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HCIC Hennessy Capital Investment Corp V

Filed: 16 Aug 21, 4:01pm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2021

 

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

 

For the transition period from  __________ to __________

 

Commission File Number: 001-39892

 

HENNESSY CAPITAL INVESTMENT CORP. V

(Exact name of registrant as specified in its charter)

 

 

 

Delaware 85-3433864

(State or other jurisdiction of

 incorporation or organization)

 

(I.R.S. Employer

 Identification Number)

 

3415 N. Pines Way, Suite 204

Wilson, WY

 83014
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (307) 201-1903

 

Not applicable

 (Former name or former address, if changed since last report) 

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
     
Units, each consisting of one share of Class A common stock, par value $0.0001 per share, and one-fourth of one Redeemable Warrant HCICU The Nasdaq Stock Market LLC
     
Shares of Class A common stock, par value $0.0001 per share, included as part of the Units HCIC The Nasdaq Stock Market LLC
     
Redeemable Warrants included as part of the Units HCICW The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 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 such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted and pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ 

Smaller reporting company ☒

Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐

 

As of August 12, 2021, there were 34,500,000 shares of the Company’s Class A common stock and 8,625,000 shares of the Company’s Class B common stock issued and outstanding.

 

 

 

 

HENNESSY CAPITAL INVESTMENT CORP. V

 

Table of Contents

 

  Page
PART I – FINANCIAL INFORMATION 
  
Item 1.Financial Statements1
   
 Condensed Balance Sheets as of June 30, 2021 (unaudited) and December 31, 20201
   
 Condensed Statements of Operations for the three and six months ended June 30, 2021 (unaudited)2
   
 Condensed Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2021 (unaudited)3
   
 Condensed Statement of Cash Flows for the six months ended June 30, 2021 (unaudited)4
   
 Notes to Condensed Financial Statements (unaudited)5
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations17
   
Item 3.Quantitative and Qualitative Disclosures About Market Risk24
   
Item 4.Controls and Procedures24
   
PART II – OTHER INFORMATION 
   
Item 1.Legal Proceedings26
   
Item 1A.Risk Factors26
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds26
   
Item 3.Defaults Upon Senior Securities26
   
Item 4.Mine Safety Disclosures26
   
Item 5.Other Information26
   
Item 6.Exhibits27
   
Signatures28

 

i

 

 

PART 1 – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

HENNESSY CAPITAL INVESTMENT CORP. V

 

CONDENSED BALANCE SHEETS

 

  June 30,  December 31, 
  2021  2020 
  (unaudited)    
ASSETS      
Current assets:      
Cash $1,366,000  $72,000 
Prepaid expenses  486,000   - 
Deferred offering costs  -   179,000 
Total current assets  1,852,000   251,000 
Cash and investments held in trust account  345,028,000   - 
Total assets $346,880,000  $251,000 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable $131,000  $4,000 
Accrued liabilities  5,846,000   75,000 
Note payable to Sponsor  -   150,000 
Deferred compensation  193,000   - 
Accrued income and franchise taxes  100,000   - 
Total current liabilities  6,270,000   229,000 
Other liabilities:        
Warrant liability  32,672,000     
Deferred underwriting compensation  12,075,000   - 
Total liabilities  51,017,000   229,000 
Commitments and contingencies        
Class A common stock subject to possible redemption; 29,086,291 and -0- shares at June 30, 2021 and December 31, 2020, respectively, (at value of approximately $10.00 per share)  290,863,000   - 
         
Stockholders’ equity:        
Preferred stock, $0.0001 par value; 1,000,000 authorized shares; none issued or outstanding at June 30, 2021 and December 31, 2020, respectively  -   - 
Class A common stock, $0.0001 par value; 200,000,000 authorized shares; 5,413,709 and -0- shares, respectively, issued and outstanding at June 30, 2021 and December 31, 2020 (excluding 29,086,291 and -0- shares, respectively, subject to possible redemption)  -   - 
Class B common stock, $0.0001 par value, 20,000,000 authorized shares; 8,625,000 shares issued and outstanding at June 30, 2021 and December 31, 2020 (1)  1,000   1,000 
Additional paid-in-capital  21,138,000   24,000 
Retained earnings  (16,139,000)  (3,000)
Total stockholders’ equity  5,000,000   22,000 
         
Total liabilities and stockholders’ equity $346,880,000  $251,000 

  

(1)Share amounts have been retroactively restated at December 31, 2020 to reflect a stock dividend of 0.2 shares for each share of Class B common stock outstanding on January 14, 2021 (See Note 5)

 

See accompanying notes to condensed financial statements

 

1

 

 

HENNESSY CAPITAL INVESTMENT CORP. V

 

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

 

  For the
three months
ended
June 30,
2021
  For the
six months
ended
June 30,
2021
 
       
Revenues $     -  $       - 
General and administrative expenses  5,623,000   7,226,000 
Loss from operations  (5,623,000)  (7,226,000)
Other income (expense):        
Interest income on Trust        
Account  12,000   28,000 
Warrant liability issuance costs  -   (639,000)
Charge associated with issuance of private placement warrants  -   (832,000)
Change in fair value of warrant liability  (8,090,000)  (7,467,000)
Loss before provision for income tax  (13,701,000)  (16,136,000)
         
Provision for income tax  -   - 
Net loss $(13,701,000) $(16,136,000)
         
Two Class Method for Per Share Information:        
Weighted average Class A common shares outstanding - basic and diluted  34,500,000   34,500,000 
Net income per Class A common share – basic and diluted $0.00  $0.00 
Weighted average Class B common shares outstanding – basic and diluted  8,625,000   8,506,000 
Net loss per Class B common share – basic and diluted $(1.59) $(1.90)

 

See accompanying notes to condensed financial statements

 

2

 

 

HENNESSY CAPITAL INVESTMENT CORP. V

 

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the three and six months ended June 30, 2021

(unaudited)

 

For the three months ended June 30, 2021:

 

  Common Stock  Additional      
  Class A
Shares
  Amount  Class B
Shares
  Amount  Paid-in
Capital
  Accumulated
Deficit
  Stockholders’
Equity
 
Balances, March 31, 2021 (unudited)  4,043,570  $        -   8,625,000  $1,000  $7,437,000  $(2,438,000) $5,000,000 
Change in value of Class A common stock subject to possible redemption  1,370,139   -   -   -   13,701,000   -   (13,701,000)
Net loss, three months ended June 30, 2021 (unaudited)  -   -   -   -   -   (13,701,000)  (13,701,000)
Balances, June 30, 2021 (unaudited)  5,413,709  $-   8,625,000  $1,000  $21,138,000  $(16,139,000) $5,000,000 

 

For the six months ended June 30, 2021:

 

  Common Stock  Additional      
  Class A
Shares
  Amount  Class B
Shares
  Amount  Paid-in
Capital
  Accumulated
Deficit
  Stockholders’
Equity
 
Balances, December 31, 2020 (1)  -  $      -   8,625,000  $1,000  $24,000  $(3,000) $22,000 
Sale of Units to the public at $10.00 per Unit less fair value, $13,973,000 allocated to the warrant liability  34,500,000   3,000   -   -   331,024,000   -   331,027,000 
Underwriters’ discount and offering expenses  -   -   -   -   (19,050,000)  -   (19,050,000)
Change in value of Class A common stock subject to possible redemption  (29,086,291)  (3,000)  -   -   (290,860,000)  -   (290,863,000)
Net loss, six months ended June 30, 2021 (unaudited)  -   -   -   -   -   (16,136,000)  (16,136,000)
Balances, June 30, 2021 (unaudited)  5,413,709  $-   8,625,000  $1,000  $21,138,000  $(16,139,000) $5,000,000 

 

(1)Share amounts have been retroactively restated at December 31, 2020 to reflect a stock dividend of 0.2 shares for each share of Class B common stock outstanding on January 14, 2021 (See Note 5)

 

 

See accompanying notes to condensed financial statements

 

3

 

 

HENNESSY CAPITAL INVESTMENT CORP. V

 

CONDENSED STATEMENT OF CASH FLOWS

For the six months ended June 30, 2021

(unaudited)

 

Cash flows from operating activities:   
Net loss $(16,136,000)
Adjustments to reconcile net loss to net cash used in operating activities:    
Interest income retained in Trust Account  (28,000)
Warrant liability issuance costs  639,000 
Charge associated with issuance of private placement warrants  832,000 
Change in fair value of warrant liability  7,467,000 
Changes in operating assets and liabilities:    
Increase in prepaid expenses  (486,000)
Increase in accounts payable (excluding offering costs of $70,000 at June 30, 2021 and $4,000 at December 31, 2020)  61,000 
Increase in accrued liabilities  5,846,000 
Increase in deferred compensation  193,000 
Increase in accrued income and franchise taxes and rounding  100,000 
Net cash used in operating activities  (1,512,000)
     
Cash flows from investing activities:    
Cash deposited in Trust Account  (345,000,000)
Net cash used in investing activities  (345,000,000)
     
Cash flows from financing activities:    
Proceeds from sale of Units to the public  345,000,000 
Proceeds from sale of Private Placement Warrants  10,400,000 
Payment of underwriting discounts  (6,900,000)
Payment of offering costs  (544,000)
Payment of Note payable to Sponsor  (150,000)
Net cash provided by financing activities  347,806,000 
     
Net increase (decrease) in cash  1,294,000 
Cash at beginning of period  72,000 
Cash at end of period $1,366,000 
     
Supplemental disclosure of non-cash financing activities:    
Initial value of Class A ordinary shares subject to redemption, as restated $305,587,000 
Change in value of Class A ordinary shares subject to redemption $14,724,000 
Deferred underwriters’ compensation $12,075,000 
Offering costs included in accounts payable $70,000 

 

See accompanying notes to condensed financial statements

 

4

 

 

HENNESSY CAPITAL INVESTMENT CORP. V
Notes to Condensed Financial Statements

(unaudited)

 

NOTE 1 – DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

 

Organization and General:

 

Hennessy Capital Investment Corp. V (the “Company”) was incorporated in Delaware on October 6, 2020 as Hennessy Capital Acquisition Corp. V and changed its name to Hennessy Capital Investment Corp. V on November 19, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the “Securities Act,” as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

 

At June 30, 2021, the Company had not commenced any operations. All activity for the period from October 6, 2020 (inception) to June 30, 2021 relates to the Company’s formation and the initial public offering (“Public Offering”) described below and, subsequent to the Public Offering, identifying and completing a suitable Business Combination. The Company will not generate any operating revenues until after completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the Public Offering. The Company has selected December 31 as its fiscal year end.

 

All dollar amounts are rounded to the nearest thousand dollars.

 

Sponsor and Financing:

 

The Company’s sponsor is Hennessy Capital Partners V LLC, a Delaware limited liability company (the “Sponsor”). The Company intends to finance a Business Combination with proceeds from the $345,000,000 Public Offering (Note 4) and a $10,400,000 private placement (Note 5). Upon the closing of the Public Offering and the private placement, $345,000,000 was placed in a trust account (the “Trust Account”).

 

The Trust Account:

 

The funds in the Trust Account are invested only in U.S. government treasury bills with a maturity of one hundred and eighty-five (185) days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940 which invest only in direct U.S. government obligations. Funds will remain in the Trust Account until the earlier of (i) the consummation of the initial Business Combination or (ii) the distribution of the Trust Account as described below. The remaining funds outside the Trust Account may be used to pay for business, legal and accounting due diligence on prospective acquisition targets and continuing general and administrative expenses.

 

The Company’s amended and restated certificate of incorporation provides that, other than the withdrawal of interest to pay tax obligations, if any (less up to $100,000 of interest to pay dissolution expenses), none of the funds held in trust will be released until the earliest of: (a) the completion of the initial Business Combination, (b) the redemption of any public shares properly submitted in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation (i) to modify the substance or timing of the Company’s obligation to redeem 100% of the public shares if the Company does not complete the initial Business Combination within 24 months from the closing of the Public Offering or (ii) with respect to any other provision relating to stockholders’ rights or pre-Business Combination activity, and (c) the redemption of the public shares if the Company is unable to complete the initial Business Combination within 24 months from the closing of the Public Offering, subject to applicable law. The proceeds deposited in the Trust Account could become subject to the claims of creditors, if any, which could have priority over the claims of our public stockholders.

 

Business Combination:

 

The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Public Offering and the sale of the Private Placement Warrants, although substantially all of the net proceeds of the Public Offering are intended to be generally applied toward consummating a Business Combination with (or acquisition of) a Target Business. As used herein, “Target Business” is one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (less the deferred underwriting commissions and taxes payable on interest earned) at the time of signing a definitive agreement in connection with the Company’s initial Business Combination. There is no assurance that the Company will be able to successfully effect a Business Combination.

 

5

 

 

The Company, after signing a definitive agreement for a Business Combination, will either (i) seek stockholder approval of the Business Combination at a meeting called for such purpose in connection with which stockholders may seek to redeem their shares, regardless of whether they vote for or against the Business Combination, for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the initial Business Combination, including interest but less taxes payable, or (ii) provide stockholders with the opportunity to have their shares redeemed by the Company by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount in cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to commencement of the tender offer, including interest but less taxes payable. The decision as to whether the Company will seek stockholder approval of the Business Combination or will allow stockholders to sell their shares in a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require the Company to seek stockholder approval unless a vote is required by the rules of the Nasdaq Capital Market. If the Company seeks stockholder approval, it will complete its Business Combination only if a majority of the outstanding shares of Class A and Class B common stock voted are voted in favor of the Business Combination. However, in no event will the Company redeem its public shares in an amount that would cause its net tangible assets to be less than $5,000,001 upon consummation of a Business Combination. In such case, the Company would not proceed with the redemption of its public shares and the related Business Combination, and instead may search for an alternate Business Combination.

 

If the Company holds a stockholder vote or there is a tender offer for shares in connection with a Business Combination, a public stockholder will have the right to redeem its shares for an amount in cash equal to its pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the initial Business Combination, including interest but less taxes payable. As a result, such shares of Class A common stock are recorded at redemption amount and classified as temporary equity upon the completion of the Public Offering, in accordance with FASB ASC 480, “Distinguishing Liabilities from Equity.” The amount in the Trust Account was initially $10.00 per public common share ($345,000,000 held in the Trust Account divided by 34,500,000 public shares).

 

The Company will only have 24 months from the closing date of the Public Offering, or until January 20, 2023, to complete its initial Business Combination. If the Company does not complete a Business Combination within this period of time, it shall (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably possible, but not more than ten business days thereafter, redeem the public shares of Class A common stock for a per share pro rata portion of the Trust Account, including interest, but less taxes payable (less up to $100,000 of such net interest to pay dissolution expenses) and (iii) as promptly as possible following such redemption, dissolve and liquidate the balance of the Company’s net assets to its creditors and remaining stockholders, as part of its plan of dissolution and liquidation. The initial stockholders have waived their rights to participate in any redemption with respect to their Founder Shares (as defined in Note 5); however, if the initial stockholders or any of the Company’s officers, directors or affiliates acquire shares of Class A common stock after the Public Offering, they will be entitled to a pro rata share of the Trust Account upon the Company’s redemption or liquidation in the event the Company does not complete a Business Combination within 24 months from the closing of the Public Offering.

 

In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the price per Unit in the Public Offering.

 

6

 

 

NOTE 2 – MERGER AGREEMENT AND PLAN OF REORGANIZATION; PIPE FINANCING; SUBSCRIPTIONS AGREEMENTS

 

Merger Agreement and Plan of Reorganization

 

On May 7, 2021, the Company entered into a Merger Agreement and Plan of Reorganization (the “Merger Agreement”) to effect an initial business combination, by and among the Company, PlusAI Corp, an exempted company incorporated with limited liability in the Cayman Islands (“Plus”), Plus Inc., an exempted company incorporated with limited liability in the Cayman Islands (“PubCo”), Prime Merger Sub I, Inc., an exempted company incorporated with limited liability in the Cayman Islands and a direct, wholly-owned subsidiary of PubCo (“First Merger Sub”), Prime Merger Sub II, Inc., a Delaware corporation and wholly-owned subsidiary of PubCo (“Second Merger Sub”), and Plus Holdings Ltd., an exempted company incorporated with limited liability in the Cayman Islands and wholly-owned subsidiary of Plus (“Plus Holdings”).

 

Pursuant to the Merger Agreement, a business combination between the Company and Plus (the “Business Combination”) will be effected through (a) the merger of Prime Merger Sub, Ltd., an exempted company incorporated with limited liability in the Cayman Islands and wholly-owned subsidiary of Plus Holdings, with and into Plus, with Plus surviving as a wholly-owned subsidiary of Plus Holdings (the “F-Reorg Merger”); (b) following the F-Reorg Merger, the merger of First Merger Sub with and into Plus Holdings, with Plus Holdings surviving as a wholly-owned subsidiary of PubCo (the “Plus Merger”); and (c) simultaneously with, and as part of the same overall transaction as the Plus Merger, the merger of Second Merger Sub with and into the Company, with the Company surviving as a wholly-owned subsidiary of PubCo (the “HCIC Merger” and, together with the Plus Merger, the “Mergers”). As a result of the Mergers, Plus Holdings and the Company each will become a direct wholly-owned subsidiary of PubCo, Plus will become a direct wholly-owned subsidiary of Plus Holdings and PubCo will become a publicly traded company.

 

Plus is a global provider of self-driving truck technology aimed at making trucks safer, more efficient, more comfortable, and better for the environment using its autonomous driving solution PlusDrive advanced sensing technologies, including radar, lidar, and cameras to provide a 360-degree sensing system. Plus plans to begin mass production of PlusDrive, starting in 2021 with FAW, a heavy-truck manufacturer. Plus is headquartered in Cupertino, California.

 

Under the terms of the Merger Agreement, the aggregate consideration to be paid to existing Plus shareholders as a result of the F-Reorg Merger and Plus Merger is expected to be up to approximately 272 million shares of newly issued ordinary shares of PubCo, par value of $0.000002, designated as Class A Ordinary Shares, which are expected to have one (1) vote per share (“PubCo Class A Ordinary Shares”) and ordinary shares of PubCo, par value of $0.000002, designated as Class B Ordinary Shares, which are expected to have eight (8) votes per share (“PubCo Class B Ordinary Shares” and together with the PubCo Class A Ordinary Shares, “PubCo Shares”), with such PubCo Shares valued at $10 per share. A portion of the aggregate consideration of PubCo Shares will be subject to forfeiture restrictions or other restrictions or in the form of options or warrants of PubCo, in each case to the same extent to which the securities of existing Plus securityholders are subject to forfeiture restrictions or other restrictions or held in the form of options or warrants.

 

As a result of the HCIC Merger, (a) each outstanding share of the Company’s common stock will be cancelled in exchange for the right to receive for one PubCo Class A Ordinary Share, and (b) each outstanding warrant of the Company will become exercisable for one PubCo Class A Ordinary Share on the same terms and conditions.

 

In connection with the execution of the Merger Agreement, on May 7, 2021, the Company and PubCo entered into separate subscription agreements (the “PIPE Subscription Agreements”) with a number of investors (the “PIPE Investors”), pursuant to which the PIPE Investors have agreed to subscribe for and purchase, and PubCo has agreed to issue and sell to the PIPE Investors, an aggregate of 15 million PubCo Class A Ordinary Shares (the “PIPE Shares”), for a purchase price of $10.00 per share and at an aggregate purchase price of $150 million in a private placement (the “PIPE Financing”).

 

The consummation of the Business Combination (the “Closing”) is subject to certain conditions, including but not limited to the approval of the Company’s stockholders and Plus’ shareholders of the Merger Agreement. The Merger Agreement may also be terminated by either party under certain circumstances, including upon notice after November 8, 2021. The parties have agreed to customary exclusivity obligations by either party for any reason. The Closing is expected to occur as promptly as practicable, but in no event later than three business days following the satisfaction or waiver of all of the closing conditions contained in the Merger Agreement. The Company anticipates the Closing will occur in the second half of 2021 but can provide no assurances that the Closing will occur timely or at all.

 

Additional information regarding the proposed Business Combination and the business and operations of Plus is contained in the Current Report on Form 8-K filed by the Company on May 10, 2021 and will be available in the Registration Statement on Form F-4 once filed publicly by PubCo with the Securities and Exchange Commission.

 

7

 

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation:

 

The accompanying unaudited condensed interim financial statements of the Company are presented in U.S. dollars and in conformity with accounting principles generally accepted in the United States of America (“GAAP”) pursuant to the rules and regulations of the SEC and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position as of June 30, 2021, and the results of operations and cash flows for the periods presented. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. Interim results are not necessarily indicative of results for a full year.

 

The accompanying unaudited condensed interim financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s final prospectus dated January 14, 2021.

 

Liquidity and capital resources:

 

At June 30, 2021, the Company has approximately $1,366,000 in cash, approximately $6,270,000 of current liabilities and approximately $4,418,000 in negative working capital. The Company has incurred and expects to continue to incur significant costs in pursuit of its Business Combination. These conditions raise substantial doubt about the Company's ability to continue as a going concern for a period of time within one year after the date that the financial statements are issued. There is no assurance that the Company's plans to consummate a Business Combination will be successful or successful within the Combination Period. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Emerging Growth Company:

 

Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when an accounting standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

 

Net Income (Loss) Per Common Share:

 

Net income (loss) per common share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the period as calculated using the treasury stock method. The Company has not considered the effect of the warrants sold in the Public Offering and the Private Placement to purchase an aggregate of 15,558,333 shares of Class A common stock in the calculation of diluted income (loss) per share, since their inclusion would be anti-dilutive under the treasury stock method. As a result, diluted income (loss) per common share is the same as basic loss per common share for the period.

 

The Company’s condensed statement of operations include a presentation of income (loss) per share for common stock subject to redemption in a manner similar to the two-class method of income (loss) per share. Net income (loss) per share, basic and diluted for Class A common stock is calculated by dividing the interest income earned on the funds in the Trust Account, net of income tax and franchise tax expense, by the weighted average number of shares of Class A common stock outstanding since their original issuance. Net income (loss) per common share, basic and diluted, for shares of Class B common stock is calculated by dividing the net income (loss), less income attributable to Class A common stock, by the weighted average number of shares of Class B common stock outstanding for the period. Net income (loss) available to each class of common stockholders is as follows for the three and six months ended June 30, 2021:

 

  Three Months  Six Months 
  Ended  Ended 
  June 30,
2021
  June 30,
2021
 
Net income available to Class A common stockholders:      
Interest income $12,000  $28,000 
Less: Income and franchise taxes (limited to income)  (12,000)  (28,000)
Net income attributable to Class A common stockholders $-  $- 
Weighted average Class A common shares outstanding - basic and diluted  34,500,000   34,500,000 
Net income per Class A common share – basic and diluted $0.00  $0.00 
Net loss available to Class B common stockholders:        
Net loss $(13,701,000) $(16,136,000)
Less: amount attributable to Class A common stockholders  -   - 
Net (loss) attributable to Class B common stockholders $(13,701,000) $16,136,000 
Weighted average Class B common shares outstanding – basic and diluted  8,625,000   8,506,000 
Net loss per Class B common share – basic and diluted $(1.59) $(1.90)

8

 

 

Concentration of Credit Risk:

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution which, at times, may exceed the Federal Deposit Insurance Corporation maximum coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

 

Financial Instruments:

 

The fair value of the Company’s assets and liabilities (excluding the warrant liability), which qualify as financial instruments under FASB Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the condensed financial statements primarily due to their short-term nature.

 

Use of Estimates:

 

The preparation of condensed financial statements in conformity with U.S. GAAP requires the Company’s 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 condensed financial statements and the reported amounts of expenses during the reporting period.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. One of the more significant estimates included in these financial statements is the determination of the fair value of the warrant liability. Such estimates may be subject to change as more current information becomes available and accordingly the actual results could differ significantly from those estimates.

 

Deferred Offering Costs:

 

The Company complies with the requirements of the FASB ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (SAB) Topic 5A — “Expenses of Offering.” Costs incurred in connection with preparation for the Public Offering were approximately $19,689,000, including the underwriters discount of $18,975,000. Such costs were allocated among the equity and warrant liability components based on their fair values and approximately $19,050,000 of such costs have been charged to equity and the remainder, approximately $639,000, have been charged to the condensed statement of operations upon completion of the Public Offering in January 2021.

 

Income Taxes:

 

The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

The Company’s currently taxable income consists of interest income on the Trust Account net of taxes. The Company’s general and administrative costs are generally considered start-up costs and are not currently deductible. During the three and six months ended June 30, 2021, and December 31, 2021 the Company recorded income tax expense of approximately $-0- in both periods because the cost of deductible franchise taxes exceeded the interest income earned on the Trust Account so there was no income for tax purposes. The Company’s effective tax rate for the three and six months ended June 30, 2021 was approximately -0-% in both periods which differs from the expected income tax rate due to the start-up costs (discussed above) which are not currently deductible and business combination and warrant costs which may not be deductible. At June 30, 2021 and December 31, 2020, the Company has a deferred tax asset of approximately $190,000 and $-0-, respectively, primarily related to start-up costs. Management has determined that a full valuation allowance of the deferred tax asset is appropriate at this time.

 

9

 

 

FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of June 30, 2021. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties at June 30, 2021 and December 31, 2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.

 

Redeemable Common Stock:

 

As discussed in Note 4, all of the 34,500,000 public shares sold as part of Units in the Public Offering contain a redemption feature which allows for the redemption of public shares if the Company holds a stockholder vote or there is a tender offer for shares in connection with a Business Combination. In accordance with FASB ASC 480, redemption provisions not solely within the control of the Company require the security to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of FASB ASC 480. Although the Company did not specify a maximum redemption threshold, its charter provides that in no event will it redeem its public shares in an amount that would cause its net tangible assets (stockholders’ equity) to be less than $5,000,001 upon the closing of a Business Combination.

 

The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of the securities at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by adjustments to additional paid-in capital. Accordingly, at June 30, 2021, 29,086,291 of the 34,500,000 public shares were classified outside of permanent equity. At December 31, 2020, there were no shares of Class A common stock outstanding or redeemable.

 

Warrant Liability

 

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own shares, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

 

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. Costs associated with issuing the warrants accounted for as liabilities are charged to operations when the warrants are issued. The fair value of the warrants was estimated in both the initial and subsequent periods using a Monte Carlo simulation approach for the private warrants and the public warrants are valued based on public trading in an open market.

 

Recent Accounting Pronouncements:

 

In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently evaluating the impact that the pronouncement will have on the financial statements.

 

10

 

 

Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.

 

Subsequent Events:

 

Management has evaluated subsequent events and transactions that occurred after the balance sheet date and up to the date that the financial statements were issued and has concluded that all such events that would require adjustment or disclosure have been recognized or disclosed.

 

NOTE 4 – PUBLIC OFFERING

 

On January 20, 2021, the Company completed the sale of 34,500,000 units at a price of $10.00 per unit (the “Units”). Each Unit consists of one share of the Company’s Class A common stock, $0.0001 par value and one-fourth of one redeemable warrant (the “Warrants”). Each whole Warrant offered in the Public Offering is exercisable to purchase one share of Class A common stock at $11.50 per share. Under the terms of a warrant agreement, the Company has agreed to use its best efforts to file a new registration statement under the Securities Act, following the completion of the Company’s initial Business Combination. No fractional Warrants will be issued upon separation of the Units and only whole Warrants will trade. Accordingly, unless a holder owns a multiple of four Units, the number of Warrants issuable to such holder upon separation of the Units will be rounded down to the nearest whole number of Warrants. Each Warrant will become exercisable on the later of (a) 30 days after the completion of a Business Combination or (b) 12 months from the closing of the Public Offering; provided in each case that the Company has an effective registration statement under the Securities Act covering the shares of Class A common stock issuable upon exercise of the Warrants and a current prospectus relating to them is available (or the Company permits holders to exercise their Warrants on a cashless basis and such cashless exercise is exempt from registration under the Securities Act). The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of the initial Business Combination, the Company will use its best efforts to file with the SEC and have an effective registration statement covering the shares of Class A common stock issuable upon exercise of the Warrants and to maintain a current prospectus relating to those shares of Class A common stock until the Warrants expire or are redeemed. If a registration statement covering the Class A common stock issuable upon exercise of the Warrants is not effective by the 60th business day after the closing of the initial Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if the Company’s shares of Class A common stock are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, it will not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, it will use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.

 

The warrants have an exercise price of $11.50 per share, subject to adjustments, and will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation. In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of the initial Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the board of directors and, in the case of any such issuance to the Sponsor or its affiliates or any anchor investors, without taking into account any founder shares or warrants held by our initial stockholders or such affiliates, as applicable, or our anchor investors, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the initial Business Combination on the date of the consummation of the initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of Class A common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its initial Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, the $18.00 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price, and the $10.00 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to the higher of the Market Value and the Newly Issued Price.

 

11

 

 

Redemption of warrants when the price per share of Class A common stock equals or exceeds $18.00. Once the Warrants become exercisable, the Company may redeem the outstanding warrants for cash (except as described herein with respect to the Private Placement Warrants):

 

in whole and not in part;

 

at a price of $0.01 per Warrant;

 

upon a minimum of 30 days’ prior written notice of redemption; and

 

if, and only if, the closing price of Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the Warrant holders (the “Reference Value”).

 

Redemption of warrants when the price per share of Class A common stock equals or exceeds $10.00.    Once the warrants become exercisable, the Company may redeem the outstanding warrants (except as described with respect to the Private Placement Warrants):

 

in whole and not in part;

 

at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to an agreed table based on the redemption date and the fair market value of the shares of Class A common stock; and

 

if, and only if, the closing price of the shares of Class A common stock equals or exceeds $10.00 per public share (as adjusted) on the trading day prior to the date on which the Company sends the notice of redemption to the warrant holders;

 

if the Reference Value is less than $18.00 per share (as adjusted for share splits, share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like), then the Private Placement Warrants must also concurrently be called for redemption on the same terms (except as described herein with respect to a holder’s ability to cashless exercise its warrants) as the outstanding Warrants.

 

In no event will the Company be required to net cash settle any warrant. If the Company is unable to complete a Business Combination by January 20, 2023, and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.

 

The Company granted the underwriters a 45-day option to purchase up to 4,500,000 additional Units to cover any over-allotments, at the Public Offering price less the underwriting discounts and commissions. The underwriters exercised their over-allotment option in full. The Warrants that were issued in connection with the 4,500,000 over-allotment units are identical to the public Warrants and have no net cash settlement provisions.

 

The Company paid an underwriting discount of 2.0% of the per Unit price to the underwriters at the closing of the Public Offering, or $6,900,000, with an additional fee (the “Deferred Discount”) of 3.5%, or $12,075,000, of the gross offering proceeds is payable upon the consummation of the initial Business Combination. The Deferred Discount will become payable to the underwriters from the amounts held in the Trust Account solely in the event the Company completes its initial Business Combination.

 

The Company intends to finance a Business Combination with proceeds from the $345,000,000 Public Offering and a $10,400,000 private placement (Note 5), net of expenses of the offering and amounts allocated to working capital. Upon the closing of the Public Offering and the private placement, net proceeds of $345,000,000 were placed in the Trust Account.

 

NOTE 5 – RELATED PARTY TRANSACTIONS

 

Founder Shares

 

In October 2020 the Sponsor purchased 7,187,500 shares of Class B common stock (the “Founder Shares”) for $25,000, or approximately $0.003 per share (up to 937,500 of which were subject to forfeiture to the extent the underwriters’ over-allotment option was not exercised in full). In January 2021, the Sponsor transferred an aggregate of 1,450,000, Founder Shares to the Company’s officers, directors and advisors. The Founder Shares are identical to the Class A common stock included in the Units being sold in the Public Offering except that the Founder Shares automatically convert into shares of Class A common stock at the time of the initial Business Combination and are subject to certain transfer restrictions, as described in more detail below. In January 2021, the Company effected a stock dividend of 0.2 shares for each share of Class B common stock, resulting in the Company’s initial stockholders holding an aggregate of 8,625,000 Founder Shares. Certain of the transferees of the initial stockholders (discussed above) then transferred an aggregate of 290,000 shares back to the Sponsor. The January 2021 stock dividend is retroactively restated in the accompanying financial statements at December 31, 2020. The Sponsor had agreed to forfeit up to 1,125,000 Founder Shares to the extent that the over-allotment option was not exercised in full by the underwriters. The over-allotment option was exercised in full and therefore no shares were forfeited and this contingency has lapsed.

 

12

 

 

The Company’s initial stockholders have agreed not to transfer, assign or sell any of their Founder Shares until the earlier of (A) one year after the completion of the Company’s initial Business Combination, or (B), subsequent to the Company’s initial Business Combination, if (x) the last reported sale price of the Company’s Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Company’s initial Business Combination or (y) the date on which the Company completes a liquidation, merger, stock exchange or other similar transaction after the initial Business Combination that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.

 

Private Placement Warrants

 

The Sponsor and certain funds and accounts managed by subsidiaries of BlackRock, Inc. and D. E. Shaw Valence Portfolios, L.L.C. (collectively, the “Direct Anchor Investors”) purchased from the Company an aggregate of 6,933,333 warrants at a price of $1.50 per warrant (a purchase price of $10,400,000), in a private placement that occurred simultaneously with the completion of the Public Offering (the “Private Placement Warrants”). The Sponsor purchased 4,853,333 Private Placement Warrants and the Direct Anchor Investors purchased 2,080,000 Private Placement Warrants. Each Private Placement Warrant entitles the holder to purchase one share of Class A common stock at $11.50 per share. A portion of the purchase price of the Private Placement Warrants was added to the proceeds from the Public Offering held in the Trust Account pending completion of the Company’s initial Business Combination. The Private Placement Warrants (including the Class A common stock issuable upon exercise of the Private Placement Warrants) will not be transferable, assignable or salable until 30 days after the completion of the initial Business Combination and they will be non-redeemable so long as they are held by the Sponsor, the Direct Anchor Investors or their permitted transferees. If the Private Placement Warrants are held by someone other than the Sponsor, the Direct Anchor Investors or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the warrants included in the Units being sold in the Public Offering. Otherwise, the Private Placement Warrants have terms and provisions that are identical to those of the Warrants being sold as part of the Units in the Public Offering and have no net cash settlement provisions.

 

In addition, if the Company issues additional shares of common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial Business Combination at a newly issued price of less than $9.20 per share of common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to its initial stockholders or their affiliates or any anchor investors, without taking into account any founder shares or warrants held by our initial stockholders or such affiliates, as applicable, or our anchor investors, prior to such issuance) (the “newly issued price”), the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the newly issued price.

 

If the Company does not complete a Business Combination, then the proceeds from the sale of the Private Placement Warrants will be part of the liquidating distribution to the public stockholders and the Private Placement Warrants issued to the Sponsor and the Direct Anchor Investors will expire worthless.

 

Registration Rights

 

The Company’s initial stockholders and the holders of the Private Placement Warrants are entitled to registration rights pursuant to a registration rights agreement signed on the date of the prospectus for the Public Offering. These holders are entitled to make up to three demands, excluding short form registration demands, that the Company register such securities for sale under the Securities Act. In addition, these holders have “piggy-back” registration rights to include their securities in other registration statements filed by the Company. The Company will bear the expenses incurred in connection with the filing of any such registration statements. There will be no penalties associated with delays in registering the securities under the registration rights agreement.

 

13

 

 

Related Party Loans

 

In October 2020, the Sponsor agreed to loan the Company an aggregate of $500,000 by drawdowns of not less than $10,000 each against the issuance of an unsecured promissory note (the “Note”) to cover expenses related to the Public Offering. In December 2020, the Company borrowed approximately $150,000 under the Note in order to fund a portion of the costs of the Public Offering. The Note was non-interest bearing and payable on the earlier of June 30, 2021 or the completion of the Public Offering. The Note was repaid in full at the January 20, 2021 closing of the Public Offering and no amounts are outstanding under the Note at June 30, 2021. Because the Note was payable on the earlier of June 30, 2021 or the completion of the Public Offering and both the date and the event (the completion of the Public Offering) have passed, this Note is no longer available to the Company.

 

Administrative Support Agreement

 

The Company has agreed to pay $15,000 a month for office space, utilities and secretarial and administrative support to an affiliate of the Sponsor, Hennessy Capital Group LLC. Services commenced on the date the securities were first listed on the Nasdaq Capital Market and will terminate upon the earlier of the consummation by the Company of an initial Business Combination or the liquidation of the Company. Approximately $45,000 and 83,000, respectively, was charged to general and administrative expenses in the three and six months ended June 30, 2021.

 

Also, commencing on the date the securities were first listed on the Nasdaq Capital Market, the Company agreed to compensate each of its President and Chief Operating Officer as well as its Chief Financial Officer $29,000 per month prior to the consummation of the Company’s initial Business Combination, of which $14,000 per month is payable upon the completion of the Company’s initial Business Combination and $15,000 per month is payable currently for their services. During the three and six months ended June 30, 2021, $90,000 and $166,000, respectively, was paid and $155,000 was included in accrued deferred compensation at June 30, 2021 for these obligations.

 

NOTE 6 – TRUST ACCOUNT AND FAIR VALUE MEASUREMENT

 

The Company complies with FASB ASC 820, Fair Value Measurements, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.

 

Upon the closing of the Public Offering and the Private Placement, a total of $345,000,000 was deposited into the Trust Account. The proceeds in the Trust Account may be invested in either U.S. government treasury bills with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended, and that invest solely in U.S. government treasury obligations.

 

At June 30, 2021, the proceeds of the Trust Account were invested primarily in money market funds meeting certain conditions described above yielding interest of less than 0.1% per year. The Company classifies its U.S. government treasury bills and equivalent securities as held-to-maturity in accordance with FASB ASC 320, “Investments – Debt and Equity Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity U.S. government treasury bills are recorded at amortized cost on the accompanying June 30, 2021 condensed balance sheet and adjusted for the amortization of discounts.

 

The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of June 30, 2021 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. Since all of the Company’s permitted investments at June 30, 2021 consisted of U.S. government treasury bills and money market funds that invest only in U.S. government treasury bills, fair values of its investments are determined by Level 1 inputs utilizing quoted prices (unadjusted) in active markets for identical assets or liabilities as follows:

 

Description 
 
 
 
Carrying value at
June 30, 2021
 
 
 
 
 
 
 
 
Gross Unrealized
Holding Gains
 
 
 
 
 
 
 
 
Quoted Price
Prices in
Active Markets
(Level 1)
 
 
 
 
Assets:         
Cash and money market funds $345,028,000  $-  $345,028,000 

 

There were 0 assets held in the Trust Account at December 31, 2020.

 

14

 

 

NOTE 7 – ACCOUNTING FOR WARRANT LIABILITY, CORRECTION OF PREVIOUSLY ISSUED BALANCE SHEET, FAIR VALUE MEASUREMENT

 

At June 30, 2021, there were 15,558,333 warrants outstanding including 8,625,000 Public Warrants and 6,933,333 Private Placement Warrants.

 

The Company accounts for its warrants outstanding consistent with the “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies” (the “Staff Statement”) issued on April 12, 2021 by the staff (the “Staff”) of the Division of Corporation Finance of the SEC. The Staff Statement, among other things, highlights the potential accounting implications of certain terms that are common in warrants issued in connection with the initial public offerings of special purpose acquisition companies (“SPAC”) such as the Company. The Staff Statement reflects the Staff’s view that in many cases, warrants issued by SPACs should be characterized as liabilities for accounting purposes, rather than as equity securities, unless certain conditions are met. As a result of this guidance, the Company’s management further evaluated its warrants under ASC Subtopic 815-40, Contracts in Entity’s Own Equity, including the assistance of accounting and valuation consultants and concluded that the Company’s warrants are not indexed to the Company’s shares in the manner contemplated by ASC Section 815-40-15 because the holder of the instrument is not an input into the pricing of a fixed-for-fixed option on equity shares.

 

In addition, the impact to the balance sheet as of January 20, 2021 prepared in connection with the Public Offering and filed in a Current Report on Form 8-K with the SEC on January 26, 2021 (the “Form 8-K) related to the impact of accounting for warrants as liabilities at fair value resulted in approximately a $25,205,000 increase to the warrant liabilities line item at January 20, 2021 and an offsetting decrease to the Class A common stock subject to redemption. There is no change to total stockholders’ equity at any reported balance sheet date. In addition, the Company has recorded approximately $1,471,000 of costs to the statement of operations at inception of the warrants to reflect (i) approximately $639,000 of warrant issuance costs and (ii) approximately $832,000 charge for costs associated with the issuance of the private placement warrants to the Sponsor for the difference between the price paid for the warrants and the fair value at that date.

 

The following table presents information about the Company’s warrant liabilities that are measured at fair value on a recurring basis at June 30, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.

 

Description June 30,
2021
  Quoted Prices
in Active
Markets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Other
Unobservable
Inputs
(Level 3)  
 
Warrant Liabilities:            
Public Warrants $18,112,000  $  $  $18,112,000 
Private Placement Warrants $14,560,000  $  $  $14,560,000 
Warrant liability at June 30, 2021 $32,672,000        $32,672,000 

 

The Company utilizes an independent valuation consultant that uses a Monte Carlo simulation model with Geometric Brownian motion to value the warrants at each reporting period, with changes in fair value recognized in the statement of operations. The estimated fair value of the warrant liability is determined using Level 3 inputs. Inherent in a Monte Carlo simulation options pricing model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its shares based on historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.

 

The warrant liabilities are not subject to qualified hedge accounting.

 

There were no transfers between Levels 1, 2 or 3 during the three and six month period ended June 30, 2021.

 

15

 

 

The following table provides quantitative information regarding Level 3 fair value measurements:

 

  At
June 30,
2021
  At
January 20,
2021
(Initial
Measurement)
 
Stock price $10.11  $10.00 
Strike price $11.50  $11.50 
Term (in years)  5.0   5.0 
Volatility  30%  30%
Risk-free rate  0.91%  0.62%
Probability of acquisition  95%  75%
Fair value of warrants $2.10  $1.62 

 

The following table presents the changes in the fair value of warrant liabilities:

 

  Public  Private
Placement
  Warrant
Liabilities
 
Fair value at January 1, 2021  -   -   - 
Initial measurement on January 20, 2021 $13,973,000  $11,232,000  $25,205,000 
Change in valuation inputs or other assumptions  (346,000)  (277,000)  (623,000)
Fair value as of March 31, 2021 $13,627,000  $10,955,000  $24,582,000 
Change in valuation inputs or other assumptions  4,485,000   3,605,000   8,090,000 
Fair value as of June 30, 2021 $18,112,000  $14,560,000  $32,672,000 

 

NOTE 8 – STOCKHOLDERS’ EQUITY

 

Common Stock

 

The authorized common stock of the Company is 220,000,000 shares, including 200,000,000 shares of Class A common stock, par value, $0.0001, and 20,000,000 shares of Class B common stock, par value, $0.0001. Upon completion of the Public Offering, the Company may (depending on the terms of the Business Combination) be required to increase the authorized number of shares at the same time as its stockholders vote on the Business Combination to the extent the Company seeks stockholder approval in connection with its Business Combination. Holders of the Company’s Class A and Class B common stock vote together as a single class and are entitled to one vote for each share of Class A and Class B common stock. At June 30, 2021 and December 31, 2020, there were 8,625,000 shares of Class B common stock issued and outstanding for both periods and 5,413,709 and -0- shares, respectively, of Class A common stock issued and outstanding (excluding 29,086,291 and -0- shares, respectively, subject to possible redemption at June 30, 2021 and December 31, 2020).

 

The 1,125,000 shares of Class B common stock which were subject to forfeiture at December 31, 2020 (as described in Note 5) are no longer subject to forfeiture as the underwriters exercised their over-allotment option in full in January 2021.

 

Preferred Stock

 

The Company is authorized to issue 1,000,000 shares of preferred stock, par value $0.0001, with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At June 30, 2021 and December 31, 2020, there were no shares of preferred stock issued or outstanding.

 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

 

Business Combination Costs

 

In connection with identifying an initial Business Combination candidate and negotiating an initial Business Combination, the Company has entered into, and expects to enter into additional, engagement letters or agreements with various consultants, advisors, professionals and others. The services under these engagement letters and agreements are material in amount and in some instances include contingent or success fees. Contingent or success fees (but not deferred underwriting compensation) would be charged to operations in the quarter that an initial Business Combination is consummated. In most instances (except with respect to our independent registered public accounting firm), these engagement letters and agreements are expected to specifically provide that such counterparties waive their rights to seek repayment from the funds in the Trust Account.

 

Risks and Uncertainties – COVID-19

 

Management is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the pandemic could have an effect on the Company’s financial position, results of its operations, and/or search for a target company and/or a target company’s financial position and results of its operations, and the closing of a business combination, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

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

 

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the condensed financial statements and the notes thereto contained elsewhere in this report.

 

Special Note Regarding Forward-Looking Statements

 

All statements other than statements of historical fact included in this section and elsewhere in this Form 10-Q regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC.

 

Overview

 

We are a blank check company incorporated as a Delaware corporation on October 6, 2020. We were formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (“Initial Business Combination”). We intend to effectuate our Initial Business Combination using cash from the proceeds of our initial public offering that was completed in January 2021 (the “Public Offering”) and the sale of warrants in a private placement (the “Private Placement”) that occurred simultaneously with the completion of the Public Offering (the “Private Placement Warrants”), our capital stock, debt or a combination of cash, stock and debt.

 

The issuance of additional shares of our stock in an Initial Business Combination:

 

may significantly dilute the equity interest of our stockholders;

 

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

 

could cause a change in control if a substantial number of shares of our common stock is issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors;

 

may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and

 

may adversely affect prevailing market prices for our Class A common stock and/or warrants.

 

Similarly, if we issue debt securities or incur other indebtedness to finance our Initial Business Combination, it could result in:

 

default and foreclosure on our assets if our operating revenues after an Initial Business Combination are insufficient to repay our debt obligations;

 

acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;

 

our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand;

 

our inability to obtain necessary additional financing if the debt security or other indebtedness contains covenants restricting our ability to obtain such financing while the debt security or other indebtedness is outstanding;

 

our inability to pay dividends on our common stock;

 

using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, or limit our ability to pay expenses, make capital expenditures and acquisitions and fund other general corporate purposes;

 

17

 

 

limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;

 

increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;

 

limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and
other disadvantages compared to our competitors who have less debt.

 

At June 30, 2021, we had approximately $1,366,000 in cash outside of the Trust Account. We are incurring and expect to incur significant costs in the pursuit of an Initial Business Combination and we cannot assure you that our plans to complete an Initial Business Combination will be successful.

 

Recent Developments – COVID-19

 

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic.” COVID-19 has resulted in a widespread health crisis that has adversely affected the economies and financial markets worldwide. The business of the target business with which we consummate a business combination could be materially and adversely affected. Furthermore, we may be unable to complete a business combination if continued concerns relating to COVID-19 restrict travel, limit the ability to have meetings with potential investors or the target company’s personnel, vendors and services providers are unavailable to negotiate and consummate a transaction in a timely manner. The extent to which COVID-19 impacts our search for a business combination will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If the disruptions posed by COVID-19 or other matters of global concern continue for an extended period of time, our ability to consummate a business combination, or the operations of a target business with which we ultimately consummate a business combination, may be materially adversely affected.

 

Recent Developments – Entry into Merger Agreement and Plan of Reorganization; PIPE Financing Subscription Agreements

 

On May 7, 2021, the Company entered into a Merger Agreement and Plan of Reorganization (the “Merger Agreement”) to effect an initial business combination, by and among the Company, PlusAI Corp, an exempted company incorporated with limited liability in the Cayman Islands (“Plus”), Plus Inc., an exempted company incorporated with limited liability in the Cayman Islands (“PubCo”), Prime Merger Sub I, Inc., an exempted company incorporated with limited liability in the Cayman Islands and a direct, wholly-owned subsidiary of PubCo (“First Merger Sub”), Prime Merger Sub II, Inc., a Delaware corporation and wholly-owned subsidiary of PubCo (“Second Merger Sub”), and Plus Holdings Ltd., an exempted company incorporated with limited liability in the Cayman Islands and wholly-owned subsidiary of Plus (“Plus Holdings”).

 

Pursuant to the Merger Agreement, a business combination between the Company and Plus (the “Business Combination”) will be effected through (a) the merger of Prime Merger Sub, Ltd., an exempted company incorporated with limited liability in the Cayman Islands and wholly-owned subsidiary of Plus Holdings, with and into Plus, with Plus surviving as a wholly-owned subsidiary of Plus Holdings (the “F-Reorg Merger”); (b) following the F-Reorg Merger, the merger of First Merger Sub with and into Plus Holdings, with Plus Holdings surviving as a wholly-owned subsidiary of PubCo (the “Plus Merger”); and (c) simultaneously with, and as part of the same overall transaction as the Plus Merger, the merger of Second Merger Sub with and into the Company, with the Company surviving as a wholly-owned subsidiary of PubCo (the “HCIC Merger” and, together with the Plus Merger, the “Mergers”). As a result of the Mergers, Plus Holdings and the Company each will become a direct wholly-owned subsidiary of PubCo, Plus will become a direct wholly-owned subsidiary of Plus Holdings and PubCo will become a publicly traded company.

 

Plus is a global provider of self-driving truck technology aimed at making trucks safer, more efficient, more comfortable, and better for the environment using its autonomous driving solution PlusDrive advanced sensing technologies, including radar, lidar, and cameras to provide a 360-degree sensing system. Plus plans to begin mass production of PlusDrive, starting in 2021 with FAW, a heavy-truck manufacturer. Plus is headquartered in Cupertino, California.

 

18

 

 

Under the terms of the Merger Agreement, the aggregate consideration to be paid to existing Plus shareholders as a result of the F-Reorg Merger and Plus Merger is expected to be up to approximately 272 million shares of newly issued ordinary shares of PubCo, par value of $0.000002, designated as Class A Ordinary Shares, which are expected to have one (1) vote per share (“PubCo Class A Ordinary Shares”) and ordinary shares of PubCo, par value of $0.000002, designated as Class B Ordinary Shares, which are expected to have eight (8) votes per share (“PubCo Class B Ordinary Shares” and together with the PubCo Class A Ordinary Shares, “PubCo Shares”), with such PubCo Shares valued at $10 per share. A portion of the aggregate consideration of PubCo Shares will be subject to forfeiture restrictions or other restrictions or in the form of options or warrants of PubCo, in each case to the same extent to which the securities of existing Plus securityholders are subject to forfeiture restrictions or other restrictions or held in the form of options or warrants.

 

As a result of the HCIC Merger, (a) each outstanding share of the Company’s common stock will be cancelled in exchange for the right to receive for one PubCo Class A Ordinary Share, and (b) each outstanding warrant of the Company will become exercisable for one PubCo Class A Ordinary Share on the same terms and conditions.

 

In connection with the execution of the Merger Agreement, on May 7, 2021, the Company and PubCo entered into separate subscription agreements (the “PIPE Subscription Agreements”) with a number of investors (the “PIPE Investors”), pursuant to which the PIPE Investors have agreed to subscribe for and purchase, and PubCo has agreed to issue and sell to the PIPE Investors, an aggregate of 15 million PubCo Class A Ordinary Shares (the “PIPE Shares”), for a purchase price of $10.00 per share and at an aggregate purchase price of $150 million in a private placement (the “PIPE Financing”).

 

The consummation of the Business Combination (the “Closing”) is subject to certain conditions, including but not limited to the approval of the Company’s stockholders and Plus’ shareholders of the Merger Agreement. The Merger Agreement may also be terminated by either party under certain circumstances, including upon notice after November 8, 2021. The parties have agreed to customary exclusivity obligations by either party for any reason. The Closing is expected to occur as promptly as practicable, but in no event later than three business days following the satisfaction or waiver of all of the closing conditions contained in the Merger Agreement. The Company anticipates the Closing will occur in the second half of 2021 but can provide no assurances that the Closing will occur timely or at all.

 

Additional information regarding the proposed Business Combination and the business and operations of Plus is contained in the Current Report on Form 8-K filed by the Company on May 10, 2021 and will be available in the Registration Statement on Form F-4 once publicly filed by PubCo with the Securities and Exchange Commission.

 

Results of Operations

 

For the period from October 6, 2020 (date of inception) to June 30, 2021, our activities consisted of formation and preparation for the Public Offering and, subsequent to completion of the Public Offering on January 20, 2021, identifying and completing a suitable Initial Business Combination. As such, in 2021 we had no operations or significant operating expenses until after the completion of the Public Offering in January 2021.

 

Our normal operating costs since January 20, 2021 include costs associated with our search for an Initial Business Combination (see below), costs associated with our governance and public reporting (see below), state franchise taxes of approximately $17,000 per month (see below), a charge of $15,000 per month from our Sponsor for administrative services and $29,000 per month ($14,000 of which is deferred as to payment until closing of our Initial Business Combination) for compensation to each of our Chief Operating Officer and Chief Financial Officer. Our costs in the three and six months ended June 30, 2021 also include professional and consulting fees and travel associated with evaluating various Initial Business Combination candidates, as well as the costs of our public reporting and other costs, subsequent to the Public Offering. Professional and consulting fees, regulatory and travel costs associated with investigating potential Initial Business Combination candidates were approximately $5,070,000 and $6,332.000, respectively, for the three and six months ended June 30, 2021. As we identified our Initial Business Combination candidate, our costs have increased significantly in connection with negotiating and executing a definitive agreement and related agreements as well as additional professional, due diligence and consulting fees and travel costs required in connection with an Initial Business Combination. Costs associated with our governance and public reporting have increased since the Public Offering and were approximately $141,000 and $234,000 for the three and six months ended June 30, 2021. In addition, since our operating costs are not expected to be deductible for federal income tax purposes, we are subject to federal income taxes on the interest income earned from the Trust Account less taxes. Such federal income taxes were $-0-, for both the three and six months ended June 30, 2021 because the cost of deductible franchise taxes exceeded the interest income earned on the Trust Account. We are permitted to withdraw interest earned from the Trust Account for the payment of taxes to the extent of interest income earned. We did not withdraw any interest from the Trust Account in the three and six months ended June 30, 2021.

 

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The Public Offering and the Private Placement closed on January 20, 2021 as more fully described in “Liquidity and Capital Resources” below. At that time, the proceeds in the Trust Account were initially invested in a money market fund that invested solely in direct U.S. government obligations meeting the applicable conditions of Rule 2a-7 of the Investment Company Act of 1940. At June 30, 2021, proceeds in the Trust Account continue to be invested in such money market fund. As a result of market conditions occurring in connection with the Covid-19 pandemic, interest rates on available investments are low (less than 0.1%) and at that level are insufficient to cover our franchise tax obligations. It is unclear how long this condition will persist, or whether it could worsen.

 

As discussed further in Note 7 to the condensed financial statements, the Company accounts for its outstanding public and private warrants as components as derivative liabilities in the accompanying unaudited condensed financial statements.  As a result, the Company is required to measure the fair value of the public and private warrants at the end of each reporting period and recognize changes in the fair value from the prior period in the Company’s operating results for each current period. The condensed statement of operations for the three and six months ended June 30, 2021 reflects other expense from change in fair value of the warrant liability of approximately $8,090,000 and $7,467,000, respectively, and charges to other expense aggregating approximately $-0- and $1,471,000, respectively, for warrant liability transaction costs (approximately $639,000) and transaction date expense related to the issuance of the private placement warrants (approximately $832,000).

 

The Company’s prior accounting for the warrants as components of equity instead of as derivative liabilities at January 20, 2021 has been corrected to reflect the warrants as liabilities at that date, which did not have any effect on the Company’s previously reported operating expenses, cash flows, cash, trust account or total stockholders’ equity (see Note 7 to condensed financial statements).

 

Liquidity and Capital Resources

 

On January 20, 2021, we consummated the Public Offering of an aggregate of 34,500,000 Units at a price of $10.00 per unit generating gross proceeds of approximately $345,000,000 before underwriting discounts and expenses. Simultaneously with the consummation of the Public Offering, we consummated the Private Placement of 6,933,333 Private Placement Warrants, each exercisable to purchase one share of our Class A common stock at $11.50 per share, to the Sponsor and certain funds and accounts managed by subsidiaries of BlackRock, Inc. and D.E. Shaw Valance Portfolios,L.L.C. (collectively, the “Direct Anchor Investors”), at a price of $1.50 per Private Placement Warrant, generating gross proceeds, before expenses, of approximately $10,400,000.

 

The net proceeds from the Public Offering and Private Placement were approximately $347,776,000, net of the non-deferred portion of the underwriting commissions of $6,900,000 and offering costs and other expenses of approximately $724,000. $345,000,000 of the proceeds of the Public Offering and the Private Placement have been deposited in the Trust Account and are not available to us for operations (except amounts to pay taxes). At June 30, 2021, we had approximately $1,366,000 of cash available outside of the Trust Account to fund our activities until we consummate an Initial Business Combination.

 

Until the consummation of the Public Offering, the Company’s only sources of liquidity were an initial purchase of shares of our Class B common stock for $25,000 by the Sponsor, and a total of $150,000 loaned by the Sponsor against the issuance of an unsecured promissory note (the “Note”). The Note was non-interest bearing and was paid in full on January 20, 2021 in connection with the closing of the Public Offering.

 

At June 30, 2021, the Company has approximately $1,366,000 in cash, approximately $6,270,000 of current liabilities and approximately $4,418,000 in negative working capital. The Company has incurred and expects to continue to incur significant costs in pursuit of its Business Combination. These conditions raise substantial doubt about the Company's ability to continue as a going concern for a period of time within one year after the date that the financial statements are issued. There is no assurance that the Company's plans to consummate a Business Combination will be successful or successful within the Combination Period. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The preponderance of the current liabilities (approximately $5,810,000) results from amounts accrued as payable to professional service firms who indicated their intention to accept deferred payment terms, or success fees, that are payable at the closing of the proposed Business Combination. As a result, the Company believes, but cannot assure, that it has the liquidity to complete a Business Combination.

 

The Company has only until January 20, 2023 to complete an Initial Business Combination. If the Company does not complete an Initial Business Combination by January 20, 2023, the Company will (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably possible, but not more than ten business days thereafter, redeem the public shares of Class A common stock for a pro rata portion of the Trust Account, including interest, but less taxes payable (and less up to $100,000 of such net interest to pay dissolution expenses) and (iii) as promptly as reasonably possible following such redemption, dissolve and liquidate the balance of the Company’s net assets to its creditors and remaining stockholders, as part of its plan of dissolution and liquidation. The initial stockholders have waived their redemption rights with respect to their founder shares; however, if the initial stockholders or any of the Company’s officers, directors or their affiliates acquire shares of Class A common stock in or after the Public Offering, they will be entitled to a pro rata share of the Trust Account upon the Company’s redemption or liquidation in the event the Company does not complete an Initial Business Combination within the required time period.

 

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In the event of such liquidation, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the price per unit in the Public Offering.

 

Off-balance sheet financing arrangements

 

As of June 30, 2021, we have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

 

We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or entered into any agreements for non-financial assets.

 

Contractual obligations

 

At June 30, 2021, we did not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. In connection with the Public Offering, we entered into an Administrative Support Agreement with Hennessy Capital Group LLC, an affiliate of our Sponsor, pursuant to which the Company pays Hennessy Capital Group LLC $15,000 per month for office space, utilities and secretarial and administrative support.

 

Also, commencing on the date the securities are first listed on the Nasdaq Capital Market, the Company has agreed to compensate each of its President and Chief Operating Officer as well as its Chief Financial Officer $29,000 per month prior to the consummation of the Company’s initial Business Combination, of which $14,000 per month is payable upon the completion of the Company’s initial Business Combination and $15,000 per month is payable currently for their services. During the three and six months ended June 30, 2021, approximately $90,000 and $166,000 was paid and approximately $193,000 was included in current liabilities as deferred compensation at June 30, 2021 for these obligations.

 

Upon completion of the Initial Business Combination or the Company’s liquidation, the Company will cease paying or accruing these monthly fees.

 

In connection with identifying an Initial Business Combination candidate and negotiating an Initial Business Combination, the Company may enter into engagement letters or agreements with various consultants, advisors, professionals and others in connection with an Initial Business Combination. The services under these engagement letters and agreements can be material in amount and in some instances can include contingent or success fees. Contingent or success fees (but not deferred underwriting compensation) would be charged to operations in the quarter that an Initial Business Combination is consummated. In most instances (except with respect to our independent registered public accounting firm), these engagement letters and agreements are expected to specifically provide that such counterparties waive their rights to seek repayment from the funds in the Trust Account.

 

Critical Accounting Policies

 

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. The Company has identified the following as its critical accounting policies:

 

Emerging Growth Company:

 

Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when an accounting standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

 

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Net Income (Loss) Per Common Share:

 

Net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period as calculated using the treasury stock method. The Company has not considered the effect of the warrants sold in the Public Offering and the Private Placement to purchase an aggregate of 15,558,333 shares of Class A common stock in the calculation of diluted income (loss) per share, since their inclusion would be anti-dilutive under the treasury stock method. As a result, diluted income (loss) per common share is the same as basic loss per common share for the period.

 

The Company’s condensed statement of operations include a presentation of income (loss) per share for common stock subject to redemption in a manner similar to the two-class method of income (loss) per share. Net income (loss) per share, basic and diluted for Class A common stock is calculated by dividing the interest income earned on the funds in the Trust Account, net of income tax expense and franchise tax expense, by the weighted average number of shares of Class A common stock outstanding since their original issuance. Net income (loss) per common share, basic and diluted, for shares of Class B common stock is calculated by dividing the net income (loss), less income attributable to Class A common stock, by the weighted average number of shares of Class B common stock outstanding for the period. Net income (loss) available to each class of common stockholders is as follows for the three and six months ended June 30, 2021:

 

  Three Months  Six Months 
  Ended  Ended 
  June 30,
2021
  June 30,
2021
 
       
Net income available to Class A common stockholders:      
Interest income $12,000  $28,000 
Less: Income and franchise taxes (limited to income)  (12,000)  (28,000)
Net income attributable to Class A common stockholders $-  $- 
Weighted average Class A common shares outstanding - basic and diluted  

34,500,000

   

34,500,000

 
Net income per Class A common share – basic and diluted $

0.00

  $

0.00

 
Net loss available to Class B common stockholders:        
Net loss $(13,701,000) $(16,136,000)
Less: amount attributable to Class A common stockholders  -   - 
Net (loss) attributable to Class B common stockholders $(13,701,000) $16,136,000 
Weighted average Class B common shares outstanding – basic and diluted  

8,625,000

   

8,506,000

 
Net loss per Class B common share – basic and diluted $(1.59) $(1.90)

 

Concentration of Credit Risk:

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution which, at times, may exceed the Federal Deposit Insurance Corporation maximum coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

 

Financial Instruments:

 

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheet primarily due to their short-term nature.

 

Use of Estimates:

 

The preparation of condensed financial statements in conformity with U.S. GAAP requires the Company’s 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 condensed financial statements and the reported amounts of expenses during the reporting period.

 

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Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. One of the more significant estimates included in these financial statements is the determination of the fair value of the warrant liability. Such estimates may be subject to change as more current information becomes available and accordingly the actual results could differ significantly from those estimates.

 

Deferred Offering Costs:

 

The Company complies with the requirements of the FASB ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (SAB) Topic 5A — “Expenses of Offering.” Costs incurred in connection with preparation for the Public Offering were approximately $19,689,000, including the underwriters discount of $18,975,000. Such costs were allocated among the equity and warrant liability components based on their fair values and approximately $19,050,000 of such costs have been charged to equity and the remainder, approximately $639,000, have been charged to the condensed statement of operations upon completion of the Public Offering in January 2021.

 

Income Taxes:

 

The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

The Company’s currently taxable income consists of interest income on the Trust Account net of taxes. The Company’s general and administrative costs are generally considered start-up costs and are not currently deductible. During the three and six months ended June 30, 2021, the Company recorded income tax expense of approximately $-0- in both periods because the cost of deductible franchise taxes exceeded the interest income earned on the Trust Account. The Company’s effective tax rate for the three and six months ended June 30, 2021 was approximately -0-% in both periods which differs from the expected income tax rate due to the start-up costs (discussed above) which are not currently deductible. At June 30, 2021 and December 31, 2020, the Company has a deferred tax asset of approximately $190,000 and $-0-, respectively, primarily related to start-up costs. Management has determined that a full valuation allowance of the deferred tax asset is appropriate at this time.

 

FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of June 30, 2021 or December 31, 2020. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties at June 30, 2021 or December 31, 2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.

 

Redeemable Common Stock:

 

As discussed in Note 4, all of the 34,500,000 public shares sold as part of Units in the Public Offering contain a redemption feature which allows for the redemption of public shares if the Company holds a stockholder vote or there is a tender offer for shares in connection with a Business Combination. In accordance with FASB ASC 480, redemption provisions not solely within the control of the Company require the security to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of FASB ASC 480. Although the Company did not specify a maximum redemption threshold, its charter provides that in no event will it redeem its public shares in an amount that would cause its net tangible assets (stockholders’ equity) to be less than $5,000,001 upon the closing of a Business Combination.

 

The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of the securities at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by adjustments to additional paid-in capital. Accordingly, at June 30, 2021, 29,086,291 of the 34,500,000 public shares were classified outside of permanent equity. At December 31, 2020, there were no shares of Class A common stock outstanding or redeemable.

 

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Warrant Liability

 

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

 

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. Costs associated with issuing the warrants accounted for as liabilities are charged to operations when the warrants are issued. The fair value of the warrants was estimated using a Monte Carlo simulation approach.

 

Recent Accounting Pronouncements:

 

Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We were incorporated in Delaware on October 6, 2020 for the purpose of effecting an Initial Business Combination. As of June 30, 2021, we had not commenced any operations or generated any revenues. All activity through June 30, 2021 relates to our formation and our Public Offering and subsequent to the Public Offering identifying and completing a suitable Initial Business Combination. $345,000,000 of the net proceeds of the Public Offering and the Private Placement that closed on January 20, 2021 were deposited into a Trust Account and invested in a money market fund meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940 which invest only in direct U. S. government obligations. At June 30, 2021, the Trust Account remains invested in such money market fund. At June 30, 2021, there was approximately $345,028,000 in the Trust Account.

 

ITEM 4. CONTROLS AND PROCEDURES

 

On April 12, 2021, the staff at the Securities and Exchange Commission (the “SEC”) issued a statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) (the “SEC Statement”). In the SEC Statement, the SEC staff noted that certain provisions in the typical SPAC warrant agreement may require that the warrants be classified as a liability measured at fair value, with changes in fair value reported each period in earnings, as compared to the historical treatment of the warrants as equity, which has been the practice of most SPACs, including us. We had previously classified our private placement warrants and public warrants as equity (for a full description of our private placement warrants and public warrants, refer to the registration statement on Form S-1 (File Nos. 333- 25609 and 333-252115), filed in connection with the Company’s initial public offering, declared effective by the SEC on January 14, 2021).

 

Based on the guidance in Accounting Standards Codification (“ASC”) 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Equity”, we concluded that provisions in our warrant agreement preclude our warrants from being accounted for as components of equity. As the warrants meet the definition of a derivative as contemplated in ASC 815, the warrants should have been recorded as derivative liabilities on the balance sheet and measured at fair value at inception and at each reporting date in accordance with ASC 820, “Fair Value Measurement”, with changes in fair value recognized in the statement of operations in the period of change. Further, ASC 815 requires that upfront costs and fees related to items for which the fair value option is elected (our warrant liabilities) should have been recognized as expense as incurred.

 

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Evaluation of Disclosure Controls and Procedures

 

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

 

In connection with the SEC Statement our management reassessed the effectiveness of our disclosure controls and procedures as of June 30, 2021. As a result of that reassessment our management determined that our disclosure controls and procedures as of June 30, 2021 were not effective solely as a result of its classification of the warrants as components of equity instead of as derivative liabilities. Due solely to the events that led to our restatement, management has made changes in internal controls related to the accounting for warrants issued in connection with our initial public offering. In light of the material weakness that we identified, we performed additional analysis as deemed necessary to ensure that our financial statements for the three and six months ended June 30, 2021, were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are enhancing our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements. Our plans at this time include retaining consultants with technical accounting expertise in derivatives accounting as well as valuation consultants with expertise in warrants and other derivative instruments. We believe our efforts will enhance our controls relating to warrant accounting, but we can offer no assurance that our internal controls will not require additional review and modification in the future as industry accounting practices based on the SEC Statement may evolve over time.

 

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PART II — OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

As of the date of this Quarterly Report on Form 10-Q, except as noted below, there has not been a change to the risk factors disclosed in our Prospectus filed with the SEC on January 19, 2021. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC including the Form F-4 that we intend to file publicly in connection with our proposed Business Combination.

 

Our warrants are accounted for as a warrant liability and are recorded at fair value upon issuance with any changes in fair value each period reported in our statement of operations, which may have an adverse effect on the market price of our securities or may make it more difficult for us to consummate an initial business combination.

 

Following the consummation of our initial public offering and the concurrent private placement in January 2021, we have 15,558,333 warrants outstanding (comprised of the 6,933,333 public warrants included in the units and the 8,625,000 private placement warrants). We recorded the warrant liability at fair value upon issuance as determined by us based upon a valuation report obtained from an independent third-party valuation firm. The warrant liability is adjusted for the change in fair value each period with a charge or credit recognized in our statement of operations. The impact of changes in fair value on earnings, which may be material, may have an adverse effect on the market price of our securities. In addition, potential targets may seek a business combination partner that does not have warrants that are accounted for as a warrant liability, which may make it more difficult for us to consummate an initial business combination with a target business.

 

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

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

 

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ITEM 6. EXHIBITS

 

Exhibit
Number
 Description
2.1(1)* 

Amended and Restated Merger Agreement and Plan of Reorganization, dated as of June 19, 2021, by and among Hennessy Capital Investment Corp. V, PlusAI Corp, Plus Inc., Prime Merger Sub I, Inc., Prime Merger Sub II, Inc. and Plus Holdings Ltd.

10.1(2) Form of PIPE Subscription Agreement
10.2(2) Form of Shareholder Support Agreement
10.3(2) Sponsor Support Agreement, dated as of May 7, 2021, by and among PlusAI Corp, Plus Holdings Ltd., Hennessy Capital Partners V LLC and the other stockholders of Hennessy Capital Investment Corp. V set forth therein
31.1 Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
31.2 Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32.1** Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
32.2** Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
101.INS XBRL Instance Document
1101.SCH Inline XBRL Taxonomy Extension Schema Document
1101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
1101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
1101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
1101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File

 

 

*Schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request.
**Furnished herewith
(1)Incorporated by reference to the Current Report on Form 8-K filed by the Company on June 21, 2021
(2)Incorporated by reference to the Current Report on Form 8-K filed by the Company on May 10, 2021

 

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SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 HENNESSY CAPITAL INVESTMENT CORP. V
  
Dated: August 16, 2021  /s/ Daniel J. Hennessy
 Name: Daniel J. Hennessy
 Title: Chairman of the Board of Directors and
 Chief Executive Officer
 (Principal Executive Officer)  

 

Dated: August 16, 2021  /s/ Nicholas A. Petruska
 Name: Nicholas A. Petruska
 Title: Executive Vice President, Chief  
 Financial Officer and Secretary
 (Principal Financial and Accounting Officer)  

 

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