would beanti-dilutive.

*Cash and Cash Equivalents*For financial statement purposes, the Company considers all highly liquid debtinstruments with a maturity of six months or less when purchased to be cashequivalents.  The Company maintains itscash in bank deposit accounts in the United States of America which, at times,may exceed applicable insurance limits. The Company believes it is not exposed to any significant credit risk oncash and cash equivalents.

*Deferred offering Costs*Deferred offering costs consisted of legal fees and othercosts, incurred through December 31, 2006 that were related to the Offering and that were charged to capital uponthe consummation of the Offering.

*Use of Estimates*The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities at the date of the financial statements and the reported amounts ofexpenses during the reporting period. Actual results could differ from thoseestimates.

70

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**HD Partners Acquisition Corporation (A Development Stage Company)**

**Notes toFinancial Statements**

*Recent Accounting Pronouncements*

In July 2006, theFinancial Accounting Standards Board (“FASB”) issued FASB InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes,” an interpretation ofFASB Statement No. 109 (“FIN 48”), which provides criteria for therecognition, measurement, presentation and disclosure of uncertain taxpositions. A tax benefit from an uncertain position may be recognized only ifit is “more likely than not” that the position is sustainable based on itstechnical merits. The provisions of FIN 48 are effective for fiscal yearsbeginning after December 15, 2006. The Company does not expect FIN 48will have a material effect on its financial condition or results ofoperations.

Management does not believe that any other recentlyissued, but not yet effective, accounting standards if currently adopted wouldhave a material effect on the accompanying financial statements.

**2.   Initial Public Offering**

On June 7, 2006, the Company sold 18,750,000 units (“Units”)in the Offering at a price of $8.00 per Unit. Each Unit consists of one shareof the Company’s common stock, $.001 par value, and one Redeemable Common StockPurchase Warrant (“Warrants”). Each Warrant entitles the holder to purchasefrom the Company one share of common stock at an exercise price of $5.50commencing the later of the completion of a Business Combination or one yearfrom June 1, 2006, the effective date of the Offering and expiring June 1,2010, four years from the effective date of the Offering. The Company may redeemthe Warrants at a price of $.01 per Warrant upon 30 days’ notice after theWarrants become exercisable, only in the event that the last sale price of thecommon stock is at least 11.50 per share for any 20 trading days within a 30trading day period ending on the third day prior to the date on which notice ofredemption is given.  In accordance withthe warrant agreement relating to the Warrants to be sold and issued in theProposed Offering, the Company is only required to use its best efforts tomaintain the effectiveness of the registration statement covering theWarrants.  The Company will not beobligated to deliver securities, and there are no contractual penalties forfailure to deliver securities, if a registration statement is not effective atthe time of exercise.  Additionally, inthe event that a registration is not effective at the time of exercise, theholder of such Warrant shall not be entitled to exercise such Warrant and in noevent (whether in the case of a registration statement not being effective orotherwise) will the Company be required to net cash settle the warrantexercise.  Consequently, the Warrants mayexpire unexercised and unredeemed.

The shares and warrants included in the Units began totrade separately on August 1, 2006.

The Company had granted the Underwriters of theOffering an option exercisable not later than 45 days after the sale of theUnits, to purchase up to 2,812,500 additional Units to coverover-allotments.  Such option was notexercised and has expired.

In connection with the Offering, the Company paid theunderwriters an underwriting discount of 7.0% of the gross proceeds of theOffering ($10,500,000).  The underwritershave agreed to defer payment of two percent (2%) of the gross proceeds($3,000,000) until completion of a Business Combination.  Until a Business Combination is complete,these funds have been placed in the Trust Account.  If the Company does not complete a BusinessCombination then the 2% deferred fee will become part of the funds returned tothe Company’s Public Stockholders from the Trust Account upon its liquidationas part of any plan of dissolution and distribution approved by the Company’sstockholders.

Preceding the consummation of the Offering onJune 1, 2006, certain of the Initial Stockholders purchased 2,250,000warrants at a purchase price of $1.00 per warrant in a Private Placement. Theproceeds of $2,250,000 were deposited into the Trust Account, and suchstockholders will not have any claim on this amount if the Trust Account isliquidated.

The Initial Stockholders are entitled to registrationrights with respect to their founding shares pursuant to an agreement signed onJune 7, 2006. The holders of the majority of these shares are entitled tomake up to two demands that the Company register these shares.  The holders of the majority of these sharescan elect to exercise these registration rights at any time after the date onwhich these shares of common stock are released from escrow.  The holders of the founding director warrantsare also entitled to require us to register the resale of the shares of commonstock underlying the founding director warrants when such warrants becomeexercisable by their terms.  In addition,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.

In connection with the Offering, the Company issued anoption, for $100, to Morgan Joseph & Co. Inc., the representative of theunderwriters, to purchase 1,875,000 Units at an exercise price of $10.00 perUnit.  The Units issuable upon exerciseof this option are identical to those offered by the Company in the Offering,except that the warrants included in the option have an

71

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**HD Partners Acquisition Corporation (A Development Stage Company)**

**Notes to Financial Statements**

exerciseprice of $6.875 (125% of the exercise price of the warrants included in theUnits sold in the Offering).  In lieu ofpaying the exercise price of $10.00 per unit, the option may be converted intoUnits (i.e., a cashless exercise) to the extent that the market value of theUnits at the time of conversion exceeds the exercise price of the option.  The option may be exercised or converted bythe option holder.  The purchase optionand the underlying securities have been registered under the registrationstatement covering the Offering.

The Company will have noobligation to net cash settle the exercise of the unit purchase option or theWarrants underlying the unit purchase option. The holder of the unit purchaseoption will not be entitled to exercise the unit purchase option or theWarrants underlying the unit purchase option unless a registration statementcovering the securities underlying the unit purchase option is effective or anexemption from registration is available. If the holder is unable to exercisethe unit purchase option or underlying Warrants, the unit purchase option orWarrants, as applicable, will expire worthless. The sale of the option has been accounted for as an equitytransaction.  Accordingly, there is nonet impact on the Company’s financial position or results of operations, exceptfor recording the $100 proceeds from the sale. The Company determined, based on a Black-Scholes model, that the fairvalue of the option on the date of sale was approximately $9,881,250, using anexpected life of five years, volatility of 84.6% and a risk free interest rateof 4.83%.

Thevolatility calculation of 84.6% was based on the average of the 25 smallestmedia/communications companies in the Russell 2000 Index during the period fromApril 5, 2001 through April 4, 2006. Because the Company did not have a trading history, the Company neededto estimate the potential volatility of its unit price, which depended on anumber of factors which could not be ascertained at that time.  The Company used the 25 smallestmedia/communications companies in the Russell 2000 Index because its managementbelieved that the volatility of these companies was a reasonable benchmark touse in estimating the expected volatility for the Company’s Units.  Although an expected life of five years wastaken into account for the purposes of assigning a fair value to the option, ifthe Company does not consummate a Business Combination within the prescribedtime period and liquidate the Trust Account as part of any plan of dissolutionand liquidation approved by the Company’s stockholders, the option will becomeworthless.

Althoughthe purchase option and its underlying securities have been registered underthe registration statement, the purchase option grants to holders demand and “piggyback”rights for periods of five and seven years, respectively, from June 7, 2006with respect to the registration under the Securities Act of 1933 of thesecurities directly and indirectly issuable upon exercise of the purchaseoption.  The Company will bear all feesand expenses attendant to registering the securities, other than underwritingcommissions which will be paid for by the holders themselves.  The exercise price and number of unitsissuable upon exercise of the purchase option may be adjusted in certaincircumstances including in the event of a stock dividend, or ourrecapitalization, merger or consolidation. However, the purchase option will not be adjusted for issuance of commonstock at a price below its exercise price.

**3.   Notes Payable, Stockholders**

TheCompany issued an aggregate of $225,000 unsecured promissory notes to five ofits Initial Stockholders on December 13, 2005. The notes were non-interestbearing and were payable on the earlier of December 13, 2006 or theconsummation of the Offering. Accordingly, the Company paid off the notes onJune 8, 2006.  Due to the short termnature of the notes, the fair value of the notes approximated their carryingvalue.

**4.   Commitments and RelatedParty Transactions**

The Company utilizes certain limited administrative,technology and secretarial services, as well as certain limited office spaceprovided by an affiliate of one of the Initial Stockholders. Such affiliate hasagreed that, until the acquisition of a target business by the Company, it willmake such services available to the Company, as may be required by the Companyfrom time to time. The Company has agreed to pay such affiliate up to $7,500per month for such services commencing on June 1, 2006, the effective date ofthe Offering.  At this time, we arepaying such affiliate $1,000 per month for such services.  The Statement of Operations includes $7,000for the twelve months ended December 31, 2006, $0 for the period December 6,2005 to December 31, 2005 and $7,000 for the period from Inception (December 6,2005) to December 31, 2006.

Inaddition, the Company paid to Morgan Joseph & Co. Inc. serving as theunderwriting syndicate’s representative, seven percent (7%) of the grossproceeds of the Offering (the “Underwriters’ Discount”). Five percent (5%) ofthe gross proceeds ($7,500,000) was paid upon the closing of the Company’sOffering.  Morgan Joseph & Co. Inc.has agreed to defer payment of

72

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**HD Partners Acquisition Corporation (A Development Stage Company)**

**Notes to Financial Statements**

theremaining two percent (2%) of the gross proceeds ($3,000,000) until completionof a Business Combination. Until a Business Combination is complete, thesefunds have been held in the Trust Account. If the Company does not complete aBusiness Combination, then the 2% deferred fee will become part of the fundsreturned to the Company’s Public Stockholders from the Trust Account upon itsliquidation as part of any plan of dissolution and distribution approved by theCompany’s stockholders.

**5.   PreferredStock**

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.

**6.   Common Stock**

In April 2006, theCompany effected a .25 for 1 stock split in the form of a dividend. In May2006, the Company effected a .5 for 1 stock split in the form of a dividend.All share numbers herein reflect these adjustments.

In addition, in April2006 the Company approved an amendment and restatement of its Certificate ofIncorporation whereby the number of authorized shares of common stock wasdecreased from 100,000,000 to 40,000,000. An additional amendment and restatementof the Company’s Certificate of Incorporation was approved in May 2006 wherebythe number of authorized shares of common stock was increased from 40,000,000to 60,000,000. All share numbers herein reflect these changes.

** **

73

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**HDPartners Acquisition Corporation (A Development Stage Company)**

**Notes toFinancial Statements**

 

**7.   Income Taxes**

The provision for incometaxes consists of the following:
| ** ** | ** ** | ** **                      | ** ** | **For the period from**      | ** ** |
|------------|------------|---------------------------------|------------|---------------------------------------------|------------|
| ** ** | ** ** | **Year ended**             | ** ** | December 6, 2005 (inception) | ** ** |
| ** ** | ** ** | **December 31, 2006** | ** ** | **to December 31, 2005**          | ** ** |
| ** ** | ** ** | ** **                      | ** ** | ** **                                  | ** ** |
| Current:   |       |                                 |       |                                             |       |
| Federal    |       | $                               | 1,244,340  |                                        | $          | — |   |
| State      |       | 358,423                         |       | —                                      |       |
| Deferred:  |       |                            |       |                                        |       |
| Federal    |       | (199,165                        | )          | —                                      |       |
| State      |       | (57,149                         | )          | —                                      |       |
| Total      |       | $                               | 1,346,449  |                                        | $          | — |   |

 

The total provision for income taxesdiffers from that amount which would be computed by applying the U.S. Federalincome tax rate to income before provision for income taxes as follows:
| ** **                         | ** ** | ** **                      | ** ** | **For the period from**          | ** ** |
|------------------------------------|------------|---------------------------------|------------|-------------------------------------------------|------------|
| ** **                         | ** ** | **Year ended**             | ** ** | **December 6, 2005 (inception)** | ** ** |
| ** **                         | ** ** | **December 31, 2006** | ** ** | **to December 31, 2005**         | ** ** |
| Statutory  federal income tax rate |       | 34.0                            | %          | 34.0                                            | %          |
| State and local  income tax rate   |       | 5.9                             | %          | 5.9                                             | %          |
| Increase in valuation  allowance   |       | —                          |       | (39.9                                           | )%         |
|                               |       |                            |       |                                            |       |
| Effective income tax  rate         |       | 39.9                            | %          | 0.0                                             | %          |

 

74

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**HDPartners Acquisition Corporation (A Development Stage Company)**

**Notes toFinancial Statements**

 

The effect of the temporary differences that make up thedeferred tax assets are as follows:
| ** **                                         | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|----------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| Interest deferred for financial statement purposes |       | $                               | 194,026    |                            | $          | — |   |
| Expenses deferred for income purposes              |       | 62,288                          |       | 700                             |       |
| Valuation allowance                                |       | —                          |       | (700                            | )          |
| Total                                              |       | 256,314                         |       | $                               | —     |   |
|                                                    |            |                                 |            |                                 |            |  |  |

 

**8.****   Line of Credit**

In connection withthe Offering, in May 2006 the Company entered into a limited recourse revolvingline of credit with Messrs. Hartenstein, Meyers, Lederman, Chapman and Cox,under which it may have up to $750,000 outstanding borrowings at any time. Therevolving line of credit will terminate upon the earlier of the completion of aBusiness Combination, or the completion of any plan of dissolution anddistribution of the Company approved by the Company’s stockholders, which wouldinclude the liquidation of the Trust Account. The revolving line of credit willbear no interest and will have no recourse against the funds in the TrustAccount, which funds will be distributed to the Public Stockholders if theCompany does not consummate a Business Combination within the requisite timeperiods. It is possible that the Company could use a portion of the borrowingsunder the limited recourse revolving line of credit to make a deposit, downpayment or fund a “no-shop” provision with respect to a particular proposedBusiness Combination. In the event the Company were ultimately required toforfeit such funds (whether as a result of our breach of the agreement relatingto such payment or otherwise), it may not have a sufficient amount of workingcapital available to pay expenses related to finding a suitable BusinessCombination without securing additional financing. If it were unable to secureadditional financing, it would most likely fail to consummate a BusinessCombination in the allotted time and would be forced to liquidate the TrustAccount as part of any plan of dissolution and distribution approved by theCompany’s stockholders.  There is noamount outstanding at December 31, 2006.

** **

**9.****   Selected Quarterly Financial Data (Unaudited)**

 

The following is a summary of the quarterly results of operations ofthe Company for the year ended December 31, 2006 and for the period fromDecember 6, 2005 (inception) through December 31, 2005.

 
| ** **                                            | ** ** | **2005**    | ** ** | **2006**    | ** ** | **2006**    | ** ** | **2006**    | ** ** | **2006**    | ** ** | ** ** | ** ** |
|-------------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|------------|------------|
| ** **                                            | ** ** | **Fourth**  | ** ** | **First**   | ** ** | **Second**  | ** ** | **Third**   | ** ** | **Fourth**  | ** ** | **Total**  | ** ** |
| ** **                                            | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **2006**   | ** ** |
|                                                  |       |        |       |        |       |        |       |        |       |        |       |       |       |
| Revenue                                               |       | —      |       | —      |       | —      |       | —      |       | —      |       | —     |       |
| Interest income                                       |       | —      |       | —      |       | $           | 376,366    |        | $          | 1,582,948   |       | $          | 1,633,599  |   | $ | 3,592,913 |   |
| Operating expenses                                    |       | $           | (2,013     | )           | $          | —      |       | $           | (36,035    | )           | $          | (80,437    | )          | $ | (101,054 | ) | $ | (217,526 | ) |
| Income (loss)  before Income taxes                    |       | (2013       | )          | —      |       | 340,331     |       | 1,502,511   |       | 1,532,545   |       | 3,375,387  |       |
| Net income  (loss)                                    |       | (2,013      | )          | —      |       | 204,839     |       | 903,195     |       | 920,904     |       | 2,028,938  |       |
| Net income (loss) per  share — basic and diluted |       | $           | (0.00      | )           | $          | 0.00        |       | $           | 0.02       |        | $          | 0.04       |       | $ | 0.04 |   | $ | 0.13 |   |

 

75

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**Exhibits.**

We hereby file as part of this Annual Report on Form10-K the Exhibits listed in the attached Exhibit Index. Exhibits which areincorporated herein by reference can be inspected and copied at the publicreference facilities maintained by the SEC, 100 F Street, N.E., Room 1580,Washington D.C. 20549. Copies of such material can also be obtained from thePublic Reference Section of the SEC, 100 F Street, N.E., Washington, D.C.20549, at prescribed rates or on the SEC website at www.sec.gov.
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                   |
|-------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.1         |       | Form of Underwriting Agreement. (3)                                                                                                                                                                                          |
| 1.2         |       | Form of Selected Dealers Agreement. (2)                                                                                                                                                                                      |
| 3.1         |       | Amended and Restated Certificate of Incorporation.  (6)                                                                                                                                                                           |
| 3.2         |       | By-laws. (1)                                                                                                                                                                                                                      |
| 4.1         |       | Specimen Unit Certificate. (1)                                                                                                                                                                                                    |
| 4.2         |       | Specimen Common Stock Certificate. (1)                                                                                                                                                                                            |
| 4.3         |       | Specimen Warrant Certificate. (1)                                                                                                                                                                                                 |
| 4.4         |       | Form of Unit Purchase Agreement to be granted  to Morgan Joseph & Co. Inc. (1)                                                                                                                                 |
| 4.5         |       | Form of Warrant Agreement between American  Stock Transfer & Trust Company and the Registrant. (1)                                                                                                                  |
| 10.1        |       | Form of Investment Management Trust Agreement  between American Stock Transfer & Trust Company and the Registrant.  (7)                                                                                             |
| 10.2        |       | Form of Stock Escrow Agreement among the  Registrant, American Stock Transfer & Trust Company and the Founding  Stockholders. (1)                                                                                   |
| 10.3        |       | Form of Registration Rights Agreement among the  Registrant and the Founding Stockholders. (1)                                                                                                                               |
| 10.4        |       | Letter Agreement dated May 10, 2006, among the  Registrant, Morgan Joseph & Co., Inc. and Lawrence N. Chapman.  (7)                                                                                            |
| 10.5        |       | Letter Agreement dated May 10, 2006, among the  Registrant, Morgan Joseph & Co. Inc. and Steven J. Cox. (7)                                                                                                    |
| 10.6        |       | Letter Agreement dated May 10, 2006, among the Registrant,  Morgan Joseph & Co. Inc. and Eddy W. Hartenstein. (7)                                                                                              |
| 10.7        |       | Letter Agreement dated May 10, 2006, among the  Registrant, Morgan Joseph & Co. Inc. and Bruce R. Lederman. (7)                                                                                                |
| 10.8        |       | Letter Agreement dated May 10, 2006, among the  Registrant, Morgan Joseph & Co. Inc. and Robert L. Meyers. (7)                                                                                                 |
| 10.9        |       | Office Services Agreement between the Registrant and  Value Investments, LLC. (1)                                                                                                                                                 |
| 10.10       |       | Promissory Note, dated December 13, 2005,  issued to Lawrence N. Chapman in the amount of $45,000. (1)                                                                                                                       |
| 10.11       |       | Promissory Note, dated December 13, 2005,  issued to Steven J. Cox in the amount of $45,000. (1)                                                                                                                             |
| 10.12       |       | Promissory Note, dated December 13, 2005,  issued to Eddy W. Hartenstein in the amount of $45,000. (1)                                                                                                                       |
| 10.13       |       | Promissory Note, dated December 13, 2005, issued  to Bruce R. Lederman in the amount of $45,000. (1)                                                                                                                         |
| 10.14       |       | Promissory Note, dated December 13, 2005,  issued to Robert L. Meyers in the amount of $45,000. (1)                                                                                                                          |
| 10.15       |       | Founding Director Warrant Purchase Agreement dated  May 9, 2006 among the Registrant and each of Lawrence N. Chapman, Steven  J. Cox, Eddy W. Hartenstein, Bruce R. Lederman and Robert L. Meyers. (5)                       |
| 10.16       |       | Letter Agreement dated May 10, 2006, among the  Registrant, Morgan Joseph & Co. Inc. and Henry Goldberg (6)                                                                                                         |
| 10.17       |       | Letter Agreement dated May 10, 2006, among the  Registrant, Morgan Joseph & Co. Inc. and Martin E. Gottlieb (6)                                                                                                |
| 10.18       |       | Amended and  Restated Subordinated Revolving Line of Credit Agreement dated May 10,  2006 by and among the Registrant, Eddy W. Hartenstein, Robert L. Meyers,  Lawrence N. Chapman, Steven J. Cox and Bruce R. Lederman. (7) |
| 14          |       | Code of Ethics (3)                                                                                                                                                                                                                |
| 23.1        |       | Consent of Goldstein Golub Kessler LLP. (7)                                                                                                                                                                                       |
| 24          |       | Power of Attorney (Included on Signature Page).                                                                                                                                                                                   |
| 31          |       | Rule 13a-14(a)/15(d)-14(c) Certifications.*                                                                                                                                                                                       |
| 32          |       | Section 1350 Certifications.*                                                                                                                                                                                                     |
| 99.1        |       | Audit Committee Charter (3)                                                                                                                                                                                                       |
| 99.2        |       | Nominating Committee Charter (3)                                                                                                                                                                                                  |

 

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1.               Incorporatedby reference to the corresponding exhibit filed with the Registration Statementon Form S-1 (File No. 333-130531) with the SEC on December 20, 2005.

2.               Incorporatedby reference to the corresponding exhibit filed with Amendment No. 1 to theRegistration Statement on Form S-1 (File No. 333-130531) with theSEC on January 24, 2006.

3.               Incorporatedby reference to the corresponding exhibit filed with Amendment No. 4 to theRegistration Statement on Form S-1 (File No. 333-130531) with theSEC on April 21, 2006.

4.               Incorporatedby reference to the corresponding exhibit filed with Amendment No. 5 to theRegistration Statement on Form S-1 (File No. 333-130531) with theSEC on May 3, 2006.

5.               Incorporatedby reference to the corresponding exhibit filed with Amendment No. 6 to theRegistration Statement on Form S-1 (File No. 333-130531) with theSEC on May 16, 2006.

6.               Incorporatedby reference to the corresponding exhibit filed with Amendment No. 7 to theRegistration Statement on Form S-1 (File No. 333-130531) with theSEC on May 23, 2006.

7.               Incorporatedby reference to the corresponding exhibit filed with Amendment No. 8 to theRegistration Statement on Form S-1 (File No. 333-130531) with theSEC on May 30, 2006.

* filed herewith

**Reportson Form 8-K — None.**

77

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**SIGNATURES**

Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, the Registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.
|            |   | **HD PARTNERS ACQUISITION CORPORATION**         |
|------------|--------|-------------------------------------------------|
| ** ** |   | ** **                                      |
| ** ** | By:    | /s/ Eddy W. Hartenstein                         |
|       | Name:  | Eddy W. Hartenstein                             |
|       | Title: | Chairman, President and Chief Executive Officer |
|       |   | (principal executive officer)                   |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the datesindicated.
| Signature                | ** ** | **Title**                                               | ** ** | **Date**             |
|--------------------------|------------|---------------------------------------------------------|------------|----------------------|
|                     |       |                                                    |       |                 |
| /s/ Eddy W.  Hartenstein |       | Chairman,  President and                                |       | March  30, 2007 |
| Eddy W.  Hartenstein     |       | Chief Executive  Officer  (principal executive officer) |       |                 |
|                     |       |                                                    |       |                 |
| /s/ Robert L.  Meyers    |       | Chief Financial  Officer, Treasurer and                 |       | March  30, 2007 |
| Robert L. Meyers         |       | Director  (principal financial and accounting officer)  |       |                 |
|                     |       |                                                    |       |                 |
| /s/ Bruce R.  Lederman   |       | Executive Vice  President and Secretary                 |       | March  30, 2007 |
| Bruce R.  Lederman       |       |                                                    |       |                 |
|                     |       |                                                    |       |                 |
| /s/ Steven J.  Cox       |       | Executive Vice  President and Director                  |       | March  30, 2007 |
| Steven J. Cox            |       |                                                    |       |                 |
|                     |       |                                                    |       |                 |
| /s/ Lawrence N.  Chapman |       | Executive Vice  President                               |       | March  30, 2007 |
| Lawrence N.  Chapman     |       |                                                    |       |                 |
|                     |       |                                                    |       |                 |
| /s/ Henry  Goldberg      |       | Director                                                |       | March  30, 2007 |
| Henry Goldberg           |       |                                                    |       |                 |
|                     |       |                                                    |       |                 |
| /s/ Martin E.  Gottlieb  |       | Director                                                |       | March  30, 2007 |
| Martin E.  Gottlieb      |       |                                                    |       |                 |

 

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