SEC Form 10-Q filed by Hudson Executive Investment Corp. III
Table of Contents
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Title of each class |
Trading Symbols |
Name of each exchange on which registered | ||
one-fifth of one redeemable warrant |
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| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
| Emerging growth company | ||||||
| (1) | In September 2021, the registrant became a fully remote company. Accordingly, it does not maintain a principal executive office. |
Table of Contents
HUDSON EXECUTIVE INVESTMENT CORP. III
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
Table of Contents
Item 1. |
Condensed Financial Statements. |
September 30, 2022 |
December 31, 2021 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash |
$ | $ | ||||||
Prepaid expenses |
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Total Current Assets |
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Forward Purchase Agreement derivative asset |
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Cash and Investments held in Trust Account |
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TOTAL ASSETS |
$ |
$ |
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LIABILITIES, CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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Accrued expenses |
$ | $ | ||||||
Accrued offering costs |
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Income taxes payable |
— | |||||||
Due to related party |
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Total Current Liabilities |
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Forward Purchase Agreement derivative liability |
— | |||||||
Warrant liabilities |
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Deferred underwriting fee payable |
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Total Liabilities |
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Commitments and Contingencies |
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Class A common stock subject to possible redemption |
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Stockholders’ 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 |
( |
) | ( |
) | ||||
Total Stockholders’ Deficit |
( |
) |
( |
) | ||||
TOTAL LIABILITIES, CLASS A COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT |
$ |
$ |
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For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
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2022 |
2021 |
2022 |
2021 |
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Formation and operational costs |
$ | $ | $ | $ | ||||||||||||
Loss from operations |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
Other income (expense): |
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Change in fair value of warrant liabilities and forward purchase agreement derivative asset (liability) |
( |
) | ||||||||||||||
Interest earned on marketable securities held in Trust Account |
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Total other income (expense) |
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Income (loss) before provision for income taxes |
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Provision for income taxes |
( |
) | ( |
) | ||||||||||||
Net income |
$ |
$ |
$ |
$ |
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Weighted average shares outstanding of Class A common stock |
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Basic and diluted net income per share, Class A common stock |
$ |
$ |
$ |
$ |
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Weighted average shares outstanding of Class B common stock |
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Basic net income per share, Class B common stock |
$ |
$ |
$ |
$ |
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Class A Common Stock |
Class B Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders’ Deficit |
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Shares |
Amount |
Shares |
Amount |
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| Balance - January 1, 2022 |
$ |
$ |
$ | $ |
( |
) |
$ |
( |
) | |||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
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| Balance – March 31, 2022 (unaudited) |
$ |
( |
) |
( |
) | |||||||||||||||||||||||
| Accretion for Class A common stock to redemption amount |
( |
) | ( |
) | ||||||||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
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| Balance – June 30, 2022 (unaudited) |
$ |
( |
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( |
) | |||||||||||||||||||||||
| Accretion for Class A common stock to redemption amount |
( |
) | ( |
) | ||||||||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
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| Balance – September 30, 2022 (unaudited) |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
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Class A Common Stock |
Class B Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders’ Equity (Deficit) |
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Shares |
Amount |
Shares |
Amount |
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| Balance - January 1, 2021 |
$ |
$ |
$ |
$ |
( |
) |
$ |
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| Proceeds in excess of fair value Private Placement Warrants |
— | — | — | — | — | |||||||||||||||||||||||
| Forfeiture of Founder Shares |
— | — | ( |
) | ( |
) | — | — | ||||||||||||||||||||
| Accretion for Class A common stock to redemption amount |
— |
— |
— | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Net loss |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
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| Balance – March 31, 2021 (unaudited) |
$ |
( |
) |
( |
) | |||||||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
| Balance – June 30, 2021 (unaudited) |
$ |
( |
) |
( |
) | |||||||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
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| Balance – September 30, 2021 (unaudited) |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
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For the Nine months Ended September 30, |
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2022 |
2021 |
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Cash Flows from Operating Activities: |
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Net income |
$ | $ | ||||||
Adjustments to reconcile net income to net cash used in operating activities: |
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Change in fair value of warrant liabilities and forward purchase agreement derivative asset (liability) |
( |
) | ( |
) | ||||
Transaction costs incurred in connection with Initial Public Offering |
— | |||||||
Interest earned on marketable securities held in Trust Account |
( |
) | ( |
) | ||||
Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets |
( |
) | ||||||
Due to related party |
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Accrued expenses |
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Income taxes payable |
— | |||||||
Net cash used in operating activities |
( |
) |
( |
) | ||||
Cash Flows from Investing Activities: |
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Investment of cash into trust Account |
( |
) | ||||||
Cash withdrawn from Trust Account to pay franchise and income taxes |
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Net cash provided by (used in) investing activities |
( |
) | ||||||
Cash Flows from Financing Activities: |
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Proceeds from sale of Units, net of underwriting discounts paid |
— | |||||||
Proceeds from sale of Private Placements Warrants |
— | |||||||
Repayment of promissory note—related party |
— | ( |
) | |||||
Payment of offering costs |
— | ( |
) | |||||
Net cash provided by Financing Activities |
— |
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Net Change in Cash |
( |
) |
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Cash – Beginning of period |
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Cash – End of period |
$ |
$ |
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Supplementary cash flow information: |
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Cash paid for income taxes |
$ | $ | — | |||||
Non-Cash Investing and Financing Activities: |
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Offering costs paid by Sponsor in exchange for issuance of founder shares |
$ | — | $ | |||||
Offering costs paid through promissory note |
$ | — | $ | |||||
Deferred underwriting fee payable |
$ | — | $ | |||||
| Gross proceeds |
$ | |||
| Less: |
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| Proceeds allocated to Public Warrants |
( |
) | ||
| Class A common stock issuance costs |
( |
) | ||
| Plus: |
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| Accretion of carrying value to redemption value |
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| Class A common stock subject to possible redemption, December 31, 2021 |
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| Plus: |
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| Accretion of carrying value to redemption value |
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| Class A common stock subject to possible redemption, September 30, 2022 |
$ |
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| |
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For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
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2022 |
2021 |
2022 |
2021 |
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Class A |
Class B |
Class A |
Class B |
Class A |
Class B |
Class A |
Class B |
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Basic and diluted net income per share of common stock |
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Numerator: |
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Allocation of net income |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Denominator: |
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Basic and diluted weighted average stock outstanding |
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Basic and diluted net income per share of common stock |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| • | in whole and not in part; |
| • | at a price of $ |
| • | upon not less than |
| • | if, and only if, the closing price of the Class A common stock equals or exceeds $ a period ending three business days before the Company sends the notice of redemption to the warrant holders. |
| Level 1: | Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. | |
| Level 2: | Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. | |
| Level 3: | Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability. | |
Held-To-Maturity |
Level |
Amortized Cost |
Gross Holding Loss |
Fair Value |
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Assets: |
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September 30, 2022 |
U.S. Treasury Securities (Matures on 12/15/22) |
1 | $ | $ | $ | |||||||||||||
September 30, 2022 |
U.S. Treasury Securities (Matures on 12/22/22) |
1 | $ | $ | ( |
) | $ | |||||||||||
December 31, 2021 |
Marketable Securities held in Trust Account – Treasury Trust Money Market Fund | 1 | $ | |||||||||||||||
December 31, 2021 |
FPA Derivative Asset |
3 | $ | |||||||||||||||
Liabilities: |
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September 30, 2022 |
FPA Derivative Liability |
3 | $ | |||||||||||||||
September 30, 2022 |
Warrant Liability – Public Warrants |
2 | $ | |||||||||||||||
September 30, 2022 |
Warrant Liability – Private Placement Warrants |
2 | $ | |||||||||||||||
December 31, 2021 |
Warrant Liability – Public Warrants |
1 | $ | |||||||||||||||
December 31, 2021 |
Warrant Liability – Private Placement Warrants |
2 | $ | |||||||||||||||
September 30, 2022 |
December 31, 2021 |
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Forward Purchase Price (per unit) |
$ | $ | ||||||
Underlying Asset Price (per share) |
$ | $ | ||||||
Number of Warrants per unit |
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Concluded Unit Value |
$ | $ | ||||||
Time to Initial Business Combination |
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Risk free rate |
% | % | ||||||
Forward Purchase Agreement Derivative |
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Initial measurement on February 26, 2021 |
$ | |||
Change in fair value |
( |
) | ||
Fair value as of March 31, 2021 |
( |
) | ||
Change in fair value |
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Fair value as of June 30, 2021 |
( |
) | ||
Change in fair value |
( |
) | ||
Fair value as of September 30, 2021 |
$ |
( |
) | |
Forward Purchase Agreement Derivative |
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Fair value as of December 31, 2021 |
$ | ( |
) | |
Change in fair value |
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Fair value as of March 31, 2022 |
( |
) | ||
Change in fair value |
( |
) | ||
Fair value as of June 30, 2022 |
( |
) | ||
Change in fair value |
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Fair value as of September 30, 2022 |
$ |
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Table of Contents
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 Hudson Executive Investment Corp. III. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to HEIC Sponsor III, 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 (the “Financial Statements”). Capitalized terms used but not otherwise defined herein have the meaning set forth in the Financial Statements. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of 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 Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 31, 2022. 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 formed under the laws of the State of Delaware on August 18, 2020 for the purpose of effecting the merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). We intend to effectuate our Business Combination using cash from the proceeds of the Initial Public Offering and the sale of the Private Units, our capital stock, debt or a combination of cash, stock and debt. Based on our business activities to date, the Company is a “shell company” as defined under the Exchange Act because we have minimal operations and nominal assets consisting almost entirely of cash held in a trust account.
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 from August 18, 2020 (inception) through September 30, 2022 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For the three months ended September 30, 2022, we had a net income of $936,086, which consists of interest earned on marketable securities held in the Trust Account of $2,883,040, offset by the change in the fair value of warrant liabilities and FPA of $1,102,533, formation and operating costs of $254,295 and a provision for income taxes of $590,126.
For the nine months ended September 30, 2022, we had a net income of $15,641,579, which consists of the change in the fair value of warrant liabilities and FPA of $13,521,334 and interest earned on marketable securities held in the Trust Account of $3,851,866, offset by formation and operating costs of $961,818 and a provision for income taxes of $769,803.
For the three months ended September 30, 2021, we had a net income of $6,273,216, which consists of a gain on the change in the fair value of warrant and FPA liabilities of $6,493,921 and interest income on marketable securities held in the Trust Account of $53,160, offset by operating expenses of $273,865.
For the nine months ended September 30, 2021, we had net income of $8,663,458, which consists of a gain from change in fair value of the warrant and FPA liabilities of $10,400,334 and interest income on marketable securities held in the Trust Account of $113,576, offset by operating costs of $1,850,452.
21
Table of Contents
Liquidity and Capital Resources
On February 26, 2021 the Company consummated the Initial Public Offering of 60,000,000 Units, which includes the partial exercise by the underwriter of its over-allotment option in the amount of 7,500,000 Units, at $10.00 per Unit, generating gross proceeds of $600,000,000 which is described in Note 3. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 9,333,334 Private Placement Warrants at a price of $1.50 per Private Placement Warrant in a private placement to the Sponsor, generating gross proceeds of $14,000,001, which is described in Note 4.
Following the Initial Public Offering, the partial exercise of the over-allotment option, and the sale of the Private Placement Warrants, a total of $600,000,000 was placed in the Trust Account. We incurred $33,493,009 in Initial Public Offering related costs, including $12,000,000 in cash underwriting fees, $21,000,000 of deferred underwriting fees and $493,009 of other offering costs.
For the nine months ended September 30, 2022, cash used in operating activities was $1,128,703. Net income of $15,641,579 was affected by non-cash charges (income) related to the change in fair value of the warrant and FPA liabilities of $13,521,334, and interest earned in marketable securities held in Trust Account of $3,851,866. Changes in operating assets and liabilities provided $602,918 of cash for operating activities.
For the nine months ended September 30, 2021, cash used in operating activities was $759,908. Net income of $8,663,458 was affected by non-cash charges (income) related to the change in fair value of the warrant and FPA liabilities of $10,400,334, interest earned in marketable securities held in Trust Account of $113,576 and transaction costs associated with the warrants of $878,490. Changes in operating assets and liabilities provided $212,054 of cash for operating activities.
As of September 30, 2022, we had cash and marketable securities held in the Trust Account of $603,426,422 (including $4,018,551 of interest income) consisting of U.S. Treasury Bills with a maturity of 185 days or less. Interest income on the balance in the Trust Account may be used by us to pay taxes. Through September 30, 2022, we have withdrawn an amount of $592,128 in the interest earned from the Trust Account to pay franchise and income tax.
We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less income taxes payable), to complete our Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
As of September 30, 2022, we had cash of $172,608. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor, or certain of our officers and directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants at a price of $1.50 per warrant, at the option of the lender. The warrants would be identical to the Private Placement Warrants.
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our 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, we may have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our Public Shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination.
Going Concern
We have until February 26, 2023 to consummate a Business Combination. It is uncertain that we will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution. Management has determined that the mandatory liquidation, should a Business Combination not occur, and potential subsequent dissolution raises substantial doubt about our ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should we be required to liquidate after February 26, 2023.
22
Table of Contents
In connection with our assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that if we are unable to complete a Business Combination by February 26, 2023, then we will cease all operations except for the purpose of liquidating. The date for mandatory liquidation and subsequent dissolution raises substantial doubt about our ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should we be required to liquidate after February 26, 2023.
Off-Balance Sheet Arrangements
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.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of our Sponsor a monthly fee of $10,000 for office space, secretarial and administrative services. We began incurring these fees on February 26, 2021 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or $21,000,000 in the aggregate. The deferred fee will be forfeited by the underwriters solely in the event that the Company fails to complete a Business Combination, subject to the terms of the underwriting agreement,
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Warrant Liabilities and Forward Purchase Agreement Derivative Asset
The Company accounts for the Warrants and FPA in accordance with the guidance contained in ASC 815-40, under which the Warrants and FPA do not meet the criteria for equity treatment and must be recorded as assets or liabilities. Accordingly, the Company classifies the Warrants and FPA as assets or liabilities at their fair value and adjust the Warrants and FPA to fair value at each reporting period. These assets or liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the statements of operations. The fair value of the Public Warrants has been estimated using the Public Warrants’ quoted market price. The Private Placement Warrants are valued using a Modified Black-Scholes Option Pricing Model, and the FPA’s fair value was estimated using the reconstructed unit price, the net present value of per forward purchase unit commitment, and the forward purchase unit.
Class A Common Stock Subject to Possible Redemption
We account for our 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 are measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our Class A common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, shares of Class A common stock subject to possible redemption are presented as temporary equity, outside of the stockholders’ deficit section of our condensed balance sheets.
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Net Income Per Common Share
We have two classes of common stock, which are referred to as Class A and Class B common stock. Income and losses are shared pro rata between the two classes of common stock. Net income per common share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Accretion associated with the redeemable shares of Class A common stock is excluded from income per common share as the redemption value approximates fair value.
Recent Accounting Standards
In August 2020, the FASB issued ASU.2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2020-06 on February 26, 2021 (inception). Adoption of the ASU did not impact the Company’s financial position, results of operations or cash flows.
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022. Based upon their evaluation, 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 effective. Accordingly, management believes that the financial statements included in this Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
Management has implemented remediation steps to improve our internal control over financial reporting. Specifically, we expanded and improved our review process for complex financial instruments. We plan to further improve this process by enhancing access to accounting literature, identification of third-party professionals with whom to consult regarding complex accounting applications and consideration of additional staff with the requisite experience and training to supplement existing accounting professionals.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the most recent fiscal quarter 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.
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PART II. OTHER INFORMATION
Facilities
In September 2021, we became a fully remote company. Accordingly, we do not maintain a principal office.
Human Capital Resources
We currently have three executive officers. These individuals are not obligated to devote any specific number of hours to the Company’s matters and intend to devote only as much time as they deem necessary to its affairs. We do not intend to have any full-time employees prior to the consummation of a business combination.
Item 1. Legal Proceedings
There is no material litigation, arbitration or governmental proceeding currently pending against us or any members of our management team in their capacity as such.
Item 1A. Risk Factors
You should consider carefully all of the risks described in our Annual Report on Form 10-K filed with the SEC on March 31, 2022, and in the other reports we file with the SEC before making a decision to invest in our securities. Furthermore, if any of the following events occur, our business, financial condition and operating results may be materially adversely affected or we could face liquidation. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. The risks and uncertainties described in the aforementioned filings and below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business, financial condition and operating results or result in our liquidation.
The SEC has recently issued proposed rules to regulate special purpose acquisition companies. Certain of the procedures that we, a potential business combination target, or others may determine to undertake in connection with such proposals may increase our costs and the time needed to complete our Business Combination and may constrain the circumstances under which we could complete a business combination.
On March 30, 2022, the SEC issued proposed rules (the “SPAC Rule Proposals”) relating, among other items, to disclosures in SEC filings in connection with business combination transactions between special purpose acquisition companies (“SPACs”) such as us and private operating companies; the financial statement requirements applicable to transactions involving shell companies; the use of projections in SEC filings in connection with proposed business combination transactions; the potential liability of certain participants in proposed business combination transactions; and the extent to which SPACs could become subject to regulation under the Investment Company Act of 1940, as amended (the “Investment Company Act”), including a proposed rule that would provide SPACs a safe harbor from treatment as an investment company if they satisfy certain conditions that limit a SPAC’s duration, asset composition, business purpose and activities. The SPAC Rule Proposals have not yet been adopted and may be adopted in the proposed form or in a different form that could impose additional regulatory requirements on SPACs.
Certain of the procedures that we, a potential business combination target, or others may determine to undertake in connection with the SPAC Rule Proposals, or pursuant to the SEC’s views expressed in the SPAC Rule Proposals, may increase the costs of negotiating and completing a business combination and the time required to consummate a transaction, and may constrain the circumstances under which we could complete a business combination.
If we were deemed to be an investment company for purposes of the Investment Company Act, we may be forced to abandon our efforts to complete an initial business combination and instead be required to liquidate the Company. To avoid that result, on or shortly prior to the 24-month anniversary of the effective date of the IPO Registration Statement (as defined below), we will liquidate the securities held in the Trust Account and instead hold all funds in the Trust Account in cash. As a result, following such liquidation, we will likely receive minimal interest, if any, on the funds held in the Trust Account, which would reduce the dollar amount that our public stockholders would receive upon any redemption or liquidation of the Company.
SPAC Rule Proposals sets forth, among other matters, the circumstances in which a SPAC such as us could potentially be subject to the Investment Company Act and the regulations thereunder. The SPAC Rule Proposals would provide a safe harbor for such companies from the definition of “investment company” under Section 3(a)(1)(A) of the Investment Company Act, provided that a SPAC satisfies certain criteria. To comply with the duration limitation of the proposed safe harbor, a SPAC would have a limited time period to announce and complete a de-SPAC transaction. Specifically, to comply with the safe harbor, the SPAC Rule Proposals would require a company to file a report on Form 8-K announcing that it has entered into an agreement with a target company for an initial business combination no later than 18 months after the effective date of its registration statement for its initial public offering (the “IPO Registration Statement”). The company would then be required to complete its initial business combination no later than 24 months after the effective date of the IPO Registration Statement.
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There is currently uncertainty concerning the applicability of the Investment Company Act to a SPAC, including a company like ours, that has not entered into a definitive agreement within 18 months after the effective date of its IPO Registration Statement or that does not complete its initial business combination within 24 months after such date. We have not entered into a definitive business combination agreement within 18 months after the effective date of our IPO Registration Statement, and do not expect to complete our initial business combination within 24 months of such date. As a result, it is possible that a claim could be made that we have been operating as an unregistered investment company. If we were deemed to be an investment company for purposes of the Investment Company Act, we might be forced to abandon our efforts to complete an initial business combination and instead be required to liquidate the Company. If we are required to liquidate the Company, our investors would not be able to realize the benefits of owning stock in a successor operating business, including the potential appreciation in the value of our stock and warrants following such a transaction, and our warrants would expire worthless.
The funds in the Trust Account have, since our Initial Public Offering, been held only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds investing solely in U.S. government treasury obligations and meeting certain conditions under Rule 2a-7 under the Investment Company Act. To avoid being deemed to have been operating as an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act of 1940, as amended), we might, on or prior to the 24-month anniversary of the effective date of the IPO Registration Statement, instruct the trustee with respect to the Trust Account, to liquidate the U.S. government treasury obligations or money market funds held in the Trust Account and thereafter to hold all funds in the Trust Account in cash until the earlier of consummation of our Business Combination or liquidation. As a result, following such liquidation, we will likely receive minimal interest, if any, on the funds held in the Trust Account, which would reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.
In addition, even prior to the 24-month anniversary of the effective date of our IPO Registration Statement, we may be deemed to be an investment company. The longer that the funds in the Trust Account are held in short-term U.S. government treasury obligations or in money market funds invested exclusively in such securities, even prior to the 24-month anniversary, the greater the risk that we may be considered an unregistered investment company, in which case we may be required to liquidate the Company. Accordingly, we may determine, in our discretion, to liquidate the securities held in the Trust Account at any time, even prior to the 24-month anniversary, and instead hold all funds in the Trust Account in cash, which would further reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.
We may not be able to complete a Business Combination should a potential Business Combination be subject to any potential review by a U.S. government entity, such as the Committee on Foreign Investment in the United States (“CFIUS”). As a result, the pool of potential targets with which we could complete a Business Combination may be limited. In addition, the time necessary for any governmental or regulatory review or approval could prevent us from completing a Business Combination and require us to liquidate.
Certain investments that involve the acquisition of, or investment in, a U.S. business by a non-U.S. investor may be subject to review and approval by the Committee on Foreign Investment in the United States (“CFIUS”). Whether CFIUS has jurisdiction to review an acquisition or investment transaction depends on, among other factors, the nature and structure of the transaction, including the level of beneficial ownership interest and the nature of any information or governance rights involved. For example, investments that result in “control” of a U.S. business by a foreign person always are subject to CFIUS jurisdiction. Significant CFIUS reform legislation, which was fully implemented through regulations that became effective on February 13, 2020, expanded the scope of CFIUS’s jurisdiction to investments that do not result in control of a U.S. business by a foreign person but afford certain foreign investors certain information or governance rights in a U.S. business that has a nexus to “critical technologies,” “critical infrastructure” and/or “sensitive personal data.”
We do not believe that either we or our Sponsor constitute a “foreign person” under CFIUS rules and regulations. However, if CFIUS considers us to be a “foreign person” and believes that the business of a Business Combination target may affect national security, we could be subject to foreign ownership restrictions and/or CFIUS review. If a potential Business Combination falls within the scope of applicable foreign ownership restrictions, we may be unable to consummate a Business Combination. In addition, if a potential Business Combination falls within CFIUS’s jurisdiction, we may be required to make a mandatory filing or determine to submit a voluntary notice to CFIUS, or to proceed with a Business Combination without notifying CFIUS and risk CFIUS intervention, before or after closing the Business Combination.
Although we do not believe we or the Sponsor are a “foreign person”, CFIUS may take a different view and decide to block or delay a potential Business Combination, impose conditions to mitigate national security concerns with respect to a potential Business Combination, order us to divest all or a portion of a U.S. business of the potential combined company if we had proceeded without first obtaining CFIUS clearance, or impose penalties if CFIUS believes that the mandatory notification requirement applied. Additionally, the laws and regulations of other U.S. government entities may impose review or approval procedures on account of any potential foreign ownership by the Sponsor. As a result, the pool of potential targets with which we could complete a Business Combination may be limited due to such regulatory restrictions. Moreover, the process of any government review, whether by CFIUS or otherwise, could be lengthy. Because we have only a limited time to complete a Business Combination, our failure to obtain any required approvals within the requisite time period may require us to liquidate. If we liquidate our warrants will expire worthless. This will also cause you to lose any potential investment opportunity in a potential Business Combination and the chance of realizing future gains on your investment through any price appreciation in the combined company.
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A new 1% U.S. federal excise tax could be imposed on us in connection with redemptions by us of our shares.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders 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 Treasury has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On January 28, 2021, we consummated the Initial Public Offering of 60,000,000 Units. The Units were sold at an offering price of $10.00 per unit, generating total gross proceeds of $600,000,000. The securities in the offering were registered under the Securities Act on registration statements on Form S-1 (Nos. 333-252744 and 333-253427). The Securities and Exchange Commission declared the registration statements effective on February 23rd, 2021.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 9,333,334 warrants at a price of $1.50 per Private Placement Warrant in a private placement to HEIC Sponsor III, LLC, generating gross proceeds of $14,000,001. Each Private Placement Warrant is exercisable to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
The Private Placement Warrants are identical to the warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants are not transferable, assignable or salable until after the completion of a Business Combination, subject to certain limited exceptions.
Of the gross proceeds received from the Initial Public Offering, the partial exercise of the over-allotment option and the Private Placement Warrants, an aggregate of $600,000,000 was placed in the Trust Account.
We paid a total of $12,000,000 in cash underwriting discounts and commissions, and $493,009 for other costs and expenses related to the Initial Public Offering. In addition, the underwriters agreed to defer $21,000,000 in underwriting discounts and commissions.
For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Form 10-Q.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report.
| * | Filed herewith. |
| ** | Furnished. |
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PART III. SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| HUDSON EXECUTIVE INVESTMENT CORP. III | ||||||
| Date: November 14, 2022 | By: | /s/ Douglas G. Bergeron | ||||
| Name: | Douglas G. Bergeron | |||||
| Title: | Chief Executive Officer (Principal Executive Officer) | |||||
| Date: November 14, 2022 | By: | /s/ Ira Mosberg | ||||
| Name: | Ira Mosberg | |||||
| Title: | Chief Financial Officer (Principal Financial and Accounting Officer) | |||||
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