QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(Commission File Number) |
(I.R.S. Employer Identification Number) | ||
(Address of principal executive offices) |
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Title of each class |
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Name of each exchange on which registered | ||
one-fifth of one redeemable warrant |
The | |||
The | ||||
The |
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| ☒ | Smaller reporting company | |||||
| Emerging growth company | ||||||
RMG ACQUISITION CORP. III
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2022
Table of Contents
September 30, 2022 |
December 31, 2021 |
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(unaudited) |
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Assets: |
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Current assets: |
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Cash |
$ | $ | ||||||
Prepaid expenses |
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Total current assets |
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Investments held in Trust Account |
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Other assets |
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Total Assets |
$ |
$ |
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Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit: |
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Current liabilities: |
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Accounts payable |
$ | $ | ||||||
Accrued expenses |
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Accrued expenses - related party |
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Total current liabilities |
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Deferred legal fees |
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Deferred underwriting commissions |
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Convertible working capital loan - related party |
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Derivative warrant liabilities |
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Total liabilities |
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Commitments and Contingencies |
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Class A ordinary shares; |
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Shareholders’ Deficit: |
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Preference shares, $ |
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Class A ordinary shares, $ |
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Class B ordinary shares, $ |
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Additional paid-in capital |
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Accumulated deficit |
( |
) | ( |
) | ||||
Total shareholders’ deficit |
( |
) | ( |
) | ||||
Total Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit |
$ |
$ |
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For the three months ended September 30, |
For the nine months ended September 30, |
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2022 |
2021 |
2022 |
2021 |
|||||||||||||
General and administrative expenses |
$ | $ | $ | $ | ||||||||||||
Loss from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Other income (expense) |
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Change in fair value of derivative liabilities |
( |
) | ||||||||||||||
Financing costs - warrant liabilities |
( |
) | ||||||||||||||
Interest income |
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Interest expense |
( |
) | ( |
) | ||||||||||||
Unrealized gain on investments held in Trust Account |
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Total other income (expense) |
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Net income |
$ | $ | $ | $ | ||||||||||||
Weighted average Class A ordinary shares, basic and diluted |
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Basic and diluted net income per ordinary share, Class A |
$ | $ | $ | $ | ||||||||||||
Weighted average Class B ordinary shares, basic and diluted |
||||||||||||||||
Basic and diluted net income per ordinary share, Class B |
$ | $ | $ | $ | ||||||||||||
Ordinary Shares |
Additional |
Total |
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Class A |
Class B |
Paid-in |
Accumulated |
Shareholders’ |
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Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Deficit |
||||||||||||||||||||||
Balance - December 31, 2021 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Balance - March 31, 2022 (unaudited) |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
Increase in redemption value of Class A ordinary shares subject to possible redemption |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Balance - June 30, 2022 (unaudited) |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
Increase in redemption value of Class A ordinary shares subject to possible redemption |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Balance - September 30, 2022 (unaudited) |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
Ordinary Shares |
Additional |
Total |
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Class A |
Class B |
Paid-in |
Accumulated |
Shareholders’ |
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Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Deficit |
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Balance - December 31, 2020 |
$ |
$ |
$ |
$ |
( |
) |
$ |
|||||||||||||||||||||
Excess purchase price above fair value of private placement warrants |
— | — | — | — | — | |||||||||||||||||||||||
Accrection on Class A ordinary shares subject to possible redemption |
— | — | — | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
Net loss |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Balance - March 31, 2021 (unaudited) |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
Net income |
— |
— |
— | — | — | |||||||||||||||||||||||
Balance - June 30, 2021 (unaudited) |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
Net income |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
Balance - September 30, 2021 (unaudited) |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
For the nine months ended September 30, |
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2022 |
2021 |
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Cash Flows from Operating Activities: |
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Net income |
$ | $ | ||||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Change in fair value of derivative liabilities |
( |
) | ( |
) | ||||
Financing costs - warrant liabilities |
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Interest expense |
— | |||||||
Unrealized gain on investments held in Trust Account |
( |
) | ( |
) | ||||
Changes in operating assets and liabilities: |
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Prepaid expenses and other assets |
( |
) | ||||||
Accounts payable |
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Accrued expenses |
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Accrued expenses - related party |
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Net cash used in operating activities |
( |
) | ( |
) | ||||
Cash Flows from Investing Activities: |
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Cash deposited in Trust Account |
( |
) | ||||||
Cash withdrawn from Trust Account |
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Net cash provided by (used in) investing activities |
( |
) | ||||||
Cash Flows from Financing Activities: |
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Proceeds from note payable to related party |
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Repayment of note payable to related party |
( |
) | ||||||
Proceeds from convertible working capital loan |
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Proceeds received from initial public offering, gross |
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Proceeds received from private placement |
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Offering costs paid |
( |
) | ||||||
Net cash provided by financing activities |
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Net (decrease) increase in cash |
( |
) | ||||||
Cash - beginning of the period |
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Cash - end of the period |
$ |
$ |
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Supplemental disclosure of noncash investing and financing activities: |
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Increase in redemption value of Class A ordinary shares subject to possible redemption |
$ | $ | ||||||
Offering costs included in accrued expenses |
$ | $ | ||||||
Offering costs paid by related party under promissory note |
$ | $ | ||||||
Deferred legal fees |
$ | $ | ||||||
Deferred underwriting commissions |
$ | $ | ||||||
Reversal of accrued expenses |
$ | $ | ||||||
| • | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
| • | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| • | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
For the Three Months Ended September 30, 2022 |
For the Nine Months Ended September 30, 2022 |
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Class A |
Class B |
Class A |
Class B |
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Basic and diluted net income per common share: |
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Numerator: |
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Allocation of net income |
$ | $ | $ | $ | ||||||||||||
Denominator: |
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Basic and diluted weighted average common shares outstanding |
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Basic and diluted net income per common share |
$ | $ | $ | $ | ||||||||||||
For the Three Months Ended September 30, 2021 |
For the Nine Months Ended September 30, 2021 |
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Class A |
Class B |
Class A |
Class B |
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Basic and diluted net income per common share: |
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Numerator: |
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Allocation of net income (loss) |
$ | $ | $ | $ | ||||||||||||
Denominator: |
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Basic and diluted weighted average common shares outstanding |
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Basic and diluted net income per common share |
$ | $ | $ | $ | ||||||||||||
September 30, 2022 |
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Principal value of convertible working capital loan |
$ | |||
Debt discount |
( |
) | ||
Carrying value of convertible working capital loan-related party |
$ |
|||
Gross Proceeds |
$ | |||
Less: |
— | |||
Offering costs allocated to Class A shares subject to possible redemption |
( |
) | ||
Proceeds allocated to Public Warrants at issuance |
( |
) | ||
Plus: |
||||
Accrection on Class A ordinary shares subject to possible redemption amount |
||||
Class A ordinary shares subject to possible redemption at December 31, 2021 |
||||
Increase in redemption value of Class A ordinary shares subject to possible redemption |
||||
Class A ordinary shares subject to possible redemption at September 30, 2022 |
$ |
|||
| • | in whole and not in part; |
| • | at a price of $ |
| • | upon not less than |
| • | if, and only if, the last reported sale price (the “closing price”) of Class A ordinary shares equals or exceeds $ |
| • | in whole and not in part; |
| • | at $ provided |
| • | if, and only if, the closing price of Class A ordinary shares equals or exceeds $ |
| • | if the closing price of the Class A ordinary shares for any |
| Description | Level 1 |
Level 2 |
Level 3 |
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| Assets: |
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| Investments held in Trust Account-U.S. Treasury Securities |
$ | $ | — | $ | — | |||||||
| Liabilities |
||||||||||||
| Derivative liabilities-Public Warrants |
$ | $ | — | $ | — | |||||||
| Derivative liabilities-Private Warrants |
— | — | ||||||||||
| Description | Level 1 |
Level 2 |
Level 3 |
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| Assets: |
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| Investments held in Trust Account-U.S. Treasury Securities |
$ | $ | — | $ | — | |||||||
| Liabilities |
||||||||||||
| Derivative liabilities-Public Warrants |
$ | $ | — | $ | — | |||||||
| Derivative liabilities-Private Warrants |
— | — | ||||||||||
September 30, 2022 |
December 31, 2021 |
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Share price |
$ | $ | ||||||
Volatility |
% | % | ||||||
Expected life of the options to convert |
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Risk-free rate |
% | % | ||||||
Dividend yield |
||||||||
January 20, 2022 |
September 30, 2022 |
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Strike price of debt conversion |
$ | $ | ||||||
Volatility |
% | % | ||||||
Expected life of the options to convert |
||||||||
Risk-free rate |
% | % | ||||||
Dividend yield |
||||||||
Public Warrants |
Private Warrants |
Total |
||||||||||
Derivative warrant liabilities at December 31, 2020 |
$ | $ | $ | |||||||||
Issuance of Public and Private Warrants |
||||||||||||
Transfer of Public Warrants to Level 1 |
( |
) | ( |
) | ||||||||
Change in fair value of derivative warrant liabilities |
( |
) | ( |
) | ||||||||
Derivative warrant liabilities at December 31, 2021 |
||||||||||||
Change in fair value of derivative warrant liabilities |
( |
) | ( |
) | ||||||||
Derivative warrant liabilities at March 31, 2022 |
||||||||||||
Change in fair value of derivative warrant liabilities |
( |
) | ( |
) | ||||||||
Derivative warrant liabilities at June 30, 2022 |
||||||||||||
Change in fair value of derivative warrant liabilities |
||||||||||||
Derivative warrant liabilities at September 30, 2022 |
$ |
$ |
$ |
|||||||||
Balance at December 31, 2021 |
$ | |||
Initial fair value of the Working Capital Loan Option |
||||
Change in fair value |
( |
) | ||
Balance at March 31, 2022 |
||||
Initial fair value of the Working Capital Loan Option |
||||
Change in fair value |
( |
) | ||
Balance at June 30, 2022 |
||||
Change in fair value |
( |
) | ||
Balance at September 30, 2022 |
$ |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to the “Company,” “RMG Acquisition Corp. III,” “RMG,” “our,” “us” or “we” refer to RMG Acquisition Corp. III. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited interim condensed financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings.
Overview
We are a blank check company, also referred to as a special purpose acquisition company (“SPAC”) incorporated as a Cayman Islands exempted company on December 23, 2020. We were formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). We are an emerging growth company and, as such, we are subject to all of the risks associated with emerging growth companies.
Our sponsor is RMG Sponsor III, LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for our Initial Public Offering was declared effective on February 4, 2021. On February 9, 2021, we consummated our Initial Public Offering of 48,300,000 units (the “Units” and, with respect to the Class A ordinary shares included in the Units being offered, the “Public Shares”), including 6,300,000 additional Units to cover over- allotments (the “Over-Allotment Units”), at $10.00 per Unit, generating gross proceeds of $483.0 million, and incurring offering costs of approximately $27.1 million, of which approximately $16.9 million was for deferred underwriting commissions and $250,000 was for deferred legal fees (Note 7).
Simultaneously with the closing of the Initial Public Offering, we consummated the private placement (“Private Placement”) of 8,216,330 warrants (each, a “Private Placement Warrant” and collectively, the “Private Placement Warrants”) at a price of $1.50 per Private Placement Warrant to the Sponsor, generating proceeds of approximately $12.3 million (Note 5).
Upon the closing of the Initial Public Offering and the Private Placement, $483.0 million ($10.00 per Unit) of the net proceeds of the Initial Public Offering and certain of the proceeds of the Private Placement was placed in a trust account (“Trust Account”) with Continental Stock Transfer & Trust Company acting as trustee and has been invested in United States government treasury bills with a maturity of 185 days or less or in money market funds investing solely in U.S. Treasuries and meeting certain conditions under Rule 2a-7 under the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below.
Our management has broad discretion with respect to the specific application of the net proceeds of its Initial Public Offering and the sale of Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. Our initial Business Combination must be with one or more operating businesses or assets with a fair market value equal to at least 80% of the net assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on the income earned on the Trust Account) at the time we sign a definitive agreement in connection with the initial Business Combination. However,
21
we will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act.
If we are unable to complete a Business Combination within 24 months from the closing of the Initial Public Offering, or February 9, 2023, (the “Combination Period”), we will (1) cease all operations except for the purpose of winding up; (2) as promptly as reasonably possible but not more than 10 business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest (less up to $100,000 of interest to pay dissolution expenses and which interest shall be net of taxes payable, expenses relating to the administration of the trust account and limited withdrawals for working capital), divided by the number of then issued and outstanding Public Shares, which redemption will completely extinguish Public Shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any); and (3) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and the board of directors, liquidate and dissolve, subject in each case to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law.
Results of Operations
For the three months ended September 30, 2022, we had net income of approximately $1.2 million principally from the change in the value of derivative warrant liabilities of approximately $2.2 million, due to the unrealized gain on investments held in Trust Account. The unrealized gain on investments held in Trust Account was partially offset by the change in the value of derivative warrant liabilities of approximately $697,000 and approximately $294,000 in general and administrative costs.
For the three months ended September 30, 2021, we had net income of approximately $5.8 million, resulting from a non-operating gain of approximately $6.1 million from the change in fair value of the derivative warrant liabilities and an unrealized gain on investments held in Trust of approximately $6,000, partially offset by approximately $284,000 in general and administrative costs.
For the nine months ended September 30, 2022, we had net income of approximately $13.6 million principally from the change in the value of derivative warrant liabilities of approximately $12.2 million. The $2.9 million unrealized gain on investments held in Trust Account was partially offset by approximately $1.4 million in general and administrative costs.
For the nine months ended September 30, 2021, we had a net income of approximately $5.3 million, resulting from a non-operating gain of approximately $7.5 million from the change in fair value of the derivative warrant liabilities and an unrealized gain on investments held in Trust of approximately $40,000, partially offset by $1.5 million in general and administrative costs and financing costs associated with derivative warrant liabilities of approximately $734,000.
Going Concern
As of September 30, 2022, we had approximately $86,000 in our operating bank account, and a working capital deficit of approximately $337,000. Further, we have incurred and expect to continue to incur significant costs in pursuit of our financing and acquisition plans. These factors, among others, raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.
Our liquidity needs to date have been satisfied through a payment of $25,000 from Sponsor to cover for certain expenses in exchange for the issuance of the Founder Shares (as defined in Note 4), the loan of $135,000 from the Sponsor pursuant to the Note (as defined in Note 4), and the proceeds from the consummation of the Private Placement not held in the Trust Account. We fully repaid the Note on February 12, 2021. In addition, in order to finance transaction costs in connection with a 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, provide us Working Capital Loans (as defined in Note 6). As of September 30, 2022 and December 31, 2021, there was $500,000 and $0, respectively, outstanding under any Working Capital Loan.
22
In connection with the Company’s assessment of going concern considerations in accordance with FASB ASC Topic 205-40, “Basis of Presentation of Financial Statements-Going Concern,” we have determined that the mandatory liquidation date and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. If we are unable to complete a business combination by February 9, 2023 (unless such a period is extended as described herein), then we will cease all operations except for the purpose of liquidating. Over this time period, we have used, and will be using, these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination. No adjustments have been made to the carrying amounts of assets or liabilities should we be required to liquidate after February 9, 2023. The condensed financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.
Management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on our financial position, results of our operations and/or search for a target company, the specific impact is not readily determinable as of the date of the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these financial statements and the specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these financial statements.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or long-term liabilities, other than an working capital loan and the administrative services agreement to pay our Sponsor $20,000 per month for office space, secretarial and administrative services provided to us.
Administrative Services Agreement
Commencing on the effective date of the Registration Statement, we agreed to pay an affiliate of the Sponsor a total of $20,000 per month for office space, administrative and support services (including salaries). Upon our liquidation, we will cease paying these monthly fees. Upon completion of the Initial Business Combination, we will pay to such affiliate an amount equal to $20,000 multiplied by the number of whole months remaining between the date of the completion of the Initial Business Combination and the date that is 24 months from the closing of the Offering.
The Sponsor, officers and directors, or any of their respective affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. The audit committee will review on a quarterly basis all payments that were made by us to the Sponsor, directors, officers or us or any of their respective affiliates.
We incurred approximately $60,000 and $60,000 in expenses in connection with such services during the three months ended September 30, 2022 and 2021, respectively, as reflected in the accompanying statements of operations. We incurred approximately $180,000 and $160,000 in expenses in connection with such services during the nine months ended September 30, 2022 and 2021, respectively, as reflected in the accompanying statements of operations. We had $60,000 and $0 included in accrued expenses-related party in connection with such services as of September 30, 2022 and December 31, 2021, respectively.
Registration and Shareholder Rights Agreement
The holders of the Founder Shares, Private Placement Warrants and any warrants that may be issued upon conversion of Working Capital Loans (and any Class A ordinary shares issuable upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the Working Capital Loans and upon conversion of the Founder Shares) were entitled to registration rights pursuant to a registration and shareholder rights agreement signed upon the
23
effective date of the Initial Public Offering. The holders of these securities were entitled to make up to three demands, excluding short form demands, that the Company registers such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination. We will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
We granted the underwriters a 45-day option from the date of this prospectus to purchase up to 6,300,000 additional Units at the Initial Public Offering price less the underwriting discounts and commissions. The underwriters exercised their over-allotment option in full on February 9, 2021.
The underwriters were entitled to an underwriting discount of $0.20 per unit, or approximately $9.7 million in the aggregate, paid upon the closing of the Initial Public Offering. In addition, $0.35 per unit, or approximately $16.9 million in the aggregate will be payable to the underwriters for deferred underwriting commissions. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms of the underwriting agreement.
Deferred Legal Fees
We entered into an engagement letter to obtain legal advisory services, pursuant to which the Company’s legal counsel agreed to defer their fees until the closing of the initial Business Combination. As of September 30, 2022 and December 31, 2021, the Company recorded an aggregate of $250,000 in connection with such arrangement as deferred legal fees in the accompanying consolidated balance sheet.
Critical Accounting Policies
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. A summary of our significant accounting policies is included in Note 2 to our condensed financial statements in Part I, Item 1 of this Quarterly Report. Certain of our accounting policies are considered critical, as these policies are the most important to the depiction of our financial statements and require significant, difficult or complex judgments, often employing the use of estimates about the effects of matters that are inherently uncertain. Such policies are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our 2021 Annual Report on Form 10-K filed with the SEC on March 31, 2022. There have been no significant changes in the application of our critical accounting policies during the nine months ended September 30, 2022.
Recent Accounting Pronouncements
See Note 2 to the unaudited condensed financial statements included in Part I, Item 1 of this Quarterly Report for a discussion of recent accounting pronouncements.
Off-Balance Sheet Arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
JOBS Act
The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” under the JOBS Act and are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We elected 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, the unaudited condensed financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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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, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) 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, (iii) 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 (iv) 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 our Initial Public Offering or until we are no longer an “emerging growth company,” whichever is earlier.
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. As of September 30, 2022, we were not subject to any market (other than related to our warrant liabilities) or interest rate risk. The net proceeds of the Initial Public Offering, including amounts in the Trust Account, has been invested in U.S. government securities with a maturity of 185 days or less or in money market funds that meet certain conditions under Rule 2a-7 under the Investment Company Act, that invest only in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
We have not engaged in any hedging activities since our inception and we do not expect to engage in any hedging activities with respect to the market risk to which we are exposed.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended September 30, 2022, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer has concluded that during the period covered by this report, our disclosure controls and procedures were not effective as of September 30, 2022, because of a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, the Company’s management has concluded that our control around the interpretation and accounting for certain complex features of the Class A ordinary shares and warrants issued by the Company was not effectively designed or maintained. This material weakness resulted in the restatement of the Company’s balance sheet as of February 9, 2021 and its interim financial statements for the quarters ended March 31, 2021 and June 30, 2021.
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
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Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the three months ended September 30, 2022 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting except for the below:
Our Chief Executive Officer and Chief Financial Officer performed additional accounting and financial analyses and other post-closing procedures including consulting with subject matter experts related to the accounting for certain equity and equity-linked financial instruments. The Company’s management has expended, and will continue to expend, a substantial amount of effort and resources for the remediation and improvement of our internal control over financial reporting. While we have processes to properly identify and evaluate the appropriate accounting technical pronouncements and other literature for all significant or unusual transactions, we have expanded and will continue to improve these processes to ensure that the nuances of such transactions are effectively evaluated in the context of the increasingly complex accounting standards.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors.
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our final prospectus filed with the SEC on February 8, 2021, in our Annual Report on Form 10-K and in our prior Quarterly Reports on Form 10-Q. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
If we are deemed to be an investment company for purposes of the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be severely restricted. As a result, in such circumstances, we may elect to abandon our efforts to complete an initial Business Combination and instead choose to liquidate the Company.
On March 30, 2022, the SEC issued proposed rules (the “SPAC Rule Proposals”) relating, among other items, to the circumstances in which SPACs such as the Company could potentially be subject to the Investment Company Act and the regulations thereunder. The SPAC Rule Proposals would provide a safe harbor for such companies from the definition of “investment company” under Section 3(a)(1)(A) of the Investment Company Act, provided that a SPAC satisfies certain criteria, including a limited time period to announce and complete a de-SPAC transaction. Specifically, to comply with the safe harbor, the SPAC Rule Proposals would require a company to file a report on Form 8-K announcing that it has entered into an agreement with a target company for a Business Combination no later than 18 months after the effective date of its registration statement for its initial public offering (the “IPO Registration Statement”). The company would then be required to complete its initial Business Combination no later than 24 months after the effective date of the IPO Registration Statement.
Because the SPAC Rule Proposals have not yet been adopted, there is currently uncertainty concerning the applicability of the Investment Company Act to a SPAC, including a company like ours, that does not complete its Business Combination within 24 months after the effective date of the IPO Registration Statement.
If we are deemed to be an investment company under the Investment Company Act, our activities would be severely restricted, including:
| • | restrictions on the nature of our investments; and |
| • | restrictions on any issuance of securities. |
In addition, we may be required to institute burdensome compliance requirements, including:
| • | registration as an investment company with the SEC; |
| • | adoption of a specific form of corporate structure; and |
| • | reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations that we are currently not subject to. |
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We do not believe that our principal activities will subject us to regulation as an investment company under the Investment Company Act. However, if we are deemed to be an investment company and subject to compliance with and regulation under the Investment Company Act, we may be subject to additional regulatory burdens and expenses for which we have not allotted funds. As a result, if we are deemed to be an investment company under the Investment Company Act, we may elect to abandon our efforts to complete an initial Business Combination and instead choose to liquidate the Company.
To mitigate the risk that we might be deemed to be an investment company for purposes of the Investment Company Act, we may, at any time, instruct the trustee to liquidate the securities held in the Trust Account and instead to hold the funds in the Trust Account in cash until the earlier of the consummation of our initial Business Combination or our liquidation. As a result, following the liquidation of securities in the Trust Account, we would likely receive minimal interest, if any, on the funds held in the Trust Account, which would reduce the dollar amount our public shareholders would receive upon any redemption or liquidation of the Company.
The funds in the Trust Account have, since our initial public offering, been held only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds investing solely in direct U.S. government treasury obligations and meeting certain conditions under Rule 2a-7 under the Investment Company Act. However, to mitigate the risk of us being deemed to be an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act) and thus subject to regulation under the Investment Company Act, we may, at any time, and we expect that we will, on or prior to the 24-month anniversary of the effective date of the Registration Statement, instruct Continental Stock Transfer & Trust Company, the trustee with respect to the Trust Account, to liquidate the U.S. government treasury obligations or money market funds held in the Trust Account and thereafter to hold all funds in the Trust Account in cash until the earlier of consummation of our Business Combination or liquidation of the Company. Following such liquidation, we would likely receive minimal interest, if any, on the funds held in the Trust Account. However, interest previously earned on the funds held in the Trust Account still may be released to us to pay our taxes, if any, and certain other expenses as permitted. As a result, any decision to liquidate the securities held in the Trust Account and thereafter to hold all funds in the Trust Account in cash would reduce the dollar amount our public shareholders would receive upon any redemption or liquidation of the Company.
In addition, even prior to the 24-month anniversary of the effective date of the Registration Statement, we may be deemed to be an investment company. The longer that the funds in the Trust Account are held in short-term U.S. government treasury obligations or in money market funds invested exclusively in such securities, even prior to the 24-month anniversary, there is a greater risk that we may be considered an unregistered investment company, in which case we may be required to liquidate the Company. Accordingly, we may determine, in our discretion, to liquidate the securities held in the Trust Account at any time, even prior to the 24-month anniversary, and instead hold all funds in the Trust Account in cash, which would further reduce the dollar amount our public shareholders would receive upon any redemption or liquidation of the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Offerings
Simultaneously with the closing of the Initial Public Offering, the Company consummated the Private Placement of 8,216,330 Private Placement Warrants at a price of $1.50 per Private Placement Warrant to the Sponsor, generating proceeds of approximately $12.3 million.
In connection with the Initial Public Offering, our sponsor had agreed to loan us an aggregate of up to $300,000 pursuant to the Note. This loan is non-interest bearing and was repaid in full upon the consummation of the Initial Public Offering.
Of the gross proceeds received from the Initial Public Offering and the full exercise of the option to purchase additional Shares, $483,000,000 was placed in the Trust Account. The net proceeds of the Initial Public Offering and certain proceeds from the Private Placement are invested in U.S. government treasury bills with a maturity of 180 days or less and in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations.
We paid a total of approximately $9.7 million in underwriting discounts and commissions related to the Initial Public Offering. In addition, the underwriters agreed to defer $16.9 million in underwriting discounts and commissions
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits.
| * | These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 3rd day of November, 2022.
| RMG ACQUISITION CORP. III | ||
| By: | /s/ Robert S. Mancini | |
| Name: | Robert S. Mancini | |
| Title: | Chief Executive Officer | |
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