U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| [ X ] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended September 30, 2007 | |
| or | |
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period ended to | |
| Commission File Number: 001-33327 | |
| CHURCHILL VENTURES LTD. | |
| (Exact name of registrant as specified in its charter) | |
| Delaware | 20-5113856 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 50 Revolutionary Road, Scarborough, New York | 10510 | |
| (Address of principal executive offices) | (Zip Code) | |
| (914) 762-2553 | ||
| (Registrant's telephone number, including area code) | ||
| (Former name, former address and former fiscal year, if changed since last report) | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [x] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes [x] No [ ]
APPLICABLE ONLY TO
ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date: 16,597,400 shares of common stock, par value $0.001 per share issued and outstanding as of November 12, 2007.
CHURCHILL VENTURES LTD.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
| Item 1. | Condensed Financial Statements | |||
| Condensed Balance Sheets as of September 30, 2007 (unaudited) and December 31, 2006 | 3 | |||
| Unaudited Condensed Statements of Operations for the nine and three months ended | ||||
| September 30, 2007, for the period from June 26, 2006 (date of inception) to September | 4 | |||
| 30, 2007, for the period from June 26, 2006 (date of inception) to September 30, 2006, | ||||
| and for the three months ended September 30, 2006 | ||||
| Unaudited Condensed Statements of Stockholders’ Equity for the nine months ended | 5 | |||
| September 30, 2007 and the period from June 26, 2006 (date of inception) to December | ||||
| 31, 2006 | ||||
| Condensed Statements of Cash Flows for the nine months ended September 30, 2007, | 6 | |||
| for the period from June 26, 2006 (date of inception) to September 30, 2006, and the | ||||
| period from June 26, 2006 (date of inception) to September 30, 2007 | ||||
| Notes to Unaudited Condensed Financial Statements | 7 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of | 10 | ||
| Operations | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 12 | ||
| Item 4. | Controls and Procedures | 13 | ||
| PART II. OTHER INFORMATION | ||||
| Item 6. | Exhibits | 14 | ||
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Churchill Ventures Ltd.
(a corporation in the development stage)
Condensed Balance Sheets
| September 30, | ||||||||
| 2007 | December 31, | |||||||
| Assets | (Unaudited) | 2006 | ||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 1,637,641 | $ | 91,439 | ||||
| Cash held in trust available for operations & income taxes | 376,554 | -- | ||||||
| Prepaid expenses | 167,509 | -- | ||||||
| Interest receivable | 461,758 | -- | ||||||
| Total current assets | 2,643,462 | 91,439 | ||||||
| Cash held in trust account | 107,534,544 | -- | ||||||
| Non-current asset | 68,777 | -- | ||||||
| Deferred tax asset | 127,565 | -- | ||||||
| Deferred offering costs | -- | 195,586 | ||||||
| Total assets | $ | 110,374,348 | $ | 287,025 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accrued offering costs | $ | -- | $ | 32,400 | ||||
| Income tax payable | 330,203 | -- | ||||||
| Note payable to affiliate | -- | 240,000 | ||||||
| Total current liabilities | 330,203 | 272,400 | ||||||
| Deferred underwriting fee | 3,772,272 | -- | ||||||
| Total liabilities | 4,102,475 | 272,400 | ||||||
| Common Stock, subject to possible conversion, 2,693,133 shares | 21,490,637 | -- | ||||||
| Interest attributable to common stock, subject to possible conversion (net of taxes | ||||||||
| of $69,625 and $0, respectively) | 100,193 | -- | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $0.001 par value, 25,000,000 shares authorized; none issued | -- | -- | ||||||
| and outstanding | ||||||||
| Common Stock, $0.001 par value, 250,000,000 shares authorized; 16,597,400 | ||||||||
| shares issued and outstanding (which includes 2,693,133 shares subject to | ||||||||
| possible conversion); 3,125,000 shares issued and outstanding as of December | ||||||||
| 31, 2006 | 16,597 | 3,125 | ||||||
| Additional paid-in capital | 83,080,957 | 12,500 | ||||||
| Earnings (loss) accumulated during the development stage | 1,583,489 | (1,000 | ) | |||||
| Total stockholders’ equity | 84,681,043 | 14,625 | ||||||
| Total liabilities and stockholders’ equity | $ | 110,374,348 | $ | 287,025 | ||||
The accompanying notes are an integral part of these condensed financial statements.
3
Churchill Ventures Ltd.
(a corporation in the development stage)
Condensed Statements of Operations
(Unaudited)
| For the | For the | ||||||||||||||
| period from | period from | ||||||||||||||
| June 26, | June 26, | ||||||||||||||
| 2006 | For the nine | For the three | 2006 | For the three | |||||||||||
| (inception) | months | months | (inception) | months | |||||||||||
| to | ended | ended | to | ended | |||||||||||
| September | September | September | September | September | |||||||||||
| 30, 2007 | 30, 2007 | 30, 2007 | 30, 2006 | 30, 2006 | |||||||||||
| Formation and operating costs | $ | 312,133 | $ | 311,133 | $ | 154,328 | $ | 1,000 | $ | -- | |||||
| Net loss from operations | (312,133 | ) | (311,133 | ) | (154,328 | ) | (1,000 | ) | - | -- | |||||
| Other income | |||||||||||||||
| Interest income- Trust | 3,137,650 | 3,137,650 | ) | 1,400,813 | -- | - | -- | ||||||||
| Interest income- Other | 28,877 | 28,877 | 15,837 | -- | - | -- | |||||||||
| Income before provision for income | 2,854,394 | 2,855,394 | 1,262,322 | -- | - | -- | |||||||||
| taxes | |||||||||||||||
| Provision for income taxes | (1,170,712 | ) | (1,170,712 | ) | (517,962 | ) | -- | - | -- | ||||||
| Net income | $ | 1,683,682 | $ | 1,684,682 | $ | 744,360 | $ | (1,000 | ) | $ | -- | ||||
| Less: Interest income attributable to | |||||||||||||||
| 2,693,133 common shares subject to | |||||||||||||||
| possible conversion (net of taxes of | |||||||||||||||
| $69,625, $69,625, $69,625, $0, and $0) | $ | (100,193 | ) | $ | (100,193 | ) | $ | (100,193 | ) | $ | -- | $ | -- | ||
| Net income exclusive of 2,693,133 | |||||||||||||||
| common shares subject to possible | |||||||||||||||
| conversion | $ | 1,583,489 | $ | 1,584,489 | $ | 644,167 | $ | (1,000 | ) | $ | -- | ||||
| Total net income per share – | |||||||||||||||
| Basic | $ | 0.12 | $ | 0.04 | $ | 0.00 | $ | 0.00 | |||||||
| Diluted | $ | 0.10 | $ | 0.04 | $ | 0.00 | $ | 0.00 | |||||||
| Total weighted average shares | |||||||||||||||
| outstanding – | |||||||||||||||
| Basic | 13,685,782 | 16,597,400 | 2,881,443 | 3,038,043 | |||||||||||
| Dilutive effect of warrants | 2,939,825 | 3,946,266 | -- | -- | |||||||||||
| Diluted | 16,625,607 | 20,543,666 | 2,881,443 | 3,038,043 | |||||||||||
| Income per share subject to conversion | $ | 0.05 | $ | 0.04 | -- | -- | |||||||||
| Weighted average maximum number | |||||||||||||||
| of shares outstanding subject to | |||||||||||||||
| possible conversion | 2,111,100 | 2,693,133 | -- | -- | |||||||||||
| Net income per share not subject to | |||||||||||||||
| possible conversion – | |||||||||||||||
| Basic | $ | 0.15 | $ | 0.05 | $ | 0.00 | $ | 0.00 | |||||||
| Diluted | $ | 0.12 | $ | 0.04 | $ | 0.00 | $ | 0.00 | |||||||
| Weighted average shares outstanding | |||||||||||||||
| not subject to possible conversion – | |||||||||||||||
| Basic | 11,574,682 | 13,904,267 | 2,881,443 | 3,038,043 | |||||||||||
| Dilutive effect of warrants | 2,939,825 | 3,946,266 | -- | -- | |||||||||||
| Diluted | 14,514,507 | 17,850,533 | 2,881,443 | 3,038,043 | |||||||||||
The accompanying notes are an integral part of these condensed financial statements.
4
Churchill Ventures Ltd.
(a corporation in the development stage)
Condensed Statements of Stockholders’ Equity
For the period from June 26, 2006 to September 30, 2007
| (Loss) | |||||||||||||||
| Earnings | |||||||||||||||
| Common Stock | Accumulated | ||||||||||||||
| Additional | in the | ||||||||||||||
| Paid-in | Development | Stockholders’ | |||||||||||||
| Shares | Amount | Capital | Stage | Equity | |||||||||||
| Initial capital from founding stockholders | |||||||||||||||
| for cash – July 6, 2006 | 3,250,000 | $ | 3,250 | $ | 13,000 | $ | -- | $ | 16,250 | ||||||
| Repurchase and retirement of common | |||||||||||||||
| stock – September 5, 2006 | (125,000 | ) | (125 | ) | (500 | ) | -- | (625 | ) | ||||||
| Net loss | -- | -- | -- | (1,000 | ) | (1,000 | ) | ||||||||
| Balance at December 31, 2006 | 3,125,000 | 3,125 | 12,500 | (1,000 | ) | 14,625 | |||||||||
| Sale of private placement warrants – | |||||||||||||||
| February 28, 2007 | -- | -- | 5,000,000 | -- | 5,000,000 | ||||||||||
| Sale of 13,472,400 units at $8.00 per unit, | |||||||||||||||
| net of underwriter’s discount and offering | |||||||||||||||
| expenses (including 2,693,133 shares | |||||||||||||||
| subject to possible conversion) – March 9, | |||||||||||||||
| 2007 | 13,472,400 | 13,472 | 99,559,094 | -- | 99,572,566 | ||||||||||
| Net proceeds subject to possible | |||||||||||||||
| conversion of 2,693,133 shares | -- | -- | (21,490,637 | ) | -- | (21,490,637 | ) | ||||||||
| Accretion of trust fund relating to common | |||||||||||||||
| stock subject to possible conversion for | |||||||||||||||
| the nine months ended September 30, | |||||||||||||||
| 2007 (net of taxes of $69,625) | -- | -- | -- | (100,193 | ) | -- | |||||||||
| Net income for the nine months ended | |||||||||||||||
| September 30, 2007 | -- | -- | -- | 1,684,682 | 1,684,682 | ||||||||||
| Balance at September 30, 2007 | |||||||||||||||
| (Unaudited) | 16,597,400 | $ | 16,597 | $ | 83,080,957 | $ | 1,583,489 | $ | 84,681,043 | ||||||
The accompanying notes are an integral part of these condensed financial statements.
5
Churchill Ventures Ltd.
(a corporation in the development stage)
Condensed Statements of Cash Flows
| For the period | For the period | ||||||||||
| from June 26, | from June 26, | ||||||||||
| 2006 | For the nine | 2006 | |||||||||
| (inception) to | months ended | (inception) to | |||||||||
| September 30, | September 30, | September 30, | |||||||||
| 2007 | 2007 | 2006 | |||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 1,683,682 | $ | 1,684,682 | $ | (1,000 | ) | ||||
| Deferred taxes | (127,565 | ) | (127,565 | ) | -- | ||||||
| Adjustments to reconcile net income to net cash | |||||||||||
| used in operating activities | |||||||||||
| Changes in: | |||||||||||
| Prepaid expenses | (236,286 | ) | (236,286 | ) | -- | ||||||
| Interest receivable | (461,758 | ) | (461,758 | ) | -- | ||||||
| Income tax payable | 330,203 | 330,203 | -- | ||||||||
| Net cash provided (used) by operating activities | 1,188,276 | 1,189,276 | (1,000 | ) | |||||||
| Cash flows from investing activities: | |||||||||||
| Cash held in trust account | (107,911,098 | ) | (107,911,098 | ) | -- | ||||||
| Net cash used by investing activities | (107,911,098 | ) | (107,911,098 | ) | -- | ||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from note payable to affiliate | 240,000 | -- | 240,000 | ||||||||
| Repayment of note to affiliate | (240,000 | ) | (240,000 | ) | -- | ||||||
| Proceeds from public offering – net | 103,344,838 | 103,344,838 | -- | ||||||||
| Proceeds from private placement warrants | 5,000,000 | 5,000,000 | -- | ||||||||
| Deferred offering costs | -- | 163,186 | (136,348 | ) | |||||||
| Net proceeds from sale of stock to founding | |||||||||||
| stockholders | 16,250 | -- | 16,250 | ||||||||
| Repurchase and retirement of common stock | (625 | ) | -- | (625 | ) | ||||||
| Net cash provided by financing activities | 108,360,463 | 108,268,024 | 119,277 | ||||||||
| Net increase in cash and cash equivalents | 1,637,641 | 1,546,202 | 118,277 | ||||||||
| Cash and cash equivalents beginning of period | -- | 91,439 | -- | ||||||||
| Cash and cash equivalents end of period | $ | 1,637,641 | $ | 1,637,641 | $ | 118,277 | |||||
| Supplemental Disclosures | |||||||||||
| Schedule of non-cash financing activities: | |||||||||||
| Deferred operating costs | $ | -- | $ | -- | $ | 42,600 | |||||
| Accrued offering costs | -- | -- | 42,600 | ||||||||
| Cash paid for income taxes | 968,073 | 968,073 | -- | ||||||||
| Deferred underwriting discount | 3,772,272 | 3,772,272 | -- | ||||||||
| Common Stock subject to possible conversion | 21,490,637 | 21,490,637 | -- | ||||||||
The accompanying notes are an integral part of these
condensed financial statements
6
Churchill Ventures Ltd.
(a corporation in the development stage)
Notes to Condensed Financial Statements
Note 1 – Basis of Reporting
The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the financial position of Churchill Ventures Ltd. and the results of its operations and cash flows for the periods presented. The results of its operations for the period ended September 30, 2007 is not necessarily indicative of the operating results for the full year. It is suggested that these financial statements be read in conjunction with the financial statements and related disclosures for the period ended December 31, 2006 included in the Registration Statement of Churchill Ventures Ltd. on Form S-1, (File Number 333-135741), filed with the SEC on February 28, 2007. The Condensed Balance Sheet at December 31, 2006 is derived from the December 31, 2006 audited financial statements.
Note 2 — Organization and Nature of Business Operations
Churchill Ventures Ltd. (the “Company”) is a blank check company incorporated on June 26, 2006 for the purpose of effecting a merger, capital stock exchange, stock purchase, asset acquisition or other similar business combination with an operating business in the communications, media or technology industries.
At September 30, 2007, the Company had not commenced any operations. All activity from June 26, 2006 (inception) through September 30, 2007 relates to the Company’s formation and initial public offering (the “Offering”) described below, and activities relating to identifying and evaluating prospective acquisition candidates. The Company has selected December 31 as its fiscal year end.
The registration statement for the Company’s initial public offering (which is further described in Note 4) (the “Public Offering”) was declared effective on March 1, 2007. On February 28, 2007, the Company completed a private placement for warrants (which are further described in Note 5) (the “Private Placement”) and received proceeds of $5,000,000. The Company consummated the Public Offering on March 6, 2007. In addition, on March 6, 2007 the underwriters for the Public Offering exercised the over-allotment option (the “Over-Allotment Option Exercise”), which closed on March 9, 2007. The combined Public Offering and Over-Allotment Option Exercise generated net proceeds of $103,344,838. The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Public Offering, although substantially all of the net proceeds of the Public Offering are intended to be applied toward effecting a merger, capital stock exchange, stock purchase, asset acquisition or other similar business combination with an operating business in the communications, media or technology industries. As used herein, a “Business Combination” shall mean the acquisition of one or more businesses that at the time of the Company’s initial business combination has a fair market value of at least 80.0% of the Company’s net assets (all of the Company’s assets, including the funds held in the trust account excluding deferred underwriting discount from the Public Offering and Over-Allotment Option Exercise of $3.77 million).
The Company intends to focus on identifying target businesses in the technology, media and telecom industries in the United States, Europe and Israel that may provide significant opportunities for growth.
7
Upon closing of the Public Offering, the Over-Allotment Option Exercise by the underwriters, and the private placement proceeds, $107,506,928 was placed in a trust account to be held until the earlier of (i) the consummation of the Company’s first Business Combination or (ii) the dissolution of the Company. The amount placed in the trust account consisted of certain Public Offerings proceeds as well as $3.77 million of deferred underwriting discounts and commissions that will be released to the underwriters on completion of a Business Combination. However, the underwriters have waived their rights to the deferred underwriting discount with respect to those units held by public stockholders who vote against an initial business combination and who exercise their conversion rights with respect to their shares. Interest (net of taxes) earned on assets held in the trust account will remain in the trust. However, up to $1.35 million of the interest earned on the trust account (net of taxes payable on such interest) may be released to the Company to cover a portion of the Company's operating expenses.
The Company will seek stockholder approval before it will effect any Business Combination. In connection with the stockholder vote required to approve any Business Combination, the Company’s existing stockholders including all of the Company’s officers, directors and advisors have agreed to vote the shares of common stock then-owned by them in accordance with the majority of the shares of common stock voted by the Public Stockholders, defined as the holders of common stock sold as part of the units in the Offering or in the aftermarket. The Company will proceed with a Business Combination only if a majority of the shares of common stock voted by the Public Stockholders are voted in favor of the Business Combination and Public Stockholders owning less than 20% of the shares sold in the Offering exercise their right to convert their shares into a pro rata share of the aggregate amount then on deposit in the trust account. If a majority of the shares of common stock voted by the Public Stockholders are not voted in favor of a proposed initial Business Combination but 18 months has not yet passed since closing of the Public Offering (or within 24 months from the consummation of the Public Offering if a letter of intent, agreement in principle or definitive agreement has been executed within 18 months after consummation of the Public Offering and the Business Combination has not yet been consummated within such 24 month period), the Company may combine with another target business meeting the fair market value criterion described above.
Public Stockholders voting against a Business Combination will be entitled to convert their stock into a pro rata share of the total amount on deposit in the trust account including the deferred underwriter’s discount, and including any interest earned on their portion of the trust account, excluding $1.35 million of the interest earned on the trust account which may be released to the Company to cover a portion of the Company’s operating expenses and net of income taxes payable on such interest. Public Stockholders who convert their stock into their share of the trust account will continue to have the right to exercise any warrants they may hold.
The Company will dissolve and promptly distribute only to its Public Stockholders the amount in the trust account, less any income taxes payable on interest income, plus any remaining net assets if the Company does not effect a Business Combination within 18 months after consummation of the Offering (or within 24 months from the consummation of the Offering if a letter of intent, agreement in principle or definitive agreement has been executed within 18 months after consummation of the Public Offering and the Business Combination has not yet been consummated within such 24 month period). In the event of dissolution, it is likely that the per share value of the residual assets remaining available for distribution (including trust account assets) will be less than the initial public offering price per share in the Public Offering (assuming no value is attributed to the warrants contained in the units offered in the Public Offering discussed in Note 4.)
Note 3 — Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less
8
to be cash equivalents.
Net Income per Common Share
Basic net income per share is computed by dividing net income applicable to common stockholders by the weighted average number of common shares outstanding for the period. The dilutive effect of potential common shares outstanding is included in diluted net income per share. The Company’s statement of operations includes a presentation of earnings per share subject to possible conversion in a manner similar to the two-class method of earnings per share.
Use of Estimates
The preparation of financial statements 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes
Deferred income taxes are provided for the differences between the bases of assets and liabilities for financial reporting and income tax purposes.
The Company recorded a deferred income tax asset for the tax effect of start-up and organization costs, aggregating approximately $127,565.
The effective tax rate differs from the statutory rate of 35% due to the provision for state taxes.
Recently issued accounting pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainties in income taxes recognized in a company’s financial statements in accordance with Statement 109 and prescribes a recognition threshold and measurement attributable for financial disclosure of tax positions taken or expected to be taken on a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted the provisions of FIN 48 as of January 1, 2007. The adoption of FIN 48 did not impact our financial position, results of operations or cash flows for the nine months ended September 30, 2007. Our accounting policy for recognition of interest and penalties related to income taxes is to include such items as a component of income tax expense. All tax years since our inception (June 26, 2006), as filed or yet to be filed, are open to examination by the appropriate tax authorities.
Note 4 — Public Offering
On March 6, 2007, the Company sold to the public 12,500,000 Units at a price of $8.00 per unit. Each Unit consists of one share of the Company’s common stock, $0.001 par value, and one warrant. Each warrant entitles the holder to purchase from the Company one share of common stock at an exercise price of $6.00, or at the holder’s option via "cashless” exercise, during the period commencing the later of the completion of a Business Combination with a Target Business or March 1, 2008 and expiring March 1, 2011, unless earlier redeemed. The warrants will be redeemable at the Company's option, at a price of $0.01 per warrant upon 30 days written notice after the warrants become exercisable, only in the event that the last sale price of the common stock is at least $11.50 per share for any 20 trading days within a 30
9
trading day period ending on the third business day prior to the date on which notice of redemption is given.
In accordance with the Warrant Agreement related to the warrants (the “Warrant Agreement”), the Company is only required to use its best efforts to effect the registration of the shares of common stock underlying the Warrants. The Company will not be obligated to deliver securities, and there are no contractual penalties for failure to deliver securities, if a registration statement is not effective at the time of exercise. Additionally, in the event that a registration statement is not effective at the time, the holder of such warrant shall not be entitled to exercise such warrant and in no event (whether in the case of a registration statement not being effective or otherwise) will the Company be required to net cash settle the warrant exercise. Consequently, the warrants may expire unexercised.
On March 9, 2007 the Company sold an additional 972,400 Units pursuant to the Over-Allotment Option Exercise.
Note 5 — Note Payable to Affiliate and Related Party Transactions
The Company issued on July 6, 2006 a $240,000 unsecured promissory note to Churchill Capital Partners LLC (“Churchill Capital”), an entity owned by our management. The note, which was non-interest bearing and payable on the consummation of the Public Offering, was fully repaid on March 6, 2007.
The Company has agreed to pay $7,500 a month in total for office space and general and administrative services to Churchill Capital, commencing on March 1, 2007 and terminating upon the earlier of (i) the completion of the Company’s Business Combination, or (ii) the Company’s dissolution.
On February 28, 2007, Churchill Capital purchased an aggregate of 5,000,000 warrants at a price of $1.00 per warrant from the Company. Churchill Capital has agreed that it will not sell or transfer these warrants until after the Company consummates a Business Combination.
Note 6 — Units
On July 6, 2006, the Company issued 3,160,000 units to Churchill Capital for $15,800 in cash, an average purchase price of approximately $0.005 per unit. On September 4, 2006, the Company agreed with Churchill Capital to exchange the 3,160,000 units for 3,160,000 shares of common stock on September 5, 2006. The Company also retired 125,000 shares of the common stock issued to Churchill Capital and returned $625 to Churchill Capital to effect the reduction in the Company’s capital.
On July 6, 2006, the Company issued 30,000 units each to two of its directors and one advisor for $150 in cash, at an average purchase price of approximately $0.005 per unit. On September 4, 2006, the Company agreed with those unitholders to exchange the 30,000 units for 30,000 shares of common stock.
Note 7 — Preferred Stock
The Company is authorized to issue 25,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our financial statements and the related Notes to the financial statements.
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This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission filings.
General
We were formed on June 26, 2006, to serve as a vehicle to effect a merger, capital stock exchange, stock purchase, asset acquisition or other similar business combination with an operating business in the communications, media or technology industries.
On March 6, 2007, we completed our Public Offering of 12,500,000 Units. On March 9, 2007, we closed the Over-Allotment Option Exercise for 972,400 Units. Each Unit consists of one share of the Company’s common stock, $0.001 par value, and one warrant. Each warrant entitles the holder to purchase from the Company one share of common stock at an exercise price of $6.00, or at the holder’s option via “cashless” exercise, during the period commencing the later of the completion of a Business Combination with a target business or March 1, 2008 and expiring on March 1, 2011, unless earlier redeemed. The Public Offering price of each Unit was $8.00, and we generated gross proceeds of approximately $107.8 million in the Offering and the Over-Allotment Option Exercise. Of the gross proceeds, we deposited approximately $107.5 million into a trust account maintained by JPMorgan Chase Bank, NA, as trustee, which includes approximately $3.77 million of the deferred underwriting discount and $5.0 million that we received from the issuance and sale of 5,000,000 warrants to Churchill Capital. The underwriters received approximately $3.77 million as their underwriting discount (excluding the deferred underwriting discount).
The proceeds deposited in the trust account will not be released from the trust account until the earlier of (i) the completion of a Business Combination or (ii) the Company’s dissolution and implementation of a plan for the distribution of the Company’s assets except that there may be released to Company from the trust account interest income earned on the trust account balance to pay any income taxes on such interest and up to $1.35 million of the interest earned on the trust account may be released to the Company to cover a portion of its operating expenses. Except with respect to such interest, unless and until a business combination is consummated, the proceeds held in the trust account will not be available for Company’s use for any purpose, including expenses it may incur related to the investigation and selection of a target business and the negotiation of an agreement to acquire a target business. These expenses may be paid prior to a business combination only from the proceeds of the Offering and Over-Allotment Option Exercise not held in the trust account (initially $950,000) and $1.35 million of interest earned on the trust account, net of taxes, which may be released to the Company.
Through September 30, 2007, our efforts have been limited to organizational activities, activities relating to our Public Offering, activities relating to identifying and evaluating prospective acquisition candidates, and activities relating to general corporate matters. We have neither engaged in any operation nor generated any revenues, other than interest income earned on the proceeds of our private placement and initial public offering. For the three and nine months ended September 30, 2007, we earned approximately $1,416,650 and $3,166,527, respectively, in interest income of which approximately $954,892 and $2,704,769, respectively, was received and $461,758 was accrued. On June 5, 2007, the Company withdrew approximately $1,250,000 of interest earned on the funds held in the trust account,
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and on September 13, 2007, the Company withdrew a further $1,021,723 of interest earned on the funds held in the trust account. The Company used $968,073 of those withdrawn funds to pay estimated income taxes due on the interest earned on the trust funds, and released the remaining $1,303,650 of those withdrawn funds to the Company as part of the $1.35 million of interest earned on the trust account which may be released to the Company to cover a portion of its operating expenses.
As of September 30, 2007, we had approximately $1,683,992 of unrestricted cash available to us for our activities in connection with identifying and conducting due diligence of a suitable business combination, and for general corporate matters.
For the three and nine months ended September 30, 2007, we paid or incurred an aggregate of approximately $154,328 and $311,133, respectively, in expenses for the following purposes:
| – | premiums associated with our directors and officers liability insurance; | |
| – | expenses for due diligence and investigation of prospective target businesses; | |
| – | legal and accounting fees relating to our SEC reporting obligations and general corporate matters; and |
|
| – | miscellaneous expenses. |
We believe that the funds available to us outside of the trust account and the balance of interest anticipated to be earned on the trust to be released to us will be sufficient to allow us to operate until March 2009, assuming that a business combination is not consummated during that time. Over this period, we anticipate incurring expenses for the following purposes:
| – | payment of premiums associated with our directors and officers insurance; | |
| – | due diligence and investigation of prospective target businesses; | |
| – | legal and accounting fees relating to our SEC reporting obligations and general corporate matters; |
|
| – | structuring and negotiating a business combination, including the making of a down payment or the payment for exclusivity or similar fees and expense; and | |
| – | other miscellaneous expenses. |
Contractual Obligations and Commitments
The Company is obligated to pay Churchill Capital a monthly fee of $7,500 for general and administrative services including office space, utilities and administrative support during the period commencing March 1, 2007 until the earlier of (i) the completion of our initial business combination and (ii) our dissolution.
On July 6, 2006, we issued a $240,000 unsecured, non-interest bearing promissory note to Churchill Capital, which note was repaid out of the proceeds of our Public Offering.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the sensitivity of income to changes in interest rates, foreign exchanges, commodity prices, equity prices, and other market-driven rates or prices. We are not presently engaged in and, if a suitable business target is not identified by us prior to the prescribed liquidation date of the trust fund, we may not engage in, any substantive commercial business. Accordingly, we are not and, until such time as we consummate a business combination, we will not be, exposed to risks associated with foreign exchange rates, commodity prices, equity prices or other market-driven rates or prices. The net proceeds of our initial public offering held in the trust fund may be invested by the trustee only in U.S. government securities, within the meaning of Section 2(a)(16) of the Investment Company Act of 1940 having maturities of one hundred and eighty days or less.
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Item 4. Control and Procedures
Our management carried out an evaluation, with the participation of our Principal Executive and our Chief Financial Officers, of the effectiveness of our disclosure controls and procedures as of September 30, 2007. Based upon that evaluation, the officers concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission.
There has not been any change in our internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the period ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II.
OTHER INFORMATION
| Item 6. | Exhibits. | |
| Exhibit | ||
| Number | Exhibit Description | |
| 31.1 | Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes- | |
| Oxley Act of 2002 | ||
| 31.2 | Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley | |
| Act of 2002 | ||
| 32.1 | Certification by 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 by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted | |
| pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CHURCHILL VENTURES LTD. | |||
| Date: November 14, 2007 | By: | /s/ Itzhak Fisher | |
| Itzhak Fisher | |||
| Principal Executive Officer | |||
| Date: November 14, 2007 | By: | /s/ Elizabeth O’Connell | |
| Elizabeth O’Connell | |||
| Chief Financial Officer | |||
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