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 Companys 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 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 Companys Business Combination, or (ii) the Companys dissolution. Such fees amounted to $22,500, $7,500 and $97,500 during the three months ended March 31,2008 and 2007 and the period June
26, 2006 (date of inception) to March 31, 2008 respectively.
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. If the private placement was not conducted in compliance with applicable law, Churchill Capital may have the right to rescind its purchase of the sponsor warrants,
which may require the Company to refund an aggregate $5,000,000 to Churchill Capital Partners LLC. Although Churchill Capital has waived its right, if any, to rescind the sponsor warrants purchase as a remedy to the Companys failure to
register these securities, the waiver may not be enforceable in light of the public policy underlying Federal and state securities laws.
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 Companys 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 Common Stock
On February 29, 2008, a former director transferred 15,000 shares of common stock to new directors in connection with their appointment as directors. The Company has recorded a non-cash
compensation charge and a related capital contribution of $114,450 as of March 31, 2008 related to this transaction.
Note 8 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.
Note 9 Commitments and Contingencies
The Company entered into an agreement with Banc of America Securities LLC, dated as of January 24, 2008, to serve as our financial advisor in connection with any proposed business combination.
That agreement includes a minimum fee payable to Banc of America of $4 million upon the consummation of any business combination, with further fees payable for transactions above $500 million in value.
10
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following discussion and analysis should be read in conjunction with our financial statements and the related Notes to the financial statements.
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 initial public offering of 12,500,000 units. On March 9, 2007, we closed the underwriters over-allotment option exercise for 972,400 units. Each unit
consists of one share of our common stock, $0.001 par value, and one warrant. Each warrant entitles the holder to purchase from us one share of common stock at an exercise price of $6.00, or at the holders 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. Our initial public offering price of
each unit was $8.00, and we generated gross proceeds of approximately $107.8 million in the offering, the over-allotment option exercise and the sale of 5,000,000 warrants to Churchill Capital for proceeds of $5.0 million (known as the
sponsor warrants). 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 $3.8 million of the deferred underwriting discount and
$5.0 million that we received from the issuance and sale of the sponsor warrants. The underwriter received approximately $3.8 million as its 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) our dissolution and
implementation of a plan for the distribution of our assets except that there may be released to us 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, which has been released to us to cover a portion of our 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 our use for any purpose, including expenses we 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 has
been released to the Company. If we have not consummated a business combination within 18 months after March 6, 2007, the date we consummated our initial public offering (or within 24 months after the consummation of our initial public offering if a
letter of intent, agreement in principle, or definitive agreement has been executed within 18 months after consummation of our initial public offering and the business combination related thereto has not yet been consummated within such 24-month
period), we will promptly have to adopt a plan of dissolution and liquidation and initiate procedures for our dissolution and liquidation.
Through March 31, 2008, our efforts were limited to organizational activities, activities relating to our initial public offering, to identifying and evaluating prospective acquisition
candidates, and 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 quarter ended March
31, 2008 and the period from June 26, 2006 (inception) to March 31, 2008, we earned approximately $825,492 and $5,273,023 in interest income of which approximately $592,965 and $5,040,496 was received and $232,527 was accrued. On
June 5, 2007, the Company withdrew $1,250,000 of interest earned on the funds held in the trust account, on September 13, 2007, the Company withdrew a further $1,021,723 of interest earned on the funds held in the trust account, and on
December 27, 2007, the company withdrew an additional $586,350. The Company used $1,853,957 of those withdrawn funds to pay income taxes due on the interest earned on the trust funds, and released the remaining part of those withdrawn funds
to the Company as the $1.35 million of interest earned on the trust account, which has been released to the Company to cover a portion of its operating expenses.
As of March 31, 2008, we had approximately $1,263,100 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.
11
For the quarter ended March 31, 2008 and the period from June 26, 2006 (inception) to March 31, 2008, we paid or incurred an aggregate of approximately $307,688 and $1,025,964,
respectively, in expenses for the following purposes:
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premiums associated
with our directors and officers liability insurance;
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expenses for due
diligence and investigation of prospective target businesses;
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legal and accounting
fees relating to our SEC reporting obligations and general corporate
matters; and
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miscellaneous expenses.
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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:
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payment of premiums
associated with our directors and officers insurance;
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due
diligence and investigation of prospective target businesses;
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legal and accounting
fees relating to our SEC reporting obligations and general corporate
matters;
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structuring and negotiating
a business combination, including the making of a down payment or the
payment for exclusivity or
similar fees
and expense; and
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other miscellaneous
expenses.
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Recent Accounting Pronouncements
In December of 2007, the FASB issued Statement of Financial Accounting Standards No. 141R, Business Combinations (SFAS No. 141R), which replaces FASB Statement No. 141.
Under SFAS No. 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141R establishes principles and requirements
for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. This statement also establishes disclosure
requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS No. 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is
prohibited. We have not yet determined the impact, if any, that the implementation of SFAS No. 141R will have on our results of operations or financial condition.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements An Amendment of ARB No.
51 (SFAS No. 160). SFAS No. 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition
of a noncontrolling interest (minority interest) as equity in the Consolidated Financial Statements and separate from the parents equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net
income on the face of the income statement. SFAS No. 160 clarifies that changes in a parents ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial
interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment on the
deconsolidation date. SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its non-controlling interest. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. Earlier
adoption is prohibited. We have not yet determined the impact, if any, that the implementation of SFAS No. 160 will have on our results of operations or financial condition.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States 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. We have identified the following as our critical accounting policies:
Cash and cash equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
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Earnings per common share
Basic earnings per common share for all periods is computed by dividing the earnings applicable to common stockholders by the weighted average number of common shares outstanding for the
period. Diluted income per share reflects the potential dilution assuming common shares were issued upon the exercise of outstanding in the money warrants and the proceeds thereof were used to purchase common shares at the average market price
during the period.
The Companys statements of operations include a presentation of earning per share for common stock subject to possible conversion in a manner similar to the two-class method of earnings
per share. Basic and diluted net income per share amount for the maximum number of shares subject to possible conversion is calculated by dividing the net interest income attributable to common shares subject to conversion ($96,238 for the three
months ended March 31, 2008) by the weighted average number of shares subject to possible conversion. Basic and diluted net income per share amount for the shares outstanding not subject to possible conversion is calculated by dividing the net
income exclusive of the net interest income attributable to common shares subject to conversion by the weighted average number of shares not subject to possible conversion.
At March 31, 2008, the Company had outstanding warrants to purchase 18,472,400 shares of common stock.
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 revenues and 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.
Item 3. Quantitative and Qualitative Disclosure 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 high credit quality investments having maturities of one hundred and eighty days or less.
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 March 31, 2008. 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 March 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
13
PART II.
OTHER INFORMATION
Item 6.
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Exhibits.
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Exhibit
Number
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Exhibit Description
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31.1
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Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
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31.2
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Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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32.1
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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
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32.2
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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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14
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.
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CHURCHILL VENTURES LTD.
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Date: May 15, 2008
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By:
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/s/ Itzhak Fisher
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Itzhak Fisher
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Principal Executive Officer
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Date: May 15, 2008
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By:
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/s/ Elizabeth OConnell
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Elizabeth OConnell
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Chief Financial Officer
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15
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