424B3 1 v124438_424b3.htm
Prospectus Supplement No. 3
(To Prospectus dated February May 14, 2007) 
 
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-142921
 
Stirling Acquisition Corporation 
14,500,000 Shares of Common Stock

This prospectus supplement relates to the offer and sale from time to time of up to 14,500,000 shares of common stock of Stirling Acquisition Corporation, a Delaware corporation, by the selling stockholders named in the prospectus dated May 14, 2007 (the “Prospectus”). You should read this prospectus supplement in conjunction with the Prospectus, and this prospectus supplement is qualified by reference to the Prospectus, except to the extent that the information contained in this prospectus supplement supersedes the information contained in the Prospectus.
 
The information contained herein supplements the information in the Prospectus related to the Financial Statements and Supplementary Data by including our unaudited financial statements and related notes for the three months ended June 30, 2008. This prospectus supplement also contains certain other information included in our report on Form 10-Q for the quarter ended June 30, 2008.
 
Our report on Form 10-Q for the quarter ended June 30, 2008, reflects a total of 2,000,000 shares of our common stock issued and outstanding as of June 30, 2008.
 
Investing in our common stock is speculative and involves a high degree of risk. See “Risk Factors” beginning on page 6 of the Prospectus.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if the Prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.
 
The date of this prospectus is August 20, 2008
 
S-1

The information set forth in the remainder of this prospectus supplement was included in Stirling Acquisition Corporation’s report on Form 10-Q for the quarter ended June 30, 2008.
 
S-2

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION
PAGE
     
ITEM 1
Financial Statements
  
     
 
Balance Sheets as of June 30, 2008 and December 31, 2007
3
     
 
Statements of Operations for the three- and six-month periods ended June 30, 2008 and 2007
4
     
 
Statements of Cash Flow for the three- and six-month periods ended June 30, 2008 and 2007
5
     
 
Notes to Financial Statements
6
     
ITEM 2
Managements’ Discussion and Analysis of Financial Condition and Plan of Operation
12
     
ITEM 4
Controls and Procedures
13
     
PART II
OTHER INFORMATION
  
     
ITEM 1
Legal Proceedings
13
     
ITEM 1A
Risk Factors
13
     
ITEM 2
Unregistered Sales of Equity Securities and Use of Proceeds
19
     
ITEM 3
Defaults Upon Senion Securities
19
     
ITEM 4
Submission of Matters to a Vote of Security Holders
19
     
ITEM 5
Other Information
19
     
ITEM 6
Exhibits
19
     
 
SIGNATURES
20
 
2
 
STIRLING ACQUISITION CORPORATION
(A DEVELOPMENT STAGE ENTITY)
BALANCE SHEETS

   
June 30,
2008
  
December 31,
2007
  
   
(Unaudited) 
      
ASSETS
          
Current Assets:
          
Cash
  
$
911
  
$
3,236
  
Marketable securities at fair value
    
85,000
   
—
 
Other current assets
    
—
   
—
 
Total current assets
    
85,911
   
3,236
 
               
Deferred offering costs
    
89,111
    
62,615
 
Total assets
  
$
175,022
  
$
65,851
  
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
              
               
Accounts payable
  
$
48,470
  
$
31,487
  
Total liabilities
  
$
48,470
  
$
31,487
  
               
Stockholders’ equity
              
Common stock, $0.001 par value:
              
50,000,000 shares authorized, 2,000,000 shares outstanding
              
at June 30, 2008 and December 31, 2007
 
$
2,000
  
$
2,000
  
Preferred stock, $0.001 par value:
              
10,000,000 shares authorized, no shares outstanding
              
at June 30, 2008 and December 31, 2007
   
—
   
—
 
Additional paid in capital
    
143,860
   
37,140
 
Other comprehensive income (loss)
    
(5,000
)
      
Deficit accumulated during development stage
    
(14,308
)
  
(4,777
)
Total stockholder’s equity
  
$
126,552
  
$
34,363
  
               
Total liabilities and equity
  
$
175,022
  
$
65,851
  
 
The accompanying notes are an integral part of this Balance Sheet.
 
3
 
STIRLING ACQUISITION CORPORATION
(A DEVELOPMENT STAGE ENTITY)
STATEMENT OF OPERATIONS

                   
December 28,2006
  
   
Three Months Ended
  
Six Months Ended
  
(inception) through
  
   
June 30, 2008
  
June 30, 2007
  
June 30, 2008
  
June 30, 2007
  
June 30, 2008
  
   
(Unaudited)
  
(Unaudited)
  
(Unaudited)
  
(Unaudited)
  
(Unaudited)
  
                       
Revenue
  
$
—
  
$
—
  
$
—
  
$
—
  
$
—
  
                                 
Organization costs
                            
1,000
 
General and administrative expenses
    
2,086
   
3,595
   
9,531
   
3,595
   
13,308
 
Total expenses
    
2,086
   
3,595
   
9,531
   
3,595
   
14,308
 
                                 
Deficit accumulated during development stage
    
($2,086
)
  
($3,595
)
  
($9,531
)
  
($3,595
)
  
($14,308
)
                                 
Net loss per common share
    
(nil
)
  
(nil
)
  
(nil
)
  
(nil
)
  
($0.01
)
                                 
Weighted number of common shares                                
issued and outstanding during period
    
2,000,000
   
2,000,000
   
2,000,000
   
2,000,000
   
2,000,000
 

The accompanying notes are an integral part of this Statement of Operations.
 
4
 
STIRLING ACQUISITION CORPORATION
(A DEVELOPMENT STAGE ENTITY)
STATEMENT OF CASH FLOW

           
December 28, 2006 
  
     Six Months Ended  
(inception) through
  
   
June 30, 2008
  
June 30, 2007
  
June 30, 2008
  
   
(Unaudited)
  
(Unaudited)
  
(Unaudited)
  
Cash flows from operating activities
              
Deficit accumulated during development stage
    
($9,531
)
  
($3,595
)
  
($13,113
)
Changes in operating assets and liabilities:
                    
Other current assets
    
—
   
—
   
—
 
Increase in accounts payable for operating activities
    
3,500
   
3,500
   
7,000
 
Net cash provided by (used in) operating activities
    
($6,031
)
  
($95
)
  
($7,308
)
                     
Cash flows from financing activities
                    
Proceeds from sale of common stock to founders
   
—
   
—
 
$
20,000
  
Additional capital contributions from founders
    
—
   
140
   
4,140
 
Costs paid by founders treated as capital contributions
  
$
16,720
    
—
   
31,720
 
Increase in accounts payable for deferred offering costs
    
13,482
   
18,339
   
41,470
 
Increase in deferred offering costs
    
(26,496
)
  
(18,439
)
  
(89,111
)
Net cash provided by financing activities
  
$
3,706
  
$
40
  
$
8,219
  
                     
Net increase (decrease) in cash
    
($2,325
)
  
($55
)
$
911
  
                     
Cash balance, beginning of period
  
$
3,236
  
$
20,000
    
—
 
                     
Cash balance, end of period
  
$
911
  
$
19,945
  
$
911
  
                     
Supplemental disclosure of non-cash transactions with affiliates
                    
Proceeds from payment of organization costs by affiliates
    
—
   
—
 
$
1,000
  
Proceeds from payment of deferred offering costs by affiliates
  
$
16,720
  
$
14,000
  
$
30,720
  
Contributions of marketable securities by affiliates
    
90,000
   
—
   
90,000
 
Unrealized gain (loss) on marketable securities
    
(5,000
)
  
—
   
(5,000
)
Total non-cash transactions with affiliates
  
$
101,719
  
$
14,000
  
$
120,860
  

The accompanying notes are an integral part of this Statement of Cash Flow

5

STIRLING ACQUISITION CORPORATION
(A DEVELOPMENT STAGE ENTITY)
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
(Information included in notes with respect to events occurring after December 31, 2007 is unaudited)

1.    Organization and Operations

Stirling Acquisition Corporation (the “Company”) was incorporated under the laws of the State of Delaware on December 28, 2006. In connection with the organization of the Company, four executive officers purchased 2,000,000 shares of common stock for $20,000 in cash, or $.01 per share. Additionally, the officers paid approximately $1,000 in organization costs, consisting principally of filing fees and registered agent fees. In total, the Company’s initial capital was $21,000.

The Company was organized for the primary purpose of conducting a public distribution of securities and then effecting a merger, capital stock exchange or similar acquisition transaction (an “Acquisition”) with an unidentified privately held company (a “Target”). The Company’s principal business goal is to engage in an Acquisition on terms that will give its stockholders a reasonable share of the increased market value that ordinarily arises when a private company makes the transition to public ownership.

Since the Company has not yet identified a Target, persons who acquire securities in connection with the distribution will have virtually no substantive information available for advance consideration of any specific Target. The Company’s business strategy is also referred to as a “blind pool” because neither the management of the Company nor the persons who acquire securities in the distribution know what the business of the Company will be.

The Company is currently in the development stage. All activity of the Company to date relates to its organization and financing activities.

The Company has not engaged in any substantive business activities to date and has no specific plans to engage in any particular business in the future. The Company’s ability to commence operations is contingent upon completion of the distribution described in Note 2.

2.    Public Distribution of Securities

The Company has received an order of effectiveness for a Form S-1 registration statement under the Securities Act of 1933, as amended, (the “Securities Act”) that includes:

·  
250,000 presently issued and outstanding shares that the Company’s existing stockholders (“founders”) will transfer to a total of 500 donees selected by them;

·  
1,250,000 presently issued and outstanding shares that the Company’s founders may offer to sell to the owners of a Target and other participants in an Acquisition; and

·  
13,000,000 shares that the Company may issue in connection with an Acquisition.

The distribution described in the registration statement is subject to and will be conducted in compliance with Securities and Exchange Commission Rule 419, which was adopted to strengthen the regulation of securities offered by “blank check” companies. Rule 419 defines a blank check company as a development stage company (a) that has no specific business plan or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company and (b) is proposing to issue a “penny stock.” For purposes of Rule 419, penny stocks include all shares that have a price of less than $5 per share and are not listed on a stock exchange.

The Company’s founders will distribute a combined total of 250,000 shares of common stock to individuals selected by them (“Donees”). Each Donee will receive 500 gift shares and will be subject to the resale restrictions described in the company’s prospectus. The founders will promptly deposit all gift shares in the Rule 419 escrow upon issuance. The stock on deposit in the Rule 419 escrow will be held in trust for the sole benefit of the Donees until the shares are either released from escrow or returned to the founders in compliance with Rule 419.
 
6

STIRLING ACQUISITION CORPORATION
(A DEVELOPMENT STAGE ENTITY)
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
(Information included in notes with respect to events occurring after December 31, 2007 is unaudited)

2.    Public Distribution of Securities—continued

In connection with the Company’s reconfirmation offering, each Donee must approve the proposed Acquisition in writing and elect to accept delivery of his gift shares. In the absence of an affirmative election by a Donee, the escrow agent will surrender the Donee’s stock certificates to the officer who made the original gift.

During the year ended December 31, 2007, the Company incurred $62,615 in costs associated with registering its common stock under the Securities Act and conducting the distribution. During the six months ended June 30, 2008, the company incurred $26,496 in additional costs associated with the distribution and commenced their search for a suitable Target. Since the Company’s capital needs are highly uncertain, its officers agreed to contribute sufficient additional capital to insure that the Company had cash and working capital balances of $40,000 upon completion of the distribution. During the second quarter ended June 30, 2008, the founders paid $16,720 of offering costs on the Company’s behalf and contributed $85,000 in marketable securities to augment the Company’s working capital. The founders believe the orderly liquidation of those securities will provide sufficient resources for the Company’s anticipated needs. To date, the founders have made a total investment of approximately $146,000 in the Company.

As a result of its limited resources, the Company will, in all likelihood, have the ability to affect only a single Acquisition. Accordingly, the prospects for the Company’s success will be entirely dependent upon the future performance of a single business.

The Company is unlikely to enter into an agreement with a Target that does not have sufficient net tangible assets or operating income to satisfy the minimum listing standards of the American Stock Exchange or the Nasdaq Stock Market. Therefore management expects an Acquisition to result in a change in control. After a change in control, the owners of the Target will have the right to appoint their own officers and directors, and the Company’s current officers will have no ability to influence future business decisions.

The Company may not qualify for listing on a national securities exchange after completion of an Acquisition. In such an event, the Company’s common stock will be traded on the over-the-counter market. It is anticipated that the common stock will qualify for quotation on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that are not included in Nasdaq. It is also anticipated that the Company’s common stock will qualify for inclusion in the National Quotation Bureau “OTC Pink Sheets.” There can be no assurance that the liquidity and prices of the Company’s common stock in the secondary market will not be adversely affected.

There is no assurance that the Company will be able to effect an Acquisition. If the Company is unable to close a transaction before April 4, 2009 (18 months from the effective date of its original registration statement), Rule 419 will require that all gift share transactions be unwound and all certificates for gift shares be returned to the founders. In that event, the Donees will receive nothing.

3.    Summary of Significant Accounting Policies

Basis of Presentation: The financial statements have been presented in a “development stage” format. Since inception, our primary activities have been raising of capital and obtaining financing. We have not commenced our principal revenue producing activities.

Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

7
 
STIRLING ACQUISITION CORPORATION
(A DEVELOPMENT STAGE ENTITY)
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
(Information included in notes with respect to events occurring after December 31, 2007 is unaudited)

3.    Summary of Significant Accounting Policies—continued

Fiscal Year: The Company’s fiscal year begins on January 1 and ends on December 31 of each year. The Company’s Statements of Operations and Cash Flow reflect all transactions that arose during the three- and six-month periods ended June 30, 2008 and 2007, the fiscal year ended December 31, 2007, and development period between inception (December 28, 2006) and June 30, 2008.

Cash and Cash Equivalents: For financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities of three months or less to be cash or cash equivalents.

Organization and Start-up Costs: During the period ended December 31, 2006, the Company’s founders incurred $1,000 in organization costs, which were paid by them from their personal funds and accounted for as start-up costs. In accordance with FASB Statement of Position 98-5, all organization and start-up costs were charged to expense on a current basis during the period ended December 31, 2006.

Deferred Offering Costs: Deferred offering costs, including general promotion and marketing costs will be carried as an asset until the Company completes a business combination or abandons its business and liquidates. Upon the occurrence of either event, deferred offering costs will be offset against additional paid-in capital.

During the year ended December 31, 2007, the Company’s founders paid $14,000 in legal fees associated with the preparation of the Company’s registration statement. During the second quarter of 2008, they paid $16,720 costs associated amending the Company’s registration statement and commencing the search for a suitable Target. All cash outlays by the founders for the benefit of the Company have been accounted for as deferred offering costs.

Target Investigation Costs: Target investigation costs will be carried as an asset until the Company negotiates an Acquisition or abandons its efforts to acquire a particular Target.

Net Income (Loss) Per Common Share: The Company computes net income (loss) per common share in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share” and SEC Staff Accounting Bulletin No. 98 (“SAB No. 98”). Under the provisions of SFAS No. 128 and SAB No. 98, basic net income (loss) per common share (“Basic EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding.

The Company’s net income (loss) per common share has been calculated on the basis of 2,000,000 shares issued and outstanding at June 30, 2008 and December 31, 2007. There were no warrants or other stock purchase rights outstanding on either date.

Income Taxes: Income taxes are accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes.” Under this method, deferred income taxes are determined based on differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end, and are measured based on enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. We have determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance against substantially all of our net deferred tax asset. Management will continue to evaluate the realizability of the deferred tax asset and its related valuation allowance.

Stock Based Compensation: Stock-based awards to non-employees are accounted for using the fair value method in accordance with SFAS No. 123(R), Accounting for Stock-Based Compensation, and EITF Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services.
 
8
 
STIRLING ACQUISITION CORPORATION
(A DEVELOPMENT STAGE ENTITY)
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
(Information included in notes with respect to events occurring after December 31, 2007 is unaudited)

3.    Summary of Significant Accounting Policies—continued

On December 28, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) 123R, “Share-Based Payment” (“SFAS 123(R)”), which requires that companies measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements.

The Company adopted SFAS 123(R) using the “modified prospective” method, which results in no restatement of prior period amounts. Under this method, the provisions of SFAS 123(R) apply to all awards granted or modified after the date of adoption. In addition, compensation expense must be recognized for any unvested stock option awards outstanding as of the date of adoption on a straight-line basis over the remaining vesting period. The Company calculates the fair value of options using a Black-Scholes option pricing model. The Company does not currently have any outstanding options subject to future vesting. SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation expense to be reported in the Statement of Cash Flows as a financing cash inflow rather than an operating cash inflow. In addition, SFAS 123(R) required a modification to the Company’s calculation of the dilutive effect of stock option awards on earnings per share. For companies that adopt SFAS 123(R) using the “modified prospective” method, disclosure of pro forma information for periods prior to adoption must continue to be made.

Accounting For Obligations And Instruments Potentially To Be Settled In The Company’s Own Stock: The Company accounts for obligations and instruments potentially to be settled in the Company’s stock in accordance with EITF Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In a Company’s Own Stock.” This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Company’s own stock.

Under EITF Issue No. 00-19 contracts are initially classified as equity or as either assets or liabilities, in the following situations:

Equity

·  
Contracts that require physical settlement or net-share settlement; and
·  
Contracts that give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement), assuming that all the criteria for equity classification have been met.

Assets or Liabilities

·  
Contracts that require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the Company); and
·  
Contracts that give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).

All contracts are initially measured at fair value and subsequently accounted for based on the current classification. Contracts initially classified as equity do not recognize subsequent changes in fair value as long as the contracts continue to be classified as equity. For contracts classified as assets or liabilities, the Company reports changes in fair value in earnings and discloses these changes in the financial statements as long as the contracts remain classified as assets or liabilities. If contracts classified as assets or liabilities are ultimately settled in shares, any previously reported gains or losses on those contracts continue to be included in earnings. The classification of a contract is reassessed at each balance sheet date.
 
9
 
STIRLING ACQUISITION CORPORATION
(A DEVELOPMENT STAGE ENTITY)
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
(Information included in notes with respect to events occurring after December 31, 2007 is unaudited)

3.    Summary of Significant Accounting Policies—continued

In accordance with EITF Issue No. 00-19, a transaction which includes a potential for net-cash settlement, including liquidated damages, requires that derivative financial instruments, including warrants and additional investment rights, initially be recorded at fair value as an asset or liability and subsequent changes in fair value be reflected in the statement of operations. The recorded value of the liability for such derivatives can fluctuate significantly based on fluctuations in the market value of the underlying common stock of the issuer of the derivative instruments, as well as in the volatility of the stock price during the term used for observation and the remaining term.

Warrant Derivative Liabilities: The Company accounts for warrants issued in connection with financing arrangements in accordance with EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. Pursuant to EITF Issue No. 00-19, an evaluation of specifically identified conditions is made to determine whether the fair value of warrants issued is required to be classified as a derivative liability. The fair value of warrants classified as derivative liabilities is adjusted for changes in fair value at each reporting period, and the corresponding non-cash gain or loss is recorded in current period earnings. The Company has no outstanding warrants.

Recent Accounting Pronouncements 

In May 2006, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”, which replaces APB Opinion No. 20 “Accounting Changes” and FASB Statement No. 3 “Reporting Accounting Changes in Interim Financial Statements”. SFAS No. 154 changes the requirements for the accounting and reporting of a change in an accounting principle. SFAS No. 154 requires retrospective application for voluntary changes in an accounting principle unless it is impracticable to do so. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2006. The Company adopted SFAS No. 154 on January 1, 2007 with no expected material effect on its financial statements.

In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted subject to specific requirements outlined in the new Statement. The new Statement allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item's fair value in subsequent reporting periods must be recognized in current earnings. SFAS 159 also establishes presentation and disclosure requirements designed to draw comparison between entities that elect different measurement attributes for similar assets and liabilities.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” This Statement replaces SFAS No. 141. SFAS 141(R) retains the fundamental requirements in SFAS 141 that the acquisition method of accounting (which SFAS 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will apply prospectively to business combinations for which the acquisition date is on or after Company’s fiscal year beginning October 1, 2009. While the Company has not yet evaluated SFAS 141(R) for the impact, if any, that it will have on its future consolidated financial statements, the Company will be required to expense costs related to any acquisitions after September 30, 2009.

10
 
STIRLING ACQUISITION CORPORATION
(A DEVELOPMENT STAGE ENTITY)
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
(Information included in notes with respect to events occurring after December 31, 2007 is unaudited)

4.    Marketable Securities

During the second quarter of 2008, two of our founders, Sally Fonner and Mark Dolan, each contributed 25,000 shares of the common stock of Axion Power International, Inc. (OTCBB: AXPW) to the Company for purposes of augmenting its working capital. The orderly liquidation of these securities is expected to provide sufficient cash to pay the current balance of the Company’s accounts payable and provide its anticipated cash requirements. If necessary, the founders may make additional capital contributions in the future.

In accordance with the requirements of SFAS 159, marketable securities are reported on the balance sheet at market value determined as of the reporting date and any unrealized gains or losses on the marketable securities are reflected in other comprehensive income. During the second quarter of 2008, the Company had $5,000 in unrealized losses on marketable securities contributed by its founders.

5.    Capital Stock

The Company’s Certificate of Incorporation authorizes the issuance of 50,000,000 shares of common. The Company’s board of directors has the power to issue any or all of the authorized but unissued common stock without stockholder approval. The Company currently has no commitments to issue any shares of common stock; however, the Company will, in all likelihood, issue a substantial number of additional shares in connection with an Acquisition. Since the company expects to issue shares of common stock in connection with an Acquisition, the ultimate ownership of the gift share Donees is likely to be less than 5% of the issued and outstanding common stock of the Company. It is impossible to predict whether an Acquisition will ultimately result in dilution to the gift share Donees; however, management believes the possibility of significant dilution is very remote.

The Company’s board of directors is empowered, without stockholder approval, to issue up to 10,000,000 shares of “blank check” preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of the Company’s common stock. There are no shares of preferred stock issued or outstanding and the Company has no current plans to issue shares of preferred stock for any purpose.

6.    Stockholders’ Equity

In connection with the incorporation of the Company, its founders paid $20,000 to purchase 2,000,000 shares of common stock at a price of $0.01 per share. Pursuant to an agreement among themselves, the Company’s founders are contractually obligated to contribute sufficient capital to pay the Company’s cumulative registration and operating costs and ensure that the Company has cash and working capital balances of at least $40,000 when the founders complete the planned gift share distribution. The Company’s officers contributed $21,000 in capital during 2006 and $90,000 in additional capital during 2007. The Company believes its capital resources will be sufficient for its anticipated needs, however the founders may make additional capital contributions in the future.

The Company has no obligation to reimburse organization, operating and offering costs paid by its founders. In accordance with the requirements of SEC Staff Accounting Bulletin Topic 1B, all costs that are paid directly by the Company’s founders will be treated as additional capital contributions from the founders and the associated costs will be accounted for in accordance with the Company’s established accounting policies.

6.    Incentive Stock Plan

The Company’s 2006 Incentive Stock Plan was adopted and approved in connection with the organization of the Company. The common stock reserved for issuance under the plan will be the lesser of 750,000 shares, or 10% of the total number of shares outstanding after the closing of an Acquisition.

11
 
STIRLING ACQUISITION CORPORATION
(A DEVELOPMENT STAGE ENTITY)
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
(Information included in notes with respect to events occurring after December 31, 2007 is unaudited)

6.    Incentive Stock Plan - continued

The class of persons eligible to participate in the plan includes all full-time and part-time employees of the Company, provided that the eligible participants do not include employees who are eligible to receive awards under the terms of any employment contract or specialty plan adopted by us in the future. The plan permits the grant of a variety of incentive awards including (i) non-qualified stock options, (ii) incentive stock options, (iii) shares of restricted stock, (iv) shares of phantom stock, and (v) stock bonuses. In addition, the plan allows us to grant cash bonuses that will be payable when an employee is required to recognize income for federal income tax purposes because of the vesting of shares of restricted stock or the grant of a stock bonus.

There were no stock options or other incentive awards outstanding at June 30, 2008 and no options or other awards may be granted until the Company closes an Acquisition transaction.

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ITEM 2.  MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS

Financial Condition: Stirling Acquisition Corporation, which is referred to as “we,” “our,” “us” and the “Company,” was incorporated in Delaware on December 28, 2006. Our founders purchased 2 million shares of our common stock for an aggregate of $20,000, or $0.01 per share. Concurrently, founders agreed in writing to contribute sufficient capital to pay our cumulative registration and operating costs and ensure that we have cash and working capital balances of at least $40,000 after completion of the gift share distribution.

During the year ended December 31, 2006, we incurred $1,000 in organization costs, which were paid by one of our founders and accounted for as an additional capital contribution. During the year ended December 31, 2007 our efforts were focused on drafting our registration statement and planning our future activities. We incurred $3,777 in operating expenses during the year ended December 31, 2007. We incurred $2,086 in operating expenses during the three months ended June 30, 2008 and $9,531 in operating expenses during the six months ended June 30, 2008. Our operating expenses consist principally of costs associated with our ongoing reporting obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

From inception to date, we have incurred approximately $89,100 in costs to register our securities, conduct the gift share distribution and begin our search for a suitable Target. The only line items that represented more than 10% of our cumulative offering costs are $67,578 in legal fees and $11,350 in travel, promotion and general marketing costs associated with attendance at reverse merger industry events. During the year ended December 31, 2007, our founders contributed $39,140 in capital, including $15,000 in costs they paid on our behalf. During the second quarter ended June 30, 2008, our founders contributed $106,720 in additional capital, including $16,720 of costs they paid on our behalf. To date, the founders have made a total investment of approximately $146,000 in us.

We have no obligation to reimburse any capital contributed by our founders, whether in the form of direct payments to us or payments to others on our behalf. In accordance with the requirements of SEC Staff Accounting Bulletin Topic 1B, all costs that are paid directly by our founders will be treated as additional capital contributions from the founders and the associated costs will be accounted for in accordance with our established accounting policies.

Plan of Operations: At the date of this report, we have $37,441 in working capital and our founders believe the orderly liquidation of our marketable securities will provide sufficient cash resources to pay our current liabilities and provided for our anticipated cash requirements until we either identify a Target and begin preparations for our reconfirmation offering, or decide that we will be unable to conclude an acquisition within the 18-month period specified in Rule 419. We will use our available resources to pay the costs of operating our company, investigating potential Targets, negotiating an Acquisition and preparing a post-effective amendment to our registration statement. We will not compensate our officers in cash, but we may reimburse out-of-pocket costs they incur on our behalf.

We intend to request a reasonable due diligence fee before we begin a detailed investigation into the affairs of a potential Target. We will also request that the Target pay the legal and accounting fees and other costs associated with the preparation of a post-effective amendment to our registration statement. There can be no assurance that a potential Target will be willing to pay the out-of-pocket costs we expect to incur in connection with our due diligence investigations and required filings under the Securities Act and Exchange Act.

Rule 419 will require us to unwind gift share distribution if we fail to identify a Target, negotiate an Acquisition, complete our reconfirmation offering and close the Acquisition transaction before April 4, 2009. We believe our available cash resources will be adequate for our expected needs. Nevertheless, we may run out of money if our investigation of a potential Target requires significant technical expertise, or we spend substantial funds investigating a potential Target and then determine that the potential Target is not suitable.

The SEC’s integration and general solicitation doctrines will preclude future private placement transactions until we complete our reconfirmation offering and close an Acquisition. Therefore, we will be unable to obtain funds by selling additional securities. We have the corporate power to borrow money, but under our circumstances credit is not likely to be available. Our founders may, but have no duty or obligation to, loan our company money. If we spend our available cash and cannot obtain additional financing, we will be forced to abandon our business plan. In that event, Donees will have no interest in our company and our founders will incur substantial losses.
 
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Contractual Obligations: We have no long-term debt, capital lease obligations, operating lease obligations, purchase obligations or other long term liabilities.

Off-balance Sheet Arrangements: We have no off-balance sheet arrangements.

ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by our Quarterly Report for the period ended June 30, 2008, management performed, with the participation of our Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the report we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s forms, and that such information is accumulated and communicated to our management including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on the evaluation our Chief Executive Officer and our Chief Financial Officer concluded that, as of June 30, 2008, our disclosure controls and procedures were effective. There were no changes to our internal controls during the three- or six-month periods ended June 30, 2008.

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

NONE

ITEM 1A — RISK FACTORS

Readers of this report on Form 10-Q should consider carefully the following risk factors in evaluating our company and its prospects. Any of the following risks, as well as other risks and uncertainties that are not yet identified or that we currently believe are immaterial, could harm our business, financial condition and operating results, and could result in the liquidation of our company.

We have less than seven months to identify a target, comply with Rule 419 and complete an acquisition.

Rule 419 requires that we complete an acquisition within eighteen months from the effective date of our original registration statement, which means that we must identify a Target, complete our investigation of the Target’s business, negotiate transaction terms, file one or more amendments to our registration statement, conduct our Rule 419 reconfirmation offering and close the Acquisition by April 4, 2009. If we do not complete our Target evaluation and selection activities within the next 60 to 90 days, we are likely to unwind the gift share distribution and withdraw the acquisition and founders’ shares from registration.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

NONE

ITEM 3.  DEFAULTS ON SENIOR SECURITIES

NONE

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NONE
 
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ITEM 5.  OTHER INFORMATION

Our registration statement was declared effective on October 5, 2007 and our founders promptly commenced the gift share distribution described in our prospectus. Concurrently our officers commenced their search for acquisition Targets. The following table identifies each founder who intends to distribute gift shares to Donees in compliance with our prospectus and summarizes the progress of the gift share distribution as of August 12, 2008.

Name
  
Gift Shares to
  
Gift Shares Accepted
  
Number of
  
   
be distributed
  
at August 12, 2008
  
Donees
  
John L. Petersen
    
62,500
    
62,500
    
125
  
Rachel A. Fefer
    
62,500
    
62,500
    
125
  
Sally Fonner
    
62,500
    
62,500
    
125
  
Mark Dolan
    
62,500
    
59,500
    
119
  
Total
    
250,000
    
247,000
    
494
  

Between the effective date of our registration statement and the date of this report, our officers have engaged in preliminary discussions with representatives of several potential Targets and commenced the process of exchanging information. None of these discussions have progressed to a point where an acquisition is probable.
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