References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Concord Acquisition Corp. References to our "management" or
our "management team" refer to our officers and directors, references to the
"Sponsors" refer to Concord Sponsor Group LLC and CA Co-Investment, LLC. The
following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the condensed financial
statements and the notes thereto contained elsewhere in this Quarterly Report.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that are not historical facts and involve risks and
uncertainties that could cause actual results to differ materially from those
expected and projected. All statements, other than statements of historical fact
included in this Quarterly Report including, without limitation, statements in
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financial position, the business strategy,
plans and objectives of management for future operations, and the impact of the
coronavirus (COVID-19) pandemic on the Company's search for a Business
Combination (as defined below), are forward-looking statements. Words such as
"expect," "believe," "anticipate," "intend," "estimate," "seek" and variations
and similar words and expressions are intended to identify such forward-looking
statements. Such forward-looking statements relate to future events or future
performance, but reflect management's current beliefs, based on information
currently available. A number of factors could cause actual events, performance
or results to differ materially from the events, performance and results
discussed in the forward-looking statements. For information identifying
important factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, please refer to the
Company's annual report on Form 10-K filed with the U.S. Securities and Exchange
Commission (the "SEC"). The Company's securities filings can be accessed on the
EDGAR section of the SEC's website at www.sec.gov. Except as expressly required
by applicable securities law, the Company disclaims any intention or obligation
to update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
Overview
We are a blank check company incorporated as a Delaware corporation and 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. We intend to effectuate our initial business combination
using cash from the proceeds of our initial public offering and the sale of the
private placement warrants, our capital stock, debt or a combination of cash,
stock and debt.
The issuance of additional shares of our stock in a business combination:
? may significantly dilute the equity interest of investors in our securities,
which dilution would increase if the anti-dilution provisions in the Class B
common stock resulted in the issuance of Class A shares on a greater than
one-to-one basis upon conversion of the Class B common stock;
? may subordinate the rights of holders of common stock if preferred stock is
issued with rights senior to those afforded our common stock;
? could cause a change of control if a substantial number of shares of our common
stock is issued, which may affect, among other things, our ability to use our
net operating loss carry forwards, if any, and could result in the resignation
or removal of our present officers and directors;
? may have the effect of delaying or preventing a change of control of us by
diluting the stock ownership or voting rights of a person seeking to obtain
control of us;
? may adversely affect prevailing market prices for our units, Class A common
stock and/or warrants; and
? may not result in adjustment to the exercise price of our warrants.
Similarly, if we issue debt securities or otherwise incur significant
indebtedness, it could result in:
? default and foreclosure on our assets if our operating revenues after an
initial business combination are insufficient to repay our debt obligations;
? acceleration of our obligations to repay the indebtedness even if we make all
principal and interest payments when due if we breach certain covenants that
require the maintenance of certain financial ratios or reserves without a
waiver or renegotiation of that covenant;
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? our immediate payment of all principal and accrued interest, if any, if the
debt is payable on demand;
? our inability to obtain necessary additional financing if the debt contains
covenants restricting our ability to obtain such financing while the debt is
outstanding;
? our inability to pay dividends on our common stock;
? using a substantial portion of our cash flow to pay principal and interest on
our debt, which will reduce the funds available for dividends on our common
stock if declared, expenses, capital expenditures, acquisitions and other
general corporate purposes;
? limitations on our flexibility in planning for and reacting to changes in our
business and in the industry in which we operate;
? increased vulnerability to adverse changes in general economic, industry and
competitive conditions and adverse changes in government regulation; and
? limitations on our ability to borrow additional amounts for expenses, capital
expenditures, acquisitions, debt service requirements, execution of our
strategy and other purposes and other disadvantages compared to our competitors
who have less debt.
In connection with our assessment of going concern considerations in accordance
with ASC Subtopic 205-40, "Presentation of Financial Statements - Going
Concern", we have until December 10, 2022 to consummate a Business Combination.
If a Business Combination is not consummated by this date, there will be a
mandatory liquidation and subsequent dissolution of the Company. Although we
intend to consummate a Business Combination on or before December 10, 2022, it
is uncertain whether we will be able to consummate a Business Combination by
this time. Management has determined that the mandatory liquidation, should a
Business Combination not occur, and potential subsequent dissolution, as well as
the potential for us to have insufficient funds available to operate our
business prior to a Business Combination, raise substantial doubt about our
ability to continue as a going concern. No adjustments have been made to the
carrying amounts of assets or liabilities should we be required to liquidate
after December 10, 2022.
Proposed Business Combination
On February 16, 2022, immediately following the termination of the Business
Combination Agreement, we entered into the Transaction Agreement with Circle,
Topco and Merger Sub, Circle is a global financial technology firm that provides
internet-native payments and treasury infrastructure. Circle's mission of
raising global economic prosperity through the frictionless exchange of
financial value is being met through a series of transaction and treasury
services that help businesses and financial institutions globally to take
advantage of the shift to a digital asset and blockchain powered global
financial system. Circle is the principal operator of one of the fastest growing
dollar digital assets, USD Coin (USDC).
The Proposed Transactions contemplated by the Transaction Agreement are
comprised of two separate transactions: (a) pursuant to an Irish law
court-approved scheme of arrangements (the "Scheme"), Circle's shareholders will
transfer their holdings of shares in the capital of Circle to Topco in exchange
for the issuance of new shares in Topco, with the result that, at the effective
time of the Scheme, Circle will become a wholly-owned subsidiary of Topco; and
(b) on the first business day following the Scheme effective time, subject to
the conditions of the Transaction Agreement and in accordance with the DGCL,
Merger Sub will merge with and into Concord, with Concord surviving the Merger
as a wholly-owned subsidiary of Topco.
Pursuant to the Scheme, at the Scheme effective time, each holder of Scheme
Shares will transfer all of his, her or its Scheme Shares to Topco in exchange
for the allotment and issuance by Topco of that number of Topco Ordinary Shares
comprising that Scheme shareholder's pro rata portion of an amount of Topco
Ordinary Shares equal to the Company Equity Value divided by $10.00 and rounded
down to the nearest whole number of Topco Ordinary Shares. The "Company Equity
Value" means $9,000,000,000 plus (i) the aggregate amount of the net proceeds of
any equity or convertible debt issued by Circle after March 6, 2021, plus (ii)
the proceeds from any private placement completed by Topco or Circle after the
date of the Transaction Agreement, plus (iii) the net equity value of any
acquisition transaction completed by Circle in which equity interests of Circle
or Topco are issued or sold completed after the date of the Transaction
Agreement minus (iv) any indebtedness of Circle that will not convert into
equity in connection with the Proposed Transactions. At the effective time of
the Merger: (a) each share of Concord Class A common stock and each share of
Concord Class B common stock (other than shares held by Concord as treasury
stock or owned by Concord immediately prior to the Merger effective time) issued
and outstanding immediately prior to the Merger effective time will be cancelled
and automatically converted into and become the right to receive one Topco
Ordinary Share (the "Merger Consideration"); and (b) each Concord warrant that
is outstanding immediately prior to the Merger effective time will be converted
into a Topco warrant on substantially the same terms as were in effect
immediately prior to the Merger effective time. In addition, following the
closing of the Proposed Transactions, Topco will issue, as earnout shares, up to
an aggregate number of Topco Ordinary Shares equal to 20% of the Topco Ordinary
shares in issue (on a fully diluted basis) immediately following the closing to
certain of Circle's existing shareholders, based on the volume weighted average
trading price of the Topco Ordinary Shares meeting certain share price
thresholds set forth in the Transaction Agreement.
Following the Proposed Transactions, it is expected that the Topco Ordinary
Shares will be listed on the New York Stock Exchange.
Consummation of the transactions contemplated by the Transaction Agreement is
subject to customary conditions of the respective parties, including the
approval of the Proposed Transactions by Concord's stockholders in accordance
with Concord's amended and restated certificate of incorporation.
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Concurrently with the execution of the Transaction Agreement, certain
securityholders of Circle entered into a Transaction Support Agreement with
Concord, pursuant to which, among other things, such securityholders agreed to
vote their Circle shares in favor of the Transaction Agreement, the Scheme and
the transaction documents to which Circle is or will be a party. In addition,
Circle's Chief Executive Officer entered into a Transaction Support Agreement
with Concord pursuant to which he further agreed not to vote in favor of any
Alternative Transaction (as defined in the Transaction Agreement, but excluding
for such purpose an initial public offering of Circle) for a period of six
months following the termination of the Transaction Agreement under certain
circumstances.
Also on February 16, 2022, Concord, Circle, Topco and Merger Sub entered into a
Termination of Business Combination Agreement, pursuant to which the parties
agreed to mutually terminate the Business Combination Agreement previously
entered into among the parties. As a result of the termination of the Business
Combination Agreement, effective as of February 16, 2022, the Business
Combination Agreement is of no further force and effect, and certain transaction
agreements entered into in connection with the Business Combination Agreement,
including the subscription agreements, dated as of July 7, 2021, between Concord
and certain investors, pursuant to which such investors committed to purchase
$415 million of equity upon the closing of the transactions contemplated by the
Business Combination Agreement, were terminated in accordance with their
respective terms.
As part of the Transaction Agreement, Circle has agreed to pay or procure the
payment of all Concord expenses, not to exceed $10,000,000 in the aggregate,
incurred in connection with the Transaction Agreement. Further, Circle shall pay
or procure the payment of up to $500,000 of Concord expenses (which amounts
shall be included in the overall $10,000,000 cap) promptly following request by
Concord before the transaction is complete. As of June 30, 2022, $245,567 has
been reimbursed by Circle which is included within the operating costs, net line
item in the condensed statement of operations. At June 30, 2022 an additional
$24,396 is due the Company by Circle.
In addition, Circle has agreed to deposit or procure the deposit of the amount
required to extend Concord's liquidation date into the Trust Account prior to
June 8, 2022. Refer to the Liquidity and Capital Resources section below for
more details.
Results of Operations and Known Trends or Future Events
We have neither engaged in any operations nor generated any revenues to date.
Our only activities since inception have been organizational activities, those
necessary for our initial public offering ("IPO") and activities related to
seeking and consummating an acquisition target. We do not expect to generate any
operating revenues until after completion of our initial business combination.
Until such time that a business combination occurs, we will generate
non-operating income in the form of interest income on investments held in the
Trust Account and non-operating income or expense from the changes in the fair
value of warrant liabilities. There has been no significant change in our
financial or trading position and no material adverse change has occurred since
the date of our audited financial statements as of and for the year ended
December 31, 2021. Until the completion of our initial business combination, we
expect to incur increased expenses as a result of being a public company (for
legal, financial reporting, accounting and auditing compliance), as well as for
due diligence expenses.
For the three months ended June 30, 2022, we had a net income of $2,071,708
which consisted of an unrealized gain of $1,709,092 from the change in the fair
value of our warrant liability, investment income earned on our investments in
the Trust Account of $304,106, and unrealized gain of $292,000 from the change
in fair value on the promissory note with Circle, partially offset by general
operating expenses of $222,276 and income tax expense of $11,214.
For the six months ended June 30, 2022, we had a net income of $23,568,701 which
consisted of an unrealized gain of $23,155,679 from the change in the fair value
of our warrant liability, investment income earned on our investments in the
Trust Account of $367,055, and unrealized gain of $292,000 from the change in
fair value on the promissory note with Circle, partially offset by general
operating expenses of $234,819 and income tax expense of $11,214.
For the three months ended June 30, 2021, we had a net loss of $1,810,562 which
consisted of an unrealized loss of $1,417,144 from the change in the fair value
of our warrant liability and general operating expenses of $400,603, partially
offset by investment income earned on our investments of $7,185.
For the six months ended June 30, 2021, we had a net loss of $2,821,793 which
consisted of an unrealized loss of $2,270,502 from the change in the fair value
of our warrant liability and general operating expenses of $581,927, partially
offset by investment income earned on our investments of $30,636.
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Liquidity and Capital Resources
We intend to use substantially all of the funds held in our trust account,
including any amounts representing interest earned on the trust account (which
interest shall be net of taxes payable) to complete our initial business
combination. We may withdraw interest to fund our working capital requirements
(subject to a limit of $250,000 per year) and/or to pay our taxes. Delaware
franchise tax is based on our authorized shares or on our assumed par and
non-par capital, whichever yields a lower result. Under the authorized shares
method, each share is taxed at a graduated rate based on the number of
authorized shares with a maximum aggregate tax of $200,000 per year. Under the
assumed par value capital method, Delaware taxes each $1,000,000 of assumed par
value capital at the rate of $350; where assumed par value would be (1) our
total gross assets following the IPO, divided by (2) our total issued shares of
common stock, multiplied by (3) the number of our authorized shares. Based on
the number of shares of our common stock authorized and outstanding, our annual
franchise tax obligation is expected to be capped at the maximum amount of
annual franchise taxes payable by us as a Delaware corporation of $200,000. Our
annual income tax obligations will depend on the amount of interest and other
income earned on the amounts held in the trust account. We expect the only taxes
payable by us out of the funds in the trust account will be for income and
franchise taxes. We expect the interest earned on the amount in the trust
account will be sufficient to pay our taxes. To the extent that our capital
stock or debt is used, in whole or in part, as consideration to complete our
initial business combination, the remaining proceeds held in the trust account,
net of any redemptions, will be used as working capital to finance the
operations of the target business or businesses, make other acquisitions and
pursue our growth strategies. Further, as part of the Transaction Agreement,
Circle has agreed to pay or procure the payment of all Concord expenses, not to
exceed $10,000,000 in the aggregate, incurred in connection with the Transaction
Agreement. Further, Circle shall pay or procure the payment of up to $500,000 of
Concord expenses (which amounts shall be included in the overall $10,000,000
cap) promptly following request by Concord before the transaction is complete.
For both the three and six months ended June 30, 2022, $245,567 has been
reimbursed by Circle which is included within the Operating costs, net line item
in the condensed statement of operations.
As of June 30, 2022, we had available to us approximately $54,000 of proceeds
held outside the trust account and $250,000 in available funding from the
Sponsor. We will use these funds primarily to perform business due diligence on
prospective target businesses, travel to and from the offices or similar
locations of prospective target businesses or their representatives or owners,
review corporate documents and material agreements of prospective target
businesses, structure, negotiate and complete a business combination, and to pay
taxes to the extent the interest earned on the trust account is not sufficient
to pay our taxes. We had until June 10, 2022 to consummate an initial business
combination. However, by resolution of our board we extended the period of time
to consummate a business combination by an additional six months (until December
10, 2022), subject to us depositing additional funds into the trust account.
Circle has loaned us the funds necessary to deposit the amount required to
extend Concord's liquidation date into the Trust Account.
For six months ended June 30, 2022, net cash used in operating activities was
$237,868, which was used to pay expenses. Cash used in investing activities
consisted of purchase of investment held in trust account of $2,760,000. Cash
provided by financing activities of $2,860,000 consisted of borrowings on the
promissory note of $2,760,000 and net proceeds from borrowings from the Sponsor
of $100,000.
For six months ended June 30, 2021, cash used in operating activities was
$440,374 which was used to pay expenses. There were no investing or financing
activities during the six months ended June 30, 2021.
In order to fund working capital deficiencies or finance transaction costs in
connection with an intended initial business combination, our sponsors, an
affiliate of our sponsors or our officers and directors may, but are not
obligated to, loan us funds as may be required. If we complete our initial
business combination, we may repay such loaned amounts out of the proceeds of
the trust account released to us. In the event that our initial business
combination does not close, we may use a portion of the working capital held
outside the trust account to repay such loaned amounts but no proceeds from our
trust account would be used for such repayment. Up to $1,500,000 of such loans
may be convertible into warrants at a price of $1.50 per warrant at the option
of the lender. The warrants would be identical to the private placement warrants
issued to our sponsors. The terms of such loans by our sponsors, an affiliate of
our sponsors or our officers and directors, if any, have not been determined and
no written agreements exist with respect to such loans. Prior to the completion
of our business combination, we do not expect to seek loans from parties other
than our sponsors, an affiliate of our sponsors or our officers and directors,
if any, as we do not believe third parties will be willing to loan such funds
and provide a waiver against any and all rights to seek access to funds in our
trust account.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimates of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating an initial business combination are less than the actual amount
necessary to do so, we may have insufficient funds available to operate our
business prior to our initial business combination. Moreover, we may need to
obtain additional financing either to complete our initial business combination
or because we become obligated to redeem a significant number of our public
shares upon completion of our initial business combination, in which case we may
issue additional securities or incur debt in connection with such business
combination.
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Critical Accounting Policies and Significant Judgments and Estimates
We prepare our condensed financial statements in accordance with accounting
principles generally accepted in the United States of America. The preparation
of financial statements also requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, costs and expenses and
related disclosures. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances. Actual results could differ significantly from the estimates made
by our management.
There have been no material changes to our critical accounting policies and
estimates from those disclosed in our condensed financial statements and the
related notes and other financial information included in our Form 10-K on file
with the SEC.
Off-Balance Sheet Arrangements; Commitments and Contractual Obligations
We have no obligations, assets or liabilities which would be considered
off-balance sheet arrangements as of June 30, 2022. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements,
established any special purpose entities, guaranteed any debt or commitments of
other entities, or purchased any non-financial assets.
Administrative Support Agreement
We agreed to pay an affiliate of our Sponsor, commencing on the date of the
closing of the IPO, a total of $10,000 per month for office space, utilities and
secretarial and administrative support. Upon completion of the Company's
Business Combination or its liquidation, we will cease paying these monthly
fees. For the three and six months ended June 30, 2022 and 2021 the Company
expensed an aggregate of $30,000 and $60,000, respectively, to an affiliate of
the Sponsor under this agreement which is recorded within operating costs, net
on the condensed statements of operations. As of June 30, 2022 and December 31,
2021, the Company had an outstanding balance due to the affiliate of the Sponsor
related to the administrative support agreement of $50,000 and $0, respectively.
The amount is included in accounts payable and accrued expenses on the condensed
balance sheets.
Business Combination Marketing Agreement
We engaged the underwriters as advisors in connection with business combinations
to assist us in holding meetings with our stockholders to discuss the potential
business combination and the target business's attributes, introduce us to
potential investors that are interested in purchasing the securities in
connection with the potential business combination, assist us in obtaining
stockholder approval for the business combination and assist with its press
releases and public filings in connection with the business combination. We will
pay the underwriters a fee (the "Marketing Fee") for such services upon the
consummation of an initial Business Combination in an amount equal to, in the
aggregate, 3.5% of the gross proceeds of the IPO, or $9,660,000.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We will qualify as an "emerging growth company" and
under the JOBS Act will be allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for non-emerging growth companies. As a result, our condensed financial
statements may not be comparable to companies that comply with new or revised
accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company", we choose to rely on such exemptions we may not be required to, among
other things: (1) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404 of the
Sarbanes-Oxley Act; (2) provide all of the compensation disclosure that may be
required of non-emerging growth public companies under the Dodd-Frank Wall
Street Reform and Consumer Protection Act; (3) comply with any requirement that
may be adopted by the PCAOB regarding mandatory audit firm rotation or a
supplement to the auditor's report providing additional information about the
audit and the financial statements (auditor discussion and analysis); and
(4) disclose certain executive compensation-related items such as the
correlation between executive compensation and performance and comparisons of
the CEO's compensation to median employee compensation. These exemptions will
apply for a period of five years following the completion of the IPO or until we
are no longer an "emerging growth company," whichever is earlier.
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