UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from to
Commission File No.
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices, including zip code) |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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.
Indicate by check mark
whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☐ | Large accelerated filer | ☐ | Accelerated filer | |
| ☒ | Smaller reporting company | |||
| Emerging growth company | ||||
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
As of November 14,
2023 there were
GLOSSARY
Unless otherwise stated in this Report, or the context otherwise requires, references to:
| ● | “board of directors” or “board” are to the board of directors of the Company; |
| ● | “Class A common stock” are to the shares of Class A common stock of the Company, par value $0.0001 per share; |
| ● | “Class B common stock” are to the shares of Class B common stock of the Company, par value $0.0001 per share; |
| ● | “common stock” are to the Class A common stock and the Class B common stock; |
| ● | “Continental” are to Continental Stock Transfer & Trust Company, trustee of our trust account (as defined below) and warrant agent of our public warrants (as defined below); |
| ● | “Exchange Act” are to the Securities Exchange Act of 1934, as amended; |
| ● | “founder shares” are to shares of our Class B common stock initially purchased by our sponsor in a private placement prior to our initial public offering, and the shares of our Class A common stock issued upon the conversion thereof; |
| ● | “GAAP” are to the accounting principles generally accepted in the United States of America; |
| ● | “initial business combination” are to a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses; |
| ● | “initial public offering” are to the initial public offering that was consummated by the Company on March 2, 2021; |
| ● | “initial stockholders” are to our sponsor and any other holders of our founder shares prior to our initial public offering (or their permitted transferees); |
| ● | “Investment Company Act” are to the Investment Company Act of 1940, as amended; |
| ● | “IPO Registration Statement” are to the Form S-1 initially filed with the SEC February 1, 2021 (File No. 333-252599), as amended; |
| ● | “JOBS Act” are to the Jumpstart Our Business Startups Act of 2012; |
| ● | “management” or our “management team” are to our officers and directors; |
| ● | “over-allotment units” are to the units purchased in the initial public offering to cover over-allotments; |
| ● | “placement units” are to the units purchased by our sponsor and the representative in the private placement, each placement unit consisting of one placement share and one-third of one placement warrant; |
| ● | “placement shares” are to the shares of our common stock included within the placement units purchased by our sponsor and the representative in the private placement; |
| ● | “placement warrants” are to the warrants included within the placement units purchased by our sponsor and the representative in the private placement; |
| ● | “private placement” are to the private placement of 890,000 placement units at a price of $10.00 per unit, for an aggregate purchase price of $8,900,000, which occurred simultaneously with the completion of our initial public offering; |
| ● | “public shares” are to shares of our Class A common stock sold as part of the units in our initial public offering (whether they were purchased in our initial public offering or thereafter in the open market); |
| ● | “public stockholders” are to the holders of our public shares, including our initial stockholders and management team to the extent our initial stockholders and/or members of our management team purchase public shares, provided that each initial stockholder’s and member of our management team’s status as a “public stockholder” shall only exist with respect to such public shares; |
| ● | “public warrants” are to our redeemable warrants sold as part of the units in our initial public offering (whether they were purchased in our initial public offering or thereafter in the open market, including warrants that may be acquired by our sponsor or its affiliates in our initial public offering or thereafter in the open market) and to any placement warrants sold as part of the placement units or warrants issued upon conversion of working capital loans in each case that are sold to third parties that are not initial purchasers or executive officers or directors (or permitted transferees) following the consummation of our initial business combination; |
| ● | “Report” are to this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023; |
| ● | “representative” is to Mizuho Securities USA LLC, which is the representative of the underwriters in our initial public offering; |
| ● | “representative shares” are to shares of our Class A common stock issued to the representative of the underwriters upon the consummation of our initial public offering; |
| ● | “Sarbanes-Oxley Act” are to the Sarbanes-Oxley Act of 2002; |
| ● | “SEC” are to the U.S. Securities and Exchange Commission; |
| ● | “Securities Act” are to the Securities Act of 1933, as amended; |
| ● | “sponsor” is to Twelve Seas Sponsor II LLC, a Delaware limited liability company; |
| ● | “trust account” are to the U.S.-based trust account in which an amount of $345,000,000 from the net proceeds of the sale of the units (as defined below) in the initial public offering and placement units was placed following the closing of the initial public offering; |
| ● | “units” are to the units sold in our initial public offering, which consist of one public share and one-third of one public warrant; |
| ● | “warrants” are to our redeemable warrants, which includes the public warrants as well as the placement warrants and any warrants issued upon conversion of working capital loans to the extent they are no longer held by the initial holders or their permitted transferees; |
| ● | “we,” “us,” “Company” or “our Company” are to Twelve Seas Investment Company II; |
| ● | “Withum” are to WithumSmith+Brown, PC, our independent registered public accounting firm; and |
| ● | “working capital loans” are to loans that may be made to the Company by the sponsor, an affiliate of the sponsor, or certain of the Company’s officers and directors. |
TWELVE SEAS INVESTMENT COMPANY II
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
TWELVE SEAS INVESTMENT COMPANY II
CONDENSED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Cash and marketable securities held in trust account | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities, Class A Common Stock Subject to Possible Redemption and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Income taxes payable | ||||||||
| Due to related party | ||||||||
| Promissory note – related party - extension | ||||||||
| Promissory note – related party | ||||||||
| Total current liabilities | ||||||||
| Warrant liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 8) | ||||||||
| Class A common Stock subject to possible redemption, | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, $ | ||||||||
| Class A common stock, $ | ||||||||
| Class B common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities, Class A Common Stock Subject to Possible Redemption and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
TWELVE SEAS INVESTMENT COMPANY II
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
| For the Three Months Ended September 30 | For the Nine Months Ended September 30 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
General and administrative costs | $ | $ | $ | $ | ||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest earned on cash and marketable securities held in trust account | ||||||||||||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||||||||||
| Total other income, net | ||||||||||||||||
| Income before provision for income taxes | ||||||||||||||||
| Provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding of Class A common stock subject to possible redemption | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Weighted average shares outstanding of Class A common stock not subject to possible redemption (i) | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Weighted average shares outstanding of Class B common stock | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| (i) |
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
TWELVE SEAS INVESTMENT COMPANY II
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
| Common Stock | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Accretion for Class A common stock subject to redemption | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Conversion of Class B common stock to Class A common stock | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance as of March 31, 2023 (unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Accretion for Class A common stock subject to redemption | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of June 30, 2023 (unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Accretion for Class A common stock subject to redemption | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance as of September 30, 2023 (unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
TWELVE SEAS INVESTMENT COMPANY II
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
| Common Stock | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance as of March 31, 2022 (unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Accretion for Class A common stock subject to redemption | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance as of June 30, 2022 (unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Accretion for Class A common stock subject to redemption | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance as of September 30, 2022 (unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
TWELVE SEAS INVESTMENT COMPANY II
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
| For the Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Interest earned on cash and marketable securities held in trust account | ( | ) | ( | ) | ||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Due to related party | ||||||||
| Income taxes payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Cash withdrawn from trust account to pay franchise and income taxes | ||||||||
| Cash withdrawn from trust account to pay for Class A common stock redemptions | ||||||||
| Cash deposited in trust account for extension | ( | ) | ||||||
| Net cash provided by investing activities | ||||||||
| Cash Flows from Financing Activities: | ||||||||
| Repayment of promissory note – related party | ( | ) | ||||||
| Proceeds from promissory note to related party- extension | ||||||||
| Redemption of Class A common stock | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net change in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of the period | $ | $ | ||||||
| Supplementary cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
5
TWELVE SEAS INVESTMENT COMPANY II
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
NOTE 1. ORGANIZATION AND BUINESS OPERATIONS
Twelve Seas Investment Company II (the “Company”) is a blank check company incorporated in Delaware on July 21, 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 (an “initial business combination”). The Company has not selected any specific business combination target and the Company has not, nor has anyone on its behalf, initiated any substantive discussions, directly or indirectly, with any business combination target with respect to the initial business combination.
As of September 30, 2023, the Company had not commenced any operations. All activity for the period from July 21, 2020 (inception) through September 30, 2023, relates to the Company’s formation and its initial public offering, which is described below (the “initial public offering”), and subsequent to the completion of the initial public offering, identifying a target company for an initial business combination. The Company will not generate any operating revenues until after the completion of an initial business combination, at the earliest. The Company generates non-operating income in the form of interest income from the proceeds derived from the initial public offering.
The Company’s sponsor is Twelve Seas Sponsor II LLC, a Delaware limited liability company (the “sponsor”).
The registration statement for the initial public
offering (the “IPO Registration Statement”) was declared effective on February 25, 2021 (the “Effective Date”).
On March 2, 2021, the Company consummated the initial public offering of
The underwriters had a 45-day option (the “over-allotment
option”) from the date of the initial public offering to purchase up to an additional
Simultaneously with the closing of the initial
public offering, the Company completed a private placement (the “private placement”) of an aggregate of
On March 2, 2021, the Company also issued to
Mizuho Securities USA LLC (the “representative”)
Transaction costs amounted to $
As of September 30, 2023, $
Following the closing of the initial public offering
and the over-allotment option, which was fully exercised, on March 2, 2021 and March 10, 2021, respectively, $
Except with respect to interest earned on the
funds held in the trust account that may be released to the Company to pay its franchise and income tax obligations (less up to $
6
The Company initially had 24 months from the
closing of the initial public offering, or until March 2, 2023, to consummate an initial business combination. On February 28, 2023,
the Company held a special meeting of stockholders, at which stockholders approved an extension (“Extension”) of the time
the Company has to complete a business combination to from March 2, 2023 to December 2, 2023, or such earlier date as determined by the
board of directors (the “Combination Period”). In connection with such meeting, stockholders holding
In connection with the Extension, on March 3,
2023, the Company issued a promissory note in the aggregate principal amount of up to $
On February 6, 2023, the Company issued an aggregate
of
The Company will only proceed with an initial
business combination if the Company has net tangible assets of at least $
The sponsor, officers and directors and representative have agreed to (i) waive their redemption rights with respect to their founder shares, shares of the Company’s common stock included within the placement units (the “placement shares”), and public shares in connection with the completion of the initial business combination, (ii) waive their redemption rights with respect to their founder shares, placement shares, and public shares in connection with a stockholder vote to approve an amendment to the Certificate of Incorporation, and (iii) waive their rights to liquidating distributions from the trust account with respect to their founder shares and placement shares if the Company fails to complete the initial business combination within the Combination Period.
The sponsor has agreed that it will be liable
to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective
target business with which the Company has entered into a written letter of intent, confidentiality or similar agreement or business
combination agreement, reduce the amount of funds in the trust account to below the lesser of (i) $
7
Risks and Uncertainties
We continue to evaluate the impact of increases in inflation and rising interest rates, financial market instability, including the recent bank failures, the potential government shutdown, the lingering effects of the COVID-19 pandemic and certain geopolitical events, including the military conflicts in Ukraine and the surrounding region and in the Middle East. We have concluded that while it is reasonably possible that the risks and uncertainties related to or resulting from these events could have a negative effect on our financial position, results of operations and/or ability to complete an initial Business Combination, we cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an initial Business Combination.
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act
of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal
Any redemption or other repurchase that occurs after December 31, 2022, in connection with an initial business combination, a stockholder vote to extend the time by which the Company must complete its initial business combination (“extension vote”) or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with an initial business combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the initial business combination, extension vote or otherwise, (ii) the structure of an initial business combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with an initial business combination (or otherwise issued not in connection with an initial business combination but issued within the same taxable year of an initial business combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete an initial business combination and in the Company’s ability to complete an initial business combination.
On February 28, 2023, the Company’s stockholders
redeemed
Liquidity and Capital Resources
As of September 30, 2023, the Company had $
Through September 30, 2023, the Company’s
liquidity needs were satisfied through receipt of $
On March 3, 2023, the Company issued
a promissory note in the principal amount of up to $
On August 16, 2023, the Sponsor issued a promissory
note in the principal amount of $
Going Concern
The Company anticipates that the $
8
In addition to the Sponsor Loans, the Company can raise additional capital through working capital loans from the initial stockholders, the Company’s officers, directors, or their respective affiliates (which is described in Note 5), or through loans from third parties. Except for the Sponsor Loans, none of the sponsor, officers or directors is under any obligation to advance funds to, or to invest in, the Company. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but may not necessarily be limited to, curtailing operations, suspending the pursuit of its business plan, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.
In connection with the Company’s assessment
of going concern considerations in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards
Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,”
the Company has until December 2, 2023, to consummate an initial business combination. However, if the Company is unable to complete
an initial business combination within the Combination Period, the Company will redeem
Management has determined that the uncertainty of availability of new financing to meet its liquidity needs and mandatory liquidation, should an initial business combination not occur, and potential subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after December 2, 2023. The Company intends to complete an initial business combination prior to its mandatory liquidation date.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for financial information and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. The interim results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future periods.
The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Annual Report on Form 10-K filed by the Company with the SEC on March 31, 2023.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, 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 Securities Exchange Act of 1934, as amended (“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 election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a 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 unaudited condensed 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.
9
Use of Estimates
The preparation of unaudited condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and warrant liabilities at the date of the unaudited 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 unaudited condensed 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 accounting estimates included in these unaudited condensed financial statements is the determination of the fair value of the warrant liability. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had no cash equivalents as of September 30, 2023 and December 31, 2022.
Cash and Marketable Securities Held in Trust Account
The funds in the trust account were initially invested in United States government securities within the meaning of Section 2(a)(16) of the Investment Company Act, having a maturity of 185 days or less, or in money market funds meeting the conditions of paragraphs (d)(1), (d)(2), (d)(3) and (d)(4) of Rule 2a-7 promulgated under the Investment Company Act (or any successor rule), which invest only in direct U.S. government treasury obligations, as determined by the Company. On March 3, 2023, the Company instructed Continental to liquidate the investments held in the trust account and instead to hold the funds in the trust account in an interest-bearing demand deposit account at Morgan Stanley, with Continental continuing to act as trustee, until the earlier of the consummation of the Company’s initial business combination or its liquidation. As a result, following the liquidation of investments in the trust account, the remaining proceeds from the initial public offering and private placement are no longer invested in U.S. government securities or money market funds.
As of September 30, 2023 and December 31, 2022, the assets held in the trust account were held in an interest-bearing demand deposit account and a money market mutual fund, respectively, and presented at fair value at each reporting period.
Financial Instruments
The fair value of the Company’s certain assets and liabilities, which qualify as financial instruments under the FASB ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), approximates the carrying amounts represented in the condensed balance sheets as of September 30, 2023 and December 31, 2022, except for warrant liabilities (see Note 7). The fair values of cash, accounts payable, accrued expenses, and promissory note – related party are estimated to approximate the carrying values as of September 30, 2023 and December 31, 2022 due to the short maturities of such instruments.
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal
Deposit Insurance Corporation Coverage limit of $
Fair Value of Financial Instruments
The Company follows the guidance in ASC 820, “Fair Value Measurement,” 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.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
| Level 1 — | Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment. |
| Level 2 — | Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means. |
| Level 3 — | Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
See Note 7 for additional information on assets and liabilities measured at fair value.
10
Derivative Warrant Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Derivative assets and liabilities are classified on the condensed balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument is required within 12 months of the condensed balance sheet date. The Company has determined that both the warrants included within the placement units (the “placement warrants”) and the warrants included within the units sold in the initial public offering (the “public warrants”) are a derivative instrument.
The Company evaluated the warrants (which are discussed in Note 4, Note 6, and Note 7) in accordance with ASC 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Equity” (“ASC 815”), and concluded that a provision in the warrant agreement, dated February 25, 2021, by and between the Company and Continental, as warrant agent (the “warrant agreement”), relating to certain tender or exchange offers precludes the warrants from being accounted for as components of equity. As the warrants meet the definition of a derivative as contemplated in ASC 815, the warrants are recorded as warrant liabilities on the condensed balance sheets and measured at fair value at inception (on the date of the initial public offering) and at each reporting date in accordance with ASC 820, with changes in fair value recognized in the condensed statements of operations in the period of change.
Offering Costs Associated with the Initial Public Offering
The Company complies with the requirements of the ASC 340-10-S99-1. Offering costs consisted of legal, accounting, underwriting fees and other costs incurred through the initial public offering that were directly related to the initial public offering. Offering costs were allocated to the separable financial instruments issued in the initial public offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with warrant liabilities were expensed as incurred and presented as other income (expense) in the condensed statements of operations. Offering costs associated with the Class A common stock, including the cost of the Class A warrants, were charged to Class A common stock subject to possible redemption upon the completion of the initial public offering.
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A common stock
subject to possible redemption in accordance with the guidance in ASC Topic 480, “Distinguishing Liabilities from Equity.”
Class A common stock subject to mandatory redemption (if any) is classified as liability instruments and is measured at fair value. Conditionally
redeemable Class A common stock (including Class A common stock that features redemption rights that are either within the control of
the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified
as temporary equity. At all other times, Class A common stock is classified as stockholders’ deficit. The Company’s Class
A common stock sold at the initial public offering features certain redemption rights that are considered to be outside of the Company’s
control and subject to the occurrence of uncertain future events. Accordingly, as of September 30, 2023 and December 31, 2022,
On February 28, 2023, the Company held a special
meeting, voting to extending the time the Company has to complete a business combination from March 2, 2023 to December 2, 2023. In connection
with such meeting, the Company’s stockholders holding
Additionally, the Company has issued representative shares (see Note 8). The representative has waived their redemption rights, and as such these shares remain in stockholders’ deficit.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. This method would view the end of the reporting period as if it were also the redemption date for the security.
Immediately upon the closing of the initial public offering, the Company recognized the accretion from initial book value to redemption amount. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid-in capital and accumulated deficit.
11
| Gross proceeds | $ | |||
| Less: | ||||
| Proceeds allocated to public warrants | ( | ) | ||
| Issuance costs related to Class A common stock | ( | ) | ||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Class A common stock subject to possible redemption, December 31, 2021 | ||||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Class A common stock subject to possible redemption, December 31, 2022 | ||||
| Less: | ||||
| Redemption | ( | ) | ||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Class A common stock subject to possible redemption, September 30, 2023 (unaudited) | $ |
Income Taxes
The Company accounts for income taxes under ASC
740, “Income Taxes.” ASC 740, requires the recognition of deferred tax assets and liabilities for both the expected impact
of differences between the unaudited condensed financial statements and tax basis of assets and liabilities and for the expected future
tax benefit to be derived from tax loss and tax credit carryforwards. ASC 740 additionally requires a valuation allowance to be established
when it is more likely than not that all or a portion of deferred tax assets will not be realized. ASC 740-270-25-2 requires that an
annual effective tax rate be determined and that such annual effective rate be applied to year-to-date income in interim periods under
ASC 740-270-30-5. As of September 30, 2023 and December 31, 2022, the Company’s deferred tax asset had a full valuation allowance
recorded against it. The Company’s effective tax rate was
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position 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. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2023 and December 31, 2022. 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 has identified the United States as its only “major” tax jurisdiction. The Company has been subject to income taxation by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Net Income per Common Share
The Company complies with accounting and disclosure
requirements of FASB ASC Topic 260, “Earnings Per Share.” Net income per common stock is computed by dividing net income
by the weighted average number of common stock outstanding for the period. For the three and nine months ended September 30, 2023 and
2022, The Company had one and two classes of shares, respectively, which are referred to as Class A common stock subject to possible
redemption and Class A common stock not subject to possible redemption and Class A common stock and Class B common stock, respectively.
Income and losses are shared pro rata between the class and classes of shares, respectively. Accretion associated with the redeemable
shares of Class A common stock subject to possible redemption is excluded from earnings per share as the redemption value approximates
fair value. The calculation of diluted income per share does not consider the effect of the warrants issued in connection with the (i)
initial public offering and (ii) the private placement since the exercise of the warrants is contingent upon the occurrence of future
events. The warrants are exercisable to purchase
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| For the Three Months Ended September
30, (unaudited) | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Class A - redeemable | Class A – non-redeemable | Class A | Class B | |||||||||||||
| Basic and diluted net income per common stock | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net income, as adjusted | $ | $ | $ | $ | ||||||||||||
| Denominator: | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| For the Nine Months Ended September
30, (unaudited) | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Class A - redeemable | Class A – non-redeemable | Class A | Class B | |||||||||||||
| Basic and diluted net income per common stock | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net income, as adjusted | $ | $ | $ | $ | ||||||||||||
| Denominator: | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
(i) On February 6, 2023, the Company issued an
aggregate of
Recent Accounting Standards
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
On March 2, 2021, the Company consummated the
initial public offering of
The underwriters had a 45-day option from the
date of the initial public offering to purchase up to an additional
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the initial
public offering, the sponsor and the representative purchased an aggregate of
In connection with the closing of the purchase
of the over-allotment units, the Company sold an additional
The Company’s sponsor, officers, directors,
and the representative agreed to (i) waive their redemption rights with respect to their founder shares, placement shares, and public
shares in connection with the completion of the Company’s initial business combination, (ii) waive their redemption rights with
respect to the founder shares, placement shares, and public shares in connection with a stockholder vote to approve an amendment to the
Certificate of Incorporation (A) to modify the substance or timing of the Company’s obligation to redeem
13
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In August 2020, the Company issued
The sponsor agreed not to transfer, assign or
sell its 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, (x) if the last sale price of the Company’s Class A common
stock equals or exceeds $
On February 6, 2023, the Company issued an aggregate
of
Promissory Note — Related Party
On July 21, 2020, the Company issued an unsecured
promissory note to the sponsor (the “IPO Note”), pursuant to which the Company may borrow up to an aggregate principal amount
of $
On March 3, 2023, the Company issued
a promissory note in the principal amount of up to $
On August 16, 2023, the Sponsor issued a promissory
note in the principal amount of $
Related Party Loans
To finance transaction costs in connection with
an initial business combination, the sponsor or an affiliate of the sponsor or certain of the Company’s officers and directors
may, but are not obligated to (other than with respect to the Sponsor Loans), provide the working capital loans as may be required. If
the Company completes an initial business combination, the Company would repay the working capital loans out of the proceeds of the trust
account released to the Company. Otherwise, the working capital loans would be repaid only out of funds held outside the trust account.
In the event that an initial business combination does not close, the Company may use a portion of the working capital held outside the
trust account to repay the working capital loans but no proceeds from the trust account would be used to repay the working capital loans.
Up to $
Administrative Service Fee
The Company has agreed, commencing on the Effective
Date of the initial public offering, to pay an affiliate of the Company’s sponsor a monthly fee of an aggregate of $
Due to Related Parties
In order to facilitate payments for the Company,
parties related to the Company may make payments on behalf of the Company. These amounts due to the related party are non-interest bearing
and are due on demand. At September 30, 2023 and December 31, 2022, excluding the IPO Note and the Sponsor Loans that were outstanding
at September 30, 2023 and December 31, 2022, the Company owed related parties $
14
NOTE 6. WARRANT LIABILITIES
The Company has outstanding warrants to purchase
an aggregate of
Each whole warrant entitles the registered holder
to purchase one share of the Company’s Class A common stock at a price of $
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A common stock is available, subject to the Company satisfying its obligations with respect to registration, or a valid exemption from registration is available. No warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of residence of the exercising holder, or an exemption from registration is available.
The Company has agreed that as soon as practicable, but in no event later than 20 business days after the closing of an initial business combination, the Company will use its commercially reasonable efforts to file – and within 60 business days following an initial business combination, to have declared effective – a registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed. Notwithstanding the above, if the Class A common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of public warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but will use its commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Redemption of Warrants When the Price per
Share of Class A Common Stock Equals or Exceeds $
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
| ● | at a price of $0.01 per warrant; |
| ● | upon not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant holder; and |
| ● | if, and only if, the last reported sale price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior the date on which the Company sends the notice of redemption to the warrant holders. |
If and when the warrants become redeemable by the Company, the Company may exercise the redemption right even if it is unable to register or qualify the underlying securities or sale under all applicable state securities laws.
15
In addition, if (x) the Company issues additional
shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of an initial
business combination at an issue price or effective issue price of less than $
The warrant agreement contains an Alternative
Issuance provision providing that, if less than
The Company believes that the Alternative Issuance provision and the adjustments to the exercise price of the warrants is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic 815 – 40, and thus the warrants are not eligible for an exception from derivative accounting.
The accounting treatment of derivative financial
instruments requires that the Company record a derivative liability upon the closing of the initial public offering. Accordingly, the
Company has classified each warrant as a liability at its fair value and the warrants were allocated a portion of the proceeds from the
issuance of the units equal to its fair value determined by the Monte Carlo simulation. This liability is subject to re-measurement at
each balance sheet date. With each such re-measurement, the warrant liability will be adjusted to fair value, with the change in fair
value recognized in the Company’s statements of operations. The Company will reassess the classification at each balance sheet date.
If the classification changes as a result of events during the period, the warrants will be reclassified as of the date of the event that
causes the reclassification. As such, the Company recorded $
NOTE 7. FAIR VALUE MEASUREMENTS
| September 30, 2023 (unaudited) | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liability – public warrants | $ | $ | $ | $ | ||||||||||||
| Warrant liability – placement warrants | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
16
| December 31, 2022 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| Marketable Securities held in trust account | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liability – public warrants | $ | $ | $ | $ | ||||||||||||
| Warrant liability – placement warrants | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Transfers to/from Levels 1, 2 and 3 are recognized
at the end of the reporting period. The subsequent measurement of the public warrants for the year ended December 31, 2021 is classified
as Level 1 due to the use of an observable market quote in an active market. The estimated fair value of public warrants transferred
from a Level 1 to a Level 2 fair value measurement during the year ended December 31, 2022 was $
| Warrant liabilities as of December 31, 2022 | $ | |||
| Change in fair value of warrant liabilities | ||||
| Transfer from Level 3 to Level 2 | ( | ) | ||
| Warrant liabilities as of September 30, 2023 (unaudited) | $ |
| December 31, 2022 | ||||
| Exercise price | $ | |||
| Stock price | $ | |||
| Volatility | % | |||
| Expected life of the options to convert | ||||
| Risk-free rate | % | |||
| Dividend yield | % | |||
| Likelihood of completing a business combination | % | |||
NOTE 8. COMMITMENTS AND CONTINGENCIES
Registration Rights
The holders of the founder shares, placement warrants, and warrants that may be issued upon conversion of working capital loans have registration rights to require the Company to register a sale of any of its securities held by them after the consummation of an initial business combination pursuant to a registration rights agreement entered into on February 25, 2021. These holders will be entitled to make up to three demands, excluding short form registration demands, that the Company registers such securities for sale under the Securities Act. In addition, these holders will have “piggyback” registration rights to include their securities in other registration statements filed by the Company.
Underwriting Agreement
The underwriters had a 45-day option from March
2, 2021, to purchase up to an additional
On March 2, 2021, the Company paid an underwriting
discount of $
On March 10, 2021, the underwriters purchased
an additional
17
Business Combination Marketing Agreement
The Company has engaged the representative as
an advisor in connection with its initial business combination to assist the Company in holding meetings with its stockholders to discuss
the potential business combination and the target business’ attributes, introduce the Company to potential investors that are interested
in purchasing the Company’s securities in connection with its initial business combination, assist the Company in obtaining stockholder
approval for the initial business combination and assist the Company with its press releases and public filings in connection with the
initial business combination. The Company will pay the representative a cash fee for such services upon the consummation of the initial
business combination in an amount equal to
Representative Shares
On March 2, 2021, the Company issued the representative
shares to the representative upon the consummation of the initial public offering. The Company accounts for the representative shares
as an expense of the initial public offering resulting in a charge directly to stockholders’ deficit, at an estimated fair value
of $
NOTE 9. STOCKHOLDERS’ DEFICIT
Preferred Stock — The
Company is authorized to issue a total of
Class A Common Stock —
The Company is authorized to issue a total of
On February 6, 2023, the Company issued an aggregate
of
Class B Common Stock —
The Company is authorized to issue a total of
The Company’s initial stockholders have
agreed not to transfer, assign or sell their founder shares until the earlier to occur of (A) one year after the completion of the Company’s
initial business combination or (B) subsequent to the Company’s initial business combination, (x) if the last sale price of the
Company’s Class A common stock equals or exceeds $
NOTE 10. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the condensed balance sheet date up to the date that the unaudited condensed financial statements were issued. Based upon this review, other than the below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the unaudited condensed financial statements.
On November 8, 2023, the Company filed a definitive proxy statement for a special meeting of stockholders to vote on the extension of the Combination Period from December 2, 2023 to June 2, 2024, or such earlier date as determined by the Company’s board of directors.
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report including, without limitation, statements in this section regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto included in this Report under “Item 1. Financial Statements.”
Overview
We are a blank check company formed as a Delaware corporation for the purpose of effecting our initial business combination. While we may pursue an initial business combination target in any business, industry or geographic location, we have focused and will continue to focus our search on companies located outside the United States, primarily in the Pan-Eurasian region, including Western Europe, Eastern Europe and the Middle East. We will also consider prospective targets located in the United States, but which are owned by non-U.S. shareholders, including sovereign wealth funds, family offices or industrial conglomerates headquartered in the Pan-Eurasian region. Our management team has an extensive track record of creating value for stockholders by acquiring attractive businesses at disciplined valuations, investing in growth while fostering financial discipline and ultimately improving financial results.
On March 2, 2021, we consummated our initial public offering of 30,000,000 units. Each unit consists of one share of Class A common stock and one-third of one redeemable warrant of the Company, with each warrant entitling the holder thereof to purchase one share of Class A common stock for $11.50 per whole share. The units were sold at a price of $10.00 per unit, generating gross proceeds to the Company of $300,000,000.
Simultaneously with the closing of the initial public offering, we completed the private sale of an aggregate of 800,000 units to our sponsor and the representative at a purchase price of $10.00 per placement unit, generating gross proceeds of $8,000,000.
A total of $300,000,000, comprised of $294,000,000 of the proceeds from the initial public offering and $6,000,000 of the proceeds of the sale of the placement units was placed in the trust account maintained by Continental, acting as trustee.
On March 8, 2021, the underwriters exercised their over-allotment option in full, and the closing of the issuance and sale of the 4,500,000 over-allotment units occurred on March 10, 2021, generating gross proceeds of $45,000,000. In connection with the closing of the purchase of the over-allotment units, the Company sold an additional 90,000 placement units to the sponsor and the representative at a price of $10.00 per placement unit, generating an additional $900,000 of gross proceeds.
On February 6, 2023, the Company issued an aggregate of 8,625,000 shares of Class A common stock to Twelve Seas Sponsor II LLC, the sponsor of the Company, upon the conversion of an equal number of shares of Class B common stock held by the sponsor. The 8,625,000 shares of Class A common stock issued in connection with the Conversion are subject to the same restrictions as applied to the shares of Class B common stock before the Conversion, including, among others, certain transfer restrictions, waiver of redemption rights and the obligation to vote in favor of an initial business combination as described in the prospectus for the Company’s initial public offering.
On February 28, 2023 the Company held a special meeting, voting to extending the time the Company has to complete a business combination to December 2, 2023. In connection with such meeting, the Company’s stockholders holding 31,291,466 public shares exercised their right to redeem such shares for a pro rata portion of the funds in the trust account, and as a result $318,435,861 (approximately $10.17 per share) was removed from the trust account to pay such holders. In connection with the Extension, on March 3, 2023, the Company issued a promissory note in the aggregate principal amount of up to $900,000 to the sponsor, pursuant to which the sponsor agreed to provide the Company with equal installments of $100,000, to be deposited into the trust account for each month in which the Combination Period is extended. Following the redemptions, the Company had 3,208,534 public shares outstanding.
Recent Developments
On November 8, 2023, we filed a definitive proxy statement for a special meeting of stockholders to vote on the extension of the Combination Period from December 2, 2023 to June 2, 2024, or such earlier date as determined by our board of directors.
19
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities through September 30, 2023 were organizational activities, those necessary to prepare for our initial public offering, described below, and, after our initial public offering, identifying a target company for our initial business combination. We do not expect to generate any operating revenues until after the completion of our initial business combination. We generate non-operating income in the form of interest income on marketable securities held in the trust account. We incur 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 and nine months ended September 30, 2023, there was $319,114 and $3,134,227 interest earned from the trust account, respectively.
For the three months ended September 30, 2023, we had net income from operations of $178,830 which consisted of interest income of $319,114 and a gain from the change in the fair value of warrants of $117,967, partially offset by general and administrative costs of $197,537 and provision for income taxes of $60,714. We are required to revalue our liability-classified warrants at the end of each reporting period and reflect in the unaudited condensed statements of operations a gain or loss from the change in fair value of the warrant in the period in which the change occurred.
For the nine months ended September 30, 2023, we had net income from operations of $1,011,750 which consisted of interest income of $3,134,227, partially offset by general and administrative costs of $1,079,874, provision for income taxes of $639,792 and a loss from the change in the fair value of warrants of $402,811. We are required to revalue our liability-classified warrants at the end of each reporting period and reflect in the unaudited condensed statements of operations a gain or loss from the change in fair value of the warrant in the period in which the change occurred.
For the three months ended September 30, 2022, we had a loss from operations of $165,568 which consisted of general and administrative costs, and net income of $1,377,626, which included gain from the change in the fair value of warrants of $276,124, interest income of $1,560,064 and provision for income taxes of $292,994. We are required to revalue our liability-classified warrants at the end of each reporting period and reflect in the unaudited condensed statements of operations a gain or loss from the change in fair value of the warrant in the period in which the change occurred.
For the nine months ended September 30, 2022, we had a loss from operations of $788,052, which consisted of general and administrative costs, and net income of $6,159,030, which included gain from the change in the fair value of warrants of $5,235,164, interest income of $2,078,242 and provision for income taxes of $366,324. We are required to revalue our liability-classified warrants at the end of each reporting period and reflect in the unaudited condensed statements of operations a gain or loss from the change in fair value of the warrant in the period in which the change occurred.
Factors That May Adversely Affect our Results of Operations
Our results of operations and our ability to complete an initial business combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflicts in Ukraine and the Middle East. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an initial business combination.
Liquidity and Capital Resources
On March 2, 2021, we consummated our initial public offering of 30,000,000 units at a price of $10.00 per unit, generating gross proceeds of $300,000,000. In connection with our initial public offering, the underwriters were granted a 30-day option from the date of the prospectus to purchase up to 4,500,000 additional units to cover over-allotment, if any. On March 8, 2021, the underwriters fully exercised the over-allotment option, generating gross proceeds of $45,000,000.
Simultaneously with the initial closing and over-allotment closing of our initial public offering, we consummated the sale of an aggregate 890,000 private placement units to our sponsor and the representative at a price of $10.00 per unit, generating gross proceeds of $8,900,000.
Following our initial public offering, the exercise of the over-allotment option and the sale of the placement units, a total of $345,000,000 was placed in the trust account.
Through September 30, 2023, the Company’s liquidity needs were satisfied through receipt of $25,000 from the sale of the founder shares, issuance of a $300,000 unsecured promissory note to the sponsor, and the remaining net proceeds from the initial public offering and the sale of placement units.
In addition, on March 3, 2023, the Company issued a promissory note in the principal amount of up to $900,000 to the sponsor, pursuant to which the sponsor agreed to loan to the Company up to such amount in connection with the extension of the date by which the Company must either (i) consummate a business combination, (ii) cease all operations, or (iii) redeem or repurchase 100% of the Company’s outstanding public shares, from March 2, 2023 to December 2, 2023 (or such earlier date as determined by the board of directors). As of September 30, 2023, $700,000 has been borrowed against the promissory note, with $200,000 remaining for withdrawal.
As of September 30, 2023, we had cash held in the trust account of $33,840,860. Interest income on the balance in the trust account may be used by us to pay taxes.
For the nine months ended September 30, 2023, cash used in operating activities was $1,097,133.
For the nine months ended September 30, 2022, cash used in operating activities was $627,502.
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We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account (less income taxes payable), to complete our initial business combination. 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 will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
As of September 30, 2023, we had cash of $278,839 held outside the trust account. We intend to use the funds held outside the trust account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete our initial business combination.
On August 16, 2023, the Sponsor issued a promissory note in the principal amount of $750,000 to the Company. The note does not bear interest and has no convertible options associated with the note. As of the date of this filing, no amounts have been paid under this note and $750,000 is due on demand.
In order to fund working capital deficiencies or finance transaction costs in connection with our initial business combination, the initial stockholders or their affiliates may, but are not obligated to (other than with respect to the Sponsor Loans), loan us funds as may be required. If we complete our initial business combination, we would repay such loaned amounts. 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 identical to the placement warrants, at a price of $1.00 per warrant at the option of the lender.
We do not believe we will need to raise additional funds (other than with respect to the Sponsor Loans) in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating our 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 consummation of our initial business combination, in which case we may issue additional securities or incur debt in connection with such initial business combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our initial business combination. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. In addition, following our initial business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
On March 3, 2023, we instructed Continental to liquidate the investments held in the trust account and instead to hold the funds in the trust account in an interest-bearing demand deposit account at Morgan Stanley, with Continental continuing to act as trustee, until the earlier of the consummation of our initial business combination or our liquidation. As a result, following the liquidation of investments in the trust account, the remaining proceeds from the initial public offering and private placement are no longer invested in U.S. government securities or money market funds.
Going Concern
The Company anticipates that the $278,839 outside of the trust account as of September 30, 2023 might not be sufficient to allow the Company to operate until the end of the Combination Period, assuming that an initial business combination is not consummated during that time. Until consummation of its initial business combination, the Company will be using the funds not held in the trust account, and any additional working capital loans from the initial stockholders, the Company’s officers and directors, or their respective affiliates (which is described in Note 5 to the financial statements), for identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the initial business combination.
The Company can raise additional capital through working capital loans from the sponsor, the Company’s officers, directors, or their respective affiliates (which is described in Note 5 to the financial statements), or through loans from third parties. None of the sponsor, officers or directors is under any obligation to advance funds to, or to invest in, the Company. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but may not necessarily be limited to, curtailing operations, suspending the pursuit of its business plan, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.
In connection with the Company’s assessment of going concern considerations in accordance with ASU 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” the Company has until December 2, 2023 to consummate an initial business combination. However, if the Company is unable to complete an initial business combination within the Combination Period, the Company will redeem 100% of the outstanding public shares for a pro rata portion of the funds held in the trust account, equal to the aggregate amount then on deposit in the trust account including interest earned on the funds held in the trust account and not previously released to the Company, divided by the number of then outstanding public shares, subject to applicable law and as further described in the IPO Registration Statement, and then seek to dissolve and liquidate. Management plans to complete an initial business combination prior to the mandatory liquidation date.
Management has determined that the uncertainty of availability of new financing to meet its liquidity needs and mandatory liquidation, should an initial business combination not occur, and potential subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after the Combination Period. The Company intends to complete an initial business combination prior to its mandatory liquidation date.
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Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2023 and December 31, 2022.
Contractual Obligations
At September 30, 2023 and December 31, 2022, we did not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. On February 25, 2021, we entered into an administrative support agreement pursuant to which we have agreed to pay an affiliate of the sponsor a total of $10,000 per month for office space, utilities and secretarial and administrative support. Upon the earlier of the completion of the initial business combination and our liquidation, we will cease paying these monthly fees. For the three and nine months ended September 30, 2023, the Company incurred and paid $30,000 and $90,000, respectively, which is included in operating costs on the condensed statements of operations. For the three and nine months ended September 30, 2022, the Company incurred and paid $30,000 and $90,000, respectively, which are included in formation costs on the unaudited condensed statements of operations.
We have engaged the representative as an advisor in connection with our initial business combination to assist us in holding meetings with our stockholders to discuss the potential initial business combination and the target business’ attributes, introduce us to potential investors that are interested in purchasing our securities in connection with our initial business combination, assist us in obtaining stockholder approval for the initial business combination and assist us with our press releases and public filings in connection with the initial business combination. We will pay the representative a cash fee for such services upon the consummation of our initial business combination in an amount equal to 3.5% of the gross proceeds of our initial public offering ($12,075,000).
Critical Accounting Policies and Estimates
The preparation of unaudited condensed financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Class A Common stock subject to possible redemption
We account for Class A common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480, “Distinguishing Liabilities from Equity.” Class A Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable Class A common stock (including Class A common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, Class A common stock is classified as stockholders’ deficit. Our Class A common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, Class A common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ deficit section of our condensed balance sheets.
Derivative warrant liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of the Company’s financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
We account for our 11,796,667 common stock warrants issued in connection with our initial public offering (11,500,000) and placement warrants (296,667) as derivative warrant liabilities in accordance with ASC 815-40. Accordingly, we recognize the warrant instruments as liabilities at fair value and adjust the instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our unaudited condensed statements of operations. The fair value of placement warrants issued by us in connection with our initial public offering and private placement has been estimated using Monte-Carlo simulations at each measurement date. The fair value of public warrants issued with our initial public offering was initially measured using Monte-Carlo simulations and then measured based trading price once they commenced trading on March 29, 2021.
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Offering costs associated with the initial public offering
We allocated in accordance with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A - “Expenses of Offering.” Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the initial public offering.
We allocated the offering costs between common stock and public warrants using the relative fair value method. The offering costs allocated to the public warrants will be expensed immediately, and offering costs allocated to common stock were charged to temporary equity upon the completion of our initial public offering.
Net income per share of common stock
We compute net income per common stock by dividing net income by the weighted average number of common stock outstanding for the period. We have two classes of shares, 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 shares. This presentation assumes an initial business combination as the most likely outcome. Accretion associated with the redeemable shares of Class A common stock is excluded from earnings per share as the redemption value approximates fair value.
Recent accounting standards
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): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU also 2020-06 removes certain settlement conditions that are required for equity-linked contracts to qualify for scope exception, and it simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective January 1, 2024, for smaller reporting companies using a December 31 fiscal year end, and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is reviewing the impact adoption would have, if any, on its 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 our unaudited condensed financial statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer (together, the “Certifying Officers”), or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Certifying Officers, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were effective as of the end of the quarterly period ended September 30, 2023.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There have been no changes to our internal control over financial reporting during the quarterly period ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
To the knowledge of our management team, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property.
Item 1A. Risk Factors.
As a smaller reporting company under Rule 12b-2 of the Exchange Act, we are not required to include risk factors in this Report. However, as of the date of this Report, there have been no material changes to the risk factors disclosed in (i) our final prospectus dated February 25, 2021, filed with the SEC on March 1, 2021, (ii) our Quarterly Report on Form 10-Q for the period ended June 30, 2021, filed with the SEC on August 16, 2021, (iii) our Quarterly Report on Form 10-Q for the period ended June 30, 2022, filed with the SEC on August 15, 2022, (iv) our Quarterly Report on Form 10-Q for the period ended September 30, 2022, filed with the SEC on November 14, 2022, (v) our proxy statement on Schedule 14A filed with the SEC on February 8, 2023, (vi) our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 31, 2023, (vii) our Quarterly Report on Form 10-Q for the period ended March 31, 2023, filed with the SEC on May 22, 2023, and (viii) our proxy statement on Schedule 14A filed with the SEC on November 8, 2023. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risks could arise that may also affect our business or ability to consummate an initial business combination. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
Military or other conflicts in Ukraine, the Middle East or elsewhere may lead to increased volume and price volatility for publicly traded securities, or affect the operations or financial condition of potential target companies, which could make it more difficult for us to consummate an initial business combination.
Military or other conflicts in Ukraine, the Middle East or elsewhere may lead to increased volume and price volatility for publicly traded securities, or affect the operations or financial condition of potential target companies, and to other company or industry-specific, national, regional or international economic disruptions and economic uncertainty, any of which could make it more difficult for us to identify a business combination target and consummate an initial business combination on acceptable commercial terms, or at all
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The following exhibits are filed as part of, or incorporated by reference into, this Report.
| * | Filed herewith. |
| ** | Furnished. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TWELVE SEAS INVESTMENT COMPANY II | ||
| Date: November 14, 2023 | By: | /s/ Dimitri Elkin |
| Name: | Dimitri Elkin | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: November 14, 2023 | By: | /s/ Jonathan Morris |
| Name: | Jonathan Morris | |
| Title: | Chief Financial Officer | |
| (Principal Accounting and Financial Officer) | ||
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