SEC Form 10-Q filed by Churchill Capital Corp V
Table of Contents
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
one-fourth of one warrant |
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| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
| Emerging growth company | ||||||
Table of Contents
Churchill Capital Corp V
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2023
TABLE OF CONTENTS
Table of Contents
June 30, 2023 |
December 31, 2022 |
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(unaudited) |
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ASSETS |
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Current assets |
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Cash |
$ | $ | ||||||
Prepaid expenses |
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Total current assets |
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Cash and marketable securities held in Trust Account |
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TOTAL ASSETS |
$ |
$ |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities |
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Accrued expenses |
$ | $ | ||||||
Income taxes payable |
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Excise tax liability |
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Total current liabilities |
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note—related party, net of discount |
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Extension promissory note—related party |
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Deferred legal fee |
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Warrant liabilities |
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Deferred underwriting fee payable |
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Total liabilities |
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COMMITMENTS AND CONTINGENCIES (Note 6) |
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Class A common stock subject to possible redemption, as of June 30, 2023 and December 31, 2022, respectively |
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Stockholders’ deficit |
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Preferred stock, $ |
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Class A common stock, $ |
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Class B common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
( |
) | ( |
) | ||||
Total stockholders’ deficit |
( |
) |
( |
) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT |
$ |
$ |
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Three Months Ended June 30, |
Six Months Ended June 30, |
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2023 |
2022 |
2023 |
2022 |
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Operating costs |
$ | $ | $ | $ | ||||||||||||
Loss from o p erations |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
Other income (expense): |
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Change in fair value of warrant liabilities |
( |
) | ||||||||||||||
Interest earned on cash and marketable securities held in Trust Account |
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Unrealized loss on marketable securities held in Trust Account |
( |
) | ( |
) | ||||||||||||
Change in fair value of conversion option liability |
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Interest expense—debt discount |
( |
) | ( |
) | ||||||||||||
Total other income, net |
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Income (Loss) before provision for income taxes |
( |
) | ||||||||||||||
Provision for income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Net income (loss) |
$ |
$ |
$ |
( |
) |
$ |
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Basic and diluted weighted average shares outstanding of Class A common stock |
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Basic and diluted net income (loss) per share, Class A common stock |
$ |
$ |
$ |
( |
) |
$ |
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Basic and diluted weighted average shares outstanding of Class B common stock |
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Basic and diluted net income (loss) per share, Class B common stock |
$ |
$ |
$ |
( |
) |
$ |
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Class A Common Stock |
Class B Common Stock |
Additional Paid-in Capital |
Accumulated |
Total Stockholders’ |
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Shares |
Amount |
Shares |
Amount |
Deficit |
Deficit |
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| Balance — January 1, 2023 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
| Remeasurement adjustment on redeemable common stock |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
| Excise tax imposed on common stock redemptions |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
| Net loss |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
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| Balance — March 31, 2023 |
( |
) |
( |
) | ||||||||||||||||||||||||
| Remeasurement adjustment on redeemable common stock |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
| |
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| Balance — June 30, 2023 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
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Class A Common Stock |
Class B Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders’ Deficit |
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Shares |
Amount |
Shares |
Amount |
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| Balance — January 1, 2022 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
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| Balance — March 31, 2022 |
( |
) |
( |
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| Net income |
— | — | — | — | — | |||||||||||||||||||||||
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| Balance — June 30, 2022 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
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Six Months Ended June 30, |
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2023 |
2022 |
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Cash Flows from Operating Activities: |
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Net (loss) income |
$ | ( |
$ | |||||
Adjustments to reconcile net (loss) income to net cash used in operating activities: |
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Change in fair value of warrant liabilities |
( |
) | ||||||
Amortization of debt discount |
— | |||||||
Interest earned on cash and marketable securities held in Trust Account |
( |
) | ( |
) | ||||
Unrealized loss on marketable securities held in Trust Account |
— | |||||||
Change in value of conversion option liability |
— | ( |
) | |||||
Changes in operating assets and liabilities: |
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Prepaid expenses |
( |
) | ||||||
Accrued expenses |
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Income taxes payable |
( |
) | ||||||
Net cash used in operating activities |
( |
) |
( |
) | ||||
Cash Flows from Investing Activities: |
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Investment of cash into Trust Account |
( |
) | — | |||||
Cash withdrawn from Trust Account to pay franchise and income taxes |
— | |||||||
Cash withdrawn from Trust Account for working capital purposes |
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Cash withdrawn from Trust Account in connection with redemption |
— | |||||||
Net cash provided by investing activities |
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Cash Flows from Financing Activities: |
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Proceeds from promissory note— related party |
— | |||||||
Proceeds from extension promissory note— related party |
— | |||||||
Redemption of Class A common s to ck |
( |
) | — | |||||
Net cash used in financing activities |
( |
) |
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Net change in cash |
( |
) |
( |
) | ||||
Cash – Beginning of period |
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Cash – End of period |
$ |
$ |
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Supplementary cash flow information: |
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Cash paid for income taxes |
$ | $ | ||||||
Non-cash investing and financing activities: |
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Excise tax liability accrued for common stock redemption |
$ | $ | — | |||||
Remeasurement adjustment on redeemable common stock |
$ | $ | ||||||
Gross proceeds |
$ | |||
Less: |
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Proceeds allocated to Public Warrants |
( |
) | ||
Class A common stock issuance costs |
( |
) | ||
Plus: |
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Remeasurement of carrying value to redemption value |
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Class A common stock subject to redemption, December 31, 2021 |
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Plus: |
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Remeasurement of carrying value to redemption value |
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Class A common stock subject to possible redemption, December 31, 2022 |
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Less: |
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Redemptions |
( |
) | ||
Plus: |
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Remeasurement of carrying value to redemption value |
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Class A common stock subject to possible redemption, June 30, 2023 |
$ |
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Three Months Ended June 30, |
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2023 |
2022 |
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Class A |
Class B |
Class A |
Class B |
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Basic and diluted net income per share of common stock |
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Numerator: |
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Allocation of net income, as adjusted |
$ | $ | $ | $ | ||||||||||||
Denominator: |
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Basic and diluted weighted average stock outstanding |
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Basic and diluted net income per share of common stock |
$ | $ | $ | $ | ||||||||||||
Six Months Ended June 30, |
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2023 |
2022 |
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Class A |
Class B |
Class A |
Class B |
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Basic and diluted net (loss) income per share of common stock |
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Numerator: |
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Allocation of net (loss) income, as adjusted |
$ | ( |
) | $ | ( |
) | $ | $ | ||||||||
Denominator: |
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Basic and diluted weighted average stock outstanding |
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Basic and diluted net (loss) income per share of common stock |
$ | ( |
) | $ | ( |
) | $ | $ | ||||||||
June 30, 2023 |
December 31, 2022 |
October 22, 2021 Borrowing (Initial Measurement) |
August 30, 2021 Borrowing (Initial Measurement) |
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| Underlying warrant value |
$ | $ | $ | $ | ||||||||||||
| Exercise price |
$ | $ | $ | $ | ||||||||||||
| Holding period |
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| Risk-free rate % |
% | % | % | % | ||||||||||||
| Volatility % |
% | % | % | % | ||||||||||||
| Dividend yield % |
% | % | % | % | ||||||||||||
| Fair value as of January 1, 2023 |
$ | |||
| Change in fair value |
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| Fair value as of June 30, 2023 |
$ | |||
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| Fair value as of January 1, 2022 |
$ | |||
| Change in fair value |
( |
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| Fair value as of March 31, 2022 |
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| Change in fair value |
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| Fair value as of June 30, 2022 |
$ | |||
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| • | in whole and not in part; |
| • | at a price of $ |
| • | upon not less than thirty ( |
| • | if, and only if, the reported last sale price of the Company’s common stock equals or exceeds $ |
| • | if, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying the Warrants. |
| Level | 1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. | |||
| Level | 2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. | |||
| Level | 3: Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability. | |||
Description |
Level |
June 30, 2023 |
Level |
December 31, 2022 |
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Liabilities: |
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Warrant liabilities – Public Warrants |
1 | 1 | ||||||||||||||
Warrant liabilities – Private Placement Warrants |
2 | 2 | ||||||||||||||
Convertible Option Liability |
3 | 3 | ||||||||||||||
Private Placement |
Public |
Warrant Liabilities |
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Fair value as of December 31, 2022 |
$ | $ | $ | |||||||||
Change in valuation inputs or other assumptions |
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Fair value as of March 31, 2023 |
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Change in valuation inputs or other assumptions |
( |
) | ( |
) | ( |
) | ||||||
Fair value as of June 30, 2023 |
$ | $ | $ | |||||||||
Private Placement |
Public |
Warrant Liabilities |
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Fair value as of December 31, 2021 |
$ | $ | $ | |||||||||
Change in valuation inputs or other assumptions |
( |
) | ( |
) | ( |
) | ||||||
Fair value as of March 31, 2022 |
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Change in valuation inputs or other assumptions |
( |
) | ( |
) | ( |
) | ||||||
Fair value as of June 30, 2022 |
$ | $ | $ | |||||||||
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Churchill Capital Corp V. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Churchill Sponsor V LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the completion of the Proposed Business Combination (as defined below), the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements, including that the conditions of the Proposed Business Combination are not satisfied. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K as filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company formed under the laws of the State of Delaware for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities. We intend to effectuate our Business Combination using cash from the proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, our capital stock, debt or a combination of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities through June 30, 2023 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and identifying a target for our Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For the three months ended June 30, 2023, we had net income of $981,398, which consists of a interest earned on marketable securities held in the Trust Account of $1,812,894 and change in the fair value of warrant liabilities of $235,000, offset by provision for income taxes of $463,211 and operating costs of $603,285.
For the six months ended June 30, 2023, we had net loss of $2,020,420, which consists of a change in the fair value of warrant liabilities of $2,350,000, provision for income taxes of $858,066 and operating costs of $2,177,201, offset by interest earned on marketable securities held in the Trust Account of $3,364,847.
For the three months ended June 30, 2022, we had net income of $6,438,664, which consists of a change in the fair value of warrant liabilities of $6,580,000, interest earned on marketable securities held in the Trust Account of $720,560 and change in fair value of conversion option liability of $6,700, offset by operating costs of $615,869, unrealized loss on marketable securities held in Trust Account of $104,469, provision for income taxes of $96,307 and interest expense of $51,951.
For the six months ended June 30, 2022, we had net income of $14,589,566, which consists of a change in the fair value of warrant liabilities of $15,385,000, interest earned on marketable securities held in the Trust Account of $868,369 and change in fair value of conversion option liability of $145,441, offset by operating costs of $1,497,609, unrealized loss on marketable securities held in Trust Account of $111,426, provision for income taxes of $96,307 and interest expense of $103,902.
21
Table of Contents
Liquidity, Capital Resources and Going Concern
On December 18, 2020, we consummated the Initial Public Offering of 50,000,000 Units at a price of $10.00 per Unit, which includes the partial exercise by the underwriters of the over-allotment option, at $10.00 per Unit, generating gross proceeds of $500,000,000.
Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 11,000,000 Private Placement Warrants to the Sponsor at a price of $1.00 per warrant, generating gross proceeds of $11,000,000.
Following the Initial Public Offering, the partial exercise of the over-allotment option and the sale of the Private Placement Warrants, a total of $500,000,000 was placed in the Trust Account. We incurred $26,982,949 in transaction costs, including $8,950,000 of underwriting fees, net of $1,050,000 reimbursed from the underwriters, $17,500,000 of deferred underwriting fees and $532,949 of other costs.
On March 14, 2023, the stockholders of the Company approved a proposal to adopt an amendment, which is described in more detail in the definitive proxy statement of the Company filed with the Securities and Exchange Commission on February 21, 2023, to the Company’s Certificate of Incorporation to extend the date by which the Company has to consummate a Business Combination (the “Extension”) from March 18, 2023 to December 18, 2023 (or such earlier date as determined by the Company’s board of directors) (the “Charter Amendment”). The Charter Amendment was filed with the Secretary of State of the State of Delaware on March 15, 2023. In connection with the Extension, 35,223,748 shares of Class A Common Stock were redeemed, resulting in the payment of $354,882,716 from the Trust Account.
As of June 30, 2023, we had cash and marketable securities held in the Trust Account of $151,842,854 consisting of cash. Interest income on the balance in the Trust Account may be used by us to pay taxes. As of June 30, 2023, the Company has withdrawn $470,000 of the $1,000,000 2023 available annual limit; $530,000 remains available for withdrawal for working capital purposes.
For the six months ended June 30, 2023, cash used in operating activities was $3,218,513. Net loss of $2,020,420 was affected by change in the fair value of warrant liabilities of $2,350,000 and interest earned on marketable securities held in the Trust Account of $3,364,847. Changes in operating assets and liabilities used $183,246 of cash for operating activities.
For the six months ended June 30, 2022, cash used in operating activities was $617,797. Net income of $14,589,566 was affected by change in the fair value of warrant liabilities of $15,385,000, interest earned on marketable securities held in the Trust Account of $868,369, change in fair value of conversion option liability of $145,441, unrealized loss on marketable securities held in the Trust Account of $111,426, and amortization of debt discount of $103,902. Changes in operating assets and liabilities provided $976,119 of cash for operating activities.
In December 2022, we instructed the trustee with respect to the Trust Account to redeem the marketable securities held in the Trust Account and thereafter to hold all funds in the Trust Account in cash. As a result, we will continue to receive interest on the funds held in the Trust Account. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less deferred underwriting commissions and income taxes payable), to complete our Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
As of June 30, 2023, we had cash of $40,516. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.
To mitigate the risk of being viewed as operating an unregistered investment company (including pursuant to the subjective test of Section 3(a)(1)(A) of the Investment Company Act of 1940), all funds in the trust account are held and will be held in cash (which may include demand deposit accounts) until the earlier of consummation of our initial business combination or liquidation. As a result, we will continue to receive interest on the funds held in the Trust Account.
In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the initial stockholders or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants identical to the Private Placement Warrants, at a price of $1.00 per warrant at the option of the lender. As of June 30, 2023, the outstanding principal balance under the Convertible Promissory Note amounted to an aggregate of $1,500,000, with no amounts available for withdrawal.
22
Table of Contents
On November 16, 2021, the Company entered into the Promissory Note, bearing interest of 1.0% per annum with the sponsor, pursuant to which the Sponsor agreed to loan the Company up to an aggregate principal amount of $1,000,000. Any borrowed amounts against the Promissory Note are due upon a successful Business Combination or SPAC dissolution, if funds are available. Such loaned amounts would be repaid using proceeds from the trust as part of the closing of the Business Combination As of this filing, there is $1,000,000 available for withdrawal under the Promissory Note.
Additionally, to fund working capital the Company has permitted withdrawals available up to an annual limit of $1,000,000. The Company may withdraw additional funds to pay income tax and franchise tax obligations. These permitted withdrawals are limited to only the interest available that has been earned in excess of the initial deposit at the Initial Public Offering. As of June 30, 2023, the Company has withdrawn $470,000 of the $1,000,000 2023 available annual limit; $530,000 remains available for withdrawal for working capital purposes. As of December 31, 2022, all of the 2022 $1,000,000 annual working capital was withdrawn.
On March 7, 2023, the Sponsor agreed to make monthly deposits directly to the Trust Account of the Company in the amount of $250,000 following the approval and implementation of the Extension Amendment Proposal. Such contributions will be made pursuant to the Extension Promissory Note issued by the Company to the Sponsor. The Extension Promissory Note provides up to $2,250,000 and is non-interest bearing. Contributions will be paid monthly beginning on March 17, 2023 until the earliest to occur of (i) the consummation of the Business Combination, (ii) November 17, 2023 and (iii) if a Business Combination is not consummated, the date of liquidation of the Trust Account, as determined in the sole discretion of our board of directors. The Extension Promissory Note will mature on the earlier of (1) the date we consummate a Business Combination and (2) the date that the winding up of the Company is effective. As of June 30, 2023, the Extension Promissory Note had a balance of $1,000,000 with $1,250,000 available for withdrawal.
The Company may need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors, or third parties. The Company’s officers, directors and Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company’s ability to continue as a going concern through one year from the date of these unaudited condensed financial statements if a Business Combination is not consummated. These unaudited condensed financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
In connection with the Company’s assessment of going concern considerations in accordance with ASC Subtopic 205-40, Presentation of Financial Statements-Going Concern, the Company has until December 18, 2023 (or such earlier date as determined by the board of directors) to consummate a Business Combination. Management currently has no plans at this time to extend beyond the December 18, 2023 liquidation date and it is uncertain that the Company will be able to negotiate a definitive agreement for a Business Combination and consummate a Business Combination by this time. If a Business Combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that the potential mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after December 18, 2023 or such earlier date as determined by the board of directors. The Company intends to complete a Business Combination by December 18, 2023.
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Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of June 30, 2023. 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 purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of the Sponsor a monthly fee of $30,000 for office space and administrative support to the Company and related party promissory notes. We began incurring these fees on December 18, 2020 and will continue to incur these fees monthly until the earlier of the completion of the initial Business Combination and the Company’s liquidation.
On November 16, 2021, the Company amended the terms of the administrative services agreement between the Company and an affiliate of the sponsor to reflect that, effective January 1, 2022, the $30,000 monthly payments from the Company to an affiliate of the sponsor will accrue as a contingent liability, payable upon completion of an initial Business Combination.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or $17,500,000 in the aggregate. The deferred fee will be waived by the underwriters in the event that we do not complete an initial Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible conversion in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Shares of Class A common stock subject to mandatory redemption is classified as a liability instrument and measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our Class A common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, Class A common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ deficit section of our condensed balance sheets.
Warrant Liabilities
The Company accounts for the Warrants in accordance with the guidance contained in ASC 815-40-15-7D and 7F under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjusts the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statements of operations. The Public Warrants and the Private Placement Warrants for periods where no observable traded price was available are valued using a Monte Carlo simulation and a modified Black Scholes model, respectively. For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date.
Net Income (Loss) Per Share of Common Stock
Net income (loss) per share of common stock is computed by dividing net income (loss) by the weighted average number of share of common stock outstanding during the period. We apply the two-class method in calculating income (loss) per share of common stock. Remeasurement adjustment associated with the redeemable shares of Class A common stock is excluded from net income (loss) per share of common stock as the redemption value approximates fair value. The Company complies with accounting and disclosure requirements of Financial Accounting Standards Board ASC 260, “Earnings Per Share.”
Recent Accounting Standards
The Company’s management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.
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Use of Estimates
The preparation of the unaudited condensed financial statements in conformity with 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 as of the date of the unaudited condensed financial statements and the reported amounts of revenues and expenses during the reporting periods.
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 unaudited condensed 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 accounting estimates included in these unaudited condensed financial statements is the determination of the fair value of the warrant liabilities. Such estimates may be subject to change as more current information becomes available and, accordingly, the actual results could differ significantly from those estimates.
Offering Costs
The Company complies with the requirements of ASC340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A – “Expenses of Offering”. Offering costs consist of underwriting, legal, accounting and other expenses incurred through the Initial Public Offering that are directly related to the Initial Public Offering. Offering costs are allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with derivative warrant liabilities are expensed as incurred and presented as non-operating expenses. Offering costs amounted to $26,982,949, of which $26,303,933 were charged to stockholders’ deficit upon the completion of the Initial Public Offering and $679,016 were charged to operations.
Convertible Debt
The Company accounts for conversion options embedded in convertible notes in accordance with ASC 815. ASC 815 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free-standing derivative financial instruments.
The Company reviews the terms of convertible debt issued to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2023. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective.
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) of 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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in the Company’s Annual Report on Form 10-K filed on April 4, 2023 with the SEC. 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. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in the Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On December 18, 2020, we consummated the Initial Public Offering of 50,000,000 Units. The Units were sold at an offering price of $10.00 per unit, generating total gross proceeds of $500,000,000. Citigroup Global Markets Inc. acted as joint bookrunner and representative of the underwriters and each of Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC and B of A Securities, Inc. acted as joint bookrunner of the offering. The securities in the offering were registered under the Securities Act on registration statement on Form S-1 (No. 333-248972). The Securities and Exchange Commission declared the registration statement effective on December 15, 2020.
Simultaneous with the consummation of the Initial Public Offering, the Company consummated the sale of 11,000,000 warrants (the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant in a private placement to Churchill Sponsor V LLC, a Delaware limited liability company (the “Sponsor”), generating gross proceeds of $11,000,000. Each whole Private Warrant is exercisable to purchase one share of common stock at an exercise price of $11.50 per share. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
The Private Placement Warrants are identical to the warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants are not transferable, assignable or salable until thirty (30) days after the completion of a Business Combination, subject to certain limited exceptions.
Following the Initial Public Offering, the partial exercise of the over-allotment option and the sale of the Private Placement Warrants, a total of $500,000,000 was placed in the Trust Account. On March 14, 2023, the stockholders of the Company approved the Charter Amendment. The Charter Amendment was filed with the Secretary of State of the State of Delaware and 35,223,748 shares of Class A Common Stock were redeemed, resulting in the payment of approximately $354.9 million from the Trust Account.
We incurred $26,982,949 in transaction costs, including $8,950,000 of underwriting fees, net of $1,050,000 reimbursed from the underwriters, $17,500,000 of deferred underwriting fees and $532,949 of other costs.
For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Form 10-Q.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
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Item 5. Other Information
In the second quarter of 2023, no director or officer (as defined in Exchange Act Rule 16a-1(f)) of the Company adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement for the purchase or sale of securities of the Company, within the meaning of Item 408 of Regulation S-K.
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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| No. |
Description of Exhibit | |
| 31.1* | Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1** | Certification of 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 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 — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
| Exhibit 104 | Cover Page Interactive Data File — The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CHURCHILL CAPITAL CORP V | ||||||
| Date: August 11, 2023 | By: | /s/ Michael Klein | ||||
| Name: | Michael Klein | |||||
| Title: | Chief Executive Officer and President | |||||
| (Principal Executive Officer) | ||||||
| Date: August 11, 2023 | By: | /s/ Jay Taragin | ||||
| Name: | Jay Taragin | |||||
| Title: | Chief Financial Officer | |||||
| (Principal Accounting and Financial Officer) | ||||||
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