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, 2022, the Company had not commenced
any operations. All activity for the period from October 6, 2020 (inception) to June 30, 2022 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.
All dollar amounts are rounded to the nearest thousand
dollars.
Going Concern:
At June 30, 2022 the Company has approximately $183,000
in cash, approximately $8,121,000 of current liabilities and approximately $7,652,000 in negative working capital. The Company has incurred
and expects to continue to incur significant costs in pursuit of its Business Combination. Further, if the Company cannot complete a Business
Combination prior to January 20, 2023, it could be forced to wind up its operations and liquidate unless its stockholders approve an extension
of such date. 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. The Company’s plan to deal with these uncertainties
is to preserve cash by deferring payments with anticipated cooperation from its service providers and to complete a Business Combination
prior to January 20, 2023. There is no assurance that the Company’s plans to consummate a Business Combination will be successful
or successful within the period permitted to complete the Business Combination. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty. In an attempt to preserve cash, beginning in November 2021, the Company’s
Chief Operating Officer and Chief Financial Officer, as well as the Sponsor and certain service providers have agreed to defer cash payments
for an indefinite period. Further, in January 2022, the Company elected to pay certain insurance payments over a time payment plan and
such remaining liability, approximately $60,000 at June 30, 2022 is including in accrued and other liabilities in the accompanying unaudited
condensed balance sheet.
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.
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.
NOTE 2 – TERMINATION OF MERGER AGREEMENT AND PLAN OF REORGANIZATION
On May 7, 2021, the Company entered into a Merger
Agreement and Plan of Reorganization (as amended and restated on June 19, 2021, the “Merger Agreement”) with PlusAI Corp,
an exempted company incorporated with limited liability in the Cayman Islands (“Plus”) and certain other parties for an initial
business combination. Effective November 8, 2021 the Company and Plus mutually terminated the Merger Agreement. Neither party was required
to pay the other a termination fee as a result of the mutual decision to terminate the Merger Agreement.
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”) and pursuant to the rules and regulations of the Securities and Exchange Commission (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, 2022 and December 31, 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
Annual Report on Form 10-K for the year ended December 31, 2021.
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 and are dependent
on future events. 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 to 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 common shares outstanding 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 June 30, 2022 | | |
For the three months ended June 30, 2021 | |
| |
Class A | | |
Class B | | |
Class A | | |
Class B | |
Numerator: | |
| | |
| | |
| | |
| |
Allocation of net income (loss) | |
$ | 2,498,000 | | |
$ | 625,000 | | |
$ | (10,961,000 | ) | |
$ | (2,740,000 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding | |
| 34,500,000 | | |
| 8,625,000 | | |
| 34,500,000 | | |
| 8,625,000 | |
Basic and diluted net income (loss) per share | |
$ | 0.07 | | |
$ | 0.07 | | |
$ | (0.32 | ) | |
$ | (0.32 | ) |
| |
For the six months ended June 30, 2022 | | |
For the six months ended June 30, 2021 | |
| |
Class A | | |
Class B | | |
Class A | | |
Class B | |
Numerator: | |
| | |
| | |
| | |
| |
Allocation of net income (loss) | |
$ | 7,476,000 | | |
$ | 1,869,000 | | |
$ | (12,634,000 | ) | |
$ | (3,502,000 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding | |
| 34,500,000 | | |
| 8,625,000 | | |
| 30,688,000 | | |
| 8,506,000 | |
Basic and diluted net income (loss) per share | |
$ | 0.22 | | |
$ | 0.22 | | |
$ | (0.41 | ) | |
$ | (0.41 | ) |
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.
Fair value of 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.
The fair value of the Company’s assets and
liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,” approximates
the carrying amounts represented in the balance sheets primarily due to their short-term nature, except for derivative warrant liabilities
(see Note 6).
Fair value is defined as the price that would be received for sale
of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes
a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices
(unadjusted) for identical instruments in active markets; |
| ● | Level 2, defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices
for identical or similar instruments in markets that are not active; and |
| ● | Level 3, defined as unobservable inputs in which little or no
market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques
in which one or more significant inputs or significant value drivers are unobservable. |
In some circumstances, the inputs used to measure fair value might
be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its
entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
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.
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 temporary 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, 2022, and 2021 the Company recorded income tax
expense of approximately $-0- in all periods because the cost of deductible franchise taxes and costs related to a terminated transaction
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, 2022 and 2021 was approximately -0-% in all periods which differs from the expected income
tax rate due to the start-up costs (discussed above) which are not currently deductible and certain business combination and warrant costs
which may not be deductible. At June 30, 2022 and December 31, 2021, the Company has a deferred tax asset of approximately $600,000 and
$400,000, 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, 2022 or December 31, 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, 2022 and December 31, 2021. 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 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 unaudited condensed balance sheets.
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,
2022 and December 31, 2021, 34,500,000 of the 34,500,000 public shares were classified outside of permanent equity. Class A common stock
subject to redemption consist of:
Gross proceeds of Public Offering | |
$ | 345,000,000 | |
Less: Proceeds allocated to Public Warrants | |
| (13,973,000 | ) |
Offering costs | |
| (19,050,000 | ) |
Plus: Accretion of carrying value to redemption value | |
| 33,023,000 | |
Class A common shares subject to redemption | |
$ | 345,000,000 | |
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 as a liability 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 the initial periods using a Monte Carlo simulation approach for the public and private warrants and in the current period
based upon, or derived from, the public trading warrants in an active, 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 in the fiscal year beginning after December 15, 2023, which in our case would be January
1, 2024 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.
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 unaudited condensed 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 – See Note
7.
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 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.
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.
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. The Company borrowed an aggregate of approximately $150,000 under
the Note in 2020 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, 2022. 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 and Compensation Agreements
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 90,000, respectively, was
charged to general and administrative expenses in the three and six months ended June 30, 2022 and approximately $45,000 and $83,000,
respectively, was charged to general and administrative expenses in the three and six months ended June 30, 2021. Beginning in December
2021, the Sponsor agreed to defer collection of its administrative fee for an indefinite period. At June 30, 2022 and December 31, 2021
there was approximately $105,000 and $15,000, respectively, outstanding and included in accrued and other liabilities.
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. Beginning in November 2021, these two officers agreed to defer collection of their compensation for an indefinite
period. During the three and six months ended June 30, 2022, approximately $174,000 and $348,000, respectively, and for the three and
six months ended June 30, 2021 approximately $174,000 and $321,000, respectively, was charged to operations for these arrangements including
approximately $174,000 and $348,000, respectively, that was added to accrued deferred compensation at June 30, 2022 and approximately
$84,000 and $155,000, respectively, that was added to deferred compensation at June 30, 2021. The amount of deferred compensation accrued
as well as the cash portion of compensation that the two officers agreed to defer totals approximately $731,000 at June 30, 2022 and which
amount is included in accrued and other liabilities.
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, 2022, the proceeds of the Trust Account
were invested in cash. Subsequent to June 30, 2022, in July 2022, the funds in the Trust Account were invested in money market funds meeting
the conditions described above.
At December 31, 2021, the proceeds of the Trust
Account were invested primarily in money market funds meeting certain conditions described above which is presented at fair value. When
the Company invests in U.S. government treasury bills and equivalent securities they are classified 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. When we have them, held-to-maturity U.S. government treasury bills are
recorded at amortized cost on the condensed balance sheet and adjusted for the amortization of discounts. There were no held-to-maturity U. S. government treasury bills at either June 30, 2022 or December 31, 2021.
The following table presents information about the
Company’s assets that are measured at fair value on a recurring basis as of June 30, 2022 and December 31, 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 December 31, 2021 consisted of 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, 2022 | | |
Quoted Price Prices in Active Markets (Level 1) | |
Assets: | |
| | |
| |
Cash | |
$ | 345,464,000 | | |
$ | 345,464,000 | |
Description | |
Carrying value at December 31, 2021 | | |
Quoted Price Prices in Active Markets (Level 1) | |
Assets: | |
| | | |
| | |
Money market funds | |
$ | 345,039,000 | | |
$ | 345,039,000 | |
In July 2022, the Company withdrew approximately $300,000 from the
Trust Account to fund the payment of 2021 actual and 2022 estimated, franchise taxes.
NOTE 7 – ACCOUNTING FOR WARRANT LIABILITY, FAIR VALUE MEASUREMENT
At June 30, 2022, there were 15,558,333 warrants
outstanding including 8,625,000 Public Warrants and 6,933,333 Private Placement Warrants.
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) an 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, 2022 and December 31, 2021 and indicates
the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.
Description | |
June 30, 2022 | | |
Quoted Prices in Active Markets (Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Other Unobservable Inputs (Level 3) | |
Warrant Liabilities: | |
| | | |
| | | |
| | | |
| | |
Public Warrants | |
$ | 1,639,000 | | |
$ | 1,639,000 | | |
$ | - | | |
$ | - | |
Private Placement Warrants | |
| 1,317,000 | | |
| - | | |
| 1,317,000 | | |
| - | |
Warrant liability at June 30, 2022 | |
$ | 2,956,000 | | |
$ | 1,639,000 | | |
$ | 1,317,000 | | |
$ | - | |
Description | |
December 31, 2021 | | |
Quoted
Prices in Active Markets (Level 1) | | |
Significant Other Observable Inputs (Level 2) | | |
Significant Other Unobservable Inputs (Level 3) | |
Warrant Liabilities: | |
| | |
| | |
| | |
| |
Public Warrants | |
$ | 7,159,000 | | |
$ | 7,159,000 | | |
$ | - | | |
$ | - | |
Private Placement Warrants | |
$ | 5,754,000 | | |
$ | - | | |
$ | 5,754,000 | | |
$ | - | |
Warrant liability at December 31, 2021 | |
$ | 12,913,000 | | |
$ | 7,159,000 | | |
$ | 5,755,000 | | |
$ | - | |
At June 30, 2022 and December 31, 2021, the Company
valued its Public Warrants based on publicly observable inputs (Level 1 inputs) from the trading in the Public Warrants ($0.19 and $0.83,
respectively, per warrant on June 30, 2022 and December 31, 2021). Since the Private Placement Warrants are substantially similar to the
Public Warrants but do not trade, the Company valued them based on the value of the Public Warrants (significant other observable inputs
– Level 2). The changes in fair value are recognized in the statements of operations.
The warrant liabilities are not subject to qualified
hedge accounting.
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 | |
| 4,139,000 | | |
| 3,328,000 | | |
| 7,467,000 | |
Fair value as of June 30, 2021 | |
$ | 18,112,000 | | |
$ | 14,560,000 | | |
$ | 32,672,000 | |
| |
Public | | |
Private Placement | | |
Warrant Liabilities | |
Fair value at December 31, 2021 | |
$ | 7,159,000 | | |
$ | 5,754,000 | | |
$ | 12,913,000 | |
Change in valuation inputs or other assumptions | |
| (5,520,000 | ) | |
| (4,437,000 | ) | |
| (9,957,000 | ) |
Fair value as of June 30, 2022 | |
$ | 1,639,000 | | |
$ | 1,317,000 | | |
$ | 2,956,000 | |
None of the warrant liabilities are classified as
Level 3 in the fair value hierarchy at June 30, 2022 or December 31, 2021 and there were no transfers during 2022.
NOTE 8 – STOCKHOLDERS’ DEFICIT
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 both June 30, 2022 and December 31, 2021, there were 8,625,000 shares of Class B common stock issued and outstanding and -0- and
-0- shares, respectively, of Class A common stock were issued and outstanding (excluding 34,500,000 shares subject to possible redemption
at both June 30, 2022 and December 31, 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, 2022 and December 31, 2021, 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 continues to
evaluate 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 operations and/or search for a target company and/or a target
company’s financial position and results of its operations, the specific impact is not readily determinable as of the date of these
financial statements. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Conflict in Ukraine — In February
2022, the Russian Federation and Belarus commenced a military action against the country of Ukraine. As a result of this action, various
nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. The impact of this
action and related sanctions on the world economy are not determinable as of the date of these financial statements.