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 theSEC . Overview We are a blank check company incorporated as aDelaware corporation onOctober 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 inJanuary 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. 19
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;
? 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 competitorswho have less debt. AtSeptember 30, 2021 , we had approximately$1,015,000 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
InDecember 2019 , a novel strain of coronavirus was reported to have surfaced inWuhan, China , which has spread throughout other parts of the world, includingthe United States . OnJanuary 30, 2020 , theWorld Health Organization declared the outbreak of the coronavirus disease (COVID-19) a "Public Health Emergency of International Concern." OnJanuary 31, 2020 , U.S.Health and Human Services Secretary Alex M. Azar II declared a public health emergency forthe United States to aid theU.S. healthcare community in responding to COVID-19, and onMarch 11, 2020 theWorld 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. 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 ability to close 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 may be materially adversely affected. 20
Recent Developments - Termination of Merger Agreement and Plan of Reorganization
As previously disclosed, onMay 7, 2021 ,Hennessy Capital Investment Corp. V ("HCIC") entered into a Merger Agreement and Plan of Reorganization (as amended and restated onJune 19, 2021 , the "Merger Agreement") withPlusAI Corp , an exempted company incorporated with limited liability in theCayman Islands ("Plus"),Plus Inc. , an exempted company incorporated with limited liability in theCayman Islands ("PubCo"),Prime Merger Sub I, Inc. , an exempted company incorporated with limited liability in theCayman Islands and a direct, wholly-owned subsidiary ofPubCo ,Prime Merger Sub II, Inc. , aDelaware corporation and wholly-owned subsidiary ofPubCo , andPlus Holdings Ltd. , an exempted company incorporated with limited liability in theCayman Islands and wholly-owned subsidiary of Plus, to effect HCIC's initial business combination with Plus. In light of recent developments in the regulatory environment outside ofthe United States , Plus is pursuing a potential restructuring of certain aspects of its business. Subsequent toSeptember 30, 2021 and given theNovember 8, 2021 "outside date" set forth in the Merger Agreement, HCIC and Plus have mutually agreed to terminate the Merger Agreement effective as of November
8, 2021. HCIC and Plus may enter into discussions with respect to a potential new business combination transaction following any such restructuring, though they are under no obligation to do so and there can be no assurance that any such discussions would result in the parties reaching a definitive agreement with respect to a potential new business combination.
Neither party will be required to pay the other a termination fee as a result of the mutual decision to terminate the Merger Agreement.
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 inCupertino, California . 21 Results of Operations For the period fromOctober 6, 2020 (date of inception) toSeptember 30, 2021 , our activities consisted of formation and preparation for the Public Offering and, subsequent to completion of the Public Offering onJanuary 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 inJanuary 2021 . Our normal operating costs sinceJanuary 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 nine months endedSeptember 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$1,020,000 and$7,330.000 , respectively, for the three and nine months endedSeptember 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$237,000 and$411,000 for the three and nine months endedSeptember 30, 2021 . In addition, since our operating costs are not expected to be deductible for federal income tax purposes, we are subject to federal income taxes on the interest income earned from the Trust Account less taxes. Such federal income taxes were$-0 -, for both the three and nine months endedSeptember 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 nine months endedSeptember 30, 2021 . The Public Offering and the Private Placement closed onJanuary 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 directU.S. government obligations meeting the applicable conditions of Rule 2a-7 of the Investment Company Act of 1940. AtSeptember 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. 22 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 nine months endedSeptember 30, 2021 reflects other income from change in fair value of the warrant liability of approximately$13,224,000 and$5,757,000 , respectively, and charges to other expense aggregating approximately$-0 - and$1,471,000 , respectively, for warrant liability transaction costs (approximately$639,000 ) and transaction date expenses 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 atJanuary 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
OnJanuary 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). AtSeptember 30, 2021 , we had approximately$1,015,000 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 onJanuary 20, 2021 in connection with the closing of the Public Offering. AtSeptember 30, 2021 , the Company has approximately$1,015,000 in cash, approximately$7,238,000 of current liabilities and approximately$6,223,000 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 period allotted to complete the Business Combination. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The preponderance of the current liabilities (approximately$6,740,000 ) results from amounts accrued as payable to professional service firmswho 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. 23
The Company has only untilJanuary 20, 2023 to complete an Initial Business Combination. If the Company does not complete an Initial Business Combination byJanuary 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. 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 ofSeptember 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 AtSeptember 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 withHennessy Capital Group LLC , an affiliate of our Sponsor, pursuant to which the Company paysHennessy 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 nine months endedSeptember 30, 2021 , approximately$90,000 and$256,000 was paid and approximately$239,000 was included in current liabilities as deferred compensation atSeptember 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. 24 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.
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 complies with the accounting and disclosure requirements of FASB ASC Topic 260, "Earnings Per Share." The Company has two classes of stock, which are referred too as Class A common stock and Class B common stock. Income and losses are shared pro rata between the two classes of stock. Net income (loss) per common share is calculated by dividing the net income (loss) by the weighted average number of ordinary shares out standing during the respective period.
The following table reflects the earnings per share after allocating income between the shares based on outstanding shares.
For the three months ended For the nine months ended September 30, 2021 September 30, 2021 Class A Class B Class A Class B
Numerator:
Allocation of net income (loss) 9,312,800 2,328,200 (3,547,232 ) (947,768 ) Denominator: Weighted average shares outstanding 34,500,000
8,625,000 31,972,527 8,542,582
Basic and diluted net income (loss) per share $ 0.27
25 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 theFederal 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
Use of Estimates: The preparation of condensed financial statements in conformity withU.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 andSEC 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$639,000 , have been charged to the condensed statement of operations upon completion of the Public Offering inJanuary 2021 . Income Taxes:
The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, "Income Taxes." Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company's currently taxable income consists of interest income on the Trust Account net of taxes. The Company's general and administrative costs are generally considered start-up costs and are not currently deductible. During the three and nine months endedSeptember 30, 2021 , the Company recorded income tax expense of approximately$-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 nine months endedSeptember 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. AtSeptember 30, 2021 andDecember 31, 2020 , the Company has a deferred tax asset of approximately$280,000 and$-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.
26
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 ofSeptember 30, 2021 orDecember 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 atSeptember 30, 2021 orDecember 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. However, because all of the shares of Class A common stock are redeemable, all of the shares are recorded as Class A common stock subject to redemption on the enclosed balance sheet. See also, Note 7, regarding a revision to the presentation of redeemable shares in these financial statements and the effect on previously reported financial statements. 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, atSeptember 30, 2021 , all of the 34,500,000 public shares were classified outside of permanent equity. AtDecember 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 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 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. 27
© Edgar Online, source