UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
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 May 19, 2023, there
were
10X CAPITAL VENTURE ACQUISITION CORP. III
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2023
TABLE OF CONTENTS
i
part I – financial information
Item 1. Condensed Consolidated Financial Statements
10X CAPITAL VENTURE ACQUISITION CORP. III
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2023 (Unaudited) | December 31, 2022 | |||||||
Assets: | ||||||||
Current assets: | ||||||||
Cash | $ | $ | ||||||
Prepaid expenses | ||||||||
Due from Sponsor | ||||||||
Total current assets | ||||||||
Investments held in Trust Account | ||||||||
Total Assets | $ | $ | ||||||
Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit: | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | $ | ||||||
Accrued expenses | ||||||||
Promissory note - related party | ||||||||
Class A ordinary shares tendered for redemption | ||||||||
Total current liabilities | ||||||||
Deferred underwriting commissions | ||||||||
Total Liabilities | ||||||||
Commitments and Contingencies | ||||||||
Class A ordinary shares subject to possible redemption; | ||||||||
Shareholders’ Deficit: | ||||||||
Preference shares, $ | ||||||||
Class A ordinary shares, $ | ||||||||
Class B ordinary shares, $ | ||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Shareholders’ Deficit | ( | ) | ( | ) | ||||
Total Liabilities, Class A Ordinary Shares Subject to Redemption and Shareholders’ Deficit | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
10X CAPITAL VENTURE ACQUISITION CORP. III
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | |||||||
General and administrative expenses | $ | $ | ||||||
Administrative expenses - related party | ||||||||
Loss from operations | ( | ) | ( | ) | ||||
Other income: | ||||||||
Gain on settlement agreement | — | |||||||
Income from investments held in Trust Account | ||||||||
Total other income | ||||||||
Net income (loss) | $ | $ | ( | ) | ||||
$ | $ | ( | ) | |||||
$ | $ | ( | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
10X CAPITAL VENTURE ACQUISITION CORP. III
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2023
Ordinary Shares | ||||||||||||||||||||||||||||
Non-redeemable Class A |
Class B | Additional Paid-in |
Accumulated | Total Shareholders’ |
||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
Balance - January 1, 2023 | ( |
) | ( |
) | ||||||||||||||||||||||||
Accretion for Class A ordinary shares to redemption amount | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
Net income | — | — | ||||||||||||||||||||||||||
Balance – March 31, 2023 | $ | $ | $ | ( |
) | $ | ( |
) |
FOR THE THREE MONTHS ENDED MARCH 31, 2022
Ordinary Shares | ||||||||||||||||||||||||||||
Non-redeemable Class A |
Class B | Additional Paid-in |
Accumulated | Total Shareholders’ |
||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
Balance – January 1, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
Sale of private placement units in private placement | ||||||||||||||||||||||||||||
Fair value of warrants included in the Units sold in the Initial Public Offering | — | — | ||||||||||||||||||||||||||
Offering costs associated with issuance of warrants as part of the Units in the Initial Public Offering | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
Forfeiture of Class B ordinary shares | ( |
) | ( |
) | ||||||||||||||||||||||||
Accretion for Class A ordinary shares to redemption amount | — | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
Net loss | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
Balance – March 31, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
10X CAPITAL VENTURE ACQUISITION CORP. III
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income (loss) | $ | $ | ( | ) | ||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Income from investments held in Trust Account | ( | ) | ( | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses | ( | ) | ||||||
Accounts payable | ( | ) | ||||||
Accrued expenses | ||||||||
Due from Sponsor | ( | ) | ||||||
Net cash provided by (used in) operating activities | ( | ) | ||||||
Cash Flows from Investing Activities: | ||||||||
Cash deposited in Trust Account | ( | ) | ||||||
Cash withdrawn from trust for payment to redeeming shareholders | ||||||||
Net cash provided by (used in) investing activities | ( | ) | ||||||
Cash Flows from Financing Activities | ||||||||
Repayment of note payable to related party | ( | ) | ||||||
Proceeds received from initial public offering, gross | ||||||||
Proceeds received from private placement | ||||||||
Repayment of promissory note - related party | ( | ) | ||||||
Payment to redeeming shareholders | ( | ) | ||||||
Offering costs paid | ( | ) | ||||||
Net cash (used in) provided by financing activities | ( | ) | ||||||
Net Change in Cash | ( | ) | ||||||
Cash - Beginning of period | ||||||||
Cash - End of period | $ | $ | ||||||
Supplemental disclosure of noncash investing and financing activities: | ||||||||
Offering costs included in accounts payable | $ | $ | ||||||
Offering costs included in accrued expenses | $ | $ | ||||||
Offering costs paid by related party under promissory note | $ | $ | ||||||
Deferred underwriting commissions | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
10X CAPITAL VENTURE ACQUISITION CORP. III
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF ORGANIZATION, BUSINESS OPERATIONS AND ONGOING CONCERN
10X Capital Venture Acquisition Corp. III (the “Company”) is a blank check company incorporated as a Cayman Islands exempted company on February 10, 2021. The Company was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities (the “Business Combination”).
As of March 31, 2023, the Company had not commenced any operations. All activities through March 31, 2023 related to the Company’s formation and the initial public offering (“Initial Public Offering”), which is described below, and, subsequent to the Initial Public Offering, the search for a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds held in the Trust Account (as defined below).
The Company’s Sponsor is 10X Capital SPAC Sponsor
III LLC, a Cayman Islands limited liability company (the “Sponsor”). The registration statement for the Company’s Initial
Public Offering was declared effective on January 11, 2022. On January 14, 2022, the Company consummated its Initial Public
Offering of
Simultaneously with the closing of the Initial Public
Offering, the Company consummated the private placement (“Private Placement”) of
Upon the closing of the Initial Public Offering and
the Private Placement, $
5
The Company’s management has broad discretion
with respect to the specific application of the net proceeds of the Initial Public Offering and the Private Placement, although substantially
all of the net proceeds are intended to be generally applied toward consummating a Business Combination (less deferred underwriting commissions).
The Business Combination must be with one or more target businesses that together have a fair market value equal to at least
The Company will provide the holders of the Company’s
outstanding Public Shares (the “Public Shareholders”) with the opportunity to redeem all or a portion of their Public Shares
upon the completion of the Business Combination either (i) in connection with a shareholder meeting called to approve the Business Combination
or (ii) without a shareholder vote by means of a tender offer. The decision as to whether the Company will seek shareholder approval of
a proposed Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The Public Shareholders
are entitled to redeem their Public Shares at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the
Trust Account calculated as of two business days prior to the consummation of the initial Business Combination, including interest earned
on the funds held in the Trust Account (which interest shall be net of taxes payable), divided by the number of then outstanding Public
Shares, subject to the limitations and on the conditions described herein. The amount in the Trust Account was initially $
All of the Public Shares contain a redemption feature which allows for the redemption of such Public Shares in connection with the liquidation, if there is a shareholder vote or tender offer in connection with the initial Business Combination and in connection with certain amendments to the Amended and Restated Memorandum and Articles of Association. In accordance with U.S. Securities and Exchange Commission (the “SEC”) and its guidance on redeemable equity instruments, which has been codified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 480, “Distinguishing Liabilities from Equity” (“ASC 480”), paragraph 10-S99, redemption provisions not solely within the control of a company require ordinary shares subject to redemption to be classified outside of permanent equity. Accordingly, all of the Public Shares are presented as temporary equity, outside of the shareholders’ deficit section of the Company’s consolidated balance sheets. Given that the Public Shares were issued with other freestanding instruments (i.e., public warrants), the initial carrying value of Class A ordinary shares classified as temporary equity will be the allocated proceeds determined in accordance with ASC 470-20. The Class A ordinary shares will be subject to ASC 480-10-S99. If it is probable that the equity instrument will become redeemable, the Company has the option to either (i) accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or (ii) recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Company elected to recognize the changes in redemption value immediately. The changes in redemption value were recognized as a one-time charge against additional paid-in capital (to the extent available) and accumulated deficit. While in no event will the Company redeem the Public Shares if such redemption would cause the Company’s Class A ordinary shares to be considered “penny stock” (as such term is defined in Rule 3a51-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), the Public Shares are redeemable and will be classified as redeemable on the consolidated balance sheets until such date that a redemption event takes place.
6
If the Company is unable to complete the Business
Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly
as reasonably possible but not more than ten 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 earned on the funds held in the Trust Account (which
interest shall be net of taxes payable and up to $
The holders of the Founder Shares (as defined in Note 5) prior to the Initial Public Offering (the “Initial Shareholders”) agreed to (i) waive their redemption rights with respect to any Founder Shares and Public Shares they hold in connection with the completion of the initial Business Combination, (ii) waive their redemption rights with respect to any Founder Shares and Public Shares they hold in connection with a shareholder vote to approve an amendment to the Company’s Amended and Restated Memorandum and Articles of Association, and (iii) waive their rights to liquidating distributions from the Trust Account with respect to any Founder Shares they hold if the Company fails to complete the initial Business Combination within the Combination Period or any extended period of time that the Company may have to consummate the initial Business Combination as a result of an amendment to the Company’s Amended and Restated Memorandum and Articles of Association (although they will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares they hold if the Company fails to complete the initial Business Combination within the Combination Period).
The Company’s Sponsor 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 other similar agreement or Business
Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $
Extraordinary General Meeting
On December 28, 2022, the Company held an extraordinary general meeting
of shareholders (the “Extraordinary General Meeting”), where the Company’s shareholders voted to approve, by special
resolution, the proposal to amend and restate the Company’s amended and restated memorandum and articles of association to extend
the date by which the Company must (1) consummate an initial business combination, (2) cease all operations except for the purpose of
winding up if we fail to complete such initial business combination, and (3) redeem all of the Class A ordinary shares included as part
of the Units sold in the Initial Public Offering from January 14, 2023 to July 14, 2023, and to allow the Company’s board of directors,
without another shareholder vote, to elect to further extend the date to consummate an initial business combination after the Extended
Date up to three times, by an additional month each time, upon two days’ advance notice prior to the applicable deadline, up to
October 14, 2023. In connection with the Extraordinary General Meeting, holders of
7
Proposed Business Combination and Termination
On December 20, 2022, the Company entered into an Agreement and Plan of Merger (as amended, supplemented or otherwise modified from time to time, the “Merger Agreement”) by and among the Company, 10X Sparks Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), and Sparks Energy, Inc., a Delaware corporation (“Sparks”).
On February 2, 2023, the Company, Merger Sub, Sparks, and Ottis Jarrada Sparks entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”), pursuant to which the parties thereto (i) agreed to terminate the Merger Agreement and (ii) agreed to a mutual release of all claims related to the Merger Agreement and the transactions contemplated thereby.
Liquidity and Going Concern
As of March 31, 2023, the Company had approximately $
The Company’s liquidity needs prior to the
consummation of the Initial Public Offering were satisfied through the payment of $
Based upon the analysis above, management has determined that the Company does not have sufficient liquidity to meet its anticipated obligations for at least twelve months after the unaudited condensed consolidated financial statements are available to be issued, as such, the events and circumstances raise substantial doubt about the Company’s ability to continue as a going concern.
In connection with the Company’s assessment of going concern considerations in accordance with the ASC 205-40, the Company has until July 14, 2023, or up October 14, 2023 at the option of the Board, to consummate a Business Combination. It is uncertain that the Company will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that the liquidity condition and mandatory liquidation, should a Business Combination not occur, and potential subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. The Company intends to complete a Business Combination before the mandatory liquidation date.
8
Risks and Uncertainties
In addition to the risks noted above, 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 the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these unaudited condensed consolidated financial statements. The unaudited condensed consolidated 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 is not determinable as of the date of these unaudited condensed consolidated 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 unaudited condensed consolidated financial statements.
NOTE 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X and pursuant to the rules and regulations of the SEC. Accordingly, certain disclosures included in the annual financial statements have been condensed or omitted from these financial statements as they are not required for interim financial statements under U.S. GAAP and the rules of the SEC. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the period presented. Operating results for the three months ended March 31, 2023, are not necessarily indicative of the results that may be expected through December 31, 2023, or any future period.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Amended Annual Report on Form 10-K/A filed by the Company with the SEC on May 22, 2023.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
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 shareholder 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 Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth 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 consolidated 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 consolidated financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of expenses during the reporting periods.
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 consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash
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 March 31, 2023 and December 31, 2022.
Investments Held in Trust Account
The Company’s portfolio of investments is comprised of U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or investments in money market funds that invest in U.S. government securities and generally have a readily determinable fair value, or a combination thereof. When the Company’s investments held in the Trust Account are comprised of U.S. government securities, the investments are classified as trading securities. When the Company’s investments held in the Trust Account are comprised of money market funds, the investments are recognized at fair value. Trading securities and investments in money market funds are presented on the consolidated balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities are included in income from investments held in the Trust Account in the accompanying unaudited condensed consolidated statements of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.
Concentration of Credit Risk
Financial instruments that potentially subject the
Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal
Deposit Insurance Corporation Coverage limit of $
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under the FASB ASC Topic 820, “Fair Value Measurements,” approximates the carrying amounts represented in the consolidated balance sheets, primarily due to their short-term nature.
10
Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers consist of:
● | 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. |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
Promissory Note - Related Party
On November 14, 2022, the Company issued an unsecured promissory note
(as amended and restated on November 14, 2022 and as may be further amended from time to time, the “New Note”) to the Sponsor
for an aggregate principal amount of up to $
11
Derivative Financial Instruments
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 to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). 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.
Each whole warrant of the Company, the “Public Warrants,” and one-half of one redeemable warrant, the “Private Placement Warrants,” are classified in accordance with ASC 480 and ASC 815, which provides that the warrants are not precluded from equity classification. Equity-classified contracts were initially measured at fair value (or allocated value). Subsequent changes in fair value will not be recognized as long as the contracts continue to be classified in equity in accordance with ASC 480 and ASC 815.
Offering Costs Associated with the Initial Public Offering
The Company complies with the requirements of FASB ASC 340-10-S99-1. Offering costs consisted of legal, accounting, and other costs incurred that were directly related to the Initial Public Offering. Offering costs associated with the warrants were charged to shareholders’ equity upon the completion of the Initial Public Offering. Offering costs associated with the Class A ordinary shares were charged against the carrying value of Class A ordinary shares subject to possible redemption upon the completion of the Initial Public Offering.
Class A Ordinary Shares Subject to Possible Redemption
Class A ordinary shares subject to mandatory redemption (if any) are
classified as liability instruments and are measured at fair value. Conditionally redeemable Class A ordinary shares (including Class
A ordinary shares that feature 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) are classified as temporary equity. At all other times, Class A ordinary
shares are classified as shareholders’ equity. The Company’s Class A ordinary shares feature certain redemption rights that
are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, all outstanding
Class A ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’
deficit section of the Company’s consolidated balance sheets. On December 28, 2022,
Under ASC 480, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying value of the security 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 value. The change in the carrying value of the redeemable Class A ordinary shares resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.
Income Taxes
The Company complies with the accounting and reporting requirements of FASB ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
FASB ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions 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. The Company’s management determined that the Cayman Islands is the Company’s only major tax jurisdiction. 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 March 31, 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.
12
The Company is considered to be an exempted Cayman Islands company with no connection to any other taxable jurisdiction and is presently not subject to income taxes or income tax filing requirements in the Cayman Islands or the United States. As such, the Company’s tax provision was zero for the periods presented.
Net Income (Loss) per Ordinary Share
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has two classes of shares, which are referred to as Class A ordinary shares and Class B ordinary shares. Income and losses are shared pro rata between the two classes of shares. This presentation assumes a business combination as the most likely outcome. Net income (loss) per ordinary share is calculated by dividing the net income (loss) by the weighted average shares of ordinary shares outstanding for the respective period.
The calculation of diluted net income (loss) per ordinary shares does
not consider the effect of the Public Warrants and the Private Placement Warrants to purchase an aggregate of
The Company has considered the effect of Class B ordinary shares that were excluded from the weighted average number as they were contingent on the exercise of over-allotment option by the underwriter. Since the contingency was satisfied, with respect to the portion of the over-allotment exercised by the underwriter, the Company included these shares in the weighted average number as of the beginning of the reporting period to determine the dilutive impact of these shares.
The following table presents a reconciliation of the numerator and denominator used to compute basic and diluted net income (loss) per share for each class of ordinary shares:
Three Months Ended March 31, 2023 (Unaudited) | Three Months Ended March 31, 2022 (Unaudited) | |||||||||||||||
Class A | Class B | Class A | Class B | |||||||||||||
Basic and diluted net income (loss) per ordinary share: | ||||||||||||||||
Numerator: | ||||||||||||||||
Allocation of net income (loss) | ( | ) | ( | ) | ||||||||||||
Denominator: | ||||||||||||||||
$ | $ | $ | ( | ) | $ | ( | ) |
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.
13
NOTE 3. INITIAL PUBLIC OFFERING
On January 14, 2022, the Company consummated
its Initial Public Offering of
Each Unit consists of one Class A ordinary share
and one-half of one redeemable warrant. Each whole warrant will entitle the holder to purchase one Class A ordinary share at a price of
$
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public
Offering, the Company consummated the Private Placement of
If the Company does not complete the initial Business Combination within the Combination Period, the Private Placement Units will expire worthless. The Private Placement Units, private placement shares underlying the Private Placement Units and private placement warrants included in the Private Placement Units are subject to the transfer restrictions described below. The Private Placement Units have terms and provisions that are identical to those of the Units sold in the Initial Public Offering.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In February 2021, the Company’s Sponsor paid
$
The Company’s Initial Shareholders agreed not to transfer, assign or sell any of their Founder Shares until consummation of the initial Business Combination. Any permitted transferees will be subject to the same restrictions and other agreements of the Initial Shareholders with respect to any Founder Shares (the “Lock-up”).
14
In December 2022, certain investors of the Company
(“10X III Investors”) entered into a non-redemption agreement with the Company and Sponsor (“Non-Redemption Agreements”).
Pursuant to the Non-Redemption Agreements, such 10X III Investors agreed, for the benefit of the Company, to vote certain ordinary shares
of the Company now owned or acquired (the “Investor Shares”), representing
Due from Sponsor
During January 2023, the Company received a settlement as a result
of litigation in the amount of $
Promissory Note - Related Party
The Sponsor agreed to loan the Company up to $
Related Party Loans
In order to finance transaction costs in connection with an intended
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, loan the Company funds as may be required (the “Working Capital Loans”). If the Company completes
the initial Business Combination, the Company would repay the Working Capital Loans. In the event that the 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 Support Agreement
On January 11, 2022, the Company entered into an agreement with the
Sponsor, pursuant to which the Company agreed to pay the Sponsor a total of $
15
The Sponsor, executive officers and directors, or any of their respective affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on the Company’s behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations. The Company’s audit committee will review on a quarterly basis all payments that were made by the Company to the Sponsor, officers, directors or their affiliates. For the three months ended March 31, 2023 and 2022, the Company did not incur or reimburse any Business Combination costs to the Sponsor. There was no outstanding amounts as of March 31, 2023 and December 31, 2022.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Registration and Shareholder Rights
The holders of the Founder Shares, Private Placement Units, private placement shares underlying the Private Placement Units, private placement warrants underlying the Private Placement Units, the Class A ordinary shares underlying such private placement warrants, and units that may be issued upon conversion of the Working Capital Loans will have registration rights which will require the Company to register a sale of any of the aforementioned securities of the Company held by them pursuant to a registration rights agreement signed upon the effective date of the Initial Public Offering. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company registers such securities. In addition, the holders have certain “piggyback” registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination. Notwithstanding the foregoing, Cantor may not exercise its demand and “piggyback” registration rights after five (5) and seven (7) years, respectively, after the effective date of the registration statement and may not exercise its demand rights on more than one occasion. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriter a 45-day option
from the date of the Initial Public Offering to purchase up to an additional
The underwriter was entitled to a cash underwriting
discount of approximately $
NOTE 7. CLASS A ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION
The Company’s Class A ordinary shares contain certain redemption
rights that are considered to be outside of the Company’s control and subject to the occurrence of future events. The Company is
authorized to issue
16
The Class A ordinary shares subject to possible redemption reflected on the accompanying consolidated balance sheets are reconciled in the following table:
Gross proceeds | $ | |||
Less: | ||||
Proceeds allocated to Public Warrants | ( | ) | ||
Class A ordinary shares issuance costs | ( | ) | ||
Redemption of shares | ( | ) | ||
Plus: | ||||
Accretion of carrying value to redemption value | ||||
Increase in redemption value of Class A ordinary shares subject to possible redemption | ||||
Class A ordinary shares subject to possible redemption at December 31, 2022 | $ | |||
Plus: | ||||
Accretion of carrying value to redemption value | ||||
Class A ordinary shares subject to possible redemption at March 31, 2023 | $ |
NOTE 8. SHAREHOLDERS’ DEFICIT
Preference Shares - The Company is
authorized to issue a total of
Class A Ordinary Shares - The
Company is authorized to issue a total of
Class B Ordinary Shares - The Company
is authorized to issue a total of
The Founder Shares will automatically convert into
Class A ordinary shares concurrently with or immediately following the consummation of the initial Business Combination on a one-for-one
basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject to further
adjustment as provided herein. In the case that additional Class A ordinary shares or equity-linked securities are issued or deemed issued
in connection with the initial Business Combination, the number of Class A ordinary shares issuable upon conversion of all Founder Shares
will equal, in the aggregate, on an as-converted basis,
17
NOTE 9. WARRANTS
As of March 31, 2023 and December 31, 2022, the Company had
Public Warrants may only be exercised for a whole number of shares. No fractional Public Warrants will be issued upon separation of the Units and only whole Public Warrants will trade. The Public Warrants will become exercisable 30 days after the completion of a Business Combination; provided that the Company has an effective registration statement under the Securities Act covering the Class A ordinary shares issuable upon exercise of the Public Warrants and a current prospectus relating to them is available and such shares are registered, qualified or exempt from registration under the securities laws of the state of residence of the holder (or the Company permit holders to exercise their warrants on a cashless basis under certain circumstances). The Company agreed that as soon as practicable, but in no event later than 15 business days after the closing of the initial Business Combination, the Company will use best efforts to file with the SEC a post-effective amendment to the registration statement used in connection with the Initial Public Offering or a new registration statement covering the Class A ordinary shares issuable upon exercise of the warrants and to maintain a current prospectus relating to those Class A ordinary shares until the warrants expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the Class A ordinary shares issuable upon exercise of the warrants is not effective by the 60th day after the closing of the initial Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if the Class A ordinary shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy 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” and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, it will use commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
The warrants have an exercise price of $
18
The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants and the Class A ordinary shares issuable upon exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be non-redeemable so long as they are held by the initial purchasers or such purchasers’ permitted transferees. If the Private Placement Warrants are held by someone other than the Initial Shareholders or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
Redemption of warrants for cash: Once the warrants become exercisable, the Company may redeem the outstanding warrants (except as described herein with respect to the Private Placement Warrants):
● | in whole and not in part; |
● | at a price of $0.01 per warrant; |
● | upon a minimum of 30 days’ prior written notice of redemption to each warrant holder; and |
● | if, and only if, the last reported sale price of Class A ordinary shares equals or exceeds $18.00 per share (as adjusted) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. |
The Company will not redeem the warrants as described above unless a registration statement under the Securities Act covering the Class A ordinary shares issuable upon exercise of the warrants is then effective and a current prospectus relating to those Class A ordinary shares is available throughout the 30-day redemption period.
In no event will the Company be required to net cash settle any warrant. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
NOTE 10. FAIR VALUE MEASUREMENTS
The following table presents information about the Company’s financial assets that are measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
Description | Amount at Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
March 31, 2023 (Unaudited) | ||||||||||||||||
Assets | ||||||||||||||||
Investments held in Trust Account: | ||||||||||||||||
U.S. Treasury Securities | $ | $ | $ | $ | ||||||||||||
December 31, 2022 | ||||||||||||||||
Assets | ||||||||||||||||
Investments held in Trust Account: | ||||||||||||||||
Money Market investments | $ | $ | $ | $ |
NOTE 11. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred up to the date unaudited condensed consolidated financial statements were available to be issued. Based upon this review, the Company determined that there have been no events that have occurred that would require adjustments to the disclosures in the unaudited condensed consolidated financial statements.
On May 17, 2023, the Company amended
and restated the New Note. The New Note, as amended and restated on May 17, 2023, is for an aggregate principal amount of up to $
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023 (the “Quarterly Report”) to “we,” “us,” “our” or the “Company” refer to 10X Capital Venture Acquisition Corp. III. References to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the “Risk Factors” section of our Amended Annual Report on Form 10-K/A for the year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 22, 2023. Our securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, we disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company incorporated on February 10, 2021 as a Cayman Islands exempted company and formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities, which we refer to as our “initial business combination.” We have not selected any specific initial business combination target, and we have not, nor has anyone on our behalf, engaged in any substantive discussions, directly or indirectly, with any initial business combination target.
Our sponsor is 10X Capital SPAC Sponsor III LLC, a Cayman Islands limited liability company (the “Sponsor”). The registration statement for our initial public offering (the “Initial Public Offering”) was declared effective on January 11, 2022. On January 14, 2022, we consummated our Initial Public Offering of 30,000,000 units (the “Units”), including the issuance of 3,900,000 Units as a result of the underwriter’s partial exercise of its over-allotment option. Each Unit consists of one Class A ordinary share, par value $0.0001 per share, of the Company (“Class A ordinary shares” and, with respect to the Class A ordinary shares included in the Units offered in the Initial Public Offering, the “Public Shares”) and one-half of one redeemable warrant of the Company (each whole warrant, a “Public Warrant”), with each Public Warrant entitling the holder thereof to purchase one Class A ordinary share for $11.50 per share, subject to adjustment. The Units were sold at a price of $10.00 per Unit, generating gross proceeds to us of $300.0 million. In connection with the Initial Public Offering, we incurred offering costs of approximately $20.2 million, of which approximately $14.3 million was for deferred underwriting commissions.
Simultaneously with the closing of the Initial Public Offering, we consummated the private placement (the “Private Placement”) of 1,153,000 units (each, a “Private Placement Unit” and collectively, the “Private Placement Units”) at a price of $10.00 per Private Placement Unit to the Sponsor and Cantor Fitzgerald & Co. (“Cantor”), generating proceeds of approximately $11.5 million. Each Private Placement Unit consists of one Class A ordinary share (the “Private Placement Shares”) and one-half of one redeemable warrant (the “Private Placement Warrants.”
20
Upon the closing of the Initial Public Offering and the Private Placement, $304.5 million ($10.15 per Unit) of net proceeds, including the net proceeds of the Initial Public Offering and certain of the proceeds of the Private Placement, was placed in a trust account (the “Trust Account”) and invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Investment Company Act”), which invest only in direct U.S. government treasury obligations. Except with respect to interest earned on the funds held in the Trust Account that may be released to us to pay our taxes, the proceeds from the Initial Public Offering and the sale of the Private Placement Units will not be released from the Trust Account until the earliest of (i) the completion of the initial business combination, (ii) the redemption of the Public Shares if we are unable to complete the initial business combination by July 14, 2023, or up to October 14, 2023 if approved by our board of directors (the “Combination Period”), subject to applicable law, and (iii) the redemption of the Public Shares properly submitted in connection with a shareholder vote to amend our second amended and restated memorandum and articles of association (the “Charter”) to modify the substance or timing of our obligation to redeem 100% of the Public Shares if we have not consummated the initial business combination within the Combination Period or with respect to any other material provisions relating to shareholders’ rights or pre-initial business combination activity. The proceeds deposited in the Trust Account could become subject to the claims of our creditors, if any, which could have priority over the claims of holders of Public Shares.
Our management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the Private Placement, although substantially all of the net proceeds (less deferred underwriting commissions) are intended to be generally applied toward consummating an initial business combination. Our initial business combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the net balance in the Trust Account (excluding the amount of deferred underwriting discounts held and taxes payable on the income earned on the Trust Account) at the time of the signing an agreement to enter into an initial business combination. However, we will only complete an initial business combination if the post-business combination 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. There is no assurance that we will be able to successfully effect an initial business combination.
On December 28, 2022, a total of 186 shareholders elected to redeem an aggregate of 25,943,810 Class A ordinary shares, representing approximately 83.28% of the issued and outstanding Class A ordinary shares. The payment in connection with the redemption of these shares took place on January 18, 2023, whereby a total value of $266,701,252 was paid out to shareholders from the Trust Account. Following such redemptions, there were 4,056,190 Class A ordinary shares subject to possible redemption outstanding.
Termination of Sparks Merger Agreement
On December 20, 2022, we entered into an Agreement and Plan of Merger (as amended, supplemented or otherwise modified from time to time, the “Sparks Merger Agreement”) with 10X Sparks Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), and Sparks Energy, Inc., a Delaware corporation (“Sparks”).
We were subsequently informed by the management of Sparks that it was their belief that the Sparks Merger Agreement did not constitute a binding contract. In response, on January 30, 2023, we filed a complaint in the Delaware Court of Chancery (the “Delaware Action”) to obtain a declaratory judgment that the Sparks Merger Agreement constitutes a binding and enforceable contract between us, Merger Sub and Sparks, requiring Sparks to take certain steps as may be reasonably necessary to consummate the business combination pursuant to the Sparks Merger Agreement as soon as practicable.
On February 2, 2023, we entered into the Settlement Agreement with Merger Sub, Sparks and Ottis Jarrada Sparks, pursuant to which (i) the parties thereto mutually agreed to terminate the Sparks Merger Agreement and (ii) the parties thereto agreed to a mutual release of all claims related to the Sparks Merger Agreement, the transactions contemplated thereby, and the Delaware Action.
By virtue of the termination of the Sparks Merger Agreement, the Ancillary Agreements (as defined in the Sparks Merger Agreement) were terminated in accordance with their terms.
21
Extension
On December 28, 2022, we held an extraordinary general meeting of shareholders, at which our shareholders approved, by special resolution, the proposal to amend and restate our amended and restated memorandum and articles of association to extend the date by which we must (1) consummate an initial business combination, (2) cease all operations except for the purpose of winding up if we fail to complete such initial business combination, and (3) redeem all of the Class A ordinary shares included as part of the Units sold in the Initial Public Offering from January 14, 2023 to July 14, 2023 (the “Extended Date”) and to allow our board of directors (the “Board”), without another shareholder vote, to elect to further extend the date to consummate an initial business combination after the Extended Date up to three times, by an additional month each time, upon two days’ advance notice prior to the applicable deadline, up to October 14, 2023 (the “Extension” and such proposal, the “Extension Proposal”). In connection with the Extension, a total of 186 shareholders elected to redeem an aggregate of 25,943,810 Class A ordinary shares, representing approximately 83.28% of the issued and outstanding Class A ordinary shares. As a result, an aggregate of $266,701,252 (or approximately $10.28 per share) was released from the Trust Account to pay such shareholders.
Liquidity, Capital Resources, and Going Concern
For the three months ended March 31, 2023, net cash provided by operating activities was $208,278, which was due to our net income of $2,775,197 partially offset by income from investments held in the Trust Account of $179,181, and by changes in working capital accounts of $2,387,738.
For the three months ended March 31, 2022, net cash used in operating activities was $506,571, which was due to income from investments held in the Trust Account of $158,893, our net loss of $347,368, and changes in working capital of $310.
For the three months ended March 31, 2023, net cash provided by investing activities was $266,701,252, which was due to Cash withdrawn from the Trust Account for payment to redeeming shareholders in connection with the Extension.
For the three months ended March 31, 2022, net cash used in investing activities of $304,500,000 was the result of the amount of net proceeds from our Initial Public Offering being deposited into the Trust Account.
For the three months ended March 31, 2023, net cash used in financing activities of $266,951,252 was a result of a payment to redeeming shareholders of $266,701,252, and the repayment of the promissory note – related party in the amount of $250,000.
For the three months ended March 31, 2022, net cash provided by financing activities of $305,678,803 was comprised of $300,000,000 in proceeds from the issuance of Units in our Initial Public Offering, and proceeds from the Private Placement of $11,530,000, partially offset by the repayment of the promissory note with our Sponsor of $136,617 and payment of offering costs of $5,714,580.
As of March 31, 2023, we had approximately $25,371 held outside of the Trust Account and a working surplus of approximately $0.2 million.
Our liquidity needs prior to the consummation of the Initial Public Offering were satisfied through the payment of $25,000 from the Sponsor to cover certain expenses on our behalf in exchange for issuance of Class B ordinary shares, par value $0.0001 per share (“Class B ordinary shares”), of the Company and loan proceeds from the Sponsor of approximately $137,000 under a promissory note, dated February 18, 2021 (as amended on December 31, 2021, the “Pre-IPO Promissory Note”). We fully repaid the Pre-IPO Promissory Note on January 14, 2022. Subsequent to the consummation of the Initial Public Offering, our liquidity has been satisfied through the net proceeds from the consummation of the Initial Public Offering and the Private Placement held outside of the Trust Account and a Working Capital Loan (as defined below) under an unsecured promissory note from the Sponsor of $2,500,000. In addition, in order to finance transaction costs in connection with a business combination, the Sponsor, members of our founding team or any of their affiliates may provide us with additional Working Capital Loans. During the three months ended March 31, 2023, we repaid the $250,000 outstanding under the Working Capital Loan. As of March 31, 2023 and December 31, 2022, there was $0 and $250,000 outstanding under the Working Capital Loans, respectively.
Based upon the analysis above, our management has determined that we do not have sufficient liquidity to meet our anticipated obligations for at least twelve months after the financial statements are available to be issued, and as such, the events and circumstances raise substantial doubt about our ability to continue as a going concern.
We have until July 14, 2023, with the option upon Board approval to extend up to October 14, 2023, to consummate an initial business combination. It is uncertain that we will be able to consummate an initial business combination by this time. If an initial business combination is not consummated by the applicable date, there will be a mandatory liquidation and subsequent dissolution. In connection with our assessment of going concern considerations in accordance with FASB Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” our management has determined that the liquidity condition and mandatory liquidation, should a business combination not occur, and potential subsequent dissolution raises substantial doubt about our ability to continue as a going concern. We intend to complete a business combination before the mandatory liquidation date. Over this time period, we will be using the funds outside of the Trust Account 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 an initial business combination.
22
Results of Operations
Our entire activity since inception up to March 31, 2023 related to our formation, the preparation for the Initial Public Offering, and since the closing of the Initial Public Offering, the search for a prospective initial business combination and expenses related to consummating an initial business combination. We will not generate any operating revenues until after the completion of our initial business combination. We generate non-operating income in the form of investment income from the Trust Account. We will continue to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses and transaction expenses.
For the three months ended March 31, 2023, we had net income of approximately $2,775,197, which consisted of approximately $179,181 in income from investments held in the Trust Account and approximately $4,000,000 on a gain from a settlement agreement, partly offset by approximately $1,291,484 in general and administrative expense and approximately $112,500 in administrative expenses-related party.
For the three months ended March 31, 2022, we incurred a net loss of approximately $347,000, which consisted of approximately $394,000 in general and administrative expense and approximately $113,000 in administrative expenses-related party, partly offset by approximately $159,000 in income from investments held in the Trust Account.
Contractual Obligations
Promissory Notes - Related Party
The Sponsor agreed to loan us up to $300,000 pursuant to a promissory note, dated February 18, 2021 (as amended on December 31, 2021, the “Note”), to be used for a portion of the expenses of the Initial Public Offering. The Note was non-interest bearing, unsecured and due upon the closing of the Initial Public Offering. We borrowed approximately $137,000 under the Note and fully repaid the Note balance on January 14, 2022. Subsequent to the repayment, the facility was no longer available to the Company
Related Party Loans
In order to finance transaction costs in connection with an intended initial business combination, the Sponsor or an affiliate of the Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required for working capital purposes (“Working Capital Loans”). If we complete an initial business combination, we would repay the Working Capital Loans. In the event that the initial business combination does not close, we 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 $1,500,000 of such loans may be convertible into units of the post-business combination entity (the “Working Capital Units”) at a price of $10.00 per unit at the option of the lender. The Working Capital Units would be identical to the Private Placement Units. Each Working Capital Unit would consist of one Class A ordinary share and one-half of one redeemable warrant (the “Working Capital Warrants”). On May 17, 2023, we amended and restated an existing unsecured promissory note issued to our Sponsor (as amended and restated on May 17, 2023, the “New Note” ). The New Note is for an aggregate principal amount of up to $2,500,000 for working capital purposes. The New Note bears no interest and is repayable in full upon the earlier of the consummation of our initial business combination and the day prior to the date we elect to liquidate and dissolve in accordance with the provisions of the Charter (such earlier date, the “Maturity Date”). Up to $1,500,000 of the principal amount of the New Note may also be converted into additional private placement-equivalent units, at a price of $10.00 per unit, at the option of the holder of the New Note at any time on or prior to the Maturity Date. During the three months ended March 31, 2023, we repaid $250,000 outstanding under the New Note. As of March 31, 2023 and December 31, 2022, we had $0 and $250,000 of such Working Capital Loans outstanding, respectively.
Registration and Shareholder Rights
The holders of the Class B ordinary shares, Private Placement Units, Private Placement Shares and Private Placement Warrants and the Class A ordinary shares underlying the Working Capital Units and Working Capital Warrants will have registration rights to require us to register a sale of any of our securities held by them pursuant to a registration rights agreement signed upon the effective date of the Initial Public Offering. The holders of these securities are entitled to make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain “piggyback” registration rights with respect to registration statements filed subsequent to the completion of the initial business combination. Notwithstanding the foregoing, Cantor may not exercise its demand and “piggyback” registration rights after five (5) and seven (7) years, respectively, after the effective date of the registration statement filed in connection with the Initial Public Offering and may not exercise its demand rights on more than one occasion. We will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
We granted the underwriter a 45-day option from the date of the Initial Public Offering to purchase up to an additional 3,915,000 Units to cover over-allotments, if any, at the Initial Public Offering price less the underwriting discounts and commissions. On January 14, 2022, the underwriter partially exercised the over-allotment option to purchase an additional 3,900,000 Units.
The underwriter was entitled to a cash underwriting discount of approximately $5.2 million in the aggregate paid upon the closing of the Initial Public Offering. An additional fee of approximately $14.3 million in the aggregate will be payable to the underwriter for deferred underwriting commissions. The deferred fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that we complete an initial business combination, subject to the terms of the underwriting agreement for the Initial Public Offering.
23
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the periods reported. Actual results could materially differ from those estimates. We have not identified any critical accounting estimates for the three months ended March 31, 2023 and 2022.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.
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
Disclosure controls and procedures are controls and other procedures that are 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 our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2023. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the period covered in this Quarterly Report, our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective.
Management concluded that a material weakness in internal controls over financial reporting existed relating to the accounting treatment for complex accounting applications. A material weakness is a deficiency, or combination of deficiencies, in internal controls 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.
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 Controls Over Financial Reporting
There has been no change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. Management will enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements. Our updated processes will include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
24
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. A detailed discussion of such risks was included in Part I, Item 1A, “Risk Factors” of our Amended Annual Report on Form 10-K/A for the year ended December 31, 2022, filed with the SEC on May 22, 2023 (the “Amended Annual Report”). These risk factors should be read carefully in connection with evaluating our business and in connection with the forward-looking statements and other information contained in this Quarterly Report. Any of the risks described in the Amended Annual Report could materially affect our business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales
None.
Use of Proceeds
On January 14, 2022, we consummated our Initial Public Offering of 30,000,000 Units, at an offering price to the public of $10.00 per Unit, for an aggregate offering price of $300.0 million, with each Unit consisting of one Class A ordinary share and one-half of one Public Warrant. Each Public Warrant entitles the holder thereof to purchase one Class A ordinary share at a price of $11.50 per share. Cantor acted as the sole bookrunning manager for the Initial Public Offering. Our Initial Public Offering did not terminate before all of the securities registered in our registration statement were sold. The securities sold in the Initial Public Offering were registered under the Securities Act on a registration statement on Form S-1 (File No. 333-253868), which was declared effective by the SEC on January 11, 2022.
Net proceeds of $304.5 million, comprised of $294.8 million of the proceeds from the Initial Public Offering (which amount includes $14.3 million of the underwriter’s deferred discount) and $9.7 million of the proceeds of the sale of the Private Placement Units, were deposited in the Trust Account upon closing of the Initial Public Offering. We paid a total of $5.2 million in underwriting discounts and commissions and $741,000 for other offering costs related to the Initial Public Offering. In addition, the underwriter agreed to defer approximately $14.3 million in underwriting discounts, which amount will be payable when and if an initial business combination is consummated. No payments were made by us to directors, officers or persons owning ten percent or more of our ordinary shares or to their associates, or to our affiliates. There has been no material change in the planned use of proceeds from the Initial Public Offering as described in our final prospectus related to the Public Offering, dated January 11, 2022, which was filed with the SEC on January 14, 2022.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
On May 17, 2023, we amended and restated the New Note to increase the aggregate principal amount of the New Note of up to $2,500,000 (the “Amended New Note”). Any loans made by Sponsor are, and will be, evidenced by the Amended New Note. We expect to use the proceeds of the working capital loans to fund working capital deficiencies and to finance transaction costs in connection with an initial business combination.
The Amended New Note is an unsecured obligation of the Company and is payable from our assets other than the Trust Account. The Amended New Note provides that the holder waives recourse to the Trust Account.
The Amended New Note bears no interest and is repayable in full upon the earlier of the consummation of our initial business combination and the day prior to the date we elect to liquidate and dissolve in accordance with the provisions of our Charter (such earlier date, the “Maturity Date”).
The holder of the Amended New Note has the option to convert all or any portion of the principal outstanding under the Amended New Note into private placement-equivalent units, at a price of $10.00 per unit, at any time on or prior to the Maturity Date. However, the maximum principal amount that may be converted, as to the New Note and all other notes evidencing Working Capital Loans, is $1,500,000 or such greater dollar amount as may be agreed to by us, with such approvals as may be necessary or advisable.
25
Item 6. Exhibits.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
* | Filed herewith. |
** | Furnished. |
26
SIGNATURES
In accordance with 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.
10X CAPITAL VENTURE ACQUISITION CORP. III | ||
Date: May 22, 2023 | By: | /s/ Hans Thomas |
Name: | Hans Thomas | |
Title: | Chief Executive Officer | |
(Principal Executive Officer) | ||
Date: May 22, 2023 | By: | /s/ Guhan Kandasamy |
Name: | Guhan Kandasamy | |
Title: | Chief Financial Officer | |
(Principal Financial and Accounting Officer) |
27