GCT Semiconductor Holding, Inc 10-Q for FY2022 Q3
GCT Semiconductor Holding, Inc. (GCTS)
About this 10-Q
GCT Semiconductor Holding, Inc filed this 10-Q on November 4, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net income
- $3.2M
- compared with a net loss of $4150 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
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For the transition period from to
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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).
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CONCORD ACQUISITION CORP III
QUARTERLY REPORT ON FORM 10-Q
Table of Contents
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Condensed Statements of Changes in Stockholders’ (Deficit) Equity (Unaudited) | | 3 | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 23 | |
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Unregistered Sales of Equity Securities and Use of Proceeds. | | 27 | |
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i
PART I. FINANCIAL INFORMATION
Item I. Financial Statements (Unaudited)
CONCORD ACQUISITION CORP III
CONDENSED BALANCE SHEETS
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| September 30, 2022 |
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| | (unaudited) | | December 31, 2021 | ||
Assets | | | | | | |
Current Assets: | | | | | | |
Cash | | $ | | | $ | |
Prepaid expenses | |
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Total Current Assets | | | | | | |
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Long-term prepaid expenses | | | | | | |
Marketable securities and cash held in Trust Account | | | | | | |
Total Assets | | $ | | | $ | |
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Liabilities and Stockholders’ Deficit | |
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Current Liabilities: | | | | | | |
Due to related party | | $ | | | $ | |
Taxes payable | | | | | | — |
Accounts payable and accrued expenses | | | | | | |
Total Current Liabilities | | | | | | |
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Sponsor loans, at fair value | | | | | | |
Warrant liability | |
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Deferred underwriters’ discount | |
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Total Liabilities | |
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Commitments and Contingencies | |
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Common stock subject to possible redemption, | | | | | | |
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Stockholder’s Deficit: | |
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Preferred stock, $ | |
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Class A common stock, $ | |
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Class B common stock, $ | |
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Additional paid-in capital | |
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Accumulated deficit | |
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Total Stockholders’ Deficit | |
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Total Liabilities and Stockholders’ Deficit | | $ | | | $ | |
The accompanying notes are an integral part of these condensed financial statements.
1
CONCORD ACQUISITION CORP III
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | For the period from | | | | | | ||
| | For the | | February 18, 2021 | | For the | | For the | ||||
| | Nine Months ended | | (inception) through | | Three Months ended | | Three Months ended | ||||
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| September 30, 2022 |
| September 30, 2021 |
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Formation and operating costs | | $ | | | $ | | | $ | | | $ | |
Loss from operations | | | ( | | | ( | | | ( | | | ( |
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Other income: | | | | | | | | | | | | |
Income from investments held in Trust Account | | | | | | — | | | | | | — |
Change in fair value of warrant liability and sponsor loans | | | | | | — | | | | | | — |
Total other income | | | | | | — | | | | | | — |
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Income (loss) before income taxes | | | | | | ( | | | | | | ( |
Provision for income taxes | | | | | | — | | | | | | — |
Net income (loss) | | $ | | | $ | ( | | $ | | | $ | ( |
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Basic and diluted weighted average shares outstanding, Class A common stock subject to possible redemption | |
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Basic and diluted net income (loss) per share, Class A common stock subject to possible redemption | | | | ( | | | | ( | ||||
Basic and diluted weighted average shares outstanding, Class B common stock | | | | | | | | | | | | |
Basic and diluted net income (loss) per share, Class B common stock | | | | ( | | | | ( | ||||
The accompanying notes are an integral part of these condensed financial statements.
2
CONCORD ACQUISITION CORP III
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
(Unaudited)
For the Nine Months ended September 30, 2022
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| | Preferred Stock | | Common Stock | | Common Stock | | Additional | | Accumulated | | Stockholders’ | ||||||||||||
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| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-In Capital |
| Deficit |
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Balance as of January 1, 2022 | | — | | $ | — | | — | | $ | — | | | | $ | | | $ | — | | $ | ( | | $ | ( |
Increase in redemption value of shares subject to possible redemption | | — | | | — | | — | | | — | | — | | | — | | | — | | | ( | | $ | ( |
Net income |
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Balance as of June 30, 2022 | | — | | | — | | — | | | — | | | | | | | | — | | | ( | | | ( |
Increase in redemption value of shares subject to possible redemption | | — | | | — | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Net income | | — | | | — | | — | | | — | | — | | | — | | | — | | | | | | |
Balance as of September 30, 2022 (unaudited) | | — | | $ | — | | — | | $ | — | | | | $ | | | $ | — | | $ | ( | | $ | ( |
For the period from February 18, 2021 (inception) through September 30, 2021
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| | Preferred Stock | | Common Stock | | Common Stock | | Additional | | Accumulated | | Stockholders’ | ||||||||||||
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| Shares |
| Amount |
| Shares |
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| Deficit |
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Balance – February 18, 2021 (inception) | | | | $ | | | | | $ | | | | | $ | | | $ | | | $ | | | $ | |
Issuance of Class B common stock to Sponsor | | — | | | — | | — | | | — | | | | | | | | | | | — | | | |
Net loss |
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Balance as of June 30, 2021 (unaudited) | | — | | | — | | — | | | — | | | | | | | | | | | ( | | | |
Net loss | | — | | | — | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Balance as of September 30, 2021 (unaudited) |
| — | | $ | — | | — | | $ | — | | | | $ | | | $ | | | $ | ( | | $ | |
The accompanying notes are an integral part of these condensed financial statements.
3
CONCORD ACQUISITION CORP III
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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| | For the Nine | | February 18, 2021 | ||
| | Months ended | | (inception) through | ||
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Cash flows from operating activities: | | | | | | |
Net income (loss) | | $ | | | $ | ( |
Adjustments to reconcile net income (loss) to net cash used in operating activities: | |
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Income from investments held in Trust Account | | | ( | | | — |
Changes in fair value of warrant liability and sponsor loans | | | ( | | | — |
Changes in operating assets and liabilities: | | | | | | |
Prepaid expenses | |
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Due to related party | | | | | | — |
Taxes payable | | | | | | — |
Accounts payable and accrued offering costs | |
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Net cash used in operating activities | | | ( | | | ( |
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Cash flows from financing activities: | |
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Proceeds from issuance of promissory note to related party | |
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Proceeds from sale of common stock to initial stockholders | | | — | | | |
Payment of deferred offering costs | | | — | | | ( |
Net cash provided by financing activities | |
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Net change in cash | |
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Cash, beginning of the period | |
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Cash, end of the period | | $ | | | $ | |
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Supplemental disclosure of cash flow information: | |
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Non-cash financing transactions: | | | | | | |
Increase in redemption value of shares subject to possible redemption | | $ | | | $ | — |
Offering costs included in accounts payable and accrued offering expenses | | $ | — | | $ | |
The accompanying notes are an integral part of these condensed financial statements.
4
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Note 1 — Organization, Business Operations and Liquidity
Organization and General
Concord Acquisition Corp III (the “Company”) is a blank check company incorporated on February 18, 2021, as a Delaware corporation formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with
As of September 30, 2022, the Company had not commenced any operations. All activity for the period from February 18, 2021 (inception) through September 30, 2022, relates to the Company’s formation, the Initial Public Offering (as defined below) and, subsequent to the Initial Public Offering, identifying a target company 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 investment income on cash and cash equivalents from the proceeds derived from the Initial Public Offering, and non-operating income or expense from the changes in the fair value of warrant liability and sponsor loans.
The Company’s sponsors are Concord Sponsor Group III LLC (the “Sponsor”) (an affiliate of Atlas Merchant Capital LLC), and CA2 Co-Investment LLC (an affiliate of one of the underwriters of the Initial Public Offering) (“CA2 Co-Investment” and, together with the Sponsor, the “Sponsors”).
The registration statements for the Initial Public Offering were declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on November 3, 2021 (the “Effective Date”). On November 8, 2021, the Company completed its initial public offering (the “Initial Public Offering” or “IPO”) of
Simultaneously with the closing of the IPO, the Company consummated the private placement of
The Company also executed promissory notes with the Sponsors, evidencing loans to the Company in the aggregate amount of $
Offering costs amounted to $
The Company’s Business Combination must be with one or more target businesses that together have a fair market value equal to at least
5
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Upon the closing of the Initial Public Offering, a total of $
The Company will provide its public stockholders with the opportunity to redeem all or a portion of their public shares upon the completion of the initial Business Combination either: (1) in connection with a stockholder meeting called to approve the Business Combination; or (2) by means of a tender offer. Except as required by applicable law or stock exchange rules, the decision as to whether the Company will seek stockholder approval of a proposed Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public stockholders will be entitled to redeem all or a portion of their public shares upon the completion of the initial Business Combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, calculated as of business days prior to the consummation of the initial Business Combination, including interest (which interest shall be net of taxes payable), divided by the number of then outstanding public shares, subject to the limitations. As of September 30, 2022, the amount in the Trust Account is approximately $
All of the public shares contain a redemption feature which allows for the redemption of such public shares in connection with the Company’s 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 Company’s amended and restated certificate of incorporation.
In accordance with guidance on redeemable equity instruments, which has been codified in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480-10-S99, redemption provisions not solely within the control of a company require common stock subject to redemption to be classified outside of permanent equity. The public shares are subject to FASB 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 has elected to recognize this change immediately.
The shares of common stock subject to redemption were recorded at redemption value and classified as temporary equity upon the completion of the Initial Public Offering, in accordance with FASB ASC Topic 480, “Distinguishing Liabilities from Equity.” In such case, the Company will proceed with a Business Combination if the Company has net tangible assets of at least $
6
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Initial Business Combination
The Company has
The Sponsors, officers and directors have agreed to waive: (1) their redemption rights with respect to any Founder shares (as described in Note 5) and public shares held by them, as applicable, in connection with the completion of the initial Business Combination; (2) their redemption rights with respect to any Founder shares and public shares held by them in connection with a stockholder vote to approve an amendment to the Company’s amended and restated certificate of incorporation (A) to modify the substance or timing of the obligation to allow redemptions in connection with the initial Business Combination or to redeem
The Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below: (1) $
Liquidity and Going Concern Consideration
As of September 30, 2022, the Company had cash on hand of $
7
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
If the estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, the Company may have insufficient funds available to operate our business prior to a Business Combination. Moreover, the Company may need to obtain additional financing either to complete a Business Combination or because the Company becomes obligated to redeem a significant number of public shares upon consummation of a Business Combination, in which case the Company may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, the Company would only complete such financing simultaneously with the completion of a Business Combination. If the Company is unable to complete a Business Combination because it does not have sufficient funds available, the Company will be forced to cease operations and liquidate the Trust Account. In addition, following a Business Combination, if cash on hand is insufficient, the Company may need to obtain additional financing in order to meet its obligations.
In connection with the Company’s assessment of going concern considerations in accordance with ASC Subtopic 205-40, “Presentation of Financial Statements – Going Concern”, the Company has until May 8, 2023 (or until August 8, 2023, or November 8, 2023, if extended) to consummate a Business Combination. If a Business Combination is not consummated by this date and extension(s) are not obtained, there will be a mandatory liquidation and subsequent dissolution of the Company. Although the Company intends to consummate a Business Combination on or before May 8, 2023, it is uncertain whether the Company will be able to consummate a Business Combination by this time. Management has determined that the mandatory liquidation, should a Business Combination not occur, and an extension is not obtained, and potential subsequent dissolution, as well as the potential for the Company to have insufficient funds available to operate our business prior to a Business Combination, raise substantial doubt about the Company’s ability to continue as a going concern. It is uncertain whether the Company will be able to consummate a Business Combination or obtain an extension by this time. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after May 8, 2023.
Risks and Uncertainties
Management is evaluating 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 or search for a target company, the specific impact is not readily determinable as of the date of these financial statements. The accompanying condensed financial statements do not include any adjustments that might results from the outcome of this uncertainty.
Note 2 — Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. Certain prior period amounts have been revised to conform to the current presentation.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 18, 2022, which contains the audited financial statements and notes thereto. The accompanying condensed balance sheet as of December 31, 2021 has been derived from those audited financial statements. The interim results for the nine and three months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future interim periods.
8
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Emerging Growth Company Status
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, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102 (b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s 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.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did
Marketable Securities and Cash Held in Trust Account
As of September 30, 2022, investments held in Trust Account consisted of Mutual Funds that invest primarily in US government securities and generally have a readily determinable fair value. Such securities and investments in mutual funds are presented on the condensed balance sheets at fair value at the end of the reporting period. Interest, dividends, gains and losses resulting from the change in fair value of these securities is included in Income from investments held in the Trust Account in the accompanying condensed statements of operations. The estimated fair values of investments held in the Trust Account are determined using available market information. As of December 31, 2021, the Company classified its U.S. Treasury securities as held-to-maturity in accordance with ASC Topic 320, “Investments — Debt and Equity Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying condensed balance sheet. Fair value of held-to-maturity securities amounted to $
A decline in the market value of held-to-maturity securities below cost that is deemed to be other than temporary, results in an impairment that reduces the carrying costs to such securities’ fair value. The impairment is charged to earnings and a new cost basis for the security is established. To determine whether an impairment is other than temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and the duration of the impairment, changes in value subsequent to year-end, forecasted performance of the investee, and the general market condition in the geographic area or industry the investee operates in.
9
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective-interest method. Such amortization and accretion is included in the “Income from investments held in the Trust Account” line item in the condensed statements of operations. Interest income is recognized when earned. Accretion of the discounts amounted to $
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. At September 30, 2022, the Company has not experienced losses on this account.
Common Stock Subject to Possible Redemption
The Company accounts for its shares of Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480, “Distinguishing Liabilities from Equity.” Shares of Class A common stock subject to mandatory redemption (if any) are classified as a liability instrument and is measured at fair value. Conditionally redeemable shares of Class A common stock (including 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, shares of Class A common stock are classified as stockholders’ equity. The Company’s shares of Class A common stock feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, all shares of Class A common stock subject to possible redemption are presented at redemption value as temporary equity, outside of the stockholders’ deficit section of the Company’s condensed balance sheet.
All of the
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid-in capital (to the extent available) and accumulated deficit. During the nine months ended September 30, 2022, the Company recorded an increase in the redemption value 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 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheet, primarily due to their short-term nature.
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. 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 include:
10
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
| ● | 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. |
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. Derivative instruments are initially recorded at fair value on the grant date and re-valued at each reporting date, with changes in the fair value reported in the statement of operations. Derivative assets and liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Stock-Based Compensation
The sale or transfers of the Founder Shares to members of the Company’s board of directors, as described in Note 5, is within the scope of FASB ASC Topic 718, “Compensation-Stock Compensation” (“ASC 718”). Under ASC 718, stock-based compensation associated with equity classified awards is measured at fair value upon the grant date. The Founder Shares were effectively sold or transferred subject to a performance condition (i.e., the occurrence of a Business Combination). Compensation expense related to the Founder Shares is recognized only when the performance condition is probable of occurrence under the applicable accounting literature in this circumstance. A business combination is not probable until it is completed. Stock-based compensation would be recognized at the date a Business Combination is considered probable in an amount equal to the number of Founder Shares times the grant date fair value per share (unless subsequently modified) less the amount initially received for the purchase of the Founder Shares. As of September 30, 2022, the Company determined that a Business Combination is not considered probable until the business combination is completed, and therefore,
Warrant Liability
The Company accounts for the
Sponsor Loans
The Company has elected to account for the $
11
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Income Taxes
The Company accounts for income taxes under ASC 740 Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. Under the guidance in ASC 740-270, for interim periods, the tax or benefit related to ordinary income or loss is computed at an estimated annual effective tax rate and the tax or benefit related to all other items is computed individually and recognized when the items occur.
While ASC 740 identifies usage of an effective annual tax rate for purposes of an interim provision, it does allow for estimating individual elements in the current period if they are significant, unusual or infrequent. Computing the effective tax rate for the Company is complicated due to the potential impact of the Company’s change in fair value of warrants (or any other change in fair value of a complex financial instrument), the timing of any potential business combination expenses and the actual interest income that will be recognized during the year. The Company has taken a position as to the calculation of income tax expense in a current period based on ASC 740-270-25-3 which states, “If an entity is unable to estimate a part of its ordinary income or loss or the related tax provision or benefit but is otherwise able to make a reasonable estimate, the tax provision or benefit applicable to the item that cannot be estimated shall be reported in the interim period in which the item is reported.” The Company believes its calculation to be a reliable estimate and allows it to properly take into account the unusual elements that can impact its annualized book income and its impact on the effective tax rate. As such, the Company is computing its taxable income or loss and associated income tax provision or benefit based on actual results through September 30, 2022.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits. There were
The Company has identified the United States as its only “major” tax jurisdiction.
The Company is subject to income tax examinations by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
The Company was formed in 2021 and expects to file U.S. federal and various state income tax returns. All tax periods since inception remain open to examination by the taxing jurisdictions to which the Company is subject. ASC 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 recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. The Company is subject to income tax examinations by major taxing authorities since inception.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into federal law. The IRA provides for, among other things, a new U.S. federal
12
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of Treasury has been given authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of the excise tax. The IRA applies only to repurchases that occur after December 31, 2022.
If a Business Combination is completed on or before December 31, 2022, the Company would not be subject to the excise tax as a result of stockholders exercising their redemption rights. However, if such Business Combination occurs any time after December 31, 2022, any redemption or other repurchase that occurs in connection with the Business Combination may be subject to the excise tax. Whether and to what extent we would be subject to the excise tax would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, (ii) the nature and amount of the equity issued in connection with the Business Combination (or otherwise issued not in connection with the Business Combination but issued within the same taxable year of the Business Combination), and (iii) the content of regulations and other guidance from the U.S. Department of the Treasury. In addition, because the excise tax would be payable by the Company, and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete the Business Combination.
Net Income (Loss) Per Common Share
The Company has two classes of shares, which are referred to as Class A common stock and Class B common stock. Earnings and losses are shared pro rata between the two classes of stock. The calculation of diluted net income per share does not consider the effect of the warrants issued in connection with the (i) IPO, (ii) exercise of over-allotment (iii) Private Placement and (iv) sponsor loans since the exercise of the warrants and sponsor loans would be anti-dilutive. The warrants (including warrants issuable in conjunction with the Sponsor Loans) are exercisable to purchase
For the nine months ended September 30, 2022, and for the period from February 18, 2021 (Inception) through September 30, 2021, net income (loss) per common share is as follows:
| | | | Period from February 18, 2021 | ||||||||
| | Nine Months ended September 30, 2022 | | (inception) through September 30, 2021 | ||||||||
|
| Class A |
| Class B |
| Class A |
| Class B | ||||
Basic and diluted net income per share | | | | | | | | | | | | |
Numerator: | | | | | | | | | | | | |
Allocation of net income (loss) | | $ | | | $ | | | $ | — | | $ | ( |
Denominator | |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding | |
| | |
| | |
| — | |
| |
Basic and diluted net income (loss) per share | | | | | | $ | — | | ( | |||
For the three months ended September 30, 2022 and 2021, net income per common share is as follows:
| | Three Months ended September 30, 2022 | | Three Months ended September 30, 2021 | ||||||||
|
| Class A |
| Class B |
| Class A |
| Class B | ||||
Basic and diluted net income per share | | | | | | | | | | | | |
Numerator: | | | | | | | | | | | | |
Allocation of net income | | $ | | | $ | | | | — | | | ( |
Denominator | |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding | |
| | |
| | |
| — | |
| |
Basic and diluted net income per share | | | | | | $ | — | | ( | |||
13
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging --Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2023, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its financial statements.
The Company’s management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed financial statements.
Note 3 — Initial Public Offering
On November 8, 2021, the Company completed its IPO of
The underwriters were paid a cash underwriting discount of $
Note 4 — Private Placement
Simultaneously with the closing of the IPO, the Company completed a private placement of an aggregate of
Note 5 — Related Party Transactions
Founder Shares
On March 1, 2021, the Sponsor paid $
On November 4, 2021, the Company’s board of directors approved the issuance of
14
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
The Company’s initial stockholders, officers and directors have agreed not to transfer, assign or sell any Founder Shares held by them until the earlier to occur of: (1)
Promissory Note — Related Party
On May 3, 2022, the Sponsor agreed to loan the Company up to $
Prior to May 3, 2022, the Sponsor agreed to loan the Company an aggregate of up to $
Sponsor Loans
The Company executed promissory notes with the Sponsors, evidencing loans to the Company in the aggregate amount of $
Related Party Loans
In order to finance transaction costs in connection with an intended initial Business Combination, the Sponsors, an affiliate of the Sponsors 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 an initial Business Combination, the Company would repay such loaned amounts out of the proceeds of the Trust Account released to the Company. Otherwise, such loans would be repaid only out of funds held outside the Trust Account. 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 such loaned amounts but no proceeds from the Trust Account would be used to repay such loaned amounts. Up to $
15
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Related Party Extension Loans
The Company will have until May 8, 2023, to consummate an initial business combination. However, if the Company anticipates that it may not be able to consummate its initial business combination by May 8, 2023, the Company may, by resolution of its board if requested by the Sponsor, extend the period of time to consummate a business combination up to two times, each by an additional three months (or until August 8, 2023 or November 8, 2023, as applicable,), subject to the sponsor depositing additional funds into the trust account as set out below. The Company’s stockholders will not be entitled to vote or redeem their shares in connection with any such extension.
The warrants would be identical to the private placement warrants issued to the Company’s sponsors. The Sponsor and its affiliates or designees are not obligated to fund the trust account to extend the time for the Company to complete its initial business combination. If the Company is unable to consummate an initial business combination within such time period, it will redeem
Administrative Service Fee
The Company has agreed to pay an affiliate of its Sponsor, commencing on November 3, 2021, a total of $
Due to Related Party
In the normal course of business, certain expenses of the Company may be paid by, and then reimbursed to an affiliate of the Sponsor. As of September 30, 2022, and December 31, 2021, the Company had an outstanding balance due to the affiliate of the Sponsor of $
16
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
Note 6 — Commitments and Contingencies
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Sponsor Loans or Working Capital Loans (and any shares of common stock issuable upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the Sponsor Loans or Working Capital Loans and upon conversion of the Founder Shares) will be entitled to registration rights pursuant to a registration rights agreement entered into on November 3, 2021, requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to shares of Class A common stock). The holders of these securities will be entitled to make up to three demands, excluding short form registration 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 Company’s completion of the initial Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the expenses incurred in connection with the filing of any such registration statements. The registration rights agreement does not contain liquidating damages or other cash settlement provisions resulting from delays in registering the Company’s securities.
Underwriters Agreement
On November 8, 2021, the underwriters were paid a cash underwriting discount of $
Note 7 — Stockholders’ Equity
Preferred Stock
The Company is authorized to issue a total of
Class A Common Stock
The Company is authorized to issue a total of
Class B Common Stock
The Company is authorized to issue a total of
The Company’s initial stockholders have agreed not to transfer, assign or sell any of their Founder Shares until the earlier to occur of: (1)
17
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
The shares of Class B common stock will automatically convert into shares of Class A common stock at the time of the initial Business Combination on a one-for-one basis, subject to adjustment. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed issued in excess of the amounts offered in the Initial Public Offering and related to the closing of the initial Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such anti-dilution adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted basis,
Warrants
Each whole warrant entitles the holder to purchase
The warrants will expire at 5:00 p.m., New York City time on the warrant expiration date, which is five years after the completion of the initial Business Combination or earlier upon redemption or liquidation. On the exercise of any warrant, the warrant exercise price will be paid directly to the Company and not placed in the Trust Account.
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A common stock is available, subject to the satisfying the Company’s obligations described below with respect to registration. No warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In no event will the Company be required to net cash settle any warrant. In the event that a registration statement is not effective for the exercised warrants, the purchaser of a unit containing such warrant will have paid the full purchase price for the unit solely for the share of Class A common stock underlying such Unit.
The Company is not registering the shares of Class A common stock issuable upon exercise of the warrants at this time. However, the Company has agreed that as soon as practicable, but in no event later than
Redemption of warrants when the price per share of Class A common stock equals or exceeds $
Once the warrants become exercisable, the Company may redeem the outstanding public warrants:
| ● | in whole and not in part; |
18
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
| ● | at a price of $ |
| ● | upon a minimum of |
| ● | if, and only if, the last reported sale price of the Class A common stock equals or exceeds $ |
Redemption of warrants when the price per share of Class A common stock equals or exceeds $
Once the warrants become exercisable, the Company may redeem the outstanding public warrants:
| ● | in whole and not in part; |
| ● | at a price of $ |
| ● | upon a minimum of |
| ● | if, and only if, the last reported sale price of the Class A common stock equals or exceeds $ |
| ● | if, and only if, there is an effective registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants and a current prospectus relating thereto available throughout the 30-day period after written notice of redemption is given. |
The “fair market value” of the Class A common stock shall mean the average last reported sale price of the Class A common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants. This redemption feature differs from the typical warrant redemption features used in many other blank check offerings. In no event will the warrants be exercisable in connection with this redemption feature for more than
Note 8 — Fair Value Measurement
The following table presents fair value information as of September 30, 2022, and December 31, 2021, for the Company’s marketable securities and cash held in Trust Account, warrant liability and Sponsor Loans that are accounted for at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.
Assets: |
| Level |
| | September 30 2022 | | December 31, 2021 | |
Marketable securities and cash held in Trust Account |
| 1 | | $ | | | $ | — |
Liabilities: |
| Level |
| | September 30 2022 | | December 31, 2021 | |
Warrant Liability – Public Warrants |
| 1 | | $ | | | $ | |
Warrant Liability – Private Placement Warrants |
| 3 | | $ | | | $ | |
Sponsor Loans |
| 3 | | $ | | | $ | |
The Company’s Private Placement Warrant liability for all periods presented is based on a Black-Scholes-Merton model utilizing management judgment and pricing inputs from observable and unobservable markets with less volume and transaction frequency than active markets. The Company valued the Sponsor Loans using the bond plus call approach, where the fair value of the Notes was calculated as the sum of (i) the fair value of the contractual cash flows of the Sponsor Loans absent the Conversion Option and (ii) the fair value of the Conversion Option which is determined using a risk-neutral framework based on the daily binomial lattice analysis. The inputs used to measure fair value of the Private Placement Warrant liability and the Sponsor Loans are classified within Level 3 of the fair value hierarchy. Significant deviations from these estimates and inputs could result in a material change in fair value. As of September 30, 2022, the Company’s warrant liability for the Public Warrants is based on unadjusted quoted prices in active markets. As
19
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
of September 30, 2022, the fair value of the Public Warrant liability is classified within Level 1 of the fair value hierarchy. During the quarter ended March 31, 2022, the Public Warrant liability was reclassified from a Level 3 to a Level 1 classification as they began to have quoted prices in active markets.
As of September 30, 2022, investments held in Trust Account consisted of mutual funds and generally have a readily determinable fair value. Such securities and investments in mutual funds are presented on the condensed balance sheet at fair value as of September 30, 2022.
Under the guidance in ASC 815-40, the warrants do not meet the criteria for equity treatment. As such, the warrants must be recorded on the condensed balance sheet at fair value. This valuation is subject to re-measurement at each balance sheet date. With each re-measurement, the warrant liability will be adjusted to fair value, with the change in fair value recognized in the Company’s condensed statement of operations.
As of September 30, 2022 and December 31, 2021, the fair value of the sponsor loans amounted to $
The following table sets forth the fair value, unpaid principal balance and fair value adjustment for the nine months ended September 30, 2022 for the sponsor loans.
Fair Value Option
Liabilities: |
| Fair Value |
| Unpaid Principal Balance | ||
Sponsor Loans | | | | | | |
December 31, 2021 | | $ | | | $ | |
September 30, 2022 | | $ | | | $ | |
The key inputs into the valuation model for the Sponsor Loans were as follows:
Input |
| September 30, 2022 |
| December 31, 2021 | | ||
Common stock price | | $ | | | $ | | |
Risk-free interest rate (Bond) | |
| | % |
| | % |
Risk-free interest rate (Conversion Option) | |
| | % |
| | % |
Expected term in years | |
| | years |
| | years |
Expected volatility | |
| | % |
| | % |
Credit spread | |
| | % |
| | % |
The Private Placement Warrant liability is measured at fair value on a recurring basis. The Company used a Black-Scholes-Merton valuation model to value the Private Placement Warrants as of September 30, 2022 and December 31, 2021.
The key inputs into the modified Black-Scholes-Merton model for the Private Placement Warrants were as follows:
Input |
| September 30, 2022 |
| December 31, 2021 | | ||
Common stock price | | $ | | | $ | | |
Risk-free interest rate | |
| | % |
| | % |
Expected term in years | |
| | years |
| | years |
Expected volatility | |
| | % |
| | % |
Exercise price | | $ | | | $ | | |
Warrant price | | $ | | | $ | | |
20
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
The key inputs into the Black-Scholes-Merton valuation model for the Public Warrants were as follows:
|
| December 31, 2021 |
| |
Input |
| Public Warrants | | |
Common stock price | | $ | | |
Risk-free interest rate | |
| | % |
Expected term in years | |
| | years |
Expected volatility | |
| | % |
Exercise price | | $ | | |
Warrant Price | | $ | | |
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the investments existed. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for investments categorized in Level 3.
The following table provides a reconciliation of changes in fair value of the beginning and ending balances for our warrants classified as Level 3:
Warrant liabilities measured with level 3 inputs at January 1, 2022: |
| $ | |
Public Warrants reclassified to level 1 (1) | |
| ( |
Change in fair value (Public and Private Placement Warrants) (1) | |
| ( |
Fair Value at June 30, 2022 - Private Placement Warrants | | | |
Change in fair value | | | ( |
Fair Value at September 30, 2022 - Private Placement Warrants | | $ | |
| (1) |
The following table provides a reconciliation of changes in fair value of the beginning and ending balances for our Private Placement Warrants and Sponsor Loans:
| | Private | | | | |
| | Placement | | | | |
|
| Warrants |
| Sponsor Loans | ||
Fair value as of January 1, 2022 | | $ | | | $ | |
Change in valuation inputs or other assumptions | |
| ( | |
| ( |
Fair value as of June 30, 2022 | | | | | | |
Change in valuation inputs or other assumptions | | | ( | | | ( |
Fair value as of September 30, 2022 | | $ | | | $ | |
Note 9 — Income Taxes
The Company’s net deferred tax assets are as follows:
|
| September 30, 2022 |
| December 31, 2021 | ||
Deferred tax asset: | | | | | | |
Organizational costs/Startup expenses | | $ | | | $ | |
Federal net operating loss | |
| — | |
| |
Total deferred tax asset | |
| | |
| |
Valuation allowance | |
| ( | |
| ( |
Deferred tax asset, net of allowance | | $ | — | | $ | — |
21
CONCORD ACQUISITION CORP III
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(UNAUDITED)
The income tax provision consists of the following:
|
| | |
| For the period from February 18, |
| | |
| | | |
| | For the Nine Months ended | | 2021 (inception) through | | For the Three Months ended | | For the Three Months ended | ||||
| | September 30, 2022 |
| September 30, 2021 |
| September 30, 2022 |
| September 30, 2021 | ||||
Federal: |
| |
|
| |
|
| |
|
| |
|
Current | | $ | | | $ | — | | $ | | | $ | — |
Deferred | |
| ( | |
| — | |
| ( | |
| — |
| | | | | | | | | | | | |
State: | |
|
| |
|
| |
|
| |
|
|
Current | |
| — | |
| — | |
| — | |
| — |
Deferred | |
| — | |
| — | |
| — | |
| — |
Change in valuation allowance | |
| | |
| — | |
| | |
| — |
Income tax provision | | $ | | | $ | — | | $ | | | $ | — |
In assessing the realization of the deferred tax assets, management considers whether it is more likely than not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance for its deferred tax assets.
A reconciliation of the federal income tax rate to the Company’s effective tax rate is as follows:
| | For the | | | | For the | | | |
| | Nine | | | | Three | | | |
| | Months | | For the period from February 18, | | Months | | | |
| | ended | | 2021 (inception) through | | ended | | For the Three Months ended |
|
|
| September 30, 2022 |
| September 30, 2021 |
| September 30, 2022 |
| September 30, 2021 |
|
Statutory federal income tax rate |
| | % | | % | | % | | % |
State taxes, net of federal tax benefit |
| | % | — |
| | % | — | |
Change in fair value of the warrant liability and Sponsor loans |
| ( | % | — |
| ( | % | — | |
Change in valuation allowance |
| | % | ( | % | | % | ( | % |
Income tax provision |
| | % | — |
| | % | — | |
Note 10— Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the condensed balance sheet date up to the date that the financial statements were issued. The Company did not identify any subsequent events that would require adjustment or disclosure in the financial statements.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Concord Acquisition Corp III. References to our “management” or our “management team” refer to our officers and directors, references to the “Sponsors” refer to Concord Sponsor Group III LLC and CA2 Co-Investment, LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, the business strategy, plans and objectives of management for future operations, and the impact of the coronavirus (COVID-19) pandemic on the Company’s search for a Business Combination (as defined below), are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Company’s annual report on Form 10-K and quarterly reports on Form 10-Q filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company incorporated on February 18, 2021 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 (a “Business Combination”). We intend to effectuate our initial business combination using cash from the proceeds of our offering and the sale of the private placement warrants, our shares, debt or a combination of cash, equity and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities since inception have been organizational activities and those necessary for our initial public offering (“IPO”) and activities related to seeking and consummating an acquisition target. We do not expect to generate any operating revenues until after completion of our initial business combination. Until such time that a business combination occurs, we will generate non-operating income in the form of investment income on cash and cash equivalents in the form of specified U.S. government treasury bills or specified money market funds after the IPO and non-operating income or expense from the changes in the fair value of warrant liabilities and Sponsor loans. There has been no significant change in our financial or trading position and no material adverse change has occurred since the date of our audited financial statements. Until the completion of our initial business combination, we expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For the nine months ended September 30, 2022, we had net income of $18,757,827 which consisted of formation and operating costs of $895,786 and income taxes of $381,057 offset by the change in the fair value of the warrant liability and sponsor loans of $17,918,000 and income from investments held in Trust Account of $2,116,670.
For the period from February 18, 2021 (inception) through September 30, 2021, we had a net loss of $4,623, consisting of formation costs.
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For the three months ended September 30, 2022, we had net income of $3,200,859 which consisted of formation and operating costs of $286,566 and income taxes of $323,088 offset by the change in the fair value of the warrant liability and sponsor loans of $2,222,000 and income from investments held in the Trust Account of $1,588,513.
For the three months ended September 30, 2021, we had a net loss of $4,150, consisting of formation costs.
Liquidity and Capital Resources
Until the consummation of the IPO, as described below, our only source of liquidity was an initial purchase of ordinary shares by the sponsors and loans from our Sponsor.
On November 8, 2021, the Company completed its IPO of 34,500,000 Units, including the issuance of 4,500,000 Units as a result of the underwriters’ exercise in full of their over-allotment option at an offering price of $10.00 per Unit, generating gross proceeds of $345,000,000.
Simultaneously with the closing of the IPO, the Company consummated the sale of 8,260,606 Private Placement Warrants to the Sponsor and 1,139,394 Private Placement Warrants to CA2 Co-Investment, each at a price of $1.00 per Private Placement Warrant, generating total proceeds of $9,400,000.
The Company also executed promissory notes with the Sponsors (the “Sponsors Loans”), evidencing loans to the Company in the aggregate amount of $6,900,000. The Sponsor Loans shall be repaid or converted into warrants (“Sponsor Loan Warrants”) at a conversion price of $1.00 per warrant, at the Sponsors’ discretion. The Sponsor Loan Warrants will be identical to the Private Placement Warrants.
Offering costs amounted to $18,394,829, consisting of $6,900,000 of underwriting discount, $12,075,000 of deferred underwriting discount, and $540,576 of other offering costs offset by $1,035,747 of offering costs attributable to the warrant liability. In addition, $2,089,239 of cash was held outside of the Trust Account on November 8, 2021 and was available for working capital purposes.
Upon the closing of the IPO and the sale of the Private Placement Warrants, a total of $351,900,000 ($10.20 per Unit) was placed in a U.S.-based trust account, with Continental Stock Transfer & Trust Company acting as trustee, and invested only in 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 in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting certain conditions of Rule 2a-7 of 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 funds held in the Trust Account.
As of September 30, 2022, we had available to us $409,645 of proceeds held outside the Trust Account. We will use these funds primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, structure, negotiate and complete a business combination, and to pay taxes to the extent the interest earned on the Trust Account is not sufficient to pay our taxes.
If the estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, the Company may have insufficient funds available to operate our business prior to a Business Combination. Moreover, the Company may need to obtain additional financing either to complete a Business Combination or because the Company become obligated to redeem a significant number of public shares upon consummation of a Business Combination, in which case the Company may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, the Company would only complete such financing simultaneously with the completion of a Business Combination. If the Company is unable to complete a Business Combination because it does not have sufficient funds available, the Company will be forced to cease operations and liquidate the Trust Account. In addition, following a Business Combination, if cash on hand is insufficient, the Company may need to obtain additional financing in order to meet its obligations.
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In connection with the Company’s assessment of going concern considerations in accordance with ASC Subtopic 205-40, “Presentation of Financial Statements – Going Concern”, the Company has until May 8, 2023 (or until August 8, 2023, or November 8, 2023, if extended) to consummate a Business Combination. If a Business Combination is not consummated by this date and extension(s) are not obtained, there will be a mandatory liquidation and subsequent dissolution of the Company. Although the Company intends to consummate a Business Combination on or before May 8, 2023, it is uncertain whether the Company will be able to consummate a Business Combination by this time. Management has determined that the mandatory liquidation, should a Business Combination not occur, and an extension is not obtained, and potential subsequent dissolution, as well as the potential for the Company to have insufficient funds available to operate our business prior to a Business Combination, raise substantial doubt about the Company’s ability to continue as a going concern. It is uncertain whether the Company will be able to consummate a Business Combination or obtain an extension by this time. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after May 8, 2023.
Off-Balance Sheet Arrangements; Commitments and Contractual Obligations
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements as of September 30, 2022. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Critical Accounting Policies and Significant Judgments and Estimates
We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management.
There have been no material changes to our critical accounting policies and estimates from those disclosed in our financial statements and the related notes and other financial information included in our Form 10-K for the year ended December 31, 2021, on file with the SEC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are 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 and accounting officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
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.
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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 September 30, 2022. Based upon their evaluation, and due to a material weakness in our internal control over financial reporting over the accounting for complex financial instruments, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of September 30, 2022.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter 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.
The Company has made changes in its internal control over financial reporting to 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, including 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 Company can offer no assurance that these changes will ultimately have the intended effects.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 18, 2022 (the “Annual Report”), and in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, filed with the SEC on May 9, 2022 (the “2022 Q1 Report”). Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in our Annual Report and the 2022 Q1 Report, except for the below.
A new 1% U.S. federal excise tax could be imposed on us in connection with redemptions.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into federal law. The IRA provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases (including redemptions) of stock by publicly traded U.S. corporations and certain U.S. subsidiaries of publicly traded non-U.S. corporations (each, a “covered corporation”). Because we are a Delaware corporation and our securities are trading on the New York Stock Exchange, we are a “covered corporation” for this purpose. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of Treasury has been given authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of the excise tax. The IRA applies only to repurchases that occur after December 31, 2022.
If a Business Combination is completed on or before December 31, 2022, we would not be subject to the excise tax as a result of stockholders exercising their redemption rights. However, if such Business Combination occurs any time after December 31, 2022, any redemption or other repurchase that occurs in connection with the Business Combination may be subject to the excise tax. Whether and to what extent we would be subject to the excise tax would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, (ii) the nature and amount of the equity issued in connection with the Business Combination (or otherwise issued not in connection with the Business Combination but issued within the same taxable year of the Business Combination), and (iii) the content of regulations and other guidance from the U.S. Department of the Treasury. In addition, because the excise tax would be payable by us, and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete the Business Combination.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On November 8, 2021, the Company completed its IPO of 34,500,000 Units, including the issuance of 4,500,000 Units as a result of the underwriters’ exercise in full of their over-allotment option at an offering price of $10.00 per Unit, generating gross proceeds of $345,000,000.
Simultaneously with the closing of the IPO, the Company consummated the private placement of 8,260,606 warrants to the Sponsor and 1,139,394 warrants to CA2 Co-Investment (together, the “Private Placement Warrants”), each at a price of $1.00 per Private Warrant, generating total proceeds of $9,400,000.
For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Quarterly Report.
Item 3. Defaults Upon Senior Securities.
None.
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Item 6. Exhibits.
Exhibit |
| Description |
31.1 |
| |
| | |
31.2 |
| |
| | |
32.1* |
| |
| | |
32.2* | | |
|
| |
101.INS |
| Inline XBRL Instance Document. |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* | 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 4th day of November 2022.
| CONCORD ACQUISITION CORP III | |
|
|
|
| By: | /s/ Jeff Tuder |
| Name: | Jeff Tuder |
| Title: | Chief Executive Officer (Principal Executive Officer) |
|
|
|
| By: | /s/ Michele Cito |
| Name: | Michele Cito |
| Title: | Chief Financial Officer (Principal Financial and Accounting Officer) |
30
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeff Tuder, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Concord Acquisition Corp III; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and |
b) | (Paragraph omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-49313); |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 4, 2022
| /s/ Jeff Tuder |
| Jeff Tuder |
| Chief Executive Officer |
| (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michele Cito, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Concord Acquisition Corp III;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and |
b) | (Paragraph omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-49313); |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 4, 2022
| /s/ Michele Cito |
| Michele Cito |
| Chief Financial Officer |
| (Principal Financial and Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Concord Acquisition Corp III (the “Company”) on Form 10-Q for the three months ended September 30, 2022, as filed with the Securities and Exchange Commission (the “Report”), I, Jeff Tuder, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. |
Dated: November 4, 2022
| /s/ Jeff Tuder |
| Jeff Tuder |
| Chief Executive Officer |
| (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Concord Acquisition Corp III (the “Company”) on Form 10-Q for the three months ended September 30, 2022, as filed with the Securities and Exchange Commission (the “Report”), I, Michele Cito, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. |
Dated: November 4, 2022
| /s/ Michele Cito |
| Michele Cito |
| Chief Financial Officer |
| (Principal Financial and Accounting Officer) |